The city of Saint Louis just declared as "blighted" the plot of land on which the eye-catching South Grand Del Taco resides. The business still runs 24/7 and gets customers, even in spite of the nearby bridge closing. Why would the city blight an intact and functioning business? Show-Me Institute Policy Analyst Audrey Spalding has an answer.
Green Acres, We Are (Not) There!
If you lived in an alternate universe where Eva Gabor got her way over Eddie Albert, your version of the sitcom “Green Acres” might look a lot like this (via The Pitch):
Newly tabulated information from the Environmental Working Group, which is critical of U.S. farm policy, shows that absentee landowners and investors receive subsidies that, in the public’s mind, go to struggling family farms. The U.S. Department of Agriculture last year sent nearly $100 million to cities with more than 500,000 residents.
Not very farmy communities in this area got in on the action. In Kansas City, Missouri, 1,611 recipients collected nearly $5 million in 2010. The city’s boundaries reach into four counties, so it stands to reason that the receivers include people who drive actual tractors and combines for a living. But zip code searches indicate that the subsidies are also being mailed to downtown addresses and people who live around the Plaza.
A little back of the envelope math tells us that each Kansas City recipient received just more than $3,100 on average. As The Pitch notes, many checks are probably supporting genuine family farmers, given the expansiveness of KC’s municipal boundaries. But on the Plaza? Not likely. Pick the right high-rise apartment and telescope, and maybe urban farmers can see their fields being tilled from afar. Is that the kind of situation legislators contemplated when they crafted the law that created the subsidies?
Naturally, agricultural tax breaks aren’t the only ones subject to the ingenuity of recipients, and the malleability of tax credit language can often make for easy (and profitable) contortions of a law’s intended purpose. Case in point: Saint Louis’ blighting of Del Taco. Fellow policy analyst Audrey Spalding has an indispensable post about how cities “blight” property to award tax subsidies. A sampling (emphasis added):
Colin Gordon, author of Mapping Decline: St. Louis and the Fate of the American City highlights one of my favorite examples of a contorted blight finding: Officials blighted a thriving shopping mall because it didn’t have a Nordstrom’s.
Because every mall needs an eBar.
And, just because I can:
Proposed Springfield Fitness Center Unfair to Private Industry
Many of us have sold lemonade at one point or another in our childhoods. My parents taught me how to mix the ingredients, but I had to use my own allowance to shoulder the startup costs of my stand. I bought the supplies, set a price, and worked hard to sell my product. My parents wanted to instill in me the importance of hard work, and when the stand turned a profit, the money was mine: my risk, my reward.
Imagine if a neighbor opened up a lemonade stand next to mine, with one difference: His parents gave him the lemons, sugar, and paper cups — all free of charge. My stand would be at a significant disadvantage — assuming, that is, that friendly adults wouldn’t bail me out by purchasing my lemonade at a higher price.
That, in a nutshell, is currently developing in the Springfield fitness center market. In July, Springfield will begin building a taxpayer-funded $7 million fitness center that will compete for the same customers that existing private fitness centers already serve. The proposed taxpayer-funded fitness center is unfair to those businesses that took the risk of opening up a shop in Springfield without government assistance. It also shortchanges the majority of Springfield’s taxpayers, who likely won’t use the new center’s services but will have to subsidize the membership of others.
According to the Springfield Business Journal, the city’s Park Board claimed that “‘citizens strongly advocated’ for a facility east of U.S. Highway 65 and cited a 29 percent growth in population” to further justify the project.
“We’ve been asked for years to have services past 65 because we actually service all the way to Rogersville,” Parks Director Jodie Adams told the Business Journal. “We’re in charge of all the unincorporated areas of the county.” The fitness center, Adams believes, would serve those constituents. Not only is there a private fitness center already located in Rogersville, however, but the proposed site for the Dan Kinney Family Center is on Blackmann road, nearly a 20-minute drive from Rogersville.
Residents in the outermost ring of the Park Board’s jurisdiction already have fitness center services. If there were demand for more services there, the private market would provide them. The fact that it hasn’t suggests that a market for a new center doesn’t exist.
This kind of government-funded displacement has forced many other profitable private fitness centers to go out of business, or see a significant reduction in costumers. In Tucson, Ariz., for instance, a city facility forced a private club into bankruptcy. In Breckenridge, Colo., three private facilities were forced out of business within six months by a large city facility.
Government subsidies are able to drive out private industry because they entail less risk and opportunity cost. Subsidized fitness centers not only collect membership fees, they’re gifted with the initial capital required to build the center and have access to further taxpayer subsidies if the center becomes unprofitable. The center can also charge lower initial prices in order to drive competitors out of business.
For the Springfield proposal, taxpayers will shoulder the initial burden of $7 million, and even those residents who are already members of another gym in the area will pay the costs. Members of the YMCA and Ozark Fitness Center, for example, will have to pay for both gyms. “For the government to use taxpayer money to add another facility is, I think, a big waste,” said Dan Martin of Ozark Fitness, quoted in the Business Journal.
Entrepreneurs would take on the risk of failure if Springfield’s 29-percent population growth truly provided an incentive to build a new fitness center. Springfield’s government should not subsidize yet another competitor in a market that already adequately supplies such services to its community.
This proposed facility has an unfair advantage over people like Dan Martin and the other private owners who are pursuing the American dream. Unlike their new competition, they don’t have benefactors to help subsidize their costs. Even if many customers choose to remain loyal to existing fitness centers, the subsidized competition will have a far higher profit margin and take away much-needed business.
Chad Carson is an intern with the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.
Del Blighto
News that the flying saucer–shaped Del Taco might be demolished has the Saint Louis community of architectural preservationists up in arms. There’s a Facebook group with 11,000 fans and growing. There’s a petition to save the building. Even the mayor has been tweeting passively pro–Del Taco tweets.
At the Del Taco with Show-Me Institute intern Bruce Stahl. Photo by Josh Smith.
At the Show-Me Institute, we first heard of Del Taco’s uncertain fate at last week’s Land Clearance for Reclamation Authority (LCRA) meeting. At the meeting, the agency declared the property blighted.
Blighting sounds bad, doesn’t it? The word calls to mind disease, destruction, and decay. Yet as anyone who has visited or driven by this Del Taco can attest, there’s a functioning business on the property. You can still get your burrito and fries at 1:00 a.m. at the Del Taco.
So, why would a city agency vote to find this building blighted?
The sad fact is, blighting in city of Saint Louis and throughout Missouri frequently has very little to do with the actual condition of a property, and everything to do with awarding tax subsidy. Colin Gordon, author of Mapping Decline: St. Louis and the Fate of the American City highlights one of my favorite examples of a contorted blight finding: Officials blighted a thriving shopping mall because it didn’t have a Nordstrom’s.
In Columbia, city officials almost blighted a functioning downtown hotel in order to award the building tax increment financing (TIF). At the last minute, perhaps after realizing how strikingly apparent it was that the hotel was not diseased, destroyed, or decaying, the council used a different portion of TIF law to award the subsidy. After all, it’s really just about the money, isn’t it?
Missouri law limits forms of property tax subsidy to properties that are blighted — most notably property tax abatement and tax increment financing (TIF). So the first step for anyone hoping to get tax subsidy for their development in the city of Saint Louis is to get city officials to declare the property blighted.
This isn’t the first time that Del Taco has been blighted.
In 2008, the Saint Louis Board of Aldermen blighted the property in order to enact a TIF agreement. Under TIF law, “blight” is defined as:
[…] an area which, by reason of the predominance of defective or inadequate street layout, unsanitary or unsafe conditions, deterioration of site improvements, improper subdivision or obsolete platting, or the existence of conditions which endanger life or property by fire and other causes, or any combination of such factors, retards the provision of housing accommodations or constitutes an economic or social liability or a menace to the public health, safety, morals, or welfare in its present condition and use;
Well, for the sake of everyone who has eaten at Del Taco since the city blighted the property, I hope that the restaurant wasn’t blighted because it was a “menace to the public health,” or was “unsanitary.”
If you look at the blight definition closely, it becomes clear that certain definitions could be interpreted to include just about any property. For example, what property doesn’t have “deterioration of site improvements”? Paint fades and wood ages. And, I wonder, what qualifies as “inadequate street layout”? I find the phrase “social liability” troubling. Who decides what is a “social liability”? Would a bar qualify? How about low-income housing? And what could possibly be considered a menace to “public morals”?
In case you’re wondering, the Board of Aldermen’s TIF ordinance didn’t specify which conditions rendered the saucer-shaped building blighted.
At last week’s LCRA meeting, the agency voted to declare the Del Taco property blighted again. Apparently, the city’s earlier TIF agreement didn’t fix the problem.
If pretty much any property can be blighted under state law in order to award tax subsidy, why do only certain properties receive tax breaks? I’m going to state the obvious: If the definition of “blight” is so broad that it can be applied (and re-applied) to pretty much any property in order to award tax breaks, the application is arbitrary.
TIF and tax abatement is not being applied to the worst buildings in an area, as illustrated by the cases of Del Taco and the Regency Hotel. Instead, those tax breaks are awarded to particular properties and areas that catch a politician’s eye.
The East-West Gateway Council of Governments has studied TIF and tax abatement, and concluded that using TIF where there really wasn’t any blight didn’t make much sense. From the St. Louis Post-Dispatch:
Maggie Hales, East-West Gateway deputy executive director, reported on the study to the St. Charles County Council during a work session Monday. Hales told council members the three-year study covered eight counties in two states. She said that overall, TIFs have a negative effect on communities and there are racial and economic disparities when and where they’re used.
“The TIF statute was originally designed to alleviate blight,” Hales said after the work session. “In areas where there isn’t any blight, I don’t know as a policy matter it’s a good investment of public tax dollars. […]”
Instead of blighting and re-blighting properties like Del Taco, here’s a better idea: Lower property taxes for everyone. Take politicians out of the process entirely.
We Must Go to War With Brazil Over Ethanol!
Among the mandates, tax credits, and tariffs that are all used to prop up an ethanol industry that depends on government support like a tick to a dog, which is the worst subsidy? I would say that the tariff is the worst of the three, followed closely behind by the mandate here in Missouri that a 10 percent ethanol blend be included in all gas sold in the state. I don’t like the tax credit, but without the mandate and the tariff, ethanol’s credit is no worse than other farm subsidy programs. So, the blender’s credit might be the least bad of the three, but it is still absurd.
Why is the tariff on sugar cane ethanol from Brazil the worst of the three? In my opinion, it is because it directly contradicts the main reason politicians say that we should be supporting ethanol in the first place. Of all the arguments for ethanol subsidies, the one that hits the hardest is that we need to do all we can to end our reliance on oil from the Middle East. Using American gas dollars to support governments that (directly or indirectly) fund terrorists to kill Americans is something I recoil from. So, in order to stop relying on Middle Eastern oil, wouldn’t we want as much ethanol as possible being used in the United States?
Well, apparently not, because we have this stupid tariff on sugar cane ethanol from Brazil. Perhaps Brazil is actually an enemy of ours and we can’t possibly allow American gas dollars to benefit the Brazilians.
I, for one, would gladly welcome war with Brazil. I think it would go down a lot like our war with our supposed “ally” England in the early 1960s. During that British invasion, our hearts and ears were conquered by English rock stars. I think the same thing would happen here, except that we would be invaded by supermodels instead of rockers. We’d probably have to arrest both Tom Brady and Leonardo DiCaprio because of their conflicted loyalties, but let’s all admit that should probably be done anyway.
If the ethanol industry is to be believed, the unstoppable Brazilian supermodel army would do little environmental harm to our country because their tanks probably run on green ethanol fuel. I don’t think it would be a particularly violent war, either. I think a lot of American soldiers would be more than happy to surrender to the attacking supermodels.
War with Brazil in 2012. Fought over energy. Powered by ethanol. Conquest by Gisele.
Could a Longer Yellow Mean Less Green in City Coffers?
More importantly, could it mean more green in your wallet? As the Riverfront Times notes (emphasis added):
Motorists driving along roadways maintained by the Missouri Department of Transportation could receive fewer red-light camera tickets if preliminary reports from Arnold ring true statewide.
Beginning in February, MoDOT began changing the yellow-light signal times throughout Arnold, where all the city’s red-light cameras happen to be along state-controlled roads. In general, the change to the signals has lengthened the amount of time for yellow lights.
For example, motorists traveling southbound through the intersection of Highway 141 and Astra Way now have 1.6 seconds more yellow time — from 4 seconds to 5.6 seconds. MoDOT has also changed the length of time that all signals at an intersection appear red, generally giving intersections a bit more time to clear all cars before changing lights.
In so doing, Arnold has experienced an unintended consequence — the number of red-light runners has plummeted since MoDOT made the changes.
In January, the city issued 691 red-light camera citations, according to information obtained from a city council member. By March, the number of citations had dropped to 263. Last month, the vendor that operates Arnold’s red-light cameras — American Traffic Solutions — confirms that it issued just 198 citations. That’s a drop of 72 percent from the number of citations issued in January.
The Show-Me Institute has a long history of opposing red light cameras, particularly given the cameras’ questionable effectiveness in preventing accidents yet prodigious aptitude for raising money for cities. Lately, though, Missouri’s red light camera industry has been traversing rocky judicial and legislative roads. Earlier this month, policy analyst David Stokes astutely reviewed one court ruling in Saint Louis that could very well cripple the use of red light camera systems in the city. His analysis:
It will probably take an act of the legislature to declare unequivocally that red light camera programs are invalid as a matter of state law, but the red light camera issue may, for all practical purposes, be resolved by adjusting the signals where the cameras sit. The roads in Missouri may be getting a great deal safer, just by adding a little more time to yellow lights — a simple, nearly costless solution to an important issue of public safety.
Cities must be elated. After all, “safety” was the driving purpose behind their use of these cameras anyway, right?
Right?
Do You Take Sugar With Your Ethanol?
Brazil: A land entailing natural wonders, a powerhouse economy, and sugar cane ethanol? Yes, that’s right. Ranked second in terms of production and first for exporting, Brazil has long been a pivotal mover and shaker in the global ethanol industry.
Together with the United States, Brazil produces nearly 88 percent of the world’s ethanol supply. However, Brazil uses sugar cane as a preferred alternative to corn in its ethanol production.
With an annual yield of nearly 370 million bushels of corn, many Missourians are deeply connected to the corn-based ethanol industry. If the industry were to dry up, thousands stand to suffer in the short run. Even so, could there be a sweeter alternative?
Well, quite literally, yes. The Brazilian sugar cane industry is said to be seven times more efficient than that of the United States, and less expensive, too — nearly 30 percent cheaper, in fact. Regardless, it appears that the federal government has little interest in the more viable Brazilian blend.
In order to offset a federal tax credit targeted to ethanol blending companies, the United States has levied a tariff on Brazil’s ethanol, perhaps as a way to keep the international market out while spurring on its own domestic product.
Current and past administrations have vowed to reduce foreign oil imports, claiming that we have become too dependent on them. So, why a virtual ban on Brazilian imports? If ethanol is federally promoted as a solution to the so-called national security issue of dependence on Middle Eastern oil, why wouldn’t cheap, clean-burning ethanol from friendly Brazil be satisfactory? If officials are serious in addressing this as a national security issue, they would invest in other forms of energy — namely, those which are not harmful to our country’s environment and well-being.
Thankfully, it appears that lawmakers might be making a move in a better direction. Last week, Sen. Tom Coburn (R-Okla.) fathered an amendment that would slash government subsidies of the corn industry while also lifting the tariff. Unfortunately, Coburn’s amendments may never become actual laws. Nonetheless, the Senate has shown an ever-increasing readiness to bring ethanol subsidies to the curb.
So, is investing in the precarious, ever-expanding corn-based ethanol industry worth the higher food prices, loss of necessary agricultural groundwater, and increased pollution that result? Well, some would argue that the aforementioned are a small price to pay to support an industry. I contend the contrary. Surrounding Missouri’s ethanol industry, we have corn farmers benefiting from subsidies, cattle farmers suffering from feed shortages, and mandates that often require we burn at least 10 percent less-fuel-efficient ethanol in our cars.
When subsidies are involved, benefits for some lead to costs for others. So, who’s right? You be the judge.
Less for More
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
“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.
