It’s Not About China, It’s About Corporate Welfare

Posted on by Audrey Spalding

During the special session of the Missouri Legislature, there was no shortage of personal attacks levied at individuals and organizations who dared to question the wisdom of offering more than $300 million in tax credits to corporate interests in the state.

As the St. Louis Business Journal put it: “…devotion to God, country and the region was [questioned] by almost anyone who dared question the planks of the China proposal.”

From today’s St. Louis American, which is generally sensitive to incorrect negative stereotypes: “…and some rhetorical heat was added by tea party types who created hysteria around a threatened ‘Chinese invasion’ of Missouri subsidized by Missouri taxpayers.”

The claim above is similar to those echoed in online forums and elsewhere that the widespread public opposition to the Aerotropolis tax credits was based on a fear of increased international trade with China, or that concerns voiced came from uninformed individuals.

Ostensibly, the purpose of the tax credits was to encourage increased international trade at Lambert-St. Louis International Airport. However, the tax credit proponents made numerous claims that lacked evidence, or were flat out wrong.

I don’t dispute that well-informed individuals can disagree on a policy proposal. But throughout the past year, I have spoken to many community groups about tax credits and answered questions from many other individuals who were concerned about the Aerotropolis proposal. The accusation that those concerns are rooted in xenophobia is false.  I am disappointed that some tax credit proponents have characterized the advocates for reform in that way.

Look, the primary concern I heard was genuine interest in encouraging legislators to abandon corporate welfare policies of the past. True, some focused specifically on the Aerotropolis tax credits. But many voiced skepticism and concern about tax credit programs in general — on the grounds that state government shouldn’t be favoring some industries or individuals over others.

I hope that when the legislature reconvenes in 2012, we can have a public debate regarding the merits of tax credit programs, instead of resorting to name-calling.

World Series Ticket Scalping

Posted on by David Stokes

Ticket scalping was one of the first issues this blog tackled when we started in 2007. This story in today’s St. Louis Post-Dispatch gives an update on how the situation has unfolded in St. Louis for the 2011 World Series baseball playoffs. Just as predicted, using basic economics, legalization of ticket scalping has resulted in lower prices and greater consumer choice (StubHub!, etc.). One scalper doesn’t bother with political spin:

“You made more money when it was illegal — it wasn’t even remotely close,” said Tony Green, a ticket broker for 20 years. “We knew all the cops, so they wouldn’t bust us.”

So, how did my 2007 prediction on ticket scalping work out? There may be no way of knowing if more people are paying above face value for their tickets to these playoffs, but I still think that is a reasonable belief. However, my predicted overall price decrease for major sporting events was apparently dead on (not that it was a difficult prediction).  

In case you have not watched it yet, please enjoy this video of the Show-Me Institute turning all of our interns loose in a ticket-scalping competition last summer.

 

 

Unnecessary Taxes

Posted on by Bruce Stahl

Tax Increment Financing (TIF) harms schools. At least that’s what the superintendent of the Liberty School District says. He claims TIF is to blame for the magnitude of a proposed 43-cent tax hike that school district officials have placed on the Nov. 8, 2011, ballot.

From the Liberty Tribune: “The tax rate the district considers necessary would be significantly lower if not for TIF,” Superintendent Mike Brewer said.

Frankly, I’m inclined to agree with him.

TIF allows developers to freeze taxes at a base level and invest any increase in property tax value that otherwise would go toward taxes into developing the property, for up to 23 years. Essentially, TIF allows newly-developed property to escape the higher taxes that higher property values normally entail. If a residential developer acquires approval of a TIF plan from the city, new homeowners can send their kids to public schools but the taxes collected will go towards paying off the debt for the development instead of financing their children’s education. A good deal if you can get away with it.

Missouri law governing the use of TIF underrepresents schools and grants cities a majority on commissions authorizing TIF use. Considering the 43-cent tax increase that Liberty School District officials have placed on the ballot, it seems schools are feeling financial pressure from TIF and that property owners are possibly facing higher taxes. For the sake of lower taxes and better education, TIF law should be revisited.

A Victory for Missouri Taxpayers

Posted on by Audrey Spalding

The Missouri General Assembly has finally adjourned its special session without creating $360 million in new tax credit programs. This is great news for Missouri taxpayers.

Proponents of the so-called “Aerotropolis” tax credits argued that they would primarily help subsidize warehouse construction and facility construction in order to encourage increased international trade. Don’t get me wrong, I support increased trade. After all, that is one of the best ways to grow an economy.

But, the bulk of the Aerotropolis tax credits didn’t seem to be directed at that admirable goal. My colleagues and I were early and passionate critics of portions of the legislation that didn’t appear to make much sense from a public policy standpoint.

We wondered: Why was the state considering subsidizing warehouse construction in the St. Louis area if more than 18 million square feet of vacant warehouse space was already available? Why did versions of the legislation give the mayor of Saint Louis City and area county executives the power to restrict who could receive hundreds of millions in tax benefits? Why were the construction tax credits in some cases limited to individuals and companies who owned more than 100 acres of land? Where was a substantive cost-benefit analysis?

It didn’t help that proponents of the tax credits cited conflicting, and seemingly overblown, job estimate numbers. Missourians should consider those types of estimates with skepticism. Missouri Gov. Jay Nixon made similar promises last year, when he visited Moberly to announce the creation of more than 600 jobs. The state and local governments promised public support for the development. Unfortunately, in recent weeks we have learned that the jobs have failed to materialize and the city of Moberly may be on the hook for millions in bond payments.

It bears repeating: Tax credits have a poor track record for success.

Frankly, I find it incredible that so much political effort (and taxpayer money) was spent on trying to tack a new form of corporate welfare onto attempts to implement tax credit reform. The legislature is aware that reform is needed; Nixon’s own Tax Credit Review Commission recommended cuts and sunsets to many of Missouri’s tax credit programs. Indeed, several legislators were actually part of that commission. And yet, here we are, having spent more than a month and more than $280,000.

Imagine what could have been accomplished if legislators had spent that much time and effort on accomplishing something substantive. Our state may face a large budget shortfall next fiscal year, and may have to make tough budgetary decisions as federal “budget stabilization” dollars run out. Or, what if the legislature had worked harder on passing more sweeping education reform? School choice continues to be limited to St. Louis City and Kansas City, though certainly students in Columbia and Springfield deserve the ability to choose quality schools just as much as students in urban areas.

Hopefully, the Missouri Legislature will spend less time on corporate welfare during 2012, and more time fixing the state’s worst problems.

Because of cases like  Moberly; the seemingly political provisions of the Aerotropolis legislation; and the general poor performance of tax credits, we will continue to comb through similar proposals. We will continue to argue against legislative proposals that will harm Missouri taxpayers. And, we will work to propose market-based solutions to Missouri’s pressing public policy problems.

Risky Business

Posted on by Audrey Spalding

In 2006, Indiana leased its 157-mile toll road to private investors for a $3.8 billion lump sum payment. The lease would last for 75 years, and the money generated from the deal would fund pent-up transportation projects (which were estimated to cost $2.6 billion).

At the time, there was an incredible amount of blowback, with the deal barely squeaking through the legislature and facing court challenges.

“The whole thing stinks,” said Indiana State Rep. B. Patrick Bauer, then the House Democratic leader. The two companies, he said, “got a heck of an unbelievable deal. We got a bad deal.”

And now, Governing magazine reports that the companies that bought the lease may not be able to make payments related to the deal. The project lost more than $260 million last year.

More astonishingly, Indiana officials say that the terms of the deal mean that if the toll road project defaults or goes into bankruptcy, the companies that bought the toll road could either find new investors, or the toll road would be returned to the state, with Indiana keeping the $3.8 billion.

In this case, it appears that the Indiana government got a pretty good deal.

Compare the case above to the news that developers are asking Saint Louis County to issue $7 million more in debt to finance the NorthPark development. The NorthPark development was also launched in 2006, during the height of the real estate bubble.

From the St. Louis Post-Dispatch:

“The developers are not only seeking to refinance the mortgage, but they’re also upping the size of it by almost 50 percent,” said Brian Tournier, director of research with Ascent Investment Partners in Brentwood, which specializes in bond investments. “And the county, ultimately, will be on the hook.”

As business owners know, the reward for taking on risk is the possibility of making a profit. The risk of failure is why so many of us do not set out to build a better mousetrap, be it Pets.com, Myspace, or Zynga.

What is so shocking about the Indiana toll road case is that it was a situation where government allowed the private sector to take on risk — for a price. If the state really won’t be held financially responsible if the project continues to lose money, then the state managed to shift all of the risk associated with the project to the private companies that invested in it.

In the case of NorthPark, it looks like the county is getting ready to take on more risk. And why, exactly? NorthPark could stand to profit if the development is successful. But if it isn’t, the county could lose. Proponents may point to job or investment increase estimates. But those numbers frequently fail to materialize.

There is no better example of what can go wrong when government takes on risk than that of the fiasco in Harrisburg, Pa. The city took on $125 million in debt to rebuild and expand its incinerator, which it hoped would become a money-maker. Instead, the incinerator project is more than $288 million in debt. The city, bankrupt as a result, has to cancel Christmas (well, its annual Christmas parade).

When you hear elected officials talking breathlessly about taking risks for the promise of money or jobs, think about Harrisburg or Mamtek, right here in Moberly, Mo. Though the jobs and investment numbers promised may be little more than a dream, the risk of failure is real.

I have to say, in light of other failures, this line from Saint Louis County Councilman Steve Stenger (D-Dist. 6) about NorthPark troubles me: “The county knew the risks going in to this development. But that’s a risk that you have to take if you want progress.”

If officials want to get into the business game of taking on big risks with the potential to make big profits, they should get out of government. In business, if you make the wrong choices and fail, you are financially responsible. When government tries to take on the risk of private businesses, taxpayers are on the hook for failure. And sadly, government officials rarely are held accountable for bad bets.

In this case, Missouri can learn from Indiana and Mamtek. A better move is to leave risk and profit to the private sector.

In Praise of Jennings

Posted on by David Stokes

An overriding emphasis on Big Ideas and Big Changes can obscure the fact that most improvements in life happen in small doses and over time. Which is more likely to last, the whirlwind romance that ends at the altar after a few weeks, or the relationship that begins as a friendship, grows over time into love, and leads to marriage a year or two later?

It is the same with cities and governments. Planners may want to focus on the Big Proposal that is going to “reinvent” or “transform” the community, but those Big Plans frequently fail from the beginning. Often, it is the individual homeowner or entrepreneur who are the real change agents in providing useful economic growth and community development. Which would you rather have, Soulard or Laclede Town?

Right now, many people in Saint Louis are once again engaged in a conversation about the political make-up of our area. Should the city and county merge? Should the city simply re-enter the county? What to do about the county’s 91 municipalities and patchwork of fire, school, and library districts?

These are big and important questions and it is good that they are being discussed and debated. Without buying into the assumption that bigger is automatically better, let us hope that positive changes will come from this re-examination of existing arrangements, changes that will improve government services in Saint Louis as a whole. But if we focus only on the Big Idea, we risk overlooking benefits that smaller changes in government can have for Saint Louisans right now. One city in Saint Louis County, Jennings, is showing how small improvements under our current governmental system can add up to big rewards for people.

Over the past few years, Jennings has made two principal changes moving away from the idea that every city need stand on its own. First, it became one of the few cities that switched from a point-of-sale city to a pool city in Saint Louis County’s sales tax pool system. As sales taxes within the city declined, Jennings had two choices. It could make use of tax increment financing and other political tools to try to alter market forces, or it could join the pool. Pool cities benefit from economic growth wherever it occurs in the county. Pool cities are less likely to abuse eminent domain and TIF by forcefully locating retail development in targeted areas, and not to areas where the free market would naturally lead. Jennings chose to join the sales tax pool and engage in the regional economy, not just the Jennings economy.

More recently, Jennings chose to dissolve its own city police department and contract with the county police for public safety. This will allow the city to improve the overall quality of the police force serving its residents and save money at the same time. To say this is a win – win understates the significance of the change. Other local leaders, including Fenton mayor Dennis Hancock, have made this change for their cities and it has worked out very well for their citizens.

Jennings city officials deserve a great deal of credit for these changes. Joining the sales tax pool and contracting with the county for police services will save money, provide better public services, and avoid the destructive, TIF-fueled quest for “economic development” that is pitting city against city in Saint Louis County. These simple changes in Jennings are showing the other parts of the county the way to a future prosperity that maintains city pride and independence while thinking and acting like a region. That is a Little Idea worth celebrating – one that will provide big and lasting benefits.


David Stokes is a policy analyst at the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

A Hundred Million Here, a Hundred Million There…

Posted on by Bruce Stahl

I recently discovered that the American Planning Association (APA) has listed 15 blocks of Washington Avenue in St. Louis as a Great American Street. It appears the APA made a good call — it is a popular street. But after determining how much in public funds has been spent on the street, I wonder if it was worth the cost.

Did you know that since the year 2000, more than $167 million in economic development tax credits have been issued to those 15 blocks? Or that $17 million in state and federal funds have been spent there? Ignoring any other incentives that may have been awarded, it seems that nearly $185 million in public funds have been spent developing 15 city blocks. Was it all really worth that much?

The APA credits the Historic Rehabilitation tax credit, authorized in 1998, for giving Washington Avenue new life — but my colleague, Show-Me Institute Policy Analyst David Stokes, says the street was awesome before then. He should know; he lived there.

For $185 million, whatever urban planners have accomplished, they have accomplished at a very high cost to Missouri taxpayers — most of whom will never visit Washington Avenue. Perhaps urban planners should stop spending taxpayer money and let private businesses do the planning. After all, there are plenty of great, popular streets that the government never planned nor sponsored.

For more Show-Me Daily posts on Great Streets in America, click here and here.

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