Disincorporation Nation and the Sage of Saint George

Posted on by David Stokes

Say the title line like you’re Casey Kasem introducing a one-hit wonder disco group from the 1970s.

Saint George is moving ahead with the disincorporation proposal. After a series of scandals in this small, south Saint Louis County speed trap with a city (like Prussia’s historic description as an army with a country), enough of the residents are fed-up that they are thinking about getting rid of the entire city.

At a meeting the other day about the subject, county officials discussed how the county would be able to provide services within Saint George if the city disincorporated. How would the county be able to do that without having to raise taxes on everyone? Part of the answer is the sales tax pool. Saint George receives $225,917 per year from the pool. If it disincorporates, all that money will go back into the pool, and a good portion of it would go to Saint Louis County government. That would be new revenue for the county that would allow it to provide services to Saint George without any need for a tax increase.

I wish the residents luck as they begin this process. City services in Saint George have long been funded by the writing of speeding tickets for other residents of south county. (According to Wikipedia, 28 percent of the city’s budget comes from traffic fines.) Places that provide government services to a small number of people by abusing the legal system like this probably should not exist in the first place. Saint Louis County will be fully capable of providing the services that the city residents need.

A ‘Hotel California’ for Bartle Hall

Posted on by Patrick Ishmael

For classic rock fans, the Eagles’ ballad “Hotel California” brings with it the surreal image of a roadside inn populated by tortured, captive souls. The song describes the fate of the hotel’s residents, paradoxically opining that after you check in, “you can check out any time you like, but you can never leave.”

The Eagles couldn’t have written a more succinct fiscal description of the $300 million hotel that Kansas City officials want to build downtown, a project likely to be backed in some way by the city’s taxpayers. But Kansas Citians shouldn’t let themselves be captive to another “big idea” pet project promoted by its political class, and should press city officials to drop the plan.

Consider where the hotel would be built: between the recently expanded Bartle Hall Convention Center and the recently constructed Power & Light District (P&LD). City leaders, including Kansas City Convention and Visitors Association President Rick Hughes, hoped Bartle’s 2004 expansion would double the number of conventions the city hosted each year.

Yet conventions haven’t doubled.

The P&LD now has the city on the hook for $10 million in public subsidies each year until 2033, because the district’s present revenues aren’t sufficient to fund its existence.

Even Bill Lucas, president of the city’s hotel steering committee, can’t guarantee that the project wouldn’t be a financial sinkhole. “We’d about have to double our convention bookings” to make the hotel feasible, Lucas recently said.

Let’s recap: 1) The Bartle expansion was supposed to double the number of conventions the city booked, but didn’t. 2) The P&LD was supposed to revitalize downtown, but is now draining millions each year from the budget. 3) As Mayor Sly James put it in February, a hotel is now being proposed to “offset some of the problems” in the P&LD. 4) But, in order to save the P&LD, the hotel needs Bartle … to double its convention bookings.

And around we go.

The project doesn’t make sense on an economic level, either. The fact that private actors haven’t built this hotel suggests that there isn’t a market for one. Moreover, if subsidies from city officials distort Kansas City’s hotel market by giving preferential treatment to the project, existing hotels will see business siphoned away. That isn’t economic growth; that’s economic suffocation.

The project is simply a bad idea. If taxpayers want to avoid getting trapped in their own freshly built Hotel California, they should instead force their political class to book them at the Hotel Free Market. I hear it’s a lovely place. Much less expensive, too.

Patrick Ishmael is a policy analyst at the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

Interview: The Discovery of Freedom

Posted on by Eric D. Dixon

Rose Wilder Lane, famous to most for her connection to the Little House on the Prairie novels, was a celebrated author in her own right. Her 1943 book The Discovery of Freedom was a landmark work in free-market thought, influencing generations of scholars to come. The book has been a featured selection in both the Saint Louis and Columbia Show-Me Institute book clubs. On Jan. 11, the institute's editor, Eric D. Dixon, appeared on the Columbia radio show hosted by institute supporter Steve Spellman on KOPN 89.5 FM to talk about Lane's book and her wide-ranging legacy as a touchstone of the modern freedom movement.

Full Interview (MP3)

More Good News From the State Legislature

Posted on by David Stokes

The local option for municipal hotel taxes in Saint Louis and Saint Charles counties have been eliminated! This is excellent news. Both counties already have countywide hotel taxes in place, and those systems work just fine. Cities with hotels in them will still collect normal sales taxes on room rentals, property taxes on the hotels, and business license fees. They don’t need special city hotel taxes on top of that. For more detail about why these local taxes are an unnecessary burden, check out the op-eds I wrote about local hotel taxes.

The few cities that already have such a tax will keep it, and there is an exception for Saint Peters. I don’t know why they get an exception, but that is probably a topic for another post. On the whole, this is a very good change that will reduce the constant quest by cities to look for new revenue sources every place they can.

Thanks to John Combest for the link to the original article.

The Next Big Handout: An “Aerotropolis” Near You?

Posted on by Patrick Ishmael

The prospect of “Big Idea” economic development makes politicians do strange, contradictory things.

On the stump, candidates rail against corporate giveaways and crony capitalism. In town halls they opine about “backroom deals,” preferential treatment, and earmarks. But when it comes to a whole host of issues — sports teams, convention centers, hotels, and many other developments, too many politicians find their inner Nancy Pelosi and — Eureka! — discover that this latest project they’ve stumbled upon is about one thing, and one thing only: “Jobs, jobs, jobs, jobs.”

So, what’s the latest and greatest form of state-supported “economic development”? Introducing the “Aerotropolis,” the theoretical airport-centered city of the future.

The idea is that decades from now, the animating appendage to the most successful cities will be massive international transit hubs combining air, rail, and wheels that can get product from manufacturers in, say, China to buyers around the United States. It requires massive inventories of warehouses around the airport to store the product, massive improvements in the airport itself to handle the air carriers, and, predictably, massive, massive public subsidies, at least if you’re going to build the thing from scratch on the backs of taxpayers.

As you’d imagine, the promises made to hawk a project like this aren’t a far cry from the days of travelling salesmen and their talismanic tonics. Need your cattle flown overnight to China? Aerotropolis. Want your city to “seize the opportunity” and act on this “vision” before it “passes us by”? Aerotropolis. Want your hair darkened, your teeth whitened, your wife to love you, and your children to praise you in song?

Point being, there’s no shortage of promises made for a project like this, nor does there seem to be a shortage of willing elected officials prepared to throw money after those sweet, sweet nothings whispered in the name of government-created “markets.” This session the Missouri legislature took up an Aerotropolis bill that would have given millions in tax breaks to the private sector, primarily to warehouse developers in Saint Louis.

But for the fact that the chambers ran out of time on a compromise, a bill with a reduced price tag would have been signed into law, and still may be; a coalition of both Democrats and Republicans are lobbying hard to bring the legislature back into a special session and pass the bill once and for all.

The problem for Saint Louis and other cities is that the marketplace for freight has been making its decisions about transnational hubs for years, long before the word “Aerotropolis” was even imagined.

  • To the north of Saint Louis, Chicago and Detroit are both well into the international passenger and shipping game.

  • To the east of Saint Louis, Louisville hubs for super-carrier UPS.

  • And only four hours to the south of Saint Louis, Memphis — the mother of all Aerotropoli — hosts mega-freighter and overnighter FedEx. And that’s to say nothing of Milwaukee, which is also looking to create yet another “Aerotropolis” of its own. Or DFW. Or ATL. And others.

Indeed, Saint Louis is only the latest proposed entrant into the “Aerotropolis” game in a region rife with competitiors. This, really, is the problem. Subsidizing projects whose market-crystallizing stages passed years and sometimes decades before is a not a recipe for sustainable economic growth, but it is absolutely the M.O. of typical, undisciplined Big Idea public spending, even here in the Show-Me State.

What makes the situation in Missouri particularly strange and disheartening, though, is that substantial conservative (and arguably tea party) majorities exist in both legislative chambers, and yet … $360 million in special tax breaks is still on the table for the project, a high stakes experiment based on highly dubious economics. It’s hard to shake the disturbing reality that in even one of the most tea party–friendly states in the country, this sort of legislation could get “aye” votes from more than 94 percent of a legislative chamber.

This is, of course, to say nothing about the legislation itself, which ultimately has little to do with encouraging international trade and everything to do with awarding taxpayer money to the politically connected business elite. The Show-Me Institute found that there was more than 18 million square feet in vacant warehouse space available around the airport already, yet the Aerotropolis tax credits would go to subsidize construction of even more. That hurts business owners who took on the risk of building without the lure of Aerotropolis’ lucrative tax breaks.

But whether you’re talking about hurting existing local businesses through preferential tax credits or about chasing after yet another “economic development” comet, the list of reasons not to put public money behind a project like an Aerotropolis are wide and dispositive. We all want our cities to grow, but to do that, governments should be relying on the free market to make those decisions and not the wrong-headed and expensive big ideas of its politicians, however well-meaning those politicians may be.

Great Article About the Harms of Occupational Licensing in The Economist

Posted on by David Stokes

My buddy Mike M. forwarded me this terrific article in The Economist about occupational licensing in the United States. As we have discussed many times before, Missouri has fewer of these types of economic restrictions than any other state. We can be proud of that, and we can be proud that the legislature adjourned without passing — as best I can tell — any major new licensing provisions. I define “major” as taking an entire occupation that was previously unlicensed and requiring it to be licensed. There were definitely examples this session, some good, some both good and bad, of changes to existing licensing rules.

Unfortunately, the larger cities and counties in Missouri have too often decided to fill in the lack of statewide licensing with local licensing rules. Those can be some of the worst rules, because they often favor certain constituencies even more brazenly than statewide licenses would. Nonetheless, Missourians can be proud to have less of these rules dictating our lives in general than in other states. So, think about that as you enjoy the article, and trust that we at the Show-Me Institute will keep fighting this issue.

Now, on to the best part of the story. The legislature passed changes to Missouri’s utterly ridiculous home mover licensing requirements. Now, if you wish to engage in the business of moving people from house to house, you will no longer be subject to some of the most insane licensing requirements in the country. The business will be treated more like other businesses, in which markets and customers make the decision of who will participate, not state government. The moving industry is still subject to regulations by the state, but if you read the bill summaries you will see how the new regulatory system is much less burdensome and crazy than the prior system.

Why Was the Great Depression So Great?

Posted on by John Payne

On May 5, 2011, Show-Me Institute Research Assistant John Payne spoke about the causes of the Great Depression to a number of 8th-grade students at Westminster Christian Academy. The talk covered many misconceptions about why the Great Depression happened — and why it lasted so long. Watch Payne’s engaging presentation debunking many of the popular myths relating to this infamous period of economic distress.

There were a few minor factual errors in this presentation, for which we apologize. Here are corrections:

  • At the time this talk was given, national unemployment was 9.0 percent, not 9.5 percent.
  • The Smoot-Hawley Tariff Act was passed in 1930, not 1931.
  • The Schechter Poultry Corp. v. United States decision was delivered in 1935, not 1937.
  • Eisenhower won some southern states, therefore Goldwater was not the first Republican to do so (since Reconstruction).

Even the Midwest China Hub Commission Knows “Aerotropolis” Tax Credits Are Flawed

Posted on by Audrey Spalding

You know a policy proposal is bad when its proponents admit internally that the proposed policy is problematic.

It turns out that we weren’t the only ones who had reservations about the $360 million in so-called “Aerotropolis” tax credits that would have subsidized warehouse development and international flights.

The Midwest-China Hub Commission (MCHC), the organization that has been pushing for increased cargo flights between Saint Louis and China, itself raised many of our concerns — and even more of its own — in its analysis.

In response to an information request, the Show-Me Institute received the MCHC’s review of the Aerotropolis tax credits, and it is interesting. So, consider this blog post as having been written with a great deal of assistance by the folks at the MCHC. I think they raise excellent points about the bill, and ones that taxpayers should be concerned about.*

A Lot of Tax Money Has Already Been Spent or Will Likely Be Spent in the Area

Most concerning to me is the MCHC’s analysis showing that much taxpayer money has already been spent on sites that would likely qualify for the Aerotropolis tax credits. Much more will likely be spent in the near future.

From the MCHC’s analysis: “… 192 million in prospective incentives are currently available at the major development sites located at or near Lambert Airport.” According to the analysis, another $93 million has already been authorized or expended at those sites, bringing the total amount of taxpayer money spent, authorized, or available in the future already to more than $285 million.

The Aerotropolis tax credit package would lump another $360 million on top of those tallied in the MCHC’s analysis.

Then, the analysis notes that other existing tax credit programs could be used to subsidize the promised development and resulting warehouse jobs, including Missouri Quality Jobs tax credits.

So, why exactly is more taxpayer money needed? Haven’t these sites received enough subsidy already? Why award an additional $300 million to subsidize warehouse construction on top of the subsidies already available?

How Do We Know That Increased Cargo Flights Will Materialize?

In its review, the MCHC notes that “Many unknowns remain such as: catalysts for increased flights, cargo market share capture, background analysis, etc.”

This is exactly the point that I have raised repeatedly. So far, the Regional Chamber and Growth Association has produced an eight-page “study” that purports to show the benefits of awarding $360 million in tax credits. But the study doesn’t show that increased flights will materialize if tax credits are awarded. In fact, it doesn’t show that increased flights will materialize at all — the RCGA study just assumes that those flights will appear. Out of thin air, as it were.

I think legislators should heed this review and wait for more information that would reveal exactly what could cause more international flights to come to Saint Louis.

Could the Tax Credits Go to Activity That Has Little to Do With International Air Cargo?

The MCHC review raises a fascinating point. Could the Aerotropolis tax credits go to companies for activity that has little to do with international air cargo? The commission’s analysis notes that the Aerotropolis tax credit legislation defines “cargo activity” broadly. From the analysis: “The definition … specifically includes facilities related to truck, rail and water transportation; this may be appropriate, but may incentivize facilities that have only a limited relationship to the Air Cargo facility …”

So, would the proposed tax credits go to new economic activity? Or, given the broad definition of cargo activity, could the tax credits end up subsidizing business as usual at Lambert?

The concerns listed above are ones that I think persist in the bill, despite recent changes to the legislation. I want to point out that although the Show-Me Institute was the only organization publicly raising questions about unlimited costs contained in earlier versions of the Aerotropolis legislation, the MCHC’s analysis raised the concerns internally.

From the review:

Most critically, a close read of [the tax exemptions included in the initial version of the Aerotropolis bill] indicates (by omission) that there is NO cap placed on the total cost to the state of these two programs.

Thankfully, legislators took those uncapped exemptions out. And, luckily for taxpayers, the Aerotropolis subsidies did not pass the Missouri legislature this session. But many legislators are not giving up hope. Some public officials are even suggesting that the governor call a special legislative session in order to pass the subsidies this year.

Maybe instead of pushing to award $360 million in taxpayer money, legislators should address our — and the MCHC’s — concerns. Why throw more money at this area? Where’s the evidence of increased international cargo flights? Why write tax credits into law that could end up subsidizing business as usual?

* For the policy wonks: I know that this review by the commission concerned SB 390, and that the most recent version of the Aerotropolis tax credit proposal was contained in HB 116, which had some changes from the previous version of the bill. The problematic issues listed in this post are still present in the HB 116 version of the Aerotropolis tax credits. I did not include the commission’s concerns about eligible costs or tax exemptions, because those provisions were removed.

Support Us

The work of the Show-Me Institute would not be possible without the generous support of people who are inspired by the vision of liberty and free enterprise. We hope you will join our efforts and become a Show-Me Institute sponsor.

Donate
Man on Horse Charging