Subsidies to Private Industries Equal 3 Percent of the Missouri State Budget

Posted on by Christine Harbin

Yesterday, I highlighted how the state government spends billions in subsidies to private industries in Missouri — $6.476 billion since 1997, to be precise. My colleague Audrey Spalding wonders:

$500 million may be only 0.27 percent of GSP, but how does it compare to Missouri’s budget? If this is all money the state spends, I would think a better comparison would be to the state budget. My guess is that’s a higher percentage…

Her suspicion is correct. During the period between 2002 and 2008, the amount of subsidies to private industries equals 3 percent of the state government’s total expenditures on governmental activities.

Year Total Subsidies Total Expenses —
Governmental Activities		 Percentage
2002 $409,000,000 $17,690,103,000 2.31%
2003 $610,000,000 $17,436,504,000 3.50%
2004 $559,000,000 $18,594,078,000 3.01%
2005 $755,000,000 $19,626,984,000 3.85%
2006 $590,000,000 $19,669,008,000 3.00%
2007 $534,000,000 $19,711,347,000 2.71%
2008 $557,000,000 $20,901,172,000 2.66%
Sum $4,014,000,000 $133,629,196,000 3.00%

The subsidy data come from the Gross Domestic Product by State data from the Bureau of Economic Analysis (BEA). The total expenses for government activities data come from the Comprehensive Annual Financial Reports from the Missouri Office of Administration.

Another commenter requests a breakdown of this data to understand where these subsidies go. Here it is:

From 1997 to 2008
Industry Amount
(In Millions)		 Percentage
Agriculture, forestry, fishing, and hunting $3,437
Crop and animal production (Farms) $3,437 100%
Forestry, fishing, and related activities $0 0%
Finance and insurance $7
Federal Reserve banks, credit intermediation and related services $7 100%
Real estate and rental and leasing $2,602
Real estate $2,602 100%
Rental and leasing services and lessors of intangible assets $0 0%
Transportation and warehousing, excluding Postal Service $429
Air transportation $226 53%
Rail transportation $165 38%
Water transportation $33 8%
Truck transportation $5 1%
Warehousing and storage $0 0%
Other transportation and support activities $0 0%
Pipeline transportation $0 0%
Transit and ground passenger transportation $0 0%

Pujols Is Worth Every Penny (All 3 Billion of Them)

Posted on by John Payne

We are rapidly approaching the deadline imposed by Albert Pujols and the Cardinals’ front office to secure a new contract for Saint Louis’ franchise player. Both sides claim that if an agreement is not reached by Feb. 18, when position players report to spring training, discussion of the matter will be shut down until the end of the season. This would make it far more likely for Pujols to enter free agency in November, undoubtedly driving up the price of his contract. Regardless of whether he wears the “Birds on the Bat” beyond 2011, Pujols is widely expected to earn more than the $25 million per year that Saint Louis native son Ryan Howard signed for last year, as first baseman for the Philadelphia Phillies. Although people frequently denounce such salaries as obscenely high, the practice makes perfect economic sense.

For most of baseball’s history, even the best professional players did not make salaries hundreds of times greater than the average American. In large part, this was attributable to the reserve clause attached to player contracts that forced them to bargain solely with the team that signed them — even after the contract expired. In 1975, an arbitrator allowed two players to become free agents, effectively striking down the reserve clause. From that point forward, general managers have been forced to compete against each other for free agents, driving player salaries skyward.

In most cases, these multimillion-dollar salaries benefit everyone involved. Most obviously, the players benefit because they earn more money. And, although ownership would undoubtedly like to return to the days of the reserve clause and cheap labor, they still generally prefer paying stratospheric salaries instead of fielding a third-rate team. Most importantly, baseball fans enjoy watching their highly paid stars play up to their potential, as shown by our willingness to spend money on the sport. Until the recession hit in 2008, Major League Baseball (MLB) set attendance records on an almost annual basis, peaking in 2007 with more than 79.5 million tickets sold — an average of 32,785 fans per game. Attendance has declined about 7 percent since then, down to (still healthy) 2003 levels. The reason that superb athletes like Pujols can command millions or even tens of millions of dollars per year is because people willingly give their hard-earned money to watch them perform.

Seen from the perspective of the value he brings to fans, Pujols is a bargain at $25 or even $30 million a year. The Cardinals had the fourth-highest MLB attendance in 2010, with 3,301,218 fans attending 81 home games, according to ESPN. If each of those fans contributed only nine dollars — just once — it would net Pujols $30 million for the year. Of course, this dramatically understates how dearly Cardinals fans value his skills, because it ignores attendance at away games and the much larger audiences listening on the radio and watching on television. J.C. Bradbury, an economist at Kennesaw State University and author of The Baseball Economist, estimates that an eight-year contact with Pujols is worth $350 million, based upon similar deals to other superstars and current revenue growth. That’s $43.75 million per year. Another examination, using the statistic Wins Above Replacement (WAR), pegs the dollar value of an average season for Pujols at $32.3 million.

This analysis is complicated by subsidies that the Cardinals have received from the government — mostly in the form of deferential tax treatment and government-secured loans for the construction of the new Busch Stadium. Some area taxpayers do not care for baseball or the Cardinals, so they lose out on that deal. Such subsidies, however, are not an argument against high salaries per se, but rather against government favoritism toward certain businesses.

In 1960, Stan Musial came off a substandard season and requested a pay cut from $100,000 to $75,000. It was an honorable move from a man who demanded nothing short of perfection from himself. But nothing suggests that Pujols’ success as a player will decline any time soon. The value that Pujols has added to his fans’ lives far outstrips even the eight-digit figure on his current contract — so go ahead and pay the man what he deserves.

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

Spotted: Food Trucks and the Free Market

Posted on by Christine Harbin

When I was in Washington, D.C., over the weekend, I encountered a food truck parked next to the Woodley Park Metro station. A crowd of people waited in line next to the truck, with wallets wide open and hungry for lobster.

The District is evidently friendlier to mobile vending than certain municipalities in the Saint Louis region, which may even be losing some business to the D.C. area. Pi Pizzeria of Saint Louis has been restricted from Clayton, Mo., and Edwardsville, Ill. — but it expanded into the D.C. area this month! Although I can’t suppose that the Pi food truck wouldn’t have gone to D.C. anyway if the Saint Louis area were wide open for Pi’s trucks to do business, I do find the coincidence interesting.

Who would have predicted that there would be such a demand for lobster from a food truck? I bet that it wasn’t a government official.

Lobster food truck in Washington, D.C.

Lobster food truck in Washington, D.C.

Using Your Property to Criticize Us for Taking Your Property? You’d Better Believe That’s Illegal

Posted on by John Payne

End Eminent Domain AbuseOn Wednesday, lawyers from the Institute for Justice will argue before the 8th U.S. Circuit Court of Appeals in Saint Louis on behalf of Jim Roos, whose anti–eminent domain mural has become familiar to most of us in the Saint Louis metro area.

Roos painted the mural to protest the city’s decision to use eminent domain to seize numerous properties from his low-income housing nonprofit organization, Sanctuary in the Ordinary. After Roos completed the mural in 2007, the city cited him for violating its sign code and ordered Roos to remove the mural. Roos refused, and fought the case in federal court on First Amendment grounds. Last March, a U.S. District Court ruled against Roos, remarkably claiming that the mural would be legal if it were devoid of political content, like a fleur-de-lis or a Cardinals logo. This turns the First Amendment on its head, because it was explicitly added to the Constitution with the intent of protecting political speech.

The case also illustrates the unity of property rights and civil rights. If the government can legally regulate away Roos’ most effective platform, it will have the same chilling effect on free speech as direct censorship. Similarly, freedom of religion is useless if zoning laws prevent groups from building places of worship; freedom from search and seizure only applies if your home is your castle; and freedom of the press will not get you very far if the government can block access to all the presses. Many people think of property rights and civil rights as fundamentally different things, but if the government places enough restrictions on how you can use your property, it must necessarily interfere with our fundamental political rights. Let us hope that the appeals court will understand this connection and allow Roos to speak his mind.

Headline allusion here.

‘Sinful’ Tax Collections Won’t Fix Budget Woes in Missouri

Posted on by Christine Harbin

Missouri is strapped for cash, and state lawmakers have proposed a quick fix: hiking the cigarette tax rate. Smokers are an easy target, certainly. They choose to inhale a known carcinogen, and nonsmokers like me ultimately bear some of their health care costs. Unfortunately for Missourians, raising the rate on cigarettes or other targeted vices is unlikely to solve the state’s budget woes.

I credit lawmakers in Missouri for being forthcoming about the fact that the purpose of this tax hike is to generate tax revenue, not to discourage bad behavior. Lawmakers often attempt to discourage smoking on moral, ethical, or public health grounds with higher taxes, but that’s not the issue here — money is. No matter the reason for higher cigarette taxes, though, this policy won’t solve the state’s money problems. The tax hike will cause smokers to buy fewer cigarettes. Some will smoke less as a result, and others will quit entirely. Their personal health may benefit, but they won’t contribute any cigarette tax revenue.

Those who do continue to smoke will buy fewer cigarettes in Missouri because they will no longer be getting a comparative price break. By keeping its tax rate low relative to other states, Missouri encourages those who do smoke to buy their cigarettes within the state, and it motivates non-residents living close to the border to shop here, as well. After a rate increase, smokers living near the border would be much less likely to buy their cigarettes in Missouri when they come here to work and to attend sporting events downtown, instead buying their cigarettes in their home states and generating tax revenue there.

The eight states that border Missouri have an average tax rate of $0.90. If lawmakers hike the tax rate by $1, which is what they propose, the tax rate in Missouri will exceed the tax rate in all but one of its border states. Individuals will tend to vote with their feet and buy cigarettes elsewhere, and the state will see less tax revenue as a result.

Missouri residents and businesses would be better off if the state government tried other strategies to close the budget deficit instead. State officials should reform spending and operate within their means, looking for ways to lower tax rates across the board rather than raise them. Missouri would attract more business activity and, consequently, more tax revenue if policymakers fostered a low-tax environment.

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

Is Albert Worth 30 Million?

Posted on by Administrator

It seems that all of Saint Louis and much of the baseball world are asking that question these days about a contract extension for El Hombre. The numbers being bandied about seem out of this world, even for baseball’s best player. But is he worth it? The Show-Me Institute’s John Payne took a swing at that question when he appeared on the Mark Reardon Show on KMOX on Feb. 11.

Full Interview (MP3)

Missouri Spends Billions Propping Up Private Industries

Posted on by Christine Harbin

Missouri spends more than half a billion dollars annually propping up private industries.

The following graph shows the trend of subsidies to private industries in Missouri. I used Gross Domestic Product by State data from the Bureau of Economic Analysis (BEA) to produce the graph.

Some may dismiss these subsidies because they are small relative to Missouri’s gross state output (they equal 0.27 percent of GSP, on average). However, this view ignores the big picture; it ignores what Missouri is giving up when it gives handouts to private industries.

This is a considerable amount of money on an absolute level. According to the BEA data, the government allocates an average of $539 million in subsidies to private industries in Missouri each year. Many other programs compete for this money, so the government and taxpayers face an opportunity cost equal to the amount of the subsidy. This money could pay for essential services, reduce the state budget deficit, or be returned to taxpayers to spend, save, and invest in the private sector.

Trend of Subsidies in Missouri by Industry Category (Private Sector)

Trend of Subsidies to Private Industries

Citizen Initiative Process a Crucial Check on Political Power

Posted on by Audrey Spalding

One of the checks that Missouri voters have on the power of state politicians is in jeopardy: Sen. Jolie Justus (D–Kansas City) is taking aim at the initiative petition, a process that allows Missourians to band together to put laws and constitutional amendments on the statewide ballot. This is incredibly important, because some policy changes that would greatly benefit Missouri can be so politically unviable that politicians won’t propose them. Petitions circulating this year include limiting eminent domain and imposing term limits on top state officials.

The process is already extremely difficult. To change state law, groups must get tens of thousands of the legal voters in two thirds of the state’s congressional districts to sign a petition. Missouri has more than 4 million registered voters, so any group trying to get an initiative on the ballot must collect more than 100,000 signatures.

And it’s expensive. Paul Jacob, president of Citizens in Charge, a nonprofit group dedicated to preserving and advancing the ability of U.S. citizens to petition state government directly, estimates that the minimum cost for signature collection in Missouri is more than $2 per signature, and can be significantly higher. This means that a group of people trying to change government for the better would likely need at least $300,000 even to attempt to bring a state law change before Missouri voters for their consideration.

In fact, most groups that have attempted to change state law with the current initiative petition process have failed. In recent years, Missouri Citizens for Property Rights, a group attempting to strengthen safeguards against the abuse of eminent domain, managed to gather more than 160,000 signatures from registered Missouri voters but still fell short of the already hefty requirements imposed.

Justus’ proposal will make it at least 50 percent harder (and that much more expensive) for Missourians to bring an issue to statewide voters. She proposes requiring that groups collect signatures from registered voters in all congressional districts. That would mean groups would have to collect, at minimum, signatures from an additional 45,000 registered Missouri voters. That’s at least another $100,000 in expenses. Why would Justus want to restrict this process further, so that only the most wealthy individuals and groups can participate?

According to the St. Louis Business Journal, Justus hopes that the proposed law will make it more difficult and costly for people and organizations to “buy laws and constitutional amendments.” She is certainly right — her proposal will make it more difficult. But her logic is flawed. Justus’ proposal will make it more difficult for any group to impact state government directly, not only those she suspects of trying to “buy” laws.

One of the greatest strengths of American government is that there are a number of checks and balances at the federal, state, and local levels that limit the ability of any one branch of government to abuse its power. The initiative petition process is one of those checks on power, and restricting it further will serve only to erode Missourians’ ability to limit legislators by initiating good — but politically difficult — policy change.

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

Cigarette Taxes Won’t Solve Missouri’s Budget Problems

Posted on by Eric D. Dixon

The Southeast Missourian printed a new op-ed today by Christine Harbin, Show-Me Institute policy analyst and regular Show-Me Daily contributor. She dismantles the conventional wisdom that taxing people’s vices is a good way for the state to raise revenue. Here’s a paragraph from her analysis:

I credit lawmakers in Missouri for being forthcoming about the fact that the purpose of this tax increase is to generate tax revenue, not to discourage bad behavior. Lawmakers often attempt to discourage smoking on moral, ethical or public health grounds with higher taxes, but that’s not the issue here — money is. No matter the reason for higher cigarette taxes, though, this policy won’t solve the state’s money problems. The tax increase will cause smokers to buy fewer cigarettes. Some will smoke less as a result, and others will quit entirely. Their personal health may benefit, but they won’t contribute any cigarette tax revenue.

Visit the Southeast Missourian’s site to read the rest. And, if you’d like to read more on the subject, check out an earlier commentary about cigarette taxes by former Show-Me Institute editor Tim Lee.

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