Is It Redevelopment? Or Is It Politics?

Posted on by Audrey Spalding

In 2010, no fewer than four different people tried to buy 2925 Union Blvd., the building pictured below. During an economic recession, such an interest in a vacant city-owned property is unusual. Yet all were turned down.

2925 Union Blvd. Photo by Thomas Duda.
2925 Union Blvd. Photo by Thomas Duda.

A week ago, the Saint Louis Land Reutilization Authority (LRA), an agency that owns more than 9,000 city parcels, considered another offer to purchase 2925 Union. This time, however, the area alderman showed up to tell the commission what decisions he thought it should make.

Saint Louis aldermen have an incredible amount of influence over the sale (or not) of vacant city property. Aldermen are frequently asked to provide a “letter of support” when an individual tries to purchase LRA property. But if aldermen oppose the sale of a property, they do not have to do so in any sort of verifiable, public way. In some cases, the absence of an alderman’s letter of support is all that is needed.

LRA commissioners take the absence of such a letter very seriously. City officials have been careful to say that the lack of such a letter doesn’t necessarily kill a sale, but an alderman’s input seems significant in practice.

As former Commissioner Howard Hayes said to a would-be buyer at the LRA’s May 2010 meeting: “We put a lot of weight on that judgment.”

Of course, the LRA doesn’t have to consider the input of an area alderman. The agency’s authority was established under state law, and the LRA law does not suggest that the agency consider the input of any political officials. Saint Louis government has implemented this practice by choice.

At the March 2011 meeting, Ward 1 Alderman Quincy Troupe spoke at length about offers to purchase vacant city property in his ward. Troupe, who spoke before anyone else at that day’s LRA meeting, recommended that the agency take certain actions on offers to purchase property in his ward.

In the case of 2925 Union, Troupe recommended that the agency sell. And, later in the meeting, the commission voted to offer a sale.

This blog post isn’t intended to protest the sale of 2925 Union. I am happy that it sold, especially if it will result in new development for the city. However, I question allowing aldermen to comment on, if not affect, the sale of LRA property. Nothing magical happens when aldermen are elected that enables them to foretell whether a proposed development project will be successful. If the LRA allows aldermen to have significant input on offers to purchase property, then the agency is awarding a great deal of power to the aldermen out of courtesy.

I wonder, what does it take to get the support of the alderman? A visionary redevelopment plan? Friendship? Money? The aldermen may all have pure motives, but the LRA’s approval process seems to leave the door wide open for under-the-table deals.

Furthermore, some agencies similar to the LRA do not invite comment from elected officials on offers to purchase property. The Genesee County Land Bank in Flint, Mich., does not request approval of an offer by city councilmen. When I spoke to Genesee County Land Bank Executive Director Doug Weiland, he wondered if such a practice could get “political.”

It certainly seems like it could.

The Education of Tommorow … Today!

Posted on by John Payne

In the second half of this short 1967 video about the first personal computer in Britain, the narrator describes how the owner’s son uses the computer to learn reading, writing, and mathematics. The owner, Rex Malik, imagines “a future world where children could be virtually educated by computer.” For all the praise of technology in education, this is still the basic model for technology in the classroom: The student receives information from the computer and sends back answers, but there is little in the way of interaction. This model works just fine for smart, driven students, but its appeal is fairly limited.

Now watch Salman Khan discuss his online Khan Academy at this year’s Technology Entertainment and Design (TED) conference:

Khan Academy gives students engaging instruction in an expanding number of subjects, right now primarily those in mathematics and economics, befitting Khan’s background as a hedge fund manager. Of course, this makes it easier for self-motivated students to teach themselves linear algebra, but I think the real innovation of Khan Academy is the way in which it can supplement more traditional courses.

Instead of receiving a lecture at school and working on problems by themselves at home, students using the Khan Academy can watch the lecture at home online and then work through the problems at school, where the teacher can work one on one with any students who are struggling with the material. Khan Academy’s mastery assessment software also makes it easier to identify who those students are and what particular topic they are struggling with, so the teacher can use his time most efficiently.

And it’s all free! Khan started developing these courses for his cousin and discovered that he had a knack for it. Now the Khan Academy is a nonprofit, where he works full time. Even with virtual schooling programs that are developed by for-profit companies, the fact that they can be used by millions of students simultaneously means that the per-pupil costs are extremely low. We need greater experimentation in our school systems to allow more innovations like Khan Academy to spring up and spread across the world.

Subsidizing Exports Will Do More Harm Than Good for Missouri

Posted on by Christine Harbin
China already imports free-market policy analysts from Missouri.
China already imports free-market
policy analysts from Missouri.

State lawmakers want to turn Saint Louis into an international cargo hub. Sounds great, right? Who wouldn’t want that?

Unsurprisingly, state lawmakers decided to do this by providing millions in tax incentives to private companies. They want to give up to $60 million in tax credits to companies that export by air from Missouri, and $420 million in incentives toward the construction of storage facilities. My colleague Audrey Spalding already argued that this policy would subsidize the construction of warehouses abroad, and that trade will occur independent of government intervention. Essentially, we’re paying our trading partners to buy our products.

In this post, I will introduce some additional arguments against using taxpayer monies to boost foreign exports. Don’t get me wrong; I am an enthusiastic supporter of foreign trade. (And, as it turns out, 90.1 percent of economists agree with me on this.) I just disagree that taxpayers should be forced to pay for it.

The air hub would benefit some groups in the Saint Louis area, but taxpayers throughout Missouri have to pay for it.

People living in Saint Louis will receive more of the benefits, but the other taxpayers in Missouri will have to help shoulder the cost. A taxpayer in Joplin or Sedalia will pay proportionately the same as a taxpayer in Saint Louis, despite the fact that he doesn’t directly benefit from the policy. This is an unfortunate case of concentrated benefits and diffused costs, a phenomenon I have described before on the blog.

Tax Credits in Missouri are already out of control.

From 1998 to 2010, tax credit redemptions have grown from $102.7 million to $521.5 million, and they’re continuing to grow. At the same time, state revenues are falling. This is not sustainable in the long-term. Both the Tax Credit Review Commission and the state auditor’s office have recommended changes that would limit tax credits, but so far lawmakers have adopted none. I wish that lawmakers in Missouri would implement measures that limit — not expand — tax credits in Missouri.

Other government services compete for these funds.

Because Missouri is strapped for funds, lawmakers have made cuts to education and public safety in the state budget. Does this indicate that they believe being an export hub is a higher priority than education or public safety?

The subsidy steals activity from one location in order to give it to another, and will lead to an interstate bidding war.

The purpose of this bill is to steer cargo away from other cities, particularly Chicago. The bill’s sponsor, Sen. Eric Schmitt, recently said this in an article in the Saint Louis Beacon. From the perspective of a state legislator, this make sense. They want to get reelected, so they will focus on projects that are large and very visible to voters. However, the policy makes Illinois worse off because it causes businesses to leave the area.

Once enough companies leave Illinois to come to Missouri, it’s only a matter of time before Illinois retaliates by providing its own set of incentives to lure them back. We see this in the auto industry, in particular. As a result, targeted tax credit programs encourage states to engage in a bidding war. This is a problem because taxpayers are left to pick up the tab. Even though subsidies don’t create new economic activity (they merely shift it from one location to another), taxpayers are forced to devote increasing amounts of their tax monies toward attracting businesses and industries. They’re paying more, but they’re not getting more.

Local economies would be wise to stop viewing each other with antagonism. Saint Louis would be better off if it focused on its comparative advantage and let exporting activity stay in Chicago.

New Evidence Demonstrates How Earnings Taxes Harm City Growth

Posted on by Josh Smith

Voters in Saint Louis and Kansas City will soon vote on whether to retain their respective city earnings taxes. What’s at stake? In those two cities, the earnings tax brings in significantly more than $100 million each year, but a new Show-Me Institute essay suggests that the cost could be found in the decreased growth of both population and employment within the cities. Written by economist Howard J. Wall, the essay takes a new approach and contains new findings that will prove important for those concerned with the future of Missouri’s two largest cities.

The impact of earnings taxes has been studied before, in multiple ways. In 2006, University of Missouri–Columbia economist Joseph Haslag compared 101 cities, 24 of which had an earnings tax. In his analysis, Haslag found support for the idea that a city earnings tax encourages businesses and people to locate outside the city, in the suburbs or the county. In 2010, two Saint Louis University economics professors, Lisa Gladson and Jack Strauss, studied 179 metro areas and examined the effect of an earnings tax on growth between 1969 and 2007. They determined that an earnings tax did not affect overall metro area growth, although it should be noted that this result is not contrary to Haslag’s study, which looked at the distribution of income within a metro area rather than at overall regional growth.

Wall’s essay, “New Evidence on the Effects of City Earnings Taxes on Growth,” builds on these two prior studies. He focuses, however, on population and payroll employment rather than on income — a novel approach that can shed light on another important question about the impact of earnings taxes. Wall wants to know whether an earnings tax affects how many people move in or out of a city, and whether that tax affects employment.

Wall compared more than 1,000 cities with populations higher than 25,000, controlling for a number of important factors. He found that an earnings tax does indeed have a significant negative impact on population growth, as well as on employment growth. For every percentage-point increase in an earnings tax, the population growth rate is reduced by an average 3.04 percentage points, and the employment growth rate drops by 2.32 percentage points. As Wall points out, this means that, in the absence of an earnings tax, the population in Saint Louis city could have contracted by only 10 percent between 1990 and 2000, instead of by 13 percent — retaining almost 14,000 additional residents. Given the recent bad news about the continuing population contraction in Saint Louis city during the last 10 years, this is a great time for residents and lawmakers to sit up and take notice at what may be a significant contributing factor to the decline.

The essay also shows that the 1-percent earnings tax in Saint Louis and Kansas City is associated with 1.65 additional percentage points of population growth — not for the cities themselves, but for their surrounding suburbs. This bolsters Haslag’s 2006 finding, and further demonstrates an important point: The unintended consequences of an earnings tax tend to be felt in the long term. Businesses and individuals won’t necessarily haul up and move right when a 1-percent earnings tax is first implemented. Over time, however, the influence of such a tax makes new businesses marginally more likely to locate outside the city, and has a subtle influence on where people choose to live when they find themselves making such a choice.

Wall’s findings contain important insights that should be heeded by earnings tax supporters. As he points out in his conclusion, many cities successfully make do without an earnings tax. The long-term picture is brighter for such cities, given that they face fewer negative effects of diminished population and employment growth. It is time for public officials in Saint Louis and Kansas City to explore ways of replacing the earnings tax, if they wish to enjoy the associated benefits of increased growth rates in population and employment.

Josh Smith is a research assistant at the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

False Advertising? Missouri’s Corporate Income Tax Rate Is the 16th-Lowest – Not the 5th-Lowest

Posted on by Christine Harbin

There’s a factual error in the advertisement for Missouri that I highlighted recently. The ad says “5th lowest corporate income tax rate,” which is not true. The top corporate income tax rate in Missouri is actually the 16th lowest, not the 5th lowest.

MO In-Flight Ad -- Corrected

I followed up with the Department of Economic Development (DED) and the Missouri Partnership to learn how they came up with the “5th lowest” figure. They told me that it comes from the “corporate tax index rank” field in the 2011 report on state business tax climate rankings from the Tax Foundation, which I have reproduced below.

The problem is that the ad says “corporate income tax rate” — it does not say “corporate tax index rank, as calculated by Tax Foundation.” These are not the same figure. It’s misleading to say that Missouri has the 5th-lowest corporate income tax rate when it actually has the 16th-lowest.

The “Corporate Tax Index Rank” component is a figure that the Tax Foundation creates. It looks at each state’s corporate tax rate and the way that state’s tax base is structured. By no means does that rank equal the corporate tax rate, which is the figure that affects businesses in Missouri. This is important because, essentially, the DED and Missouri Partnership are merely picking and choosing the figures that will make Missouri look good in an advertisement. They exclude the figures that are more relevant to the businesses and individuals that may consider moving to Missouri — in particular, the corporate tax rate.

Major Components of the State Business Tax Climate Index — Missouri , FY 2011
(Source: Tax Foundation)

Overall Rank 16
Corporate Tax Index Rank 5
Individual Income Tax Index Rank 25
Sales Tax Index Rank 15
Unemployment Insurance Tax Index Rank 9
Property Tax Index Rank 11

In case any of our readers are interested, I also asked about the cost of this particular advertisement. An executive at the Missouri Partnership informed me that the ad is just one part of the partnership’s comprehensive marketing campaign for 2011, which is funded with a combination of public and private funds.

The Earnings Tax Debate: Argle-Bargle or Foofaraw?

Posted on by David Stokes

Show-Me Institute scholars and analysts have been activily involved in debates about the earnings taxes in St. Louis and Kansas City these past two weeks. (We have NOT been involved in the politics of it, however — our job is to explain the economic effects of the tax.) Here is a brief rundown of our recent media appearances regarding the issue:

I encourage everyone who votes on Tuesday to cast the most informed ballot you can. If Show-Me Institute research helps you decide either way, we are fulfilling our educational mission.

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.

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