Pettis County Guest Tax Overhaul Would Benefit From Tax Rollback Provisions

Posted on by Charles Carson

Early next year, voters in Pettis County will decide whether or not the current $2 tax on hotel rooms should change to a tax of 5 percent on the room rate.

If the vote passes, Pettis County expects to net an additional $100,000 in tax revenues. As a result of this increase, Pettis County will assume the City of Sedalia’s current obligation to pay $72,000 annually to fund the Convention and Visitors Bureau (“CVB”).

That raises the question: what should Sedalia do with the money it no longer needs to spend on the convention bureau? The city could spend more on tourism or other pressing government services. It could also pass those savings along to taxpayers by reducing sales tax or property tax rates.

Spending additional resources on tourism would not benefit the city. People who attend the Missouri State Fair have to go to Sedalia anyway. Cyclists who bike that end of the Katy Trail are highly likely to stop there as well. Most tourists will visit and spend in Sedalia regardless of how much, or how little, the city spends on advertising. Additional dollars spent promoting tourism will have limited benefits for the city’s economy.

The second option is applying the $72,000 to other government services. If there is a widely agreed-upon public good the city needs to address, perhaps moving the money toward that need is its best use. But lacking a widely agreed-upon need, the city should not just spend the $72,000 because it has it. Returning the money to the taxpayers has benefits that might be hard to immediately quantify, but they absolutely exist.

The third option — decreasing the sales tax — would benefit tourists as much as residents and produce little overall benefit. Sales taxes relating to tourist attractions result in less economic distortion than other types of taxes. If the sales tax is successfully raising tax revenues without distorting the local economy, it should be low on the list of things to cut.

Which brings us to our final option — reducing property taxes in Sedalia. Businesses in Sedalia suffer from the high commercial property tax surcharge imposed by Pettis County. According to research done at the Show-Me Institute, Pettis County has a significantly higher surcharge than its neighboring counties. In order to alleviate this burden, the city should reduce property tax rates to make their businesses more competitive and give their residents additional purchasing power.

Reducing the property tax would increase expendable incomes for both businesses and homeowners. Businesses may use that additional money to expand or to create new jobs. Homeowners will increase consumer spending or savings rates. These benefits are not as easily seen as additional billboards along I-70 or radio ads, but in the long run, they attract, retain, and promote economic growth.

According to economic theory, taxing inelastic goods (which are less sensitive to price) is preferable to taxing elastic goods (which are more price sensitive). So, taxing hotel rooms in a tourist location like Sedalia is preferable to taxes on business property. But, Sedalia should not use this change to justify increased government spending.

Consequently, a reduction in property taxes to offset the new hotel tax revenue is the best option. The proposed guest tax overhaul in Pettis County is a good idea only if the savings are passed along to all voters and taxpayers.

Aerotropolis: Special Session Draft Legislation (August 31, 2011)

Posted on by Patrick Ishmael
 

Fact Check: There is No Protection For Taxpayers In Aerotropolis Legislation

Posted on by Audrey Spalding

On Tuesday, I participated in a panel discussion with Missouri Rep. Sylvester Taylor (D-Black Jack) and Dave Roland, executive director of the Freedom Center of Missouri, during the Saint Louis Aerotropolis Forum at the St. Louis County library headquarters.

Taylor asked me during the discussion whether subsidized warehouses and facilities would have to be in operation for a number of years prior to receiving the Aerotropolis tax credits. I said, “I think so,” and the discussion continued.

In fact, having re-read the most recent available version of the legislation, there is no such protection. None. According to the legislation, a warehouse or facility could be built (or not?), receive the credits, and then cease to exist. There is no requirement that the warehouse or facility exist for a period of years prior to receiving the benefit.

Apparently, this is a common misconception. Missouri Rep. Donna Lichtenegger (R-Jackson), told the Southeast Missourian, “The good thing is they don’t get any of this tax credit money unless they perform.”

Again, this is not the case. From a standpoint of accountability and fiscal responsibility, I wish the legislation contained such a provision. However, as it stands, it appears that no stipulation exists.

Who Gets Tax Credits? Distribution of Tax Credits Issued by the Department of Economic Development Since 1999

Posted on by Patrick Ishmael

Over the last few months, Bruce Stahl and I have been compiling data from the Department of Economic Development (DED) to determine how economic development tax dollars managed by the Department are distributed geographically in Missouri. A full case study is forthcoming on the topic, including regional, city, and city class breakdowns, as well as relevant tax data.

Until then, a preview: the county-by-county breakdown of DED tax credit issuances since 1999. The chart encompasses over $2.3 billion in taxpayer money. Population numbers are taken from the 2010 U.S. Census.

Had tax credits been distributed in line with population, each resident would have received the equivalent of $392.53 in tax credit issuances over that time. Six of Missouri’s 115 counties (114+St. Louis city) received at or above this amount. Saint Louis city projects were issued the greatest number of these tax credit dollars, coming in at $1,075,720,353.70. Several counties received none of these tax credits.

More to come.

(To find your county, hold CTRL-F, then type the name into the dialog box.)

And the Job Guesstimates Resume: RCGA Now Says Aerotropolis Will Bring 32,000 Jobs to Saint Louis

Posted on by Patrick Ishmael

Let me take you back in time for just a moment.

On October 27, 2006, the RCGA released a study by Bryan Bezold, the organization’s then-chief economist, telling Saint Louisans that (emphasis mine):

The total, indirect and direct, employment impact of the Ball Park Village Project will thus be

approximately 3,040 jobs.

Phase I of the Ballpark Village project will provide an annual $273 million economic benefit to the St. Louis region when completed; in the interim, construction of the initial phase of the project will generate an economic impact of $724 million. Further, the first phase of the development will have a total employment impact of 3,040 permanent jobs, and there will be another 3,000 construction jobs throughout the course of the total development. Estimated net fiscal benefit to the City of St. Louis is $291 million, with $142 million to the St. Louis Public Schools.”

On July 28, 2008, new RCGA chief economist Ruth Sergenian found that (emphasis mine):

Upon completion of Phase 1 construction and full leasing of the space, the St. Louis region will realize an additional annual economic benefit of approximately $476 million.

Regarding jobs, the construction process of Phase 1 is estimated to employ some 2,900 area workers, and those jobs will indirectly support approximately 2,300 other jobs throughout the region. The RCGA also projects that the project when fully leased will employ more than 2,000 people on an ongoing basis.

And Ballpark Village today? It’s a softball field and a parking lot.

So, let’s recap the RCGA job scenarios with Aerotropolis/China Hub to date.

And these predictions are all based on…? (And by the way, what happened between June and now that goosed the employment numbers by 3000+ jobs?)

Can someone from the RCGA please tell us where their numbers are coming from, other than from the ether? Better yet, can it please explain why taxpayers should believe any of these predictions given its track record?

A Conversation with SLU Professor Douglas Rush About Aerotropolis

Posted on by Audrey Spalding

In this video, SLU Professor Douglas Rush talks about an op-ed he wrote for the St. Louis-Post Dispatch that critized creating $360 million in tax credits. Rush explains that he thinks tax credits for building warehouses could come at the expense of state funding for higher education. Furthermore, he says he thinks that higher education is a better investment than construction subsidies.

The Nixa CID: Public Dollars For Private Benefit

Posted on by David Stokes

Over the past decade, Missouri has seen an explosion of new, alphabet soup-like taxing districts that use increased tax rates to channel public dollars toward private purposes. These districts include the use of tax increment financing (TIF), transportation development districts (TDD), community improvement districts (CID), and more. Nixa is currently considering imposing one of these districts, a CID, for a new street that will primarily access the stores in McCroskey Plaza. Nixa city officials should think twice before they embark on this course of action.

There are two primary problems with the use of CIDs and the closely related TDDs. The first is that they fund primarily private goods with public dollars. The proposed Nixa CID will increase the sales tax within the CID to fund transportation improvements — not much more than expanded access to McCroskey Plaza — that will increase the profitability of businesses within the center. These private benefits will be paid by tax dollars, rather than private investment, and the benefits will accrue almost entirely to the private party.

The other problem with these taxing districts is one of transparency. The state auditor’s office has issued reports documenting deficiencies in the management and accountability of public dollars by these districts throughout Missouri. These districts fail to comply with state laws in a number of areas, including the transparency of the special taxes, use of competitive bids, and filing of annual financial reports. If this council chooses to enact a CID, the council should carefully oversee the CID to insure it complies with all state laws and any local requirements the council might add.

These transparency issues include an independent board of trustees for the district. Generally, these boards are made up of representatives from the businesses involved with establishing the district. The Nixa council should work with the developers to institute a board of directors that will primarily answer to the taxpayers of Nixa, and not the owners of the property.

Taxpayers who choose to shop in these stores should be aware of the extra taxes they must pay. The special tax should be broken out separately on the receipt, and signs should be posted within the stores noting the special taxes. This is not just my opinion; this is a state law, albeit one not followed by many taxing districts around the state. If shoppers are aware of the increased taxes and still choose to shop within the district that is their choice.

The Nixa city council should take a very careful look at the possible tension between public and private interests in this proposal, and should avoid asking taxpayers to foot the bill for private interests. If the council determines that a CID is an appropriate application in this instance, all possible steps should be taken to make certain the new taxing district is responsible to the people. Many similar taxing districts in Missouri have failed both of those tests – producing what is best described as a non-nourishing alphabet soup.

A $ 109,000 School “Voucher”: A Story of Tax Rates and School Districts

Posted on by Christine Harbin

 

This is a tale of two neighborhoods. Both Saint Louis-area neighborhoods are impressive and outwardly they look like twins. Hampton Park and Lake Forest sit on opposite sides of Hanley Road between Clayton Road and Highway 40, and they both boast large, stately homes. They are equidistant from the region’s central business districts. With two exceptions, they have the same level and quality of public services and the same tax rates. With so many similarities, you might assume property values would be the same. But you would be wrong.

Hampton Park and Lake Forest illustrate how different people finding different solutions to their housing and educational needs can have a substantial impact on housing prices.

The two exceptions noted above are the neighborhood school districts and the differing tax rates they impose. Both neighborhoods are subdivisions of Richmond Heights, but Lake Forest — which is located west of Hanley — is part of Clayton School District. In 2010, Clayton was the highest performing district in Missouri according to MAP scores. Over the past 10 years, residents have paid an average tax rate of $3.44 per $100 of assessed valuation. East of Hanley, Hampton Park is part of Maplewood-Richmond Heights (MRH) school district. In 2010, the state ranked MRH’s performance 315th out of 556 districts, making it an average district. Over the past decade, residents paid an average tax rate of $4.48.

Homes in Lake Forest are located in a higher performing school district and have lower tax rates than those across the street in Hampton Park. Do homebuyers react accordingly, and by how much?

Of course homebuyers adjust. According to a study of assessed valuations in the two neighborhoods, the difference between the prices paid for a theoretical house of the same square footage and lot size in the two neighborhoods is $109,000, or a little more than 10 percent. Homebuyers in Lake Forest are willing to pay approximately $109,000 more to live in a higher-performing school district with lower tax rates. Conversely, homebuyers in Hampton Park are paying $109,000 less to live in a more average school district with higher tax rates. Economists refer to this kind of difference as capitalization. It is the process that incorporates tax rates and other variables into the value of a piece of property.

Capitalization is a complex process, especially in regions that have as many taxing districts as Saint Louis. Prospective homebuyers typically take the time to research local school quality and tax rates, but they usually stop short of researching fire districts. Although homebuyers may not investigate them, the insurance industry certainly has. A home located in an area with a poor quality fire district will have higher insurance rates, and those higher rates will be translated into lower home prices. The combined wisdom of thousands of individual decisions is sorted into a price that is readily understood by everyone.

Capitalization works in both directions, often simultaneously. A great school district will lead to higher property prices, while the high tax rates used to fund those good schools will lower the price. The low crime rates of the outer suburbs will increase prices, while the higher commuting costs will lower prices. As for Lake Forest, the lower tax rates leads to higher home prices, and this may result in the same final tax bill as higher rates on less valuable property.

The higher tax rates and lower ranking school district do not automatically do economic harm to the residents of Hampton Park. A Hampton Park purchaser may intend to send their children to private or parochial schools and might be using the $109,000 discount to do just that. This appears to be the case for many residents, as the MHR school district offers no school bus service within Hampton Park. In effect, the $109,000 price difference can be viewed as a voucher toward the cost of private education, the payment of future (higher) taxes, or both.

The larger point is that with the variety of different cities, school districts, etc. that we have in Saint Louis County, there is an abundance of choices, making it more likely that everyone can find a suitable combination of taxes and services. Homeowners vote with their feet — by leaving cities that increase taxes too much or fail to offer quality services. This pressures cities to be efficient. That pressure and competition is reflected in property values, and that benefits all of us.

Gaudiet emptor — Let the buyer rejoice!

How (Not) to Create Jobs: Some Advice for Gov. Jay Nixon

Posted on by Andrew B. Wilson

Gov. Jay Nixon says that he’s fed up with “right-wing extremists.” Does that include everyone who thinks that the governor should exit the “job creation” business? If so, Nixon must be the first to identify public radio as a hotbed of right-wing extremism.

Several weeks ago, Ira Glass opened his nationwide hourlong “This American Life” program with a satiric interview about one of the defining elements of Nixon’s leadership: his whirlwind trips around Missouri to celebrate state-funded job creation schemes.

Glass described his visit to a plant that made fishing reels, “to announce not hundreds of jobs, or dozens of jobs, but eight jobs,” Glass marveled. “Eight! He did a press event for eight jobs!”

At this point, Nixon chimed in, saying, “That’s not the smallest we’ve been to, either. We actually did one in north Missouri where we created one job.”

“And you showed up?” Glass asked, laughing in disbelief.

Nixon affirmed that he had. A program that he initiated had given a low-interest loan to a woman in Bethany. This enabled her to move her T-shirt printing business from her basement to a storefront, and to hire a single employee.

“This is what it’s come to, America,” Glass hooted. “You can hire your very first employee, and the governor shows up with TV cameras.”

At the Show-Me Institute, we have pointed out the flawed thinking behind a wide variety of schemes intended to promote job creation and economic development — ranging from big-budget Hollywood movies to plans for building an “Aerotropolis” in and around Lambert-St. Louis International Airport.

A total of $4.5 million in tax credits were issued to the makers of the George Clooney film Up in the Air, as an enticement for filming a large part of the movie in the Saint Louis area. How much good did that do for job creation and the local economy? Almost none, it seems. According to the casting call, extras were compensated only $7.05 per hour before taxes, and they worked all of one day.

In the Missouri legislature, there is support from both parties for an enormous tax credit bill that would subsidize the construction of $300 million worth of new warehousing space in and around the Saint Louis airport, while doling out another $60 million in tax breaks for freight forwarders. Nixon backs the proposed legislation, which may be raised at a special session of the legislature later this year.

Proponents say the extra warehousing space is needed for processing cargo going to and from China. However, as we pointed out, there are acres and acres of unused warehousing space in and around the airport. So, why are our lawmakers in a hurry to build more warehouses? Especially when there is no commitment from China to support the project?

Politicians will often argue that even one job created through tax credits or subsidies is better than none. To think in this way, however, is to engage in single-entry bookkeeping — counting jobs gained but ignoring jobs lost because of higher taxes or the burden of increased public indebtedness. Add to that the misallocation of resources that always occurs when power-hungry or publicity-seeking politicians, rather than paying customers, decide what is to be produced and who should produce it.

Our state government is already straining to meet its current commitments. Every dollar that is given away in tax credits is a dollar that our state government must replace by increasing taxes or making cuts in current programs.

“Being governor of the state is not a theoretical job,” Nixon said at a recent press conference. “It is a very practical job.” Here, then, is some practical advice for our governor: Get out of the job-creation business. It’s doing more harm than good.

Andrew B. Wilson is a fellow with the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

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