Show-Me Institute policy analyst Audrey Spalding gives her impressions on the “Aerotropolis” study.
Changes to the “Aerotropolis” Legislation: A Critical Review
Last week, Missouri legislators worked late into the evening to iron out the details in a lengthy tax credit bill. The legislation, which now stands at 330 pages, contains a tangle of changes to several tax credit programs, including a reduction of subsidies for the low-income elderly.
A set of subsidies for the construction of warehouses around the Lambert–St. Louis International Airport are now buried about halfway through this lengthy tax credit bill. If you’re an avid reader of Show-Me Daily, you already know that Christine Harbin and I have highlighted these subsidies extensively.
After all, it doesn’t seem to make much sense to award hundreds of millions of dollars to subsidize warehouse construction in the hopes of attracting increased international trade — without a comprehensive study demonstrating that more warehouses could help the state economy.
I don’t want to rehash all that. Instead, I want to detail the changes made to the “Aerotropolis” legislation. To summarize: The bill is more about subsidizing construction near the Saint Louis airport than attracting international trade.
The Good: Reduced Costs
- The cost to taxpayers has been reduced by $120 million. The old legislation would have awarded $120 million in tax credits to reimburse warehouse owners for a majority of the interest costs on their debt. That has been completely stripped out of the new legislation.
- Special tax exemptions for companies operating within a warehouse have been removed. If the old version of the Aerotropolis legislation had passed, companies operating within the already subsidized warehouses would have been exempt from state income tax and corporation franchise tax. Those are no longer in the legislation. I took particular issue with those exemptions because there was no limit imposed. Who could know how much revenue the state would forgo? Don’t get me wrong, lower taxes are definitely a way to encourage economic growth, but the legislature needs to lower taxes for all Missourians, not just the favored few (in this case, companies operating out of subsidized warehouses near the Saint Louis airport).
- The legislation no longer has a provision that would allow employers to keep the state income taxes withheld from employee paychecks. Thank goodness. The proposed legislation didn’t limit this amount, and the fiscal note didn’t estimate how much revenue the state would lose as a result. Additionally, this particular provision within the Aerotropolis bill seemed to match up with state tax increment financing (TIF) that had already been awarded to the Lambert Eastern Perimeter Redevelopment Project in 2006, meaning that development in this area is already subsidized.
- The Aerotropolis legislation awards $300 million in tax credits to developers and owners of warehouses. Under the original legislation, owners could receive partial reimbursement for their closing costs, brokerage fees, attorney fees, and maintenance costs of a property before actually building a cargo warehouse. With the new legislation, those costs are not eligible for state reimbursement. Only the costs of construction and demolition are now eligible.
The Bad: Lower Standards
- Originally, for an owner of a warehouse to get tax credits, the warehouse had to have a certain level of international shipping activity. The new legislation drastically reduces how much international cargo activity that a warehouse owner must process in order to be eligible for state tax credits. According to this version of the bill, a warehouse could be eligible for state subsidy if as little as 10 percent of its operations consisted of sending cargo to international destinations. And remember, legislators used the prospect of increased international trade to justify handing out hundreds of millions of dollars in taxpayer money. Is this legislation really just an effort to have the state subsidize the poorly managed city airport, which is currently carrying about $900 million in debt?
- The new legislation exempts warehouse companies and employees from the Saint Louis earnings tax. The state tax exemptions were eliminated from the earlier draft, and the city tax exemption was added. Again, it’s true that lower taxes encourage more economic growth, but why award that exemption only to a politically favored few? And wasn’t the city saying only a month ago that losing earnings tax revenue would result in a loss of city services?
The Ugly: Subtle Admission That Increased International Trade Is Unlikely
- The new legislation would award even more in state tax credits for each international export flight. In some cases, the increase is as high as 25 percent. The cap on those air export tax credits is still $60 million. Why would legislators increase the payout per flight but keep the cap the same? The only reason I can think of is that they think there won’t be enough export flights to hit the tax credit cap. This all goes back to my concern that there isn’t a firm commitment in place from any international company that, if more warehouses are built, there will be more international cargo flights traveling to and from Missouri.
- The new legislation would award more in state tax credits for warehouse construction. Again, the cap on the warehouse tax credits stayed the same, at $300 million. But the percentage of warehouse construction costs that the state will reimburse has increased in the new legislation. Is this an admission that fewer warehouses will be built?
There you have it. Although revisions to this legislation lowered some costs, the new bill reduces requirements to get state subsidies, and lowers the amount of “new activity” needed to hit the $360 million tax credit cap. Based on the changes made to the “Aerotropolis” subsidies, I would suggest a new name. How about “Lambert Warehouse Tax Credits”?
Testimony on the ‘Aerotropolis’ Bill
On April 20, 2011, the Missouri Senate Jobs, Economic Development and Local Government Committee heard testimony from the public about the proposed "Aerotropolis" subsidy bill. Show-Me Institute policy analysts Audrey Spalding and Christine Harbin were on hand to deliver their own impressions of the problems with the proposed legislation. They were, in fact, the lone opposing witnesses that day. Q&A with the state senators followed each policy analyst's remarks. Read their full testimony here.
Transcript
Audrey Spalding: [testimony]
John Lamping: The name of your organization again?
Audrey Spalding: The Show-Me Institute
Bob Dixon: I was just curious in listening to your testimony there about the cost … if you did any sort of analysis with respect to the opportunity cost of — let's say we don't do it, and it goes somewhere else.
Audrey Spalding: I have not done that study. We haven't had time to do that study given that the ”Aerotropolis” tax credits, the amounts in particular, were recently agree upon. I think, I would assume: 1) that the tax credits are necessary to the creation of an international hub; and, 2) that such an international hub would be successful. Regardless, I think anyone can agree upon the fact that there is at least a possibility that this is not successful.
Eric Schmitt: I have a follow-up. Mr. Dixon?
Bob Dixon: I would be interested to, if you're going to present a study like that, I'd be interested to see some sort of analysis on that. Because a lot of times we do things, recently we sent to the governor's desk a phase-out of the corporate franchise tax, but I don't think that your organization was here to testify against that because of the cost. I realize it's a different issue, but it seems to be an opportunity that, if it's lost, we could certainly lose out, and I'd like to see us calculate that cost. Thanks, Mr. Chairman.
Eric Schmitt: Thank you. And I want to, first of all I want to thank you for coming up here and testifying. I totally disagree with your analysis. You made reference to the $480 million. Are you aware of how long it would take for the $480 million, if everything hit, how long that would take?
Audrey Spalding: Yes, I realize that would not hit immediately.
Eric Schmitt: Do you know how long of a period of time it is?
Audrey Spalding: I believe that it's more than a decade.
Eric Schmitt: Fifteen years. So, if everything hits, if we hit the freight-forward piece, if we're building facilities, if we have industry that we don't have in our state right now, and the only way that they get any of the credit is: they invest in a $20–25 million building, they're operating, they've created jobs, we have the kind of economic activity that we were seeking with the legislation that we don't have, I do not understand how an organization that seems to at least state that they're for economic growth cannot get behind an idea of incentivizing people to come and do things that we just don't have. So, my question is, if this is a real possibility, is it worth doing? If China, which is first-in, is gonna move, and wanna have the ground, which they don't have in Chicago, is that worth having in our state?
Audrey Spalding: Well, I think perhaps we approach this from a different, each from different standpoints, obviously. Now, we're talking here about this proposed international hub, and of course there have been talks of a China hub in other countries, so this would be a wonderful idea. Given that those talks are occurring, isn't it also at least possible that Saint Louis–area developers and other such entrepreneurs would be entrepreneurial enough to seize upon such an opportunity without state help?
Eric Schmitt: But if you don't have, my question to you is, if it doesn't happen, and I know you're seeking some sort of letter of, memorandum of understanding or something. If it doesn't happen, none of this revenue that we would be foregoing — because that's what it is, we're foregoing revenue — which I find it interesting, actually, as a Republican, I hear a lot … really, what we're doing here is we are reducing the tax liability to create and to have an industry in our state that we don't have. I don't find that offensive in any way. People campaign a lot about this, about job growth, about opportunities, about having and creating an economic environment in our state that's conducive to the creation of quality jobs — well, here it is. And being critical of a new idea that's bold isn't anything new or isn't anything unique. I'm sure the steamboat captains of the late 1800s thought that the railroads were something that threatened their interest, or that people would be inconvenienced as their homes or property might be bought out to make way for the new mode of transportation. But guess what? One city got it right. Chicago got it right and Saint Louis was standing on the sidelines. I don't want to be remembered … there's a mural in the Senate, I spoke of this last time, of the first senator, Sen. Benton, who was talking about having that westward expansion of the railroad from Saint Louis to the west coast, and we missed it, OK? What I'm saying this session is: This is important enough that I think we need to stand up for growing the pie. And I know there's going to be plenty of people that poke holes and have criticism, but that's what critics do, OK? It's our job, up here, to seize on an opportunity to grow our economy, and there couldn't be anything more real or more immediate than being in the center of an international trade hub. Any great civilization, any great city has been at the confluence of routes, of commerce, of industry. That's what we have an opportunity for, here. And just because we want to live in an ivory tower and we want to give great speeches about what things might look like if we lived in some utopian world — we don't live in that world. We don't live in that world. So we can choose to compete, or we can be economic isolationists and we can build a great wall around our state. I think it's our job in this committee and in this Senate in this session to break down those walls, to open up trade routes, to create opportunity for Missouri businesses, the ag community. We heard from the pork producers today. This is an opportunity that we haven't seen in this state. So I appreciate, I really do appreciate you coming up here. I appreciate your different point of view. I've seen some of your articles. I haven't had a chance to visit with you; we haven't had a chance to talk about the legislation. I'd be happy to do that with you more. I know that you were probably coming in to a room where there's a lot of support, so I do appreciate that, but I respectfully disagree. Thank you. Any other questions?
Victor Callahan: Railroads were federal stimulus.
Eric Schmitt: Any other witnesses in opposition?
Christine Harbin: [testimony]
Eric Schmitt: Before I go, I just want to make note that it sounds like you're advocating more money for social spending, and, if I recall correctly, the Show-Me Institute was against the autism bill last year.
Christine Harbin: I'm sorry?
Eric Schmitt: The autism bill. I believe the Show-Me Institute had an editorial piece against the autism legislation last year, so I'm glad to see that the Show-Me Institute is advocating more money being spent on social programs now.
Christine Harbin: That wasn't my implication and I didn't work on that particular thing.
Eric Schmitt: Any questions? Sen. Dixon.
Bob Dixon: Earlier in your testimony, you referenced my question of the previous witness, and then in your reference to the St. Louis Business Journal, I believe in their editorial, before I ask you a question I'll just mention: I probably take greater offense at being called "out-state." I'm from Springfield, and I don't have … you know, I'm not in the Saint Louis area, and I support this legislation wholeheartedly because I think it's good for the entire state. But that, I'm more concerned about that mentality that we're not in-state, we're out-state, than I am anything else, because we don't need those kind of divides in Missouri, and that's part of what has hampered progress in the past. But my question specifically is, going back to what I asked of the previous witness, if you would please clarify what you said pointed to that question, because I still don't see anything where we're talking about the lost opportunity, and where that cost has been calculated. And then, specifically what services — and you used the word "services" — would be. That also is a concern, but I won't go into a big statement about that, because I don't believe the state provides "services," or if that fits. But if you could enumerate on what services you think we need to be funding with those "opportunity dollars," if you will, and then, also, how that testimony would have addressed my previous concern.
Christine Harbin: Sure. When I say "services," I just mean other government programs. I'm speaking in very general terms. I'm talking about education …
Bob Dixon: Bureaucracy.
Christine Harbin: Yeah, building roads, fixing potholes, stuff like that.
Bob Dixon: Those basic things I can agree with are functions, but if we're talking about "services," there's a lot of people roaming these halls talking about benefits for this that and the other, which, in my opinion, are not a function of state government. To that point, that answers that question. Specifically to the lost opportunity cost, if you could address that.
Christine Harbin: Certainly. Well, I would say that it's impossible to calculate with certainty what could have been in the absence of this policy. However, what I described in my testimony is … When you have a large public works program like this, when you have a large tax credit program like this, people are forced to, taxpayers contribute more of their earnings, a greater percentage of their earnings towards the program. And so, as a result, it means that they have less money to spend in the private sector.
Bob Dixon: Potentially.
Christine Harbin: Potentially. Because otherwise, they could see a reduction in services, too. It's some combination.
Bob Dixon: Some of that, though, I would have to say, and I'll yield back to the chair, but some of that also comes from the concept that any money not collected by government is actually just tax money that we didn't collect, which I fundamentally disagree with that whole mindset. A tax credit is not, and the courts even have ruled on that in various cases, one in particular, but those are not state dollars.
Christine Harbin: Agreed. I agree that it's not state dollars. I'm just saying that, as a consequence of programs like this, Missourians, taxpayers, have less money to spend themselves.
Bob Dixon: Potentially.
Christine Harbin: Potentially. It's difficult to calculate with certainty how much is taken out, but they're going to eat at fewer restaurants, they're going to spend fewer nights in hotels …
Bob Dixon: The very strong likelihood also exists that, in the long term, because of the economic growth, we could see substantially — and perhaps exponentially — more.
Christine Harbin: Agreed.
Bob Dixon: OK. I just wanted to make sure that, and again, I would like to emphasize that I would love to see some sort of a more exhaustive study on that end. Thank you. Thank you, Mr. Chairman.
Eric Schmitt: Sen. Richard.
Ron Richard: Mr. Chairman, just briefly, as someone who's done in Joplin, the lady mentioned my city, who's done most of the economic development for the Saint Louis region, us poor people that are barefoot and corncob pipes have done more to back up Saint Louis and the community in Kansas City than frankly some of the Saint Louis–elected people. And the reason we have is because we understand what's at the other end of the highway, which is Saint Louis. And as they progress and do well, the rest of us will, too. Everything that the Show-Me Institute is for, I'm against, and everything they're against, I'm for — and we're both conservatives, I don't understand that. I mean, we fought for organization on the Bombardier in Kansas City, and it was a stretch, didn't work. This may be a stretch, but I've been to Saint Louis somewhere almost twice a month, as in Kansas City, and I've got business people and friends of mine that live in Saint Louis that are begging for something new and creative. So we take a chance. And I think the chairman has a great opportunity here to take a chance on something. If it doesn't happen, nothing is given away — no tax credit. Granted, the lady's right, tax credits may be a little overwrought, and I think there's a mechanism to address that, and the chairman has a plan for that. But I will say that, until Missouri is ready to take a chance on something new, we'll just be a lackluster state. We will have all our kids move away, our universities will disintegrate, our highways will disintegrate, our schools don't have to worry about opening ‘cause there'll be no one going to school, ‘cause there won't be tax money one of these days. So, I respect the lady's opinion, again I think we take a chance, I think we move forward, and I support the chairman and I will support Saint Louis every time I get a chance.
Eric Schmitt: Thank you. Any other questions? Sen. Lamping.
John Lamping: I'm curious about a couple things, actually. First of all, you were kind enough to quote the St. Louis Business Journal, and I'm curious to know what the Show-Me Institute's opinion would be on their proposed outcome, which is, we simply offer $60 million tax credit to freight forwarders. So what's your opinion of that idea?
Christine Harbin: I didn't study that particular proposal.
John Lamping: Well, that was the second half of the editorial you just quoted.
Christine Harbin: Yeah, sorry. Similar to how you said earlier in response to the question and answer session with Audrey: You're either for it or you're against it. I testified in front of the Tax Credit Review Commission last September. And I have been a very vocal supporter of the total elimination of targeted tax credits in Missouri. And that holds true here, too. I think that Missourians would be better off if they were able to keep their earnings and spend it themselves in the private sector. So, I do not support kind of a halfway …
John Lamping: So you like the idea of suggesting that some of the Business Journal editorial is correct in pointing out the fact, in your opinion, that the rest of the state subsidizes it, but you disagree with the conclusion they come to — you don't support.
Christine Harbin: I agree with their criticisms of the project. I don't fully support their policy recommendation.
John Lamping: Second thing, probably unlike most of the members of this board, I appreciate you coming forward today. As someone for who economics is kind of a hobby, I study … I'm a member of the Show-Me Institute, as well as many other think tanks, as I like to stay abreast and current of different thoughts and ideas. But one of my favorite economic terms that all my teachers used over and over again, and us in business and finance always laughed when we think about this, is this concept of all things being equal. And that's something that, your study of economics sounds like from school. And that's where the theoretical world comes in and they say, "Well, all things being equal, then, well, here's our supply line, here's our demand line, we're going to now go forward with our great discourse and our great study, assuming all things are equal." I think what the chairman spoke to today is the reality that the world, all things are not equal. There's the theoretical and there's the reality. And as much as I enjoy sitting down and going through the theoretical. I think that it helps for, and again, maybe that's your role. Maybe that's your role in the discourse: It's to be the theoretical go-to. Unfortunately, in this capitol building, it's all about the reality and the real, and all things are not equal. And when it comes to economic development in and around this region, clearly all things are not theoretically perfect. So, I appreciate you coming forward, it's a really interesting part of the testimony, and I look forward to your next publications.
Christine Harbin: Can I respond to that?
Eric Schmitt: Sure.
Christine Harbin: To that last point, I agree that economics is separate from natural sciences because it can't really be studied in a laboratory, we're kinda going through it, you know, as we are. However, I think that my focus here is very reality-based. I think that the idea of this particular policy awarding close to half a billion dollars in tax incentives to a small group that is … The hope is that it will encourage trade, but I think the reality is that it won't.
Eric Schmitt: OK, let me follow up on that. If it doesn't, do we expend any tax credits?
Christine Harbin: If it doesn't encourage trade?
Eric Schmitt: Correct.
Christine Harbin: You mean after we go through the policy? After we enact it?
Eric Schmitt: Look, I do want to — and I do appreciate you coming out — I just want to make, I want to understand, know that you understand the bill …
Christine Harbin: Oh, I read it.
Eric Schmitt: So what is your understanding of how the tax credits are awarded for facilities?
Christine Harbin: It was what Audrey outlined. We offer tax credits to support the subsidization of these warehouses.
Eric Schmitt: But how does that work? How does that work?
Christine Harbin: I don't have the text of the legislation in front of me.
Eric Schmitt: Well, you're testifying against the bill. OK? And I'll just explain how it works, which is, you build a building. It's a $25 million building, you operate it, you get a portion, it's screened over five years, each year you have to prove that you're getting the economic activity and the jobs. So, if those buildings never get built, my point is, if the buildings never get built, and we don't have the trade, there's never any tax credit. So, it's a very different reality from what you're explaining, which is, we're spending 500 million and hoping that people come. The reality is, if they come, at that point we have the infrastructure because of the trade. So it's just a, it's different, it's a different sequence of logic here.
John Lamping: Mr. Chairman, my guess is, what she really means to say is that she's against the Business Journal's recommendation to just do the freight-forward piece. ‘Cause that would then show no evidence of successful …
Ron Richard: [Sen. Richard's microphone was turned off, so this portion is inaudible]
John Lamping: Maybe we'll find out in Friday's edition.
Christine Harbin: Well, my response is: If it's such a great idea, then there's a lot of entrepreneurs in Saint Louis with great ideas, with multiple skills — let them take risks and bear the burden.
Eric Schmitt: So, it'll just happen?
Christine Harbin: Yeah, incremental change.
Eric Schmitt: Sen. Dixon.
Bob Dixon: Yeah, I just want to follow up on the comments from earlier, I wanna make it very clear. I failed to thank you for coming. I want to make it very clear that I really do appreciate you coming, as several others have said, and I appreciate the Show-Me Institute for the stands they've taken on several things, principled stands. We'll just have to agree to disagree on this one, but it takes a lot of courage to come and testify in a room full of people that are in favor of something, testify against it. And I do appreciate it.
Christine Harbin: Thank you.
Eric Schmitt: Any other questions? Thank you again. And I really, I do appreciate it. Obviously I have … I believe in it. You're passionate; I'm passionate; that's what this process is all about. So, I do appreciate you taking the time to come up to Jeff City; it's not easy to come in and express at one of these.
Christine Harbin: Thank you.
Podcast: Rolling Back Big Government With Tom Woods
Free-market historian and author Tom Woods is a senior fellow at the Ludwig von Mises Institute. He is also the author of 11 books, including the New York Times bestsellers The Politically Incorrect Guide to American History and Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. This podcast features a March 12 discussion about the latest recession, the growth of government, and Woods’ two latest books, Nullification: How to Resist Federal Tyranny in the 21st Century and Rollback: Repealing Big Government Before the Coming Fiscal Collapse.
Designed to Fail
George Mason University economist Donald Boudreaux wrote a post earlier this week describing a hypothetical world in which groceries are distributed the way that we currently offer public education:
Residents of each county would pay taxes on their properties. A huge chunk of these tax receipts would then be spent by government officials on building and operating supermarkets. County residents, depending upon their specific residential addresses, would be assigned to a particular supermarket. Each family could then get its weekly allotment of groceries for “free.” (Department of Supermarket officials would no doubt be charged with the responsibility for determining the amounts and kinds of groceries that families of different types and sizes are entitled to receive.)
Except in rare circumstances, no family would be allowed to patronize a “public” supermarket outside of its district.
Residents of wealthier counties – such as Fairfax County, VA and Somerset County, NJ – would obviously have better-stocked and more attractive supermarkets than would residents of poorer counties. Indeed, the quality of public supermarkets would play a major role in determining people’s choices of neighborhoods in which to live.
[…]
Does anyone believe that such a system for supplying groceries would work well, or even one-tenth as well as the current private, competitive system that we currently rely upon for supplying grocery-retailing services?
You should read the whole thing, but I’d like to expand on Boudreaux’s analogy to show that such a system of public supermarkets would not only be inefficient, but also inherently inequitable.
Because people would try to buy houses in districts with good stores, much of the price of groceries would be built into the price of housing. The price of housing would rise, but not uniformly. Areas with relatively good supermarkets would become more expensive while areas with very poor supermarkets would become cheaper. Less expensive housing would attract people with lower incomes, and they would quickly become locked into a system of bad supermarkets.
Even if one of the supermarkets in a low-income area managed to improve drastically and become one of the better supermarkets, this likely would not benefit those low-income residents in the long run. The improved supermarket would attract people with relatively high incomes and slowly drive out those with low incomes through increased housing prices. Considering that housing is already the single largest expense for most Americans, tying rents to supermarket service would only further restrict the already limited options for buying food that those with low incomes currently face.
The analogy to education isn’t perfect, obviously. The biggest difference is that people without school-age children don’t usually consider a district’s school system when deciding where to live. That might help to explain why more young professionals are choosing to live in Saint Louis, but the city is losing population among almost every other group. As long as lower- and middle-class residents of cities like Saint Louis and Kansas City cannot choose from a number of quality schools, they will continue to stagnate or decline, trapping the worst in their failing institutions.
An Ignoble Attack
A few days ago, a rather innocuous blog post of mine came under withering attack from a blogger at the Kansas City Star. The striking thing about the blog post by Jason Noble, a reporter for the Star, was its personal nature. Not content to disagree with me, ask for clarifications, or challenge my post, he felt the need to call me a liar and described a simple explanatory note as “weasely.” To quote Homer Simpson:
Weaseling out of things is important to learn. It’s what separates us from the animals … except the weasel.
Anyway, this gives me the opportunity to explain myself a little further, correct any errors I may have made in the post, and point out Noble’s own faulty logic.
The mistake I made in the post was not being clear in this statement:
This is a tax change that will benefit all businesses in the state (at least all large enough to qualify to pay it) — not just those chosen for special tax treatment.
I was referring to tax credits. Rescinding the franchise tax would benefit every business that paid it, which is far better policy than giving out tax credits to select businesses that perform certain things the government decides it wants to subsidize. In my defense, tax credits have been the dominant topic on this blog for the past year or so, so I thought many of our readers would have easily known what I meant. But I still should have been more clear.
I definitely don’t agree that my parenthetical explanation was “weasely” or otherwise improper. It simply clarified that I knew that any business paying that tax had to be large enough to qualify for it, and my post provided an easy link to an article (from Noble himself, at the Star) explaining that the tax applied to corporations with more than $10 million in assets in Missouri. Providing a link to additional information is perfectly appropriate in blogging.
He then criticized my use of the term “serious movement on taxes,” while admitting he does not know what I meant by the term “serious.” I didn’t mean that it is “statistically serious” or else I would have said “statistically serious” (or “statistically significant”). By “serious” I simply meant to indicate a tax cut that had broad legislative support and bipartisan support, as evidenced by the fact that a Democratic governor signed it. Attacking my choice of an adjective seems strange.
Noble’s logic is wrong in his idea that the franchise tax cut will only benefit 2.8 percent of the corporations in the state. Just because there are 109,876 currently registered corporations in Missouri does not mean that 109,876 corporations are providing goods and services, employing people, and paying taxes in Missouri. To provide one example, Paul McKee had 13 different corporations acquiring property as part of his redevelopment project in the north side of Saint Louis, before they were merged into one entity. Thousands of the “active corporations in good standing” in Missouri are just holding companies, or exist simply on paper. I have no idea how many of the 109,876 corporations actively employ people and do stuff, and neither does Noble.
The 3,042 businesses that will benefit from the tax cut may be “by definition, the largest and wealthiest” businesses in the state. They also employ a large number of Missourians, pay a large amount of taxes (property, sales and use, licenses, utility, income, franchise, etc.), and generate enormous economic activity. If the elimination of the franchise tax will encourage companies large and small (nearly every small business wants to be a large business) to expand and invest in Missouri, we will all benefit. I think the benefits of this tax cut will be “widely felt” by Missourians over time. Noble may disagree and think that corporate plutocrats will keep all the phased-out taxes as higher profits buried under their mansions. I never claimed that I had proof of this — a blog post is not a policy study — but Noble’s claim that they cuts won’t be widely felt is also unknowable.
All of this could have been part of a discussion in our comments section or part of a related debate, although I had no intention of making a big deal out of the original post. Instead of disagreeing with me about an issue or asking for follow-ups, though, he decided to call me a liar and a weasel. That was unnecessary and unbecoming.
Am I Missing Something?
If you’re one of the more than 90,000 commuters who take Highway 40 through downtown Saint Louis every day, you might not know what you’re missing. Just beneath the elevated lanes of the highway beyond Busch Stadium and the Scottrade Center stands a building, constructed in 1985, opened in 1988, abandoned in 2003, and foreclosed in 2008. Now, it’s up for auction through the close of business tomorrow, and the starting bid is only $400,000. It used to house the Union Station 10 movie theater, but that was then. The Washington Avenue theater is now.
A mere mile northeast of the failed Union Station 10 theater, state and federal taxpayers are shelling out tens of millions to build a new theater and parking garage on Washington Avenue. The new theater is certainly more visible than the Union Station 10 theater, but is it more viable? With its commercial vacancy rate of more than 22 percent, and some of the lowest lease rates in the region, downtown Saint Louis is a challenging market for any type of real estate development. Does building new while foreclosing on the old make any sense? This taxpayer wants to know.
Saint Louis Agency May Be Hindering Development by Hoarding Vacant Land
A new study by the Show-Me Institute trains a spotlight on the largest Saint Louis landholder. This is not any one individual or developer, but the Land Reutilization Authority (LRA), a joint creation of the city of Saint Louis and the state of Missouri, which was set up in 1971 for the purpose of putting abandoned, tax-delinquent properties back into productive use.
The problem is, the LRA seems to have done more to thwart development than to encourage it. During the past four decades, the LRA has accumulated a larger and larger inventory of vacant properties in Saint Louis, while rejecting many offers from private individuals and small businesses to purchase selected properties from the agency.
The agency’s most frequently stated reason for turning down so many offers has been that the property in question is “being held for future development” — as if some unknown savior will come along at a future date to undertake a massive development that will require scores of vacant parcels in a single swoop.
In acting in this way, the agency has ignored a basic rule of thumb: When you are in a hole, stop digging. The LRA’s holdings of vacant properties have climbed from 2,000 in the early 1970s to more than 9,000 today. It has turned the derelict status of much of the city’s housing stock into an unchanging and seemingly permanent condition. Remarkably, more than half of the parcels that are now owned by the LRA have been in the agency’s possession for well over a decade.
If you want to know the full story of how this happened, I urge you to visit showmeinstitute.org and read our study of the LRA, “Standstill: Is St. Louis Hindering Development by Waiting for Large-Scale Miracles?” It illustrates the fallacy that a public agency can work miracles by substituting its judgment for the far more detailed knowledge of the marketplace.
The LRA now works in relative obscurity, seldom attracting much attention. Still, though, it wields the same extraordinary powers originally granted to it by the Missouri legislature 40 years ago. We believe that a review of both the practices of the LRA and the authorizing statute are in order.
The LRA’s actions spring from the same impulse that has led to the abuse of eminent domain laws: a lack of regard for the rights and interests of small landowners, and the assumption that government officials know better than private citizens how best to use or dispose of their property. Action by the Legislature is needed to help address this problem, with a view toward reversing the LRA’s longstanding practice of hoarding land and toward establishing standards for disposal of property that will ensure its availability for private use.
To better serve the public interest, the LRA should stop trying to pick winners and losers in the market for vacant land. It should accelerate the sale of tax-delinquent properties to private individuals and businesses who are willing to purchase it.
By making it more difficult for people to buy land in the city, the government discourages city living. It is little wonder that the city is still hemorrhaging residents.
Brenda Talent is the executive director for the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.
Tough Choices Coming
That was the message Tuesday from Brian Riedl on KWMU’s radio program “St. Louis On The Air.” Riedl, the Heritage Foundation’s lead budget analyst, talked about the country’s financial problems with host Don Marsh and Amy Blouin of the Missouri Budget Project.
Riedl will appear in Saint Louis on May 3 as part of the Show-Me Institute’s Speaker Series on Economic Policy, cosponsored by Saint Louis University and the Sinquefield Charitable Foundation. His speech is titled “What Washington Won’t Tell You About the Next Economic Crisis.” If you’d like to attend, be sure to visit the registration page and click on the “Register” button at the top of the page. Meanwhile, listen to what Brian Riedl had to say on KWMU about America’s financial crisis.
