Hey Platte County, Sell Your Golf Course!

Posted on by David Stokes

According to an article in the Kansas City Star, Platte County is engaged in a difficult debate regarding budget cuts. Officials have proposed cuts to many departments, including the sheriff’s department. In response and opposition, the sheriff said:

“The golf course fleet is better maintained than the sheriff’s department’s fleet,” Sheriff Richard Anderson said.

This brings to mind a very easy move for the county to make that will (1) bring new revenue into the county (the sale price); (2) reduce future expenditures; (3) expand the county property tax base (placing the property on the tax rolls); and (4) remove the county from doing things government is not intended to do. Privatize the golf course.

Golf courses make up one of the least important government programs. I say this as a golfer. I do not think governments should own golf courses, but at least some just own the land and contract out the operations of the course to private companies. Can someone say “comparative advantage”? But Platte County does not appear to even do that. The county appears to own and operate the entire course as a division of county government. (I base that on my reading of the 2011 budget, pages 221-224.) That is insane.

The Mackinac Center and the Reason Foundation both have conducted great work involving government golf courses.  This should be a fairly easy choice for Platte County. Shed the golf course to raise money to improve your sheriff’s fleet. Platte County should sell off its golf course to private operators, and if that is not possible (due to legal restrictions on selling parkland or some other such issue), contract out the management of it.  

And I now will resist the temptation to end this post with an overly cute golf reference, such as “Privatization would be a real Birdie for Platte County!”

Doing the Same Things Over and Over and Over . . .

Posted on by Patrick Ishmael

After a 2011 chock full of tax credit disaster stories, one would think the last thing Missouri politicians would suggest is the creation of a brand new state tax credit for economic development. And yet, here we are.

Meet the new ideas, same as the old ideas.

The Minority Leader in the Missouri House of Representatives says rather than focus only on ideas that have already been vetted, the legislature needs to consider some fresh ideas.

Mike Talboy (D-Kansas City) points to the states neighboring Missouri, all of which he says have angel investment opportunities. Those could be tax credit programs or funds that are typically smaller than some of the economic development programs already in Missouri.

He says putting programs like that into effect can provide “good bang for your buck in the beginning. But then also as the budget years get better and as we have more revenue in the state and as we see the returns on those types of programs, then you can look at expanding them if you need to or be able to expand them into different parts of the state.” Talboy says there is nothing like what he is talking about currently offered by DED.

“Angel investments” typically give the investor an ownership or convertible debt stake in a company, which oftentimes is a startup. They usually are differentiated from “venture capital investments” as investments measured in hundreds of thousands of dollars rather than millions of dollars. Angel investments — like so many investments — are inherently risky because success for a startup company is not certain, but such a high risk also has the potential for a high return. According to Jake Halliday, CEO of the Missouri Innovation Center, entrepreneurs oftentimes must give up “a 25 percent to 30 percent ownership stake in his or her startup for a $300,000 angel investment.” If the company grows, so does the angel investor’s money.

So if taxpayers underwrite these investments, will they also get a cut of the capital? I asked a similar question last year when it was revealed that half of the building Stifel Nicolaus was buying in Saint Louis — that is, the building it already occupied — was being subsidized with public monies. Taxpayers did not get to own half of the building it was paying for back then, and they almost certainly will not get a cut of the upside that could be realized from startups under an angel investor tax credit program. In short, we now are being told that Missourians should help defray the risk of high risk/high return investments that rational investors may not have undertaken. Sounds an awful lot like a bubble in the making.

If state officials really want to help businesses in Missouri, they need to stop treating the state’s economic development plan like they are throwing tax credit flapjacks against a wall to see what sticks, and instead cut taxes for everybody. Missouri’s tax credit problem has gotten so bad that Missouri officials could eliminate the corporate income tax entirely, and the state still would have millions of dollars in tax credits remaining. Even if elimination of the corporate income tax is not immediately feasible, officials easily could make deep cuts. They could eliminate millions of dollars of waste that regularly causes the state to lose all but a fraction of the money it expends in those tax credits.

Isn’t there a better way than the conventional wisdom in Jefferson City? Are more tax credits really the answer to our tax credit-fueled economic development problems?

Should Missouri Toll I-70?

Posted on by David Stokes

Think about the difference in the taxes that property owners pay to fund local parks and the entrance fee your family pays to visit Yellowstone National Park. That is the appropriate framework to begin discussing toll roads. Everyone in the community can access local parks so general taxes support their existence. A much smaller percentage of people visit Yellowstone each year, and those people support it with an admission fee. Interstate highways are like Yellowstone – admission fees (tolls) are the preferred means of funding.

The Missouri Department of Transportation (MoDOT) has announced plans to make Interstate 70 a toll road to fund renovations. Let us make two assumptions: MoDOT will overcome any legal and political impediments to do this (not a safe assumption) and the renovations to I-70 are necessary (I think MoDOT is on safe ground here). With those assumptions set, the focus simply becomes: Is tolling I-70 a good public policy decision? I believe it is.

Missouri has less history with tolling than many other states. Most toll bridges across rivers in Missouri were converted to free facilities decades ago. Two bridges continued as tolls until recently — the McKinley Bridge in Saint Louis and one connecting Missouri and Iowa. The only toll facility now in Missouri is the Lake Ozark Community Bridge, which opened in the 1990s. Unlike neighboring states Illinois, Kansas, Kentucky, and Oklahoma, Missouri has never tolled its highways.

The plan is to have a private contractor reconstruct and toll the part of the highway between Saint Louis and Kansas City, but leave the parts within the urban centers toll-free. Without tolls, MoDOT officials say they would have to increase the gas tax 15 cents per gallon, almost doubling Missouri’s current — and admittedly, low — tax of 17 cents per gallon. The future toll rate (or rates, if they are adjustable, as they should be) is unknown, though the rate should be high enough to fund the highway and discourage congestion, but low enough to discourage taking alternate routes.

In July 2011, I visited a gas station in downtown Saint Louis to film a video on excise taxes in Missouri. We found a gas station, which at one point had cars from Illinois filling its entire lot. We spoke with the manager of an Illinois car service company that drove a dozen of its vehicles every day from Illinois to Missouri just to fill up with gas. Right now, it is inarguable that Illinois residents subsidize Missouri drivers (by buying more gas here than they consume via road usage). If Missouri raises its gas tax, thousands of southern Illinois commuters will see their costs increase too, including many who never drive on I-70 or do so merely for the first few blocks into downtown Saint Louis. (And yes, the new Mississippi River Bridge should have been a toll bridge.)

A Missouri driver, using baseline assumptions of driving 20,000 miles per year in a car getting 25 miles per gallon, would pay $120 more per year in gas taxes after a 15-cent increase. That would equal eight trips on I-70 if we estimate a $15 toll to cross the state. However, all Missouri motorists and anyone else buying gas in Missouri would pay that tax increase, whether they use I-70 or not. Truckers and frequent highway travelers would likely have to pay more with a toll than with a gas tax increase. There is nothing unfair about that because they are the people choosing to use the asset and drive the road.

How should one pay for public goods and services, through taxes or user fees? Good public policy often comes down to the economic questions of rivalry and excludability. Pure public goods are non-rivalrous (meaning that your consumption of it does not limit my consumption) and non-excludable (meaning that it is difficult to prevent someone from using a particular good). Sound public policy suggests that general taxes pay for those types of public goods. A local road system is not excludable (there is no means of keeping someone from leaving their driveway and driving on the street) and non-rivalrous (your use does not impede my use, although congestion makes any road rivalrous in certain conditions). Taxes, such as a general gasoline tax, are preferred for these systems.

Interstate highways connecting major cities (and many bridges) do not meet those standards for public goods. Their limited entry points make it easy to control access, so they are readily excludable. And while highways are not considered rivalrous, they are more rivalrous than local roads because of greater issues with congestion due to peak travel time demands and limited alternative routes. Smart policy is to pay for services like this via fees — in this case, tolls.

Tolls provide the necessary funds to build and maintain the road assets that benefit certain users, such as truckers, more than others. They provide a reliable source of funds to maintain the road in the future. With the recent technological improvements to tolling, fees can be efficiently collected without the long lines at toll plazas that some people may remember. Every state should move in the direction of lower general taxes for roads and more tolls where appropriate. Missouri’s I-70 is one road where it is appropriate.

David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri Public Policy.

Toll Road Twofer

Posted on by David Stokes

Please check out this op-ed that the St. Louis Post-Dispatch ran yesterday on turning I-70 into a toll road. Be sure to also read the comments – they are wonderful. Man, am I ever an idiot . . .

This afternoon, I am pleased to appear on the Mark Reardon show on KMOX NewsRadio 1120 to discuss this issue. I will be on during the 3 p.m. time slot. Please listen in if you can.

I support turning I-70 into a toll road, for reasons discussed in the op-ed and in this blog post.

Another Way To Keep Score?

Posted on by Michael Rathbone

In a league as competitive as the NFL, it serves a team well to gain any advantage available. In Major League Baseball, the bigger market teams have a competitive advantage in that they can spend more money to acquire the higher-priced free agent talent to improve their teams. However, in the NFL, there is a salary cap ($120 million for 2011). So where can a team find a competitive advantage? There are numerous ways teams can gain an edge over their rivals; one such opportunity is the tax advantage.

Like most people, NFL players have to pay taxes on their income. A team located where income tax rates are lower theoretically could offer contracts that are lower in nominal dollars but allow the players to receive higher take-home pay (for the purposes of this post, I am not taking into consideration deductions and tax loopholes, nor am I factoring in cost-of-living adjustments).  Which team’s players have the lowest income tax burden in the NFL? Well, there a couple of things to consider. First, what is the state and local income tax rate for where the players play their eight home games? Next, what is the state and local income tax rate for each of the team’s divisional foes (the players will travel for a road game against each of their divisional opponents)? The other games on a team’s schedule change from year to year, so the combined burden the players face will change somewhat from year to year.

So, for the 11 games (out of the 16 total) that a NFL team has on its schedule every year, is there a noticeable difference between the income tax burdens that the players on different teams face? From my calculations, there is (basic calculations —I only used the top marginal rate, so these numbers do not take into account the lower rates for the lower brackets and these numbers are slightly higher than they really would be). Take, for example, the Houston Texans. A team member who plays a game in Houston would pay no income taxes at either the state or local level. Therefore, for the eight games played in Houston, a Houston player will pay no income taxes. A Houston player will pay no income taxes for the road games in Jacksonville and Nashville, and $1,973.13 for the one game in Indianapolis. Therefore, the total income tax burden for a Houston Texans player making the median salary for these 11 games is $1,973.13. In contrast, a NFL player making the median salary would face a state and local income tax burden of close to $46,000 if he played for the Oakland Raiders (9.3 percent tax rate for eight games in Oakland and one game in San Diego plus the 4.63 percent and 7 percent rates for the games in Denver and Kansas City, respectively). Multiply that figure by 53 (the total number of players on the active roster) and the burden on a team’s players can increase substantially. If you used the mean salary ($1,900,000) instead of the median salary, the burden also increases.

Would this tax burden make much of a difference? I cannot say definitively (I am not an economist), but if one team had to pay a couple of million dollars, which counts against the cap, to just the income taxes, while another team only paid $100,000 or $200,000, I can tell you which team I would rather own.

When Progress and Preservation Collide

Posted on by Greg Aubuchon

Successful cultures arise from a dynamic process that balances a healthy respect for the past with an optimistic regard for the future. In this sense, progress may be understood as successive series of creative destruction and new growth. Among the many benefits of growth is an expansion of the tax base. In this world, an excessive pining for the past and the preservation of its symbols stymies growth and our future prosperity. Today, Saint Louis is confronted with this very issue. Some preservationists are attempting to block the construction of a new medical facility in Saint Louis. Their reason: to preserve the decrepit symbol of a bygone era at the expense of the city and its taxpayers.

The St. Louis Post-Dispatch recently reported the St. Louis Preservation Board’s denial of a demolition permit to Saint Louis University (SLU) to raze the vacant Pevely Dairy headquarters building at the corner of Chouteau Ave. and South Grand Blvd. (you probably recall the Pevely smokestack). SLU officials intend to build a surgical center at the site, but now claim that the historic building may scuttle their plans if the building is not leveled and removed.

Before moving on to more pressing matters, perhaps a brief review of the tax implications is in order. Saint Louis public records indicate that the two parcels in question (1001 South Grand Blvd. and 3626 Chouteau Ave.) generate approximately $93,000 in annual property tax revenues for the city. See here and here. The future tax status of the properties, however, is uncertain (I called SLU’s controller, Gregory Haney, but he declined to express his opinion or share his knowledge on the subject). If the properties fall under SLU’s non-profit status, then SLU may be tax-exempt (similar to SLU’s 200 North Grand property). On the other hand, if property ownership vests in a for-profit entity, similar to Tenet Health System’s ownership of property underlying Saint Louis University Hospital, then taxes will likely be assessed and collected.

In either case, the city still stands to gain revenues if the surgical center is developed. This would arise from earnings taxes on new jobs created at the facility (although we have advocated for the elimination of the earnings tax and for alternative payments in lieu of taxes from tax-exempt non-profits, this blog post deals with the facts and law as they currently exist). For the sake of example, at 1 percent on taxable earnings, 124 jobs at $75,000 annual salary generates $93,000 in revenues, which compensates for the loss of property tax revenues under the tax-exempt scenario, but provides additional incremental revenues to the city under the alternative scenario. In either case, both the economy and the tax base are increased, which is a good thing.

While the tax implications are interesting, perhaps the more fundamental question is why are preservationists so insistent on saving the aging Pevely headquarters building? The history of progress is replete with tear-downs and rebuilds. Progress necessarily implies creative destruction, replacing old with new. Sometimes you have to let go of the past if you are to embrace the future. The past is but a distant memory. Happiness, prosperity, and success are forward-looking concepts that reside, if at all, in the future. Saint Louis, embrace the future, not the past. The Preservation Board should reconsider its decision.

Donnybrook: Audrey Spalding Returns to KETC

Posted on by Audrey Spalding

Show-Me Institute Policy Analyst Audrey Spalding returned to Saint Louis local roundtable discussion show Donnybrook on December 15, 2011. Among the topics covered this time were: a proposal to ban texting while driving in the state of Missouri, the new leadership announced by the RCGA, the controversy surrounding Lowe’s and “All-American Muslim,” and Pujols’ departure from the Saint Louis Cardinals.

Click here to watch the video of the event.

College Loans: It Seems We ALL Have Them Now

Posted on by Michael Rathbone

Missouri Gov. Jay Nixon is asking some state universities for a loan. To be more specific, Gov. Nixon is asking the University of Missouri-Columbia, the University of Central Missouri, Truman State University, Missouri State University, and Southeast Missouri State for a total of $107 million to help fund the Missouri Department of Higher Education (DHE) due to the state’s expected budget shortfall next year. The exact size of the budget gap is not yet known. There are differing reports on its size, with some articles stating it will fall between $400 million-$600 million while the St. Louis Post Dispatch reports that the shortfall is $750 million. Regardless, the amount is not insubstantial.

However, the plan for obtaining a $107 million loan from state universities to help fund a department that gives a lot of money to . . . well, state universities, seems odd. If the state is facing a shortfall, it needs to make the tough decisions to balance the budget (i.e., cut spending and NOT raise taxes). What happens if the state faces a similar situation in fiscal year 2014? Will Nixon ask for ANOTHER loan?

There are other places in the budget that can be cut (granted, these cuts alone will not make up the amount of money needed, but they are a start) before even thinking about cutting money from the DHE, never mind resorting to this loan plan. However, that is not to say that cuts cannot be made in DHE. The DHE budget is not sacrosanct.

For example, in fiscal year 2012, the DHE gave more than $400 million ($366,765,401 from general revenue) to the University of Missouri system. If Gov. Nixon wants a $63 million loan from the University of Missouri-Columbia, why doesn’t he ask the legislature to cut $63 million from the University of Missouri system. Lawmakers can always appropriate more money in future fiscal years (not that they necessarily SHOULD). Why ask for a loan?
Prudence is a virtue for a reason. Before engaging in plans meant to avoid the task at hand, wouldn’t it be better if the state actually finds out what it is paying for and truly decide what it NEEDS to pay for, and what people can do without?

Support Us

The work of the Show-Me Institute would not be possible without the generous support of people who are inspired by the vision of liberty and free enterprise. We hope you will join our efforts and become a Show-Me Institute sponsor.

Donate
Man on Horse Charging