Good News For People Who Want to Buy Vacant City Property

Posted on by Audrey Spalding

What a difference a few months make. The Saint Louis Land Reutilization Authority (LRA) held its monthly meeting today, and there were a number of positive changes.

First, the LRA reduced the price it charges homeowners attempting to purchase the vacant property next door. According to the new policy approved today, side lot purchasers will pay 3/8 of the LRA-calculated full price. The change amounts to a price reduction of 25 percent, which will hopefully encourage more individuals to purchase vacant city property.

Second, the LRA approved offers at an unusually high rate. Since 2004, the agency has never approved more than a quarter of the offers it considered during the course of a year. However, this month the LRA approval rate soared. The LRA voted to accept nearly 40 percent of the offers that it formally considered. (I don’t count deferrals one way or the other in this tally.) For comparison, the LRA’s acceptance rate in December 2010 was 13.8 percent.

If the LRA continues on this path, the agency could end up accepting a greater percentage of offers than it has since at least 2003. And, accepting more offers is the first step toward selling more property — which could result in more development, and certainly lower property maintenance costs for the city.

These reforms are in line with what I have suggested here on the blog, on the radio, and while speaking in public. As my research has shown, between January 2003 and December 2010, the agency rejected offers to purchase more than 2,000 different vacant city properties. If Saint Louis is serious about encouraging all types of development, the LRA should work to sell more city property to people making substantive offers — as it seemed to do today.

Finally, I can’t cite any numbers to “prove” this, but I have to say that today’s LRA meeting was more amicable than any others I’ve ever attended. Many times in the past, the discussion between LRA commissioners and a would-be buyer has become extremely heated. The source of those confrontations was almost always the fact that the LRA was rejecting a person’s offer, or because the agency was asking for a much higher bid.

For example, consider this exchange between  former Commissioner Howard Hayes and a would-be buyer in May 2010:

Person trying to buy property: “The LRA hasn’t told me what it would take. … how many properties would I have to buy?”

Hayes: “Right now, we see almost a whole block that could be used for development. … come together as a neighborhood and move on that entire block instead of just a property.”

Today, LRA commissioners and staff members seemed to be more willing to provide more information and a rationale for their decisions to would-be buyers. These communication changes aren’t quantifiable as a hard statistic, but they are what make me most optimistic about the future success of the LRA. If agency commissioners and staff members continue this open approach, they may find more people showing up to purchase LRA property.

Cutting Cigarette Taxes for Budget Health

Posted on by Christine Harbin

While lawmakers in the Show-Me State want to hike the cigarette tax rate, lawmakers in New Hampshire, Rhode Island, and New Jersey have proposed cutting theirs.

I wonder whether they caught my recent op-ed about cigarette tax hikes. I argued that raising the rate would not solve Missouri’s budget woes. Instead, it would cause people to buy their cigarettes in other states that have lower taxes. Cigarette tax hikes are no quick fix.

In New Hampshire, they want to cut the cigarette tax by 10 cents, to $1.68 per pack. In New Jersey, even more, by 30 cents, to $2.40 — and, in Rhode Island, by a whopping $1 a pack to $2.40. All are still way above Missouri, which, at 17 cents per pack, has the lowest cigarette tax in the nation.

I’m not pro-cigarette (my Dad’s a cardiologist and very anti-cigarette), I’m pro–low taxes. Cutting taxes on cigarettes and other “sin goods” will promote economic activity and personal liberty in the state.

The Kansas City Earnings Tax Is Bad for Our Health – But Do We Care?

Posted on by David Stokes

Call it “the smoker’s dilemma”: Everyone knows that smoking kills, but a habitual smoker may be convinced that he requires the steadying effect of cigarettes. He tells himself that he could lose his job, or worse, if he were to quit cold turkey. When voters in Kansas City go to the polls on April 5, they will confront a similar dilemma in deciding whether they wish to maintain the current earnings taxes in their cities.

On one hand, it is well established that the 1-percent earnings tax helps kill jobs and businesses in our state’s biggest cities. On the other hand, many city officials think that their budgets would be stretched too thin without the revenues that they receive from the earnings tax — even though it comes at the expense of the city’s long-term economic vitality.

If voters decided to rescind the earnings tax, would the Kansas City government collapse? No, it wouldn’t — but there is no magic bullet for replacing the city revenue that it generates. If the earnings tax is eliminated by voters, there would be a 10-year phase-out period. During that period, Kansas City could adjust to the new realities through a combination of consolidation, privatization, service cuts, alternative tax increases or user fees, and scaling back tax subsidies. I have no delusions that this would be easy, but the earnings tax can be replaced without the catastrophic results that some are predicting.

Kansas City has already successfully privatized its animal shelter, and could continue that trend by privatizing its municipal water utility, which could be worth hundreds of millions of dollars. Many Missouri residents receive their water from private, regulated utilities, which provide service just as well as public utilities. Privatization of the water utility would give the city a quick infusion of money that would more than offset the initial revenue rollbacks following an eliminated earnings tax. Privatization would also place the utility’s assets onto the property tax rolls.

There are many opportunities for consolidation and regionalism in the Kansas City area. The relatively new regional jail partnership has demonstrated the cost savings that can come from Kansas City and Jackson County working together. According to reports, that consolidation has saved area taxpayers almost $3 million per year.

Taxes do not all have equal economic effects. As the earnings tax is phased out, other forms of taxation that are less distortionary and economically harmful taxes could be increased to replace city revenue. For years, Kansas City has charged a land tax to fund parts of its transportation system. Land taxes, which are property taxes based only on the value of the land rather than the building, are thought by many economists to be among the least harmful methods of taxation. Within certain constraints, this type of tax that could be increased in Kansas City to offset lost earnings tax revenue. Another viable switch would be to increase user fees for items such as trash collection, offset by general tax reductions.

All budgets can be cut. Kansas City should embrace this opportunity to cut unnecessary or inefficient services and expenditures. For instance, the city has budgeted $461,708 this year for lobbyists in Jefferson City and Washington, D.C. Representing Kansas City is a role that should be filled by the city’s elected officials and staff, not outside lobbying firms.

Perhaps the most important thing that Kansas City can do is to scale back or eliminate tax subsidies that aim to lure selected residents and businesses to the city. As of 2009, Kansas City had $739 million in tax-abated property within Jackson County alone. If the city were to cease issuing abatements and other subsidies, a large percentage of that property would return to the tax rolls during the following 10 years.

Finally, there are many major nonprofit entities operating within Kansas City. If the earnings tax were eliminated, it would be neither improper nor unusual to institute payments in lieu of taxes (PILOTs) with which the city would ask nonprofits to pay a portion of the property taxes they would otherwise owe but for their tax-exempt status.

Quitting smoking may be hard, but doing so is in any smoker’s long-term interest. In the same fashion, making beneficial changes and sacrifices now will be difficult for Kansas City, but the long-term rewards are worth it. Immediate difficulties can be overcome if citizens and leaders are willing to be creative, embrace change, and undertake the hard work of democracy. A 10-year phase-out period for earnings tax elimination allows plenty of time for Kansas City to kick its habit and make the changes required to continue providing necessary public services without relying on the earnings tax.

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

Off the Track

Posted on by David Stokes

The governor has announced that Missouri will seek additional funding for high-speed rail. This is, in my opinion, a very poor choice. Even if you accept the argument that we should spend the available money because other states will do so if we don’t (an argument I don’t accept), building high-speed rail still commits Missouri to subsiding the long-term operating and maintenance costs.

Maybe you believe that high-speed rail will make money for Amtrak — in which case, I have a bridge over the Missouri River to sell you. Randal O’Toole has written extensively on this issue, particularly in a study about the implications of high-speed rail for Missouri published by the Show-Me Institute. The Missouri Department of Transportation (MoDOT) had an earlier plan to pursue a much smaller amount of money, which would allow it to implement engineering-based improvements to the current Amtrak route. That was much better policy. It involved a (comparatively) reasonable amount of money to make direct improvements to an existing system. The new proposal to go full-bore for high-speed rail across Missouri is a decision that I believe the state will quickly and seriously regret.

Unless, of course, we don’t get the funding at all, which would be terrific.

“Eenie, Meenie, Miney, MO! This Is Where You Ought to Go!”

Posted on by Christine Harbin

As I flew back from vacation, I stumbled upon a full-page advertisement for Missouri in my in-flight magazine. Although I regularly see other states featured in articles in in-flight magazines (I discussed one about Utah recently), I haven’t seen any other states take out this kind of ad.

I don’t know whether this particular ad was bought with taxpayer money, but I do know that the state government uses taxpayer money to advertise. According to our “Show-Me: The Spending” web tool, state government agencies in Missouri have spent $223,362,918 on advertising services since 2000 (in terms of constant 2009 dollars).

Are there no better uses for taxpayer monies than paid advertising? Does seeing a full-page ad in an in-flight magazine cause any travelers to relocate their business to Missouri? Is this a successful economic development strategy?

MO In-Flight Ad

Why Spend More Than $400 Million to Subsidize Warehouse Construction?

Posted on by Audrey Spalding

From today’s Post-Dispatch: “St. Louis’ dreams of becoming a gateway for Chinese air cargo are going to need some more state funding to become reality.” Specifically, state legislators are looking to award nearly half a billion dollars in subsidy to hub-related projects.

Trade boats in Changzhou, China. Photo by Audrey Spalding.
Trade boats in Changzhou, China. Photo by Audrey Spalding.

Given the opening sentence, a Post-Dispatch reader might misinterpret the article to mean that the $480 million in taxpayer money is intended to go directly to funding the proposed China Hub itself. But, as reported previously in the Post-Dispatch, a Chinese freight affiliate has already decided to send several cargo flights to the Lambert airport each week. Later in today’s article, the actual subsidy recipients are disclosed: $60 million would go to shipping companies that export by air from Missouri, and $420 million would go to build cargo warehouses and other storage facilities.

So, perhaps a better way for the Post-Dispatch article to start would be: “St. Louis developers’ dreams of building warehouses are going to need some state funding to become a reality.”

From an economic perspective, this doesn’t make much sense. If goals* are already in place to bring in increased air freight and to increase the number of Boeing 747s traveling between Saint Louis and Shanghai, then there surely will be an increase in economic activity, along with a demand for facilities to handle the increased freight and passenger traffic. If all it takes to profit off of that is to build some cargo warehouses, why does the state need to subsidize that construction?

Here are some possible reasons that state legislators are pushing for awarding the $480 million in subsidy:

  1. There is a low chance of the “China Hub” idea actually coming to fruition.
     
    Well, then why subsidize the unnecessary construction of auxiliary cargo warehouses?

  2. It’s very difficult to make a profit in Missouri.
     
    This may well be the case. But if the state awards tax credits without a corresponding decrease in other expenditures, the tax burden for everyone else (those who aren’t building warehouses in the Saint Louis area) will rise. Because the award of $480 million to the favored few will likely result in other businesses and individuals paying even more in taxes to the state, this proposal will actually make things more difficult for entrepreneurs.

  3. Legislators want to award subsidy.
     
    It is also possible that there is no need for this subsidy, but that legislators personally benefit (increased power, campaign contributions, etc.) when they can claim responsibility for awarding millions in subsidy. And, fortunately for the legislators proposing this tax credit, there is little or no cost to them when spending $480 million in taxpayer dollars. There is a terrific branch of economic theory that examines this type of behavior in detail.

A better solution would be to reduce state barriers to trade, not increase them.

Reasons 1 and 2 are not legitimate. The state shouldn’t subsidize high-risk, unlikely projects, and legislators don’t get to spend other people’s money just to demonstrate their political heft. If subsidy is needed because Missouri puts up too many barriers to entrepreneurship, the state should remove some of those barriers instead of adding more. One idea could be to find an additional $500 million to cut from the budget (tax credits, perhaps), and reduce the tax burden for everyone.

But what about me?

Look, anyone can point out that some type of economic activity might not occur without state subsidy. That doesn’t mean that the state should throw millions at the “under-produced” project.

For example, I could say that “Audrey Spalding’s dreams of owning 10,000 pairs of shoes will need some state funding to become a reality.” The reason I don’t already own those shoes isn’t because of a market failure — it’s because I’m not willing to pay for that myself.

Similarly, developers can invest money, and take on the risk and possibility of a profit if they want to build warehouses themselves. If they’re unwilling to do that without nearly half a billion in taxpayer money, then these warehouses, like my 9,990 additional pairs of shoes, will have to wait.

Charter Schools Boost Graduation Rates and College Attendance

Posted on by John Payne

A study (non-gated, working version) in the latest Journal of Labor Economics shows that students attending charter schools are significantly more likely to graduate from high school and attend college than similar students in traditional public schools. The authors examined students in Florida and Chicago and used a myriad of controls to ensure that the charter school students it compared to other public school students were, in fact, comparable. They found that “among students who attended a charter middle school, those who went on to attend a charter high school were 7 to 15 percentage points more likely to earn a standard diploma than students who transitioned to a traditional public high school. Similarly, those attending a charter high school were 8 to 10 percentage points more likely to attend college.”

A quick look at the available evidence suggests that the same holds true here in Missouri. Although it does not contain the same rigorous controls as the study of Florida and Chicago charters, a 2010 study by the Missouri General Assembly’s Joint Committee on Education reported that seven of eight charter schools in Kansas City and Saint Louis city achieved higher graduation rates in 2009 than the surrounding school districts, and six of eight beat the state average. Critics often accuse charters of skimming off the best public school students, but in Missouri that is emphatically not the case. The charter law requires one third of charter schools to actively recruit and serve dropouts and high-risk students.

With regard to college attendance, a quick look through the Department of Elementary and Secondary Education’s data indicates that, with the exception of two schools in Kansas City, all charter high schools send graduates on to college at a comparable or higher rate than their public school counterparts. It should also be noted that if a charter is sending graduates to college at the same rate as the public schools they supplement, but have higher overall graduation rates, students who attend those schools are still more likely to attend college than are their public school counterparts.

The evidence in Missouri appears clear: Charter schools improve educational attainment for students in Kansas City and Saint Louis. Perhaps it is time to expand charters beyond those narrow confines.

The Saint Louis Earnings Tax Is Bad for Our Health – But Do We Care?

Posted on by David Stokes

Call it “the smoker’s dilemma”: Everyone knows that smoking kills, but a habitual smoker may be convinced that he requires the steadying effect of cigarettes. He tells himself that he could lose his job, or worse, if he were to quit cold turkey. When voters in Saint Louis go to the polls on April 5, they will confront a similar dilemma in deciding whether they wish to maintain the current earnings taxes in their city.

On one hand, it is well established that the 1-percent earnings tax helps kill jobs and businesses in our state’s largest cities. On the other hand, many city officials think that their budgets would be stretched too thin without the revenues they receive from the earnings tax — even though it comes at the expense of the city’s long-term economic vitality.

If voters decided to rescind the earnings tax, would the Saint Louis government collapse? No, it wouldn’t — but there is no magic bullet for replacing the city revenue that it generates. If the earnings tax is eliminated by voters, there would be a 10-year phase-out period. During that period, Saint Louis could adjust to the new realities through a combination of consolidation, privatization, service cuts, alternative tax increases or user fees, and scaling back tax subsidies. I have no delusions that this would be easy, but the earnings tax in Saint Louis can be replaced without the catastrophic results that some are predicting.

Saint Louis County’s water utility is privately operated, and the county has already successfully privatized its pharmacy service. Saint Louis city could follow suit by privatizing its municipal water utility, which could be worth hundreds of millions of dollars. Many Missouri residents receive their water from private, regulated utilities, which provide service just as well as public utilities. Privatization of the water utility would give the city a quick infusion of money that would more than offset the initial revenue rollbacks following an eliminated earnings tax. Privatization would also place the utility’s assets onto the property tax rolls.

There are many opportunities for consolidation in Saint Louis. During the 10-year phase out, city officials can work to re-enter Saint Louis County. Consolidating many government functions, like the circuit court or the Recorder of Deeds, along with a county takeover of regional infrastructure like Forest Park Parkway, could save the city significant money.

Taxes do not all have equal economic effects. As the earnings tax is phased out, other forms of taxation that are less distortionary and economically harmful could be increased to replace city revenue. For years, Kansas City has charged a land tax to fund parts of its transportation system. Land taxes, which are property taxes based only on the value of the land rather than the building, are thought by many economists to be among the least harmful methods of taxation. Within certain constraints, this type of tax could potentially be adopted in Saint Louis to offset lost earnings tax revenue. Another strong possibility would be to increase user fees, offset by general tax reductions.

All budgets can be cut. Saint Louis should embrace this opportunity to cut unnecessary or inefficient services and expenditures. For instance, the city already has both the Metropolitan Police Department and the Sheriff’s Department, so why does it need a third law enforcement agency, the City Marshal? Every duty of that office can be transferred to the police or sheriff, and that department can be eliminated entirely, saving the city almost $1.3 million per year.

Perhaps the most important thing that Saint Louis can do is to scale back or eliminate tax subsidies that aim to lure selected residents and businesses to the city. As of 2009, Saint Louis had $683 million in tax-abated property. If the city were to cease issuing abatements the day the earnings tax began to be phased out, a large percentage of that property would return to the tax rolls during the following 10 years.

Finally, there are many nonprofit entities operating within Saint Louis. If the earnings tax were eliminated, it would be neither improper nor unusual to institute payments in lieu of taxes (PILOTs), with which the city would ask nonprofits to pay a portion of the property taxes they would otherwise owe but for their tax-exempt status.

Quitting smoking may be hard, but doing so is in any smoker’s long-term interest. In the same fashion, making beneficial changes and sacrifices now will be difficult for Saint Louis, but the long-term rewards are worth it. Immediate difficulties can be overcome if citizens and leaders are willing to be creative, embrace change, and undertake the hard work of democracy. A 10-year phase-out period for earnings tax elimination allows plenty of time for Saint Louis to kick its habit and make the changes required to continue providing necessary public services without relying on the earnings tax.

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

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