Less for More

Posted on by Bruce Stahl

Have you ever heard of a property developer spending more to rehab a building than he expects to make from its sale? Thanks to Missouri tax credits, some developers are doing just that. These developers are only able make an after-tax profit because of the tax credits awarded to them. At a board meeting of the Land Clearance for Redevelopment Authority (LCRA) on Tuesday, one applicant said that he planned to spend $340,000 to redevelop a property that he expected to sell for $140,000. He told the LCRA that he would make up for the difference with tax credits. I couldn’t discern the amount by which a second developer expected to sell his property below redevelopment costs, but he too said that tax credits would make up the difference.

The LCRA reviews applications to designate properties “blighted.” This designation allows property taxes to be frozen at some base level, while development increases the property value. Many of the projects reviewed Tuesday were for development activities costing millions of dollars. Who is to say whether such projects are more worthy than smaller projects of receiving tax abatement? Why don’t people receive tax abatement for marginal projects, such as maintaining their lawn or washing their windows? Surely, the property would not be as developed if property owners never engaged in these routine activities. I can only imagine how blighted my house would be with an unkempt lawn, dirt-covered glass, and a broken fence. What about all the times I spent hedging the bushes and vacuuming the floor? Why doesn’t everyone receive abatements?

Tax credits and abatements have two types of effects: the observed and the unobserved. We all see the developer who builds a beautiful house using the tax incentives. We see the lumber producers selling more wood and the tool manufacturers selling equipment. We see the businesses and the jobs created and maintained from the endeavor. But we don’t see what does not happen because the tax incentives were awarded. We don’t see the local school that would have received additional revenue, the relatively lower taxes that would have been levied for everyone else, or the forgone purchases these taxpayers would have made. We don’t the additional teachers that could have been hired in school classrooms, or the taxpayers who could have purchased another gallon of gas. We don’t see all the jobs that would have been created and new purchases that would have been made if the money to fund those tax incentives had not been taken away from the people who would have otherwise used it. We are only able to observe the activities that have been granted official approval by the state and the LCRA.

The unobserved effects of the tax credits are that the people paying taxes are less able to purchase what they like most. Instead, they pay relatively higher taxes in order to fund incentives that generate undesirable products, such as subsidized homes costing $340,000 that will fetch only a $140,000 price.

Tax credits and abatements award businesses with revenue disproportionate to the value that consumers would place on their product. These are poor government policies, and ought to be abandoned.

Rebuilding, Not Rebranding

Posted on by Patrick Ishmael

“Extreme Makeover,” indeed. After previously likening the project to a “developer’s relief act,” last Friday it appeared that the St. Louis Business Journal had reversed its position on “Aerotropolis,” hinting in a staff editorial that it supported having the legislature go into a special session to take up the project’s tax credits.

The editorial was in fact one of a battery of at least five neutral-to-positive stories that dealt directly or tangentially with Aerotropolis that week, a strange reversal by the Business Journal but coming only a week after Saint Louis Mayor Francis Slay’s chief of staff, Jeff Rainford, wrote a letter to the paper in support of the project. (My response to Rainford’s letter appears here.) It’s of course one thing for the Business Journal to change its mind on such an enormous budgetary issue, and present a united front in its support; it’s another thing to do it all without substantial justification, which the publication unfortunately did not provide in any of its five stories touching on the subject.

Still more unfortunate is the manner in which the Business Journal mused that Aerotropolis could make it to the special session: by hitching it to the tragedy in Joplin (emphasis added):

The view from St. Louis looks directly at China. Those who represent Aerotropolis as Joplin’s lifeboat are just silly. We need to respect the severity of their plight and not tie it to anything but the survival of their community.

It would be great for lawmakers and the governor to brand this session the economic development moment for Missouri: investing in Joplin and supporting a China hub while reorganizing (read “shrinking”) tax credits.

That could make for a truly special session.

The Business Journal lectures that Aerotropolis supporters should “respect the severity” of Joplin’s tragedy, but then basically says that if proponents play their cards right, maybe — just maybe — there will be something in it for Saint Louis, too … just have to “brand” it right. Keep in mind that Joplin is set to get about $50 million from the state. Under the Business Journal‘s plan, Saint Louis would receive more than seven times that amount in such a “truly special session.”

Sad? Yes. “Truly special”? No.

The path of devastation caused by the EF-5 tornado that ripped through Joplin does not lead all the way to Saint Louis, and it was wrong for the Business Journal to suggest that the tragedy should be lined up with unrelated pet projects, and the session “rebranded,” to benefit Aerotropolis.

The Business Journal was right the first time: Aerotropolis is a developer’s relief act. It’s sad that the newspaper and others would attempt to pair their project with genuine relief efforts.

Pop-Tartocracy

Posted on by Patrick Ishmael

As labor unions shrink, new and exciting ways of promoting union membership are springing up all over. In April, I wrote about one university course in Missouri that delved into the finer points of using thug tactics in labor disputes, which is a pretty terrible threat to democratic principles on its own. Yet the threat of physical violence isn’t the only effective means of coercion available to the labor movement, or to any movement, or the most powerful tool in that tool kit.

After all, the government is well-equipped to bust some proverbial knee caps of their own, and it looks like the National Labor Relations Board (NLRB) and the Labor Department are taking out the big bats. First, it was Boeing’s decision to move some of its operations from Washington state to South Carolina, which the NLRB is now trying to block. This week, it’s the Labor Department’s turn to do some damage, tightening requirements on employers to report their anti-unionization activities. And today, the National Review editorial board lays out the NLRB’s latest plan to help organized labor and make employer attempts to dissuade employees from unionizing that much more difficult.

It is truly worrisome that the small, ideological leadership of these bureaucracies can so easily, and unilaterally, craft American labor law and interfere with the movement of labor without even a contemporaneous, affirmative act of Congress compelling these fresh rule-making activities. We already know that Obamacare didn’t empower the administration to offer waivers to the law. We know that the Obama administration wants to enact gun control through administrative procedure. Is there anything federal bureaucrats can’t do? If not, isn’t that an enormous problem?

National Review‘s Kevin Williamson puts the problem this way (emphasis added):

If you are an entrepreneur thinking about starting a large industrial enterprise, or an incumbent firm thinking about building a new factory or launching a new line of production, you want to know that your tax and regulatory environment is livable — and that it is not going to change at the whim of one or two or three people in Washington, D.C. The NLRB has five seats (and four members serving; there’s a vacancy at the moment). The fact that such a tiny group of unaccountable political appointees can just wake up one fine morning, have some Pop-Tarts, and then decide to rewrite the nation’s union-election rules is terrifying. Such changes ought to require an act of Congress.

Roll out of bed, toast a pastry, pass a rule. Maybe a bat isn’t necessary after all.

Eco-Devo Mad Libs: So, Are 5,000, 29,000, or 37,000 Jobs Being Saved or Created With “Aerotropolis”?

Posted on by Patrick Ishmael

This is one of the biggest supposed selling points of spending $300 million on warehouses, and yet apparently none of the proponents can agree on what one third of a billion dollars buys taxpayers.

From Wednesday’s Patch, which seems to be a very pro-“Aerotropolis” publication (emphasis added):

Mike Leblanc, co-chair of the Northwest Chamber’s economic development committee, said if the legislature waits until September to look at the issue, the Chinese may discover Kansas City, MO or Memphis, TN are more serious than St. Louis about establishing a partnership.

Leblanc said establishing the China Hub would create 5,000 jobs in the St. Louis area. He wondered how the legislature would leave the 2011 session without addressing the issue.

“To leave session without addressing this issue and the possible creation of 5,000 jobs is unacceptable to most of the voters in a nonpartisan way,” Leblanc said.

“Possible creation.”

Then, from Thursday’s St. Louis American, which also seems to be a very pro-Aerotropolis publication (emphasis added):

On May 13, the last day of Missouri’s 2011 legislative session, the so-called “Aerotropolis” proposal died when legislators couldn’t resolve their differences on tax credit reforms to a larger economic development bill. Aerotropolis had been bundled as part of that development package.

Advocates of Aerotropolis claim its tax incentives would spur the creation of 23,000 construction jobs and 13,800 new permanent full-time jobs.

It appears that the St. Louis American‘s numbers originate from a St. Louis Regional Chamber & Growth Association (RCGA) study dated April 19, claiming 23,325 construction jobs and 13,844 full-time “operations” jobs would result from the project, or 37,169 jobs total.

Two Saint Louis chambers of commerce, two radically different answers for the job impact of Aerotropolis, one 700 percent greater than the other.

The RCGA on Friday produced even more recent numbers than those cited by the American, in response to Michael Webber’s piece in Air Cargo News. The difference? The newer analysis, apparently dated April 27, now says that the project will lead to 18,468 construction jobs and 10,941 full-time “operations” jobs, or roughly 29,000 jobs, a reduction of more than 20 percent from the original numbers.

So, now we have three figures for the number of jobs promised, two of them originating from the RCGA.

Perhaps worse? The RCGA repeated their larger April 19 job numbers in their May 2 Monday briefing, after they apparently had new jobs numbers to distribute. Before it released these April 27 numbers to Air Cargo News, had the RCGA made these downwardly revised numbers available to the public? We know that the St. Louis American certainly relied on long-outdated information.

More importantly, are supporters just making up these jobs figures as they go along? None of the proponents seem to be able to keep their job numbers straight.

Gooooooaaaaaaaallllll!!!!! Supply-Side Economics, 1; Missouri, Nil

Posted on by Turner Trapp

As Americans, we often don’t enjoy hearing how some country in Europe is doing something better than the United States. We certainly don’t like hearing how European football stars are better athletes than our own players. All grudges aside, though, an interesting study detailed in the June 20 edition of the National Review suggests that American government could learn a thing or two from studying European soccer leagues.

In his article “Supply-Side Soccer,” economist Kevin A. Hassett describes the findings of a new study published by the National Bureau of Economic Research, “Taxation and International Migration of Superstars: Evidence from the European Football Market.” The report, by economists Henrik Kleven, Camille Landais, and Emmanuel Saez, studied the top soccer clubs in 14 European countries from 1980 to the present, exploring how changes in tax rates affected players changing teams, and to what extent player mobility affected club performance.

To break the results down simply, countries such as Spain, which lowered income taxes for the highest tax brackets, ended up attracting the best players. This, in turn, led to higher performance in the European soccer leagues. In order to compete with the lower-taxing countries’ offers, high-tax-bracket countries would have to offer much larger salaries for the players to obtain equal standards of living.

At the end of his article, Hassett points out that this same principle stays true for business climates between political jurisdictions. This is a point that Missouri should take under advisement, for businesses often follow the same trends between states.

As seen in the Show-Me Institute case study examining the differences in tax policy between Tennessee and Missouri, while Missouri instituted and then raised an income tax, our southeastern neighbor remained income-tax free. The study found that this difference in policy is positively correlated with Tennessee, historically our economic lesser, rising above us in terms of population and economic prosperity.

Attracting new business is a crucial part of ensuring future economic prosperity, and revitalizing the economy. Instead of offering giant multi-million-dollar tax credits to developers or specific businesses in efforts that rarely if ever deliver on their hoped-for success, why not cut taxes across the board to create a climate conducive to all businesses?

Of Bikes and Birds

Posted on by Audrey Spalding

As a former Columbia resident, I’m not surprised that the city is working to build more bike trails. Columbia has a dedicated group of enthusiastic bikers, and some of the most beautiful trails I’ve ever seen. I put more miles on my bike than on my car during my time in Columbia. And who wouldn’t, with the MKT trail connecting the city to Missouri’s KATY trail, a stretch of more than 200 miles, some of which runs along the Missouri river?

But the cause of expanding bike trails, no matter how popular, should not give Columbia community leaders carte blanche to lay bike trails down wherever they please. If some person, business, or organization owns property and doesn’t want a bike trail running through it, they should be able to politely reject the city’s plan to construct a bike trail on their property.

Unfortunately, it appears that the city council may decide to ignore such a refusal. And, in a strange twist, the city is poised to harm the ability of some Columbia residents to enjoy the outdoors in the name of encouraging other Columbia residents to enjoy the outdoors. PedNet, the Columbia organization that promotes bike travel and the expansion of bike trails, is urging the city to use eminent domain in order to construct a bike trail on the Columbia Audubon Society’s (CAS) property.

Bill Mees, who is on the board of CAS, worries that the construction of the trail will irreparably damage the bird-friendly property. From his op-ed in the Columbia Missourian:

Actually, the trail would extend the full length of the south side of CAS property. The southwest corner is a steep forested hillside. Compliance with the Americans with Disabilities Act will require switchbacks and extensive grading. Result: 100- to 200-year-old trees cut down, and others damaged or killed by the construction.

I wonder, does the city of Columbia think that the views of people who enjoy biking matter more than the views of people who enjoy bird watching?

Some might argue that bike trails constitute a “public purpose,” and that the use of eminent domain is warranted. After all, eminent domain is used for roads. Aren’t bike trails, as a form of alternative transportation, just as valid of a public purpose?

In short: No. As much as bike enthusiasts might hope for a future when more people use bikes as their primary form of transportation, goods will not be transported by bike trail. Even the local grocery store’s stock involves road transportation. If public transportation rates were to double, roads would still be necessary — how else could buses travel?

Bike trails in general are traveled by a small set of the population. The bike trail that proponents want to construct on the Audubon Society’s property will be used by an even smaller group. Why take, and partially destroy, the Audubon’s Society’s property for use by these favored few?

It’s not as if there is no alternative. According to Mike Hood, the director of the city’s Parks and Recreation Commission, sending the bike trail through the Audubon Society’s property would cost nearly $1 million. An alternative route, along a section of existing sidewalk, would cost between $120,000 and $150,000.

I’m no city council member, but the decision seems easy. Choose the low-cost option that doesn’t require taking someone’s property.

Development Spending by Government Only Multiplies Madness

Posted on by John Payne

Growing up in a small town in Southeast Missouri, life often felt painfully slow. Amusement was limited to the bowling alley, the skating rink, and four movie screens. At least twice a year, however, a carnival passed through town like an industrial age gypsy caravan. I found the mixture of bright lights, rickety rides, and sugary concoctions nearly intoxicating, but the games were my real vice. The calls of carnival barkers played to my pride and greed. Toss a ring around a bottle and win a bunny? It looked so easy. No nine-year-old could resist. It took a few years and untold dozens of wasted dollars, but eventually I discovered that I’d been had. Time after time, I was suckered into throwing good money after bad. My naiveté was regrettable, but to be expected from a child.

Less excusable are the actions of supposedly wise politicians who lay down billions in tax dollars in the vain hope of hitting it big with a stimulus or economic development bill. We are promised that a dollar in government spending will create more than a dollar in economic growth.

This idea, known as the fiscal multiplier, has never been borne out by evidence. When the actual results of government spending on the economy are examined, they show lackluster or even negative returns. However, that has not stopped proponents of greater government spending from using the multiplier to promote everything from the federal stimulus bill to state and local subsidies for warehouse construction around Lambert–St. Louis International Airport.

The multiplier is based largely on the work of economist John Maynard Keynes, who argued that higher government spending combats people’s propensity to hoard money in a recession and puts unemployed people and resources to work. As the spending ripples across the economy, a dollar in government spending should cause substantially more than a dollar in economic activity.

The Barack Obama administration invoked multiplier theory to promote the $787 billion federal stimulus package. The president’s economic advisers assumed every dollar spent by the stimulus would add $1.50 to gross domestic product (GDP). In a March 2 column for the New York Times Economix blog, University of Chicago economist Casey Mulligan showed that stimulus spending did not boost GDP, and may have caused it to shrink.

Nor has stimulus spending delivered the bounty of jobs that its supporters promised. Obama claimed that the stimulus would prevent unemployment from exceeding 8 percent., yet it hit 10 percent and now remains stubbornly stuck at 9 percent.

Others have taken this idea a step further, claiming a still bigger multiplier effect for specific projects — thinking, just as I did in my youth, that it must be easy to toss the ring around the bottle. When final plans for Ballpark Village were announced in 2006, the Saint Louis Regional Chamber and Growth Association (RCGA) estimated that Phase I of the project would cost $387 million, but generate $273 million annually — paying for itself in a year and a half. Of course, this assumed that everything would go as planned. Almost five years later, construction has not started and the investment has been downgraded to $155 million, with at least $57 million of that coming from various levels of government. Furthermore, Ballpark Village is primarily shuffling existing businesses around instead of attracting or creating new ones. Stifel Financial Corp., the village’s largest future tenant, will move all of seven blocks.

Despite these failures, politicians of every stripe recently trotted out the multiplier to support subsidies for warehouses around Lambert, through “Aerotropolis” legislation. Although the precise equation behind it remains shrouded in oracular mystery, an RCGA study predicts that $300 million in public funding will lead to almost $34 billion in private economic activity over 20 years, suggesting a truly absurd return of more than 10,000 percent. Here, the Keynesian multiplier has itself been multiplied by the central planner’s conceit of being able to pick winners successfully — truly a sucker’s game.

The government cannot create resources from thin air. It must take them from taxpayers through taxation or borrowing. Resources used by the government therefore cannot be used by the private sector. Increasing government spending does not in itself increase the country’s capacity to produce — it just shifts existing production away from goods and services that consumers demand, and toward those demanded by politicians.

The multiplier is a lie, but an attractive one, luring the listener like the familiar siren song of my youth: “Ring the bell, win a prize!”

John Payne is a research assistant with the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

Missouri Privatization Roundup

Posted on by David Stokes

There has been a great deal happening on the issue of privatization throughout our state. Tony’s Kansas City has been reporting that Missouri-American is in talks with Kansas City officials involving the city’s water division. Here’s hoping this is true. This would be excellent for Kansas City in both the short and long run. Private companies do a perfectly fine job of providing gas and electricity to Kansas City, and water to many other parts of Missouri. Private utilities are heavily regulated in Missouri, and local mandates can be included in any agreement between KC and Missouri-American Water. (I am not saying local mandates should be included, just that they could be if local officials think they are necessary.)

In economic terms, public goods are non-rivalrous and non-excludable. Except in extreme circumstances, the water I consume does not limit your consumption of water. In this case, the water in the Missouri River is non-rivalrous. However, with utility services — as opposed to national defense or local roads — it is easy to prevent someone from using the asset if necessary. They are excludable. It is hard to argue that water access and infrastructure needs to be provided by the government, especially when there are private providers operating in the area that have a proven ability to provide the product. And it is even more difficult to make that argument when a lease, management contract, or utility sale would be valuable to taxpayers. (To those who might scream about everyone having the basic right to water, you are all free to collect rain water to drink, and to take baths in a local stream all you want. This is about the demand for pressurized hot or cold water coming into your home on demand by turning a tap.)

To its credit, Kansas City’s water division at least charges for its water like a private good instead of a public good. The fact that Saint Louis still lacks water meters for most of its consumers is absurd. Even if Kansas City changes the debate some by charging for water more like a private good, the fact is that public utilities far too often lack the political will to charge what they need to charge for the asset.

Also in Kansas City, the private contract to operate the animal shelter has been pulled. This happened awhile back, and I touched upon it here, but this is a great disappointment. This is clearly not a failure of privatization, unless saving money and increasing adoptions is a failure. It might be considered a failure of this particular private operator, but I remain unconvinced. I think that there is a core group of activists/volunteers who will never be happy with any system until they get a no-kill shelter in Kansas City. I say this as a dog-lover who got my dog (who passed away last year at 10) back in 2000 from a local shelter.

I think the city caved to accusations, as this statement indicates:

“We’ve been receiving allegations from some of the volunteers who put in time out at the shelter regarding mistreatment of animals,” said David Park, director of Neighborhood and Community Services for the city. 

Park acknowledged the shelter has been run better now than in the past. 

“They’ve done a wonderful job, as far as increasing the number of adoptions. (Previously) the number of animals that were euthanized was far greater than the number that was adopted, and now the opposite is true,” Park said. 

According to Park, the city has to protect itself, even if the allegations have yet to [be] proved. 

“Until we have the formal results of the investigation back, we don’t want to renew a contract for a year, for another year, and then have something surprising come out of the Missouri Veterinary Medical Board — then we need to cancel right away.”

The private airport in Branson is struggling financially. It does not appear to be struggling in its day-to-day operations, but I’ll try to fly there next week to make a better judgement. They have two commercial airlines offering regular flights to Houston, Atlanta, and Denver, and more charter services. It remains to be seen how the airport’s debt issues will play out over time. I certainly hope that this experiment succeeds, but who knows? If it does fail, it will fail with (mostly) private money. Compare that to Mid-American Airport over in Illinois, and pick which style you want.

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