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.

Has the Public Records Runaround Begun?

Posted on by Patrick Ishmael

On July 27, we requested e-mails from Governor Jay Nixon’s office that pertained to the China Hub/Aerotropolis legislation. Specifically, we requested

access to and a copy of all e-mails sent to, from, and within the governor’s office containing the words “aerotropolis” or “china” since May 1, 2011. I also request all e-mails referencing legislation related to aerotropolis or the china hub. I also request any and all emails or correspondence from or to Speaker Steven Tilley or one of his representatives regarding the possibility of a special session, including any discussion of legislators calling a special session independently of the governor.

In a letter dated July 27, the governor’s deputy counsel informed us that it would take 14 business days — about three weeks — to determine “the approximate time needed to complete processing” and the estimated cost of getting the information. Last week we were informed it would take an additional 30 days to receive these e-mails, meaning we would not receive the requested information until late September — well after the special session has begun — or if it’s in fact 30 business days, well into October.

If this sounds familiar, it should. From just two weeks ago…

We reported yesterday on the National Center for Beef Excellence’s Beef Study That Wasn’t, and last night KMOV reporter Andre Hepkins, who’s been covering the NCBE “meat feasibility” story since last week, sent along this latest development concerning the Beef Center’s elusive meat report:

KMOV’s Craig Cheatham is having his own devil of a time getting China Hub documents, and this part in particular jumped out at me. (Emphasis mine)

On Thursday, the day after the Hub Commission insisted that I refile the request under the Missouri Sunshine Law, I interviewed Mike Jones, the group’s Chairman. Jones admitted that it was his decision to make me refile the request. I told him it was an “abuse” of the process, and that any request for information must receive the same attention as one identified as a “Sunshine” request. He disagreed and stands by his decision.

And now we hear from Cheatham,

I filed a #Sunshine Law complaint today against Midwest #ChinaHub Commission. Is this how you sell #Aerotropolis ? http://tinyurl.com/3zeqh5g

Throw in that our most recent request for information from the China Hub has been referred to the Hub’s lawyers, and all of the sudden, we have the makings of a major problem. Are government record holders trying to run out the clock?

Come to a Tuesday Panel Discussion on Aerotropolis in St. Louis County

Posted on by Audrey Spalding

SLCL Logo Color Horiz 300x100

On Tuesday, I will participate in a panel discussion of the Aerotropolis tax credits at the St. Louis County Library, organized by the Citizens Alliance for Missouri Patriots.

The discussion will be held at St. Louis County Library’s headquarters at 1640 South Lindbergh Blvd., in Frontenac. The event will be in the library auditorium, and will run from 7-9 p.m.

Rodney White, a retired businessman, local author, and speaker, will be the moderator. Dave Roland, executive director of the Freedom Center of Missouri, is the other scheduled panelist.

It is my understanding that representatives from the Regional Chamber & Growth Association (RCGA) have been invited, but have not yet responded.

So please come out for the discussion! All questions are good questions, and you are invited regardless of whether you support or do not support the Aerotropolis tax credit proposal.

Is Bulldozing a Way to Prosperity?

Posted on by Audrey Spalding
Demolition in Cleveland. Photo by Mhari Saito for NPR
Demolition in Cleveland. Photo by Mhari Saito for NPR

National Public Radio ran a segment today on a Cleveland-area land bank. According to reporter Mhari Saito, the Cuyahoga Land Bank (CLB) is scheduled to demolish about 700 properties this year.

The situation in Cleveland looks like this: A family goes into mortgage foreclosure. The lender takes the home, but is unable to sell it, given the depressed economy. It costs money for the lender to maintain the home while it sits vacant. And, if lenders don’t maintain their properties, they can face large code violation fines.

Looking for a solution, the CLB has made an offer to lenders: Pay to demolish the house, and the land bank will take the property from you. Seems like a win-win solution, right? In fact, Saito characterizes it as such. From her report:

Lenders pay $3,500 to $7,500 per house. Wells Fargo’s Russ Cross says it’s a sensible and responsible business plan.

“We want to make loans on an ongoing basis, and to do so, we need stable to rising home values,” he says. “We’ve got to do whatever we can to protect home values in neighborhoods.”

Given the policy catastrophes we’ve seen at the Saint Louis land bank and  the burgeoning land bank growth across the U.S., the policy of running bulldozers over hundreds of properties each year needs to be considered seriously.

Let’s talk about the need to “protect home values.” While existing homeowners might want to keep their home values at artificially high prices, the fact of the matter is, home values have fallen. Attempting to boost home values by destroying existing home supply is no solution. In fact, consider who is hurt by this solution: Low income individuals, first-time home buyers, and people who want to take a risk on an old property at a low price.

An op-ed in the New York Times illustrates the value of super cheap home prices perfectly.

A couple (he an artist and her an architect) purchased a home in East Detroit for $1,900. The home was stripped of wiring and run down, but the couple saw that home as an opportunity to install green appliances and solar-powered utilities. They then purchased two other lots, installed a garden, sold a home to another artist couple at a $50 profit, and then called their friends (those who had bought the $100 home) to encourage them to move into the neighborhood.

Had Detroit bulldozed those properties, as the CLB is doing now, such innovation within existing structures would have been prevented.

I suppose the relevant question to ask is whether it is good public policy to prop up home prices by destroying the supply of very cheap homes and increasing the amount of land owned by government. Land banks throughout the United States (and NPR reporters) should take a closer look at the Saint Louis land bank. After all, the land bank here has existed for 40 years, and the situation has only gotten worse.

Lambert Director Misrepresents Missouri’s ‘Aerotropolis’ Bill

Posted on by Audrey Spalding

Editor’s Note: This article first appeared in Air Cargo News June 21, 2011.

 

We’d like to thank Air Cargo News for the opportunity to comment on the substance of Missouri’s proposed “Aerotropolis” legislation, first critiqued in these pages by air cargo expert Michael Webber and since muddled by a response from the director of Lambert–St. Louis International Airport, Rhonda Hamm-Niebruegge.

If the director of the airport did indeed help introduce the bill that has gone before the Missouri legislature, as she asserted, there are serious questions she needs to answer. Contrary to her implication, the Aerotropolis legislation’s original price tag was not $360 million, but $480 million, which included tax credits for the payment of $120 million in interest costs for the building of warehouses.

For somebody who seemed particularly interested in Webber’s rhetorical precision, Hamm-Niebruegge’s obscuration of the original cost of the bill as she introduced it is revealing. She should have been more forthright about the details of her bill.

To her credit, Hamm-Niebruegge admits that warehouses would be fully eligible for $300 million in tax credits, in support of a projected maximum of eight flights per week — a meager result for such a large amount of taxpayer money.

More importantly, though, Hamm-Niebruegge has failed to explain why the legislation specifies that Missouri would restrict the $300 million in Aerotropolis warehouse subsidies solely to new warehouses located on 100 contiguous acres, in urban redevelopment areas, within the boundaries of the airport, or in areas managed by a port authority. Those strange provisions demand an explanation. Hamm-Niebruegge says that she helped introduce the legislation (original price tag: $480 million); she had the opportunity to explain these preferential carve-outs here, but declined to take it.

We doubt that there is a practical explanation. The 100-acre stipulation and other requirements serve only to limit the individuals that could have access to the tax credits, and it is disheartening that the executive director of an airport would be concerned with making sure that only a few politically powerful individuals and businesses would be eligible for hundreds of millions in state tax money.

Hamm-Niebruegge says that the proposed bill’s provisions “require that investment or export activity take place before the application for tax credits.” This is incomplete. A close reading of the legislation reveals that owners of these newly built warehouses who use two modes of commerce — perhaps road and rail transportation — could qualify for the Aerotropolis tax credits. Owners of the comparable refrigerated warehouses would qualify in this way, as well. There is no requirement in the legislation that those warehouses store any amount of international cargo. Is the purpose of the Aerotropolis tax credit legislation to encourage international trade, or is its purpose to subsidize warehouse construction?

Hamm-Niebruegge optimistically writes that the $300 million in warehouse tax credits could result in millions of square feet of new warehouse space, yet she does not mention the approximately 18 million square feet in developed warehouse space already vacant in the Saint Louis area. Why does the state need to subsidize the construction of more warehouse space if, as market research from CB Richard Ellis has shown, a great deal of space is already available? Again, we are disheartened by the possibility that public officials are in such a rush to subsidize the owners of vacant land that they fail to consider the considerable existing supply of warehouse space.

Proponents of the Aerotropolis subsidies, including Hamm-Niebruegge, point to an eight-page study commissioned by the St. Louis Regional Chamber and Growth Association (RCGA) purporting to show that the $300 million in warehouse construction tax credits would result in economic activity worth billions. We were disappointed, but hardly surprised, that the RCGA study failed to consider the cost of taking $300 million from all Missourians in order to award it to a favored few. Aerotropolis proponents fail to understand that tax credits are not free money. Every dollar that is given away in tax credits is a dollar that the state government must replace with cuts in current programs, or — more likely — through increased taxation.

Let us be clear: The Aerotropolis dream of attracting international trade to a region is by no means a poor one. In fact, increasing trade among countries is one of the best ways to improve economic welfare. However, we are concerned that the dream is being used as an excuse for public subsidy.

If the Aerotropolis dream is viable, as Hamm-Niebruegge states, where are the private investors clamoring to make a substantial positive return? The absence of such investor interest without heavy subsidy reveals that the “big idea” pushed by Hamm-Niebruegge, other public officials, and industry lobbyists is in trouble — with or without this extraordinarily problematic legislation that the director helped introduce.

Patrick Ishmael and Audrey Spalding are policy analysts at the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

An Open Response to St. Louis Magazine Co-Owner Ray Hartmann

Posted on by Audrey Spalding

Yesterday, St. Louis Magazine co-founder Ray Hartmann wrote about how the Show-Me Institute has been raising questions regarding a proposal to create $360 million in tax credits which would primarily go toward subsidizing warehouse and facility construction in the Saint Louis area. It appears that Hartmann was troubled by Crosby Kemper, Show-Me Institute board member and head of the Kansas City Public Library, authoring an op-ed about why creating hundreds of millions in tax credits is irresponsible.

As the policy analyst leading the Show-Me Institute’s research of the Aerotropolis proposal, I would like to respond to Hartmann’s allegations.

I have never worked on a Republican campaign, in any way, for pay or otherwise. Nor have I worked on a Democratic campaign, in any way, for pay or otherwise. But, in case Hartmann is curious, I have made informational presentations to both Democrats and Republicans who are concerned about the Aerotropolis tax credits.

In fact, this issue is very bipartisan. For example, Rep. Jill Schupp, D-Creve Coer, has voiced concerns about the tax credits, and said that she is working with a group of more than a dozen other democrats on ways to change the bill. On the other side of the aisle, Sen. Jason Crowell, R-Cape Girardeau, has written scathing missives about the tax credits.

As a staff member at the Show-Me Institute, I am thrilled that one of our founders chose to publish an op-ed calling out Republicans who say that they are for fiscal responsibility, but then work to create handouts for a small group of developers and warehouse owners in the St. Louis area. Accountability is needed in state politics, and for members of both political parties.

Hartmann searched the Show-Me Institute website for “tea party” and found three references. I am not sure, but from his writing it seems that Hartmann was looking to find a relationship between the Show-Me Institute and a political party. A search of the St. Louis Magazine website results in many more references to the tea party, but any attempt to tie that finding to a relationship between the magazine and the tea party would be similarly as absurd.

Hartmann also seemed intent on denigrating Rex Sinquefield, co-founder of the Show-Me Institute. For the record, the Show-Me Institute has hundreds of donors. We are more than a single board member or co-founder. Staff members choose what public policies to take on, and what projects to pursue. That all being said, I don’t understand how Hartmann could take offense at an active-minded citizen advocating for more effective government. What exactly is wrong with that?

Finally, I would like to extend an offer to Hartmann: I am happy to meet him at any time to provide an information briefing about the Aerotropolis legislation. The Aerotropolis tax credits — from an economics and corporate welfare perspective — are clearly problematic. Hartmann himself, in an earlier column, wrote that he too has misgivings about the Aerotropolis proposal. The only reason he supports these credits is:

Aerotropolis backers claim that the way the state program is structured, not a dime of Missouri tax credits will be given out on the come. Tax credits will only flow after the Chinese planes start landing, and the revenues (and presumably jobs) actually arrive.

This statement is demonstrably false. Under the legislation, tax credits could be awarded if no increased international trade occurs, and in fact could go toward subsidizing business as usual. Proponents have not fixed this loophole, and have not responded to this point.

Considering the facts, perhaps Hartmann might find himself agreeing with the Show-Me Institute.

What’s Wrong with Aerotropolis: What’s the $300 Million for?

Posted on by Audrey Spalding

If two warehouses would satisfy the projected demand for exports, what’s the $300 million in tax credits for? In this video, Show-Me Institute Policy Analyst Audrey Spalding discusses recently released documents from the Midwest China Hub Commission which contain expert findings suggesting that existing warehouse space around Lambert Airport would satisfy increased international air cargo demand.

 

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