It’s Still a Flight of Fancy

Posted on by Patrick Ishmael

Last week, Jeff Rainford, Saint Louis Mayor Francis Slay’s chief of staff, wrote to the St. Louis Business Journal in opposition to the evaulation of the “Aerotropolis” bill that a few Show-Me Institute policy analysts have offered, suggesting that we have been “misstating the legislation and [supporters’] intention.” We have not, and I’d like to take this opportunity to unpack Rainford’s letter for a critical analysis.

Rainford asserts, in contradiction to the “China Hub” proposal’s own experts, that the “Big Idea” (as he calls it) is designed to “sustain 20 to 30 international cargo flights per week.” Thanks to a Sunshine law public records request of email records related to the China Hub, we know that the current $60 million tax credit proposal would require quote “volcanic demand” to reach just the 20-flight level. It’s more likely, documents reveal, that the credits would attract half that number. It is not clear whether Rainford was aware of this March reassessment.

Rainford says that the credits will result in “thousands of new jobs.” He does not justify his claim on any grounds whatsoever. Are these jobs saved and created? And what of the jobs at the warehouses already vacant in Saint Louis, encompassing 18 million square feet of unsubsidized real estate?

Rainford evokes imagined ownership of the Lambert–St. Louis International Airport by “a Wall Street hedge fund, Carl Icahn or the Chinese” as stark warnings against proposed privatization plans. Setting aside for the moment the stunning slam that Rainford levels at the very Chinese trading partners he wants to do business with, the idea that the airport under public management has been a success over the last few decades is a stunning delusion. Lambert’s flights have been reduced to a fraction from their highs only 20 years ago. In the private sector, that would spur a change in management. In the world of government bureaucrats, it apparently means throwing good money after bad, leaving the historic fundamentals unchanged.

Moreover, Rainford tells us that the bill’s supporters “are not gambling” by pushing the Aerotropolis legislation in its current form. He’s right. Gambling suggests that Missouri’s taxpayers might win by fronting the money for this exclusive group of developers. They won’t. The present bill — 85 percent of which is geared toward building unneeded warehouses, not even subsidizing flights, and 100 percent of which is funded by taxpayers — raises a couple of obvious but apparently overlooked questions. If this proposal is so dynamic and rich with potential profits, why haven’t private developers been pushing such a lucrative deal on their own? And why then are tax credits needed at all?

We certainly understand the desire to jump start the Saint Louis and Missouri economies, but we believe that public officials have taken off on a “flight of fancy” when it comes to the Aerotropolis bill.

Excellent Op-Ed About Corporate Welfare in the Kansas City Business Journal

Posted on by David Stokes

Friday’s Kansas City Business Journal had a terrific piece about the problems with corporate welfare and economic development in Missouri, written by Clint Anderson. You need a subscription to read the whole thing, but I wanted to point it out anyway. It hones in on the recent incentives given to Applebee’s to move back to Missouri. Anderson wrote:

Here we are in the spring of 2011, and the Applebee’s division of DineEquity has secured $12 million of tax giveaways from Missouri taxpayers to cross the state line by 500 feet. Being the “Show-Me State,” Missouri has been shown the path for such nonsense by none other than Kansas’ former Secretary of Commerce David Kerr.

Kerr presided over Kansas’ handouts to Applebee’s in Lenexa, and now heads up the Missouri Department of Economic Development. Kerr is experienced at shoveling taxpayers’ money into Applebee’s coffers.

If you can’t read it online, try to get a hard copy of this week’s Business Journal to read it. It is worth your time.

Saint Louis County Sales Tax Pool Should Be Expanded, Not Contracted

Posted on by David Stokes

According to legend, Alexander the Great solved the riddle of the Gordian knot with one swing of his sword. I recommend we take a similar action to resolve an arcane but important debate about the future of sales tax distributions in Saint Louis County.

Cities in Saint Louis County are either “point-of-sale” or “pool” cities. Most “point-of-sale” cities, such as Des Peres, have major shopping centers. They keep most of the sales taxes collected within their boundaries, but submit a portion to the pool. “Pool” cities, by contrast, share all the sales taxes they collect with other members of the pool. Some of the cities that are currently in the pool have joined the hunt for the almighty sales tax dollar, and want to become point-of-sale cities. They are now seeking legislation that would authorize such a change.

The current debate hinges on the choice between preserving the status quo or adding more point-of-sales cities. There is, however, a third — and better — option: Combine all general sales tax collections within the county into a single pool shared by every city, with no exceptions.

In one stroke, the elimination of point-of-sales cities and the move to a fully pooled sales tax system would reduce the use of tax increment financing (TIF), eliminate the primary incentive for eminent domain abuse, encourage regional growth, and limit government planning in our economy. It would end a good deal of the unhealthy competition between municipalities that subverts, rather than supports, private enterprise.

All of the major examples of eminent domain abuse by local governments in Saint Louis County have occurred in point-of-sale cities. Beyond that, the unending search for the almighty sales tax dollar has led to vast public tax subsidies for retail developments across the county. As documented in a report by the East-West Gateway Council of Governments, the prevailing addiction to TIF and other subsidies for retail development has expended billions tax dollars, but, in their words, has “not resulted in economic growth for our region.”

Fenton Mayor Dennis Hancock is among those who have argued that changing — or eliminating — the pool system would encourage pool cities to take charge of their own development. But when you hear local officials talking about “economic development,” they do not envision government stepping back in order to allow market forces and entrepreneurs to determine the best use of commercial property. To the contrary, city planners and officials would seek to subsidize retail developments with tax dollars, in the hope of generating sales taxes that would disproportionately benefit their own cities. This kind of beggar-thy-neighbor practice is only destructive in the long run.

Nobody, including local officials, has any idea what the right amount of retail is for Saint Louis County. However, as long as individual municipalities within the county have a point-of-sale tax option, many cities will use tax incentives to favor retail development over other types of business and industry. As shown repeatedly, this approach fails to grow our regional economy. Arm-in-arm with this planning comes the abuse of eminent domain, wielded to acquire the properties that cities and developers want to take. Moreover, school districts, which depend on property taxes, are harmed when cities give away property tax abatements in favor of sales taxes.

Under a fully pooled sales tax system, people in the county would benefit from all types of economic development, regardless of its location. Retail centers would locate where they are most suited, as determined by best business practices rather than by government subsidies. Cities would benefit as much from office buildings or factories as they would from retail. A pooled sales tax system helps remove government from the real estate development industry, but adding new point-of-sale cities would cement the government’s involvement even further.

Those who support the pool system should do more than fight for the status quo. They should take this opportunity to expand the pool system to include all general sales taxes within the county. In a single stroke, it would be possible to reduce tax subsidies, limit government involvement in our economy, ensure our property rights, and promote more vibrant economic growth for everyone.

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

Aerotropolis Tax Credits Are Still a Bad Idea

Posted on by Audrey Spalding

Today, the St. Louis Business Journal published a letter by Jeff Rainford, chief of staff for Saint Louis Mayor Francis Slay. In it, Rainford argues that $300 million in tax credits for warehouse construction near the Saint Louis airport and $60 million in tax credits for international cargo flights are essential to bringing in new economic activity to the region. That bundle of subsidies, which was proposed during the past legislative session, was contained within the so-called “Aerotropolis” bill.

Christine Harbin, Patrick Ishmael, and I all took issue with the form of those tax credits, and with statements made by public officials in favor of the tax credits:

Rainford writes:

[W]e are not gambling. The Aerotropolis credits cannot be used until the facilities are built and are being used for international cargo. If none of that happens, then no one will have used the Aerotropolis credits, and the state will lose nothing.

With all due respect, I find this statement misleading. True, the legislation does specify that some new warehouses must process some level of international cargo. But the devil is in the details.

Owners of warehouses with international cargo consisting of as little as 20 percent of their operations could receive the Aerotropolis tax credits for an overall subsidy of up to 30 percent of their demolition, construction, and equipment costs. Owners of warehouses with international cargo consisting of as little as 10 percent of their operations could receive the Aerotropolis tax credits for an overall subsidy of up to 20 percent of their demolition, construction, and equipment costs.

Most strikingly, owners of warehouses that use two modes of commerce — not necessarily air cargo, but perhaps road and rail transportation — could draw on the tax credits. So could owners of warehouses that are refrigerated for storage of perishable materials. Again, the Aerotropolis legislation doesn’t require those facilities to process international cargo.

My concerns with the proposed subsidies stand. Couldn’t these tax credits be used to pay for business as usual? There’s no protection for taxpayers specifying that, if the international agreements never materialize, the tax credits won’t be awarded.

For readers interested in the gritty details of the tax credit proposal and the flaws behind assumptions and statements made by Aerotropolis supporters, stay tuned. Look for a longer, more detailed publication in the next week or so. In it, we wonder, can Missouri really ship beef to China, as proponents have stated? Are the projected increases in flights realistic? And how have the results of tax credits fared in the past?

Local Government Inhibits Ice Cream Innovation

Posted on by John Payne

During the past few weeks, this sound has become familiar to many Missourians, particularly those who live on or south of Interstate 70. That’s because the Great Southern Brood of cicadas has emerged to reproduce and fulfill its 13-year life cycle. The creative minds at Sparky’s Homemade Ice Cream, a local institution in Columbia, thought they could use this as an opportunity to experiment with a new ingredient:

Cicada

Yum. Despite many people’s instant aversion to the insects, people have eaten cicadas for decades — but typically grilled, and never before in ice cream, to my knowledge. Nonetheless, the concoction proved a hit — so much so that Sparky’s sold out of it before it even officially debuted. Unfortunately, the health department warned Sparky’s against making more, likely ensuring that this will be the only batch of cicada ice cream ever sold there:

Sparky’s approached the Columbia/Boone County Department of Public Health and Human Services and asked about the use of cicadas in the ice cream, Gerry Worley, environmental health manager for the department, said.

“The food code doesn’t directly address cicadas,” Worley said. “We advised against it.”

Despite the fact that people are free to eat cicadas on their own and frequently do so, the city has recommended that food service professionals avoid using this highly demanded ingredient. Everyone loses in this situation. Sparky’s loses business and publicity. Consumers lose an exotic experience. The only winner is a climate of senseless regulation.

No Truck With Food Trucks?

Posted on by Christine Harbin

Food trucks are gaining popularity nationwide, and the greater Saint Louis area is no exception. Some localities wish to ban the food trucks, restricting competition and consumer choice. In this video, cupcake truck owner Jeff Pupillo explains how allowing such competition benefits consumers, workers and taxpayers.

New Ethanol Mandates From Washington

Posted on by Alex Bluestone

My father founded and ran several area gas stations until his death. At first, he embraced the use of oil and gas mandates like those that regulate the ethanol industry — he saw ethanol as a possible revenue stream. However, optimism dwindled as each fall’s harvest brought bushels of despair, not what others had promised. He would one day realize the strife that comes with perverse government regulations.

Many have regarded ethanol to be the proverbial “fuel of the future,” claiming that it reduces the cost of gasoline at the pump while also emitting less pollution. Although ethanol can replace gasoline in some ways, it is less beneficial than many expect.

The Department of Energy began releasing data in 1997 determining that some of the benefits derived from ethanol don’t outweigh the costs, as researchers had previously believed. Ethanol may emit less pollution when burned in place of gasoline, but the Environmental Protection Agency reports that it releases carcinogens at far higher levels than they predicted when it’s created.

Despite the abundance of new testimonies and information, however, both the federal and state government continue to support ethanol ardently, as our country’s energy messiah.

Pointing to often-circulated claims of environmental friendliness and cost-effectiveness, Rep. John Shimkus from Illinois recently introduced new legislation that would impose further government mandates for the production of ethanol. Amid another distressing year for Detroit, this governmental decree would require that 50 percent of all new automobiles be capable of running on ethanol and other non-petroleum fuels by 2014. That number would stiffly rise to 95 percent just three years later.

So, do the advantages of ethanol outweigh the costs? The answer, simply, is no. Aside from its counterproductive environmental effects and proven efficiency loss for each mile to the gallon, ethanol is a precarious investment for the government to force on us for several reasons:

  • First, it has been shown that increases in ethanol production are correlated with an increase in food prices. These effects can be felt not only statewide, but also nationally and internationally.

  • Second, and as a direct result of government mandates, a cloud of pseudo–market demand now hangs heavily above the heartland. Simply put, the current supply/demand ratio did not arise naturally from the decisions of producers and consumers, interacting voluntarily in the market. Instead, the ethanol industry is artificially bolstered by government sanctions.

  • Finally, both this mandate and others like it point to the essence of how government controls harm the economy. There are too many hands in the cookie jar, and, as a result, everyone’s hand gets stuck; the cookie crumbles. Automakers should not be burdened with absurd requirements such as this from legislators who seek to alter the free market for the sole benefit of their constituents, and at the expense of everyone else.

Don’t get me wrong, I support the development of renewable energies and green solutions. Markets reward efficiency. However, as both a Missouri resident and an owner of my father’s businesses, I find that legislation like our own E-10 mandate and the proposal advanced by Rep. Shimkus in Illinois are harmful — especially in the long run.

Neither supply nor demand would exist at anywhere near current levels without both federal and state mandates, both of which have propelled ethanol into the forefront of the American auto and oil industries. As it stands, the eagerly pushed supply of ethanol more than satisfies current market demand. And that, folks, is just basic economic principle.

Elsberry Votes Down a Gas Tax Increase

Posted on by David Stokes

Elsberry, in Lincoln County, voted down a local gas tax increase proposal yesterday. Considering that the vote requires a two-thirds majority to win, it failed by a mile. I am embarrassed to admit I only recently became aware that cities in Missouri even had that option. According to the Post-Dispatch, only one small city in the entire state has implemented it — Matthews. See Article IV, Sec. 30(a)(3)3, aka page 67, of the Missouri Constitution for the applicable rules.

This is one local tax increase for which I could easily vote in favor. I prefer increased use of tolling to address most of our highway issues, but that is not realistic at the local road level. Per-mile charges raise serious privacy concerns for me, and although private local roads presently serve a worthy purpose, they have little chance of expanding beyond certain neighborhoods. That leaves us with gas taxes. I think most people would agree that the gas tax is one of the better taxes, from the perspective that the people who use the public asset end up paying for the majority of that asset.

If I lived in a community that was having legitimate issue with funding road maintenance, I could see myelf voting for a small, local gas tax increase.

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