SLU and Mizzou Economists Weigh in on Aerotropolis Jobs Estimates

Posted on by Patrick Ishmael

Saint Louis University professor Dr. Jack Strauss and University of Missouri-Columbia professor Dr. Joe Haslag (also Show-Me’s chief economist) have at least two things in common. First, they both are economists, and second, they are very skeptical of Aerotropolis.

Dr. Strauss appears as part of a KMOV report on the status of the “China Hub” proposal in the Missouri Legislature’s Special Session, calling Aerotropolis a “pie in the sky” project. That segment is below:

Meanwhile, Dr. Haslag has written an article for the Columbia Business Times expressing similar concerns on the jobs front, saying that “the models used by DED [to estimate tax credit project success and job creation] have been discredited” predominantly because they fail to incorporate the cost of the government taking money from the private sector to fund the project. Dr. Haslag also tells a brief but useful story about the problem of trying to “count” jobs. (Emphasis mine)

There is a legend about employment and government projects involving Dr. Milton Friedman. During a visit to India, an official was taking Friedman on a tour of a public works project. New machinery was being used, and the official touted the number of jobs that were created by the project. Friedman responded by saying that if you wanted to count new jobs, the project leaders should have provided the workers with spoons instead of state-of-the-art construction equipment. If it is jobs we want, there are lots of silly ways to get those jobs created. A nobler goal is to find a set of rules that promotes opportunity for all, not just gifts graciously handed to a select few.

Our skepticism of the wide array of Aerotropolis job estimates has been well-documented. Dr. Strauss’s and Dr. Haslag’s analyses of the project again confirm the questionable nature of proponents’ jobs assessments.

Missouri’s Ticking Pension Time Bomb? Will the Money be There?

Posted on by Greg Aubuchon

Those who follow this blog are aware of the Show-Me Institute’s interest in Missouri’s 130-plus public pension systems. Tens of thousands of current and retired government employees and their families are depending on their pensions. If these fail, taxpayers will pay one way or another.

Kansas City recently began investigating its pension systems. You may access our previous coverage here and here. Recently, outside consultants to its Pension System Task Force recommended that taxpayers pony up an additional $23 million per year “to make the city’s pension funds more financially stable.” Apparently, the city may now make current and future taxpayers pay for the sins of prior administrations. They are passing the buck onto future generations of taxpayers and their children.

Perhaps greater Missouri should pay heed. According to the Cato Institute’s recent work, Missouri’s public pension plans are grossly under-funded when accounting for reasonable expectations of future economic conditions. Think about the impact this may have on the tens of thousands of state employees and retirees and their families, if and when they are unable to support themselves on their broken pensions. They deserve better. Taxpayers have reason for concern as well. Ultimately, the state loses credibility when it breaks its promises. And under that scenario, everyone is a loser.

Kansas City and Missouri are far from alone. WLBT TV-3 out of Jackson, Mississippi, reports that the state pension fund, the Public Employees Retirement System (PERS), is now guided by a 12-member commission. The commission is empowered to:

…examine the financial, management and investment structures as well as determining the legality of modifying the system. All in an effort to dodge a potential problem in the long run.

Mississippi Gov. Haley Barbour notes that PERS is funded at only 60 percent of where it should be and pays out benefits that exceed its structural limits. Kudos to Mississippi for beginning the discussion on sustainability and reform.

Fortunately, some of our sister states have gone pro-active, confronting the looming crisis. The Center for State & Local Government Excellence has just released a study of five successful pension reforms in Iowa; Oregon; Vermont; Gwinnett County, Georgia; and Houston, Texas. Although not perfect, these reform efforts provide some hope that pension stakeholders can meet and iron out their differences. Here’s hoping that Missouri joins the party before midnight strikes. Better late to the party than dead broke on the outside looking in.

A Bidding War Where Everyone Loses

Posted on by Audrey Spalding

The Kansas City Star reports today that AMC Entertainment is leaving Missouri for the state of Kansas, in part due to $47 million in tax credits. Some politicians have already begun using the loss of AMC as an excuse to promote the expansion of tax credits in Missouri.

Well, let’s not rush to do something drastic just because Kansas is set to award $47 million to a company.

Tax credits are especially bad public policy because they frequently fail. Just this week, a company in Moberly made news because it looks like the company will default on $39 million in city-backed bonds. You may remember the company, Mamtek, because politicians promised the company would create 600 jobs, the state was set to award millions in tax credits to the company, and because Missouri Gov. Jay Nixon traveled to Moberly to announce the job creation.

Unfortunately, after a newspaper was pressured to close because it was asking too many questions about the tax incentive deals, Mamtek appears to have failed. Clearly, the promise of tax credits isn’t a guarantee of investment and job creation.

If Missouri legislators are so eager to copy Kansas’ policy of awarding tax credits, they might want to look at Michigan. More than $33 billion in tax incentives each year are awarded in Michigan, and yet the state has a dismal job rate and incredibly depressed economy. Just last year, Michigan announced the creation of more than $1 billion in tax credits alone.

Certainly, if tax credits resulted in tremendous economic growth and job creation, Michigan would be on the right track. It is not. In fact, the Mackinac Center for Public Policy, a research institute in Michigan, surveyed Michigan tax credits over a 10-year period and found that in more than 90 percent of cases, tax credits failed to deliver on promises.

It has been shown again and again: Tax credits fail frequently, and in many cases, taxpayers are stuck with the tab.

Remember Liberty Mutual? The company is still eligible to receive “Quality Jobs” tax credits from Missouri, despite the fact that it issued pink slips to many of its employees this year. Those employees were told that they could apply for lower-paying jobs at the company.

Furthermore, the argument that tax credits are just a way of returning one company’s tax dollars to it is incorrect. Tax credits are transferable, meaning that they can be sold. What this means is that a company can receive an enormous tax credit, of say $10 million, even if the company’s tax bill is only $100,000. The company can sell the remainder of the credit to someone else, and use the cash.

Transferable tax credits mean that the taxes that you and I pay subsidize tax credit projects like the “quality jobs” being created at Liberty Mutual.

Look, I understand legislators’ concern: A company is leaving Missouri for Kansas. But should we panic? Kansas has offered AMC $47 million. AMC says it will bring about 400 employees to the state. That comes out to a subsidy of more than $100,000 for each job brought to Kansas.

Maybe those jobs aren’t worth all of us chipping in more than $100,000 for each one, especially given how frequently tax credits fail to deliver on promises. Instead, we should focus on what does work. Let’s lower tax rates for everyone, instead of just the favored few. Lowering the state income tax or Saint Louis’ and Kansas City’s earning taxes would be a great place to start. Let’s get rid of unnecessary regulations and licenses that do no good, like limitations on taxi cabs, removing barriers to becoming a veterinarian, or by allowing dental therapists to provide dental care to rural and low-income Missourians.

It’s easy to call attention to a single company that moved across state lines because it could get a better deal. But let’s not forget all of the individuals and companies that stay in Missouri because of what this state does have to offer.

Two Short Videos on Property Taxation in Missouri

Posted on by David Stokes

Property Tax Districts: What Are You Paying For?

In this video, Show-Me Institute Policy Analyst David Stokes gives a nearly comprehensive list of the types of property taxes that exist in Missouri, and what those property taxes support. Many different facilities and services are funded by dedicated property tax districts which often have geographic boundaries independent of the usual city, town, or county boundaries.

 

Streetlights in This Neighborhood Are Funded With Property Taxes

In this video, Show-Me Institute Policy Analyst David Stokes explains the Elmwood Park Streetlight District. Missouri law permits the creation of independent property tax districts for the purpose of installing and maintaining streetlights in a certain area. The people of Elmwood Park did just that.

 

Both of these videos are excerpts from a larger look at property taxation in Missouri.

The State Constitutional Question: Are the Aerotropolis Tax Credits Even Legal?

Posted on by Patrick Ishmael

It’s a question that now is cropping up among some who have looked closely at the Aerotropolis legislation. Ron Calzone was on Jamie Allman’s show (97.1 in St. Louis) yesterday and talked at length about the issue, citing specific sections of the Missouri Constitution in support of his position. Segment is below:


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To Calzone, the context behind Missouri’s Constitutional language is of particular interest with the Aerotropolis bill, and he says the state’s concerns about the subsidization of railroads in the 1800s were a motivating factor behind how the text of the state’s Constitution was drafted. Calzone questions the constitutionality of the Aerotropolis tax credits because he says the legislature would be exceeding its authority in granting the credits. He notes explicitly these sections of the Constitution in support of his argument: Article I, Section 2; Article III, Section 36; Article III, Section 38(a); Article III, Section 39; and Article III, Section 40.

The state Constitutional argument seems to be gaining steam, too; Missouri Sen. Jim Lembke (R-Dist. 1) spoke on the floor of the Senate yesterday about the Constitutional problems with the state government picking winners and losers. (You can find the full text of the Missouri Constitution here.)

I’ll be checking out the case law and may follow this post up with an exploration of any court cases that may have dealt with these sections of the Constitution. In the meantime, I invite our readers to check out the Constitution themselves, using the links above, and leave your thoughts in the comments. Should be a very interesting conversation.

Property Tax Rates Being Set Across Missouri

Posted on by David Stokes

This is the time of year when a multitude of local elected officials across Missouri are setting property tax rates. Because 2011 was a resassessment year, those rates are generally changing. (In non-reassessment years, the rates generally don’t change or change only slightly unless voters have approved a tax increase.) Cities, counties, school boards, fire districts, library districts, and many other types of tax authorities will be setting their rates this month. The new reassessment that property owners received earlier this year will be combined with the new tax rates to result in the bill property owners will receive in late October/early November and must pay by Dec. 31.

Just in time for this process, the Show-Me Institute has released a series of pieces on property taxation. We have a new policy study that details exactly how property taxes are implemented in Missouri, including a literature review considering the economics of property taxation and the ideas of Charles Tiebout.

There is a case study that details the manner in which public services and property taxes are capitalized into housing prices in Richmond Heights, Mo. We have two videos: one describing the myriad of tax districts that implement property taxes in Missouri, from the common to the little-known, and one which also focuses on Richmond Heights.

The policy and case studies share the briefing paper, and there is an op-ed that has already run in the Saint Louis Beacon on this topic. These pieces were all written by Christine Harbin and myself. Josh Smith helped out with the research and the videos. A number of interns helped out as well, and proud we are of all of them. If you are interested in the questions and debates that involve property taxation, we hope you find these studies and videos interesting.

Will the Missouri House “Ram” $300 Million of Aerotropolis Cash Back Into the Bill?

Posted on by Patrick Ishmael

As Yogi Berra says, “It ain’t over til it’s over!” Via KMOX, (Emphasis mine)

Republicans are scaling back a plan offering tax breaks to spur international trade at the St. Louis airport. But it isn’t over yet.

KMOX Jefferson City Bureau Chief Phil Brooks says House leadership is expected to try to re-insert the $300 million cut by the Senate and then attempt to ram the bill through the Senate.

More undoubtedly to come. Stay tuned.

Senate Removes $300 Million in Warehouse Construction Tax Credits From Aerotropolis Bill

Posted on by Audrey Spalding

Missouri Sen. Rob Mayer (R-Dist. 25) announced today that $300 million in tax credits for the construction of warehouses had been removed from the Aerotropolis legislation, part of a contentious economic development bill that the Missouri Legislature is considering in a special session.

Regular Show-Me Daily readers are, I am sure, nearly sick of hearing about Patrick Ishmael’s and my questions regarding that $300 million.

We wondered: Why was the state considering subsidizing warehouse construction in the St. Louis area if there was more than 18 million square feet in vacant warehouse space already available? Why did versions of the legislation give the mayor of St. 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 limited to individuals and companies who owned more than 100 acres of land? Where was a substantive cost-benefit analysis?

We would have stopped asking those questions if someone had provided substantive answers. And yet, there really were none.

It is brazen to ask for $300 million, in the public or private sector, without substantive evidence that the money is necessary and would be put to good, productive use. As such, the removal of warehouse and facility construction tax credits from the legislation is good news for Missouri taxpayers.

But, things could easily change. There is a chance that the $300 million could be reinserted at the last moment. CBS reports that the Missouri House may attempt to re-insert construction tax credits in the legislation and “ram the bill through the Senate.”

So, perhaps, this may be more about politics than good policy. I hope that isn’t the case.

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