The Missouri Cigarette Tax: A Partial Solution to Kansas’ Economic Woes

Posted on by Amy Lutz

I grew up in the border town of Atchison, Kansas, and vividly recall the perpetual eastbound traffic across the Amelia Earhart Bridge as my fellow Atchisonians made the trip into Missouri. They hoped to take advantage of the lower excise taxes on cigarettes, gas, and alcohol.

A gas station and liquor store were located just across the border on the other side of the bridge; their parking lots rarely had an open space. Conversely, in Atchison, the liquor bottles and cigarette packs collected dust on store shelves while gas pumps remained unused. The higher excise taxes in Kansas on these products drove business away from my home state and into her eastern neighbor’s economy.

This scenario soon may become a distant memory. The American Cancer Society is leading a coalition that submitted a ballot initiative to the Missouri Secretary of State on Sept. 20. The proposed measure is expected to generate $308 million annually through tax increases on tobacco products, primarily cigarettes.

A similar initiative failed in 2002 and 2006. Like the 2006 vote, this initiative includes a proposed 80-cent increase in the cigarette tax, bumping the total tax to 97 cents if passed. This proposition, however, will not affect just the Show-Me State, but surrounding states as well, a point the Show-Me Institute has covered in the past. As David Stokes, a policy analyst for the institute, alluded to in an Aug. 4 blog post and video, Missouri’s neighbors often are propelled to make tobacco purchases in this state because of its attractively low cigarette tax.

The cigarette tax in Kansas now stands at 79 cents, 18 cents cheaper than the proposed tax increase in Missouri. What is intended to be a profitable deal for Missouri will prove to be more beneficial for the state of Kansas. The incentive for Kansas to cross the border in pursuit of a cheaper pack will be eliminated. Missouri stands to lose some revenue from the current cigarette tax; other revenue-increasing proposals, such as the fair tax, would not balance out this budget loss.

Should this initiative pass, the eastbound cigarette-seeking Kansans who flood into this state might be replaced by Missourians driving in the opposite direction.

In Memory of Ed Robb

Posted on by David Stokes

All of us at the Show-Me Institute were shocked and saddened to hear of the sudden passing of Dr. Ed Robb. Dr. Robb was a wonderful economist who took his ideals and beliefs into the marketplace of American politics. As a member of the University of Missouri Department of Economics, he directed a fiscal policy research center at MU. He also was a great teacher who taught courses on public finance economics to generations of MU students. He served on our Board of Scholars during the short period between his service as a Missouri state representative and his successful campaign for Boone County Commissioner. (See page 4 for a description of his participation in one of our Columbia lectures.) More important, however, was his unofficial involvement with the Show-Me Institute as a friend and economist. I know that Dr. Joe Haslag, Dr. Michael Podgursky, and others at the institute, will miss him dearly, and Boone County has lost a community public servant. 

Ed Robb, Rest In Peace.

Nothing Says ‘Progress’ Like a Vanity Trolley Project

Posted on by Patrick Ishmael

Will Kansas City be bringing streetcars back to Main Street? If events from early this week are any indicator, maybe. Sure, the trolleys may be five times the price of a bus line, but if you’re a city and have money to blow, this is the price you pay for cutting-edge technology (emphasis mine):

On Tuesday, a key Kansas City transit group unanimously endorsed a plan that would put the downtown route primarily down Main, not Grand Boulevard.

The city’s Parking and Transportation Commission approved a consultants’ recommendation, which favored streetcars over rapid buses on a two-mile route from the River Market to Crown Center.

“A Main Street streetcar is the superior alternative,” project manager Charlie Hales, with HDR Engineering, told the commission.

This calls for a Kansas City trolley soundtrack. Hit it, Johnny!

For those unfamiliar with Kansas City’s politics, the idea of bringing rail lines in one form or another has been kicked around exhaustively for the last two decades, to the point where currently there are actually two competing passenger rail proposals: the Main Street trolley and, no joke, a $1 billion-plus rail project that perpetual rail proponent Clay Chastain has put forth. While the prospects of Chastain’s proposal (again) look bleak, supporters of the trolley project are pumping theirs up at a fraction of that price — a cool $100 million.

But even Chastain, of billion dollar rail fame, won’t rally behind a trolley project:

One outspoken opponent [of the trolley project] is Clay Chastain, who has mounted numerous unsuccessful attempts to bring light rail to Kansas City. Chastain has once again gathered sufficient signatures to place a $1.4 billion light rail system before voters next year, but the City Council has not yet approved it for an election.

“You’re not going to take a streetcar to the airport,” Chastain said Tuesday when told about the commission’s recommendation. “This is not the major response we need to build a world-class transit system.”

When Clay Chastain says your project is impractical, that’s saying something.

Of course, Kansas City’s not the only major metropolitan area in Missouri that might put hundreds of millions of quarters on municipal rails. St. Louis is putting together a trolley project that would run from Forest Park to the Delmar Loop — locations that Metrolink already serves, and within walking distance of the #1 Metro bus.

To give you an idea of the sort of distance we’re talking about here:

View Larger Map

The estimated cost for the roughly 2-mile line? About $50 million.

Are these projects really the best use of taxpayer dollars? At least one form of public transit already serves both areas, and in the case of St. Louis’ proposed line, there are two. The money the respective cities would spend on these projects couldn’t be spent on other pressing municipal matters. What would the cities forgo by rebuilding rail lines that were torn out long ago?

In this economy, Kansas City and St. Louis need…trolleys? Really?

US-China Chamber President ‘Doesn’t See Significant Economic Value’ in Midwest China Hub

Posted on by Patrick Ishmael

Missouri Digital News reports in a series of segments this morning that Siva Yam, president of US-China Chamber of Commerce, is cautioning Missourians to lower their expectations of what an Aerotropolis at Lambert would mean to the region.

US-China Chamber of Commerce President Siva Yam says Missourians shouldn’t expect too much from Chinese investment.

“There has been an illusion that Chinese investment are coming to America and help the economy. “

Yam says most of the investments from China are looking for research and sales opportunities, rather than hiring laborers.

I wrote on Monday about the “mistakes” that were made that China Law Blog identified with regard to Mamtek. CLB calls it the “China is rich. We want money. Therefore this is a good deal” syndrome. Economic activity requires more than just a connection to China.

Yam seems to agree. In fact, it’s not the St. Louis economy that a China Hub would mainly help, Yam says. It’s the city’s PR.

Yam says the publicity values are what St. Louis and Missouri really benefit from.

“It’s a good news for St. Louis not from an economic perspective, but having a China hub would basically help St. Louis proceed itself to be more international in the future.”

We’ve been skeptical of the job estimates given for the project for a long, long time. It’s amazing that at this late stage in the session, the president of the USCCC is basically saying Aerotropolis is a giant public relations project.

Missouri’s TIF Infestation

Posted on by David Stokes

If I got to pick it, the slogan for my beloved home state of Missouri would be: “Missouri: We’re In The Middle.” Most ways you look at it – geography, politics, various standard-of-living measures – we rank in the middle of the states. Sure, there are exceptions. We are low on occupational licensing and excise taxes, and high on meth (in more ways than one… well, actually, just in one more way than one).

One thing on which we rank very high is the use of Tax Increment Financing (TIF). This excellent paper on TIF, by Randal O’Toole with the CATO Institute, ranks Missouri third in total and fourth per capita in the sale of TIF bonds from 2005 to 2010. (See page 12 of the paper for the table.) This is not something of which to be proud.

TIF is common in Missouri. Right now, we have more ongoing applications than I can keep track of. The city of Columbia wants a giant TIF for its downtown area.  A TIF is being sought for a section of St. Charles, even though the main landowner of the area in question is a tax-exempt educational institution. Just a few months ago, Kansas City approved a gigantic TIF for the city. Developers are seeking a TIF in Shrewsbury that will do nothing but continue the rearranging of the deck chairs for retail in Saint Louis County. From the Patch story on that proposal, if I may be so bold as to quote myself:

David Stokes, a policy analyst with the Show-Me Institute, said what he heard was “just a terrible economic fallacy.”

“Of course it’s just preliminary, but from what I can tell it is just another example of the economic issues the East-West Council of Governments supported in their report two months ago, which is that every city is doing something to support their own little city, but it’s killing our county’s economic base, and it’s hurting the region,” Stokes said. “It might benefit Shrewsbury in the short run but seems it’s just going to be another type of TIF development that’s going to hurt our region.”

“Maybe if it can’t be done without public dollars, maybe it just shouldn’t be done,” he said.

The problems in these cases is the cities, not the counties. In fact, St. Charles County Executive Steve Ehlmann, along with his predecessor, Joe Ortwerth, have been strident in opposition to TIF in that county, to their great credit. Also to his credit, Saint Louis County Executive Charlie Dooley has recently taken the lead in opposition to these TIFs – he really gets it that a few cities are helped but the entire county is hurt. And Jackson County Executive Mike Sanders at least sued to get more equal representation on the Kansas City TIF commission.

But, even though they have instituted county TIF commissions in Saint Louis and its currounding counties, the insane rule still applies that city councils can override the TIF commission with a supermajority vote. So, the city council for the 15,000 people of Bridgeton gets to override the Saint Louis County TIF Commission and determine tax policy that will affect the one million people of Saint Louis County. I totally support county TIF commissions, but the part of the law that allows city councils to override the TIF commission with just a supermajority vote is insane. They should not be allowed to override it at all. Lot’s more to come on this issue in the coming weeks and months. And this time, I mean it.

The Moberly Mirror: Pressured For Asking Too Many Questions About Tax Handouts

Posted on by Audrey Spalding

A Show-Me Institute supporter contacted me last week to relay the story of the Moberly Mirror, a small newspaper that says it was pressured to close in 2010 for asking too many questions about tax handouts for a development project in Moberly.

This is no rumor. What makes this story even more depressing is the fact that the reporters at the Mirror were right to ask questions: The development in question made big news recently when it left the city of Moberly on the hook for nearly $40 million in debt. This story is an especially relevant warning, because tax credit supporters have recently been touting absurd job creation and business investment numbers as a sign that the state should create more development subsidies.

During mid-2010, state and local officials raced to close a deal with Mamtek, a company that promised to build a factory that would produce SweetO, an artificial sweetener. According to the Mirror, $7.6 million in Missouri Quality Jobs tax credits and $6.8 million in Missouri BUILD tax credits were promised to the company, as well as $2 million in Community Development Block Grant funds, $800,000 in funding for job training, and $368,000 for job training.  The city of Moberly kicked in, too, providing nearly $40 million in bonds, and $500,000 in grants and services.

The total came to nearly $50 million in promised state and local tax dollars.

As is always the case with these things, a large press conference was held. In July 2010, Missouri Gov. Jay Nixon spoke to a large crowd about the Mamtek deal.

“And SweetO is about to make Missouri’s economy a just a little bit sweeter, too,” Nixon said then. “Because Mamtek will be creating 612 new jobs and investing $46 million in capital.” He repeated: “612 jobs, they’re investing $46 million.”

Understandably, the Mirror was curious about the promises touted. As editor Janet Morales wrote, the Mirror wondered about the employment numbers and asked whether it might make more sense to use an existing vacant facility instead of building a new one.

But answers were less than forthcoming. Morales wrote that Mamtek wouldn’t answer her question, and directed her to the local Chamber of Commerce. Morales writes that the “[executive director of the chamber] told me not to ask questions or Moberly could lose the Mamtek company.

In the fall, Morales writes that she was informed that area merchants had been told about the Mirror‘s “investigation,” and that they were warned not to advertise with the Mirror. Seeing that businesses were no longer interested in subscribing to the Mirror and that the paper would soon close, the Mirror decided that it might as well investigate the Mamtek deal in its last month.

Some of the Mirror’s unanswered questions and concerns sound strikingly familiar to our questions regarding the Aerotropolis subsidies. Why were there conflicting job estimates? Where were the supporting documents? Why was there such a rush to get the deal approved? Proponents said that their Chinese business interests were involved, but the Mirror was unable to locate them, or anyone who was familiar with Mamtek’s operations in China.

As I already noted, this story does not have a happy ending. The Mirror is gone, though it still hosts the Mamtek story on its homepage. A nearby paper, the Marshall Democrat-News, covered the Mirror‘s closure, noting that Marshall had also considered the Mamtek deal, but considered the public support requested for the project too great. The executive director of the Marshall-Saline Development Corporation told the Democrat-News that “…Moberly offered them $15 million and took (Mamtek) off the market. That was part of the deal. I wouldn’t do that. I wouldn’t ask the city to do that.” He added “I’m not sure it’s legal.”

It now appears that the city of Moberly is on the hook for the nearly $40 million in bonds it issued for the project. And, sadly, it appears that state and local officials have not heeded the Mamtek warning. There is still an effort to expand tax incentive deals in Missouri.

Some critics of the Show-Me Institute have dismissed our concerns about the Aerotropolis tax credits because, sometimes, tax credit deals and public partnerships “work.” Well, a broken clock is right twice a day. There will always be successes. The question is, what level of failure are we willing to pay for in order to attain those successes? Sometimes, in public policy matters, failure is a rarity. But it has been well-documented that tax incentive deals frequently do not deliver the results that were promised.

So, I wonder, how many Mamtek-type failures are tax incentive proponents willing to trade for the chance of success?

Health Insurance Exchange: Level One Establishment Grant – Project Narrative

Posted on by Patrick Ishmael



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