“Government Should Be Operated Like a Business,” Part One of Two

Posted on by Christine Harbin

In an editorial on Missourinet, Bob Priddy critiques the statement “Government should be operated like a business.”

On a high level, running government like a business is a good principle. Government should be as efficient, accountable, and transparent as possible because taxpayer monies are at stake. However, the statement “Government should be operated like a business” is a gross oversimplification. I agree with the author that there are many differences between businesses and government that make it nearly impossible for the government to operate like a business — but they are not the differences that the author describes.

He writes:

Here’s one big, really big, difference. When income slows, or when expenses rise, businesses can and often do increase their prices. Businesses, unlike government, like to make profits and many of them are not reluctant to increase their rates or their retail prices.

I think that the converse statement has more truthiness: Governments, unlike businesses, like to run a deficit and are not reluctant to increase taxes.

Here’s a different difference that the author overlooks: In the private sector, consumers decide to patronize businesses voluntarily, whereas they are required by law to pay money to government. If a person thinks that a price of a good or service is too high in the private sector, then she will choose not to pay. If a person thinks that taxes are too high, well, too bad, she has to keep paying them or get thrown in prison.

Here’s another difference: Because businesses face competitive pressures, they have an incentive to innovate their products, improve their services, drive down prices, become more efficient, etc. Government doesn’t experience this kind of competitive pressure, so it does not have an incentive to do those things.

Urban Planners Give Award to St. Louis, Part 2

Posted on by David Stokes

A few days ago, the American Planning Association (APA) named Wydown Boulevard, which runs through Clayton and the city of St. Louis, as one of the great streets in America.

This post I wrote three years ago is part one of the series on urban planning that I’m continuing today. The theme of this post is different from the first, because although planners had almost nothing to do with the success of the Delmar Loop, they certainly did with Wydown Boulevard. But the planning that shaped Wydown was the work of private industry and individuals, not the government. I want to make that clear.

“Planning” today is intimately linked in most people’s minds with government oversight and regulation. At the APA’s website, both the “What is planning?” and “What do planners do?” questions immediately begin with a reference to government.

Many of the subdivisions that were built along the St. Louis central corridor (Wydown is in the heart of that corridor) were built in a unique, intensely private style found throughout St. Louis. That includes private roads, sewers, and other infrastructure paid for by internal assessments and fees from property owners, not by general taxes for government provision of those services. I don’t think Wydown was ever a private road, but many of the neighborhood streets along it were (some still are), and I believe the streetcar that served Wydown was likely a private company, too, although I have been unable to find conclusive information about that particular streetcar that reveals whether or not it was actually private.

As the APA itself says:

  • Subdivisions along trolley line originally developed as “private places,” characterized by large 1- to 3-acre lots with traditionally designed single-family estates, mature trees, and native plants

Yes, some of the more recent cited reasons for issuing this award involve government planning — the bike lanes, for example. But the neighborhoods of St. Louis’ central corridor have historically been some of the most privately operated urban subdivisions in the country. Wydown is a beautiful street that I have enjoyed traveling many times. It deserves an award for planning. But it’s important to remember that it was private planning, not government planning, that made Wydown what it is.

Film Tax Credit Programs: Lessons Learned From Iowa

Posted on by Christine Harbin

In response to recent scandals in Iowa’s film tax credit program, the state auditor’s office released a report about the program. From the Tax Update Blog (via the Tax Foundation’s Tax Policy Blog):

Before the Iowa Film Tax Credit program exploded in scandal in September 2009, the state had granted $31,967,641 in transferable tax credits to filmmakers. Yesterday the State Auditor reported that $25,576,301 were issued improperly — a full 80% of the credits granted.

According to the report, excess tax credit certificates were issued because the recipients did not verify expenditures:

[T]he unqualified expenditures identified included deferred payments, in-kind expenditures, expenditures for which no proof of payment was provided, expenditures which did not directly relate to production, payments to out-of-state vendors/residents and expenditures which were paid but were not supported by documentation.

An additional reason for the improper issuance is that the production companies claimed the credits in a manner that did not meet the requirements of the Code of Iowa:

The Code of Iowa states, in part, the “tax credit shall equal twenty-five percent of the investment in the project, except that the tax credit shall not exceed twenty-five percent of the qualified expenditures on the project.” In addition, the Code of Iowa states, in part, “a taxpayer shall not claim a tax credit…for qualified expenditures for which a tax credit is claimed…” [Film Office manager Tom] Wheeler did not to [sic] reduce the amount claimed for an investment tax credit by the qualified expenditures included in the expenditure tax credit. In addition, Mr. Wheeler did not ensure the investment tax credit did not exceed the project’s total expenditure credit. Instead, Mr. Wheeler calculated the investment tax credit by multiplying the total expenditures by 25%.

This is a teachable moment for Missouri. While officials here are reviewing our state’s targeted tax credit programs, they should study and learn from the successes and failures in other states. A problem with many tax credit programs, including many in Missouri, is that the expenditures are self-reported by the applicants and regularly unaudited. The state government should have the proper controls in place to ensure that taxpayer money is spent as it is intended. Missouri should establish procedures that increase accountability and prevent reporting errors and irregularities, as the report recommends.

IJ Video: “Why Can’t Chuck Get His Business Off the Ground?”

Posted on by Christine Harbin

Yesterday, the Institute for Justice posted a video that illustrates the kinds of obstacles that entrepreneurs face when starting new businesses: “Why can’t Chuck get his business off the ground?” I encourage our readers to check it out.

These kinds of red tape are unfortunately omnipresent in Missouri, and they increase the cost of doing business in this state. If the state and local government in Missouri reduced these restrictions (e.g., professional licensing, industry regulation), its economic health would improve as a consequence.

Project Unicorn: Fireworks, Whistles, Details to Follow

Posted on by Christine Harbin

From a recent article in the Columbia Missourian:

An incentive plan designed to lure a $1 billion data center to Columbia got a thumbs-up this week from the Boone County Fire Protection District, which is one of the taxing entities that could be affected by the ambitious economic development effort dubbed “Project Unicorn.”

Rich Miller writes about Project Unicorn in an article on Data Center Knowledge. He expresses the following concerns, which I share:

Is it really a $1 billion project? Or are numbers being inflated to try and sway legislators and local officials whose support [is] essential in assembling tax breaks? So long as the “Unicorn” prospect is cloaked in secrecy, these huge numbers are difficult to substantiate or debunk.

A unicorn, by definition, is an imaginary creature. Are we to believe that this project is imaginary as well?

I ask the same questions that I asked last week: Is this level of subsidy the best use of taxpayer monies, particularly at a time when the state government has decided to make cuts to other services? How much subsidy is the state and local government going to provide to the technology industry in the region?

This part particularly puzzles me:

Even with 50 percent real estate tax abatement, [chairman of Regional Economic Development Inc. Dave] Griggs said that one property that currently pays $503 annually in tax would pay more than $2 million with the development being by Project Unicorn. “When you’re dealing with billions of dollars, a little bit of tax comes out to be a lot,” Griggs said.

Why would schools be excited for Project Unicorn? It abates 100 percent of personal property taxes and up to 50 percent of real estate taxes. They will probably have to provide services to more people, with no increase in revenue. If the project weren’t abated, or if a different project moved in, they would receive all of the revenues. Using the numbers quoted in the article, Project Unicorn would contribute $4 million in estate taxes. Why wouldn’t they be angry that they are missing out on $2 million?

Additionally, from the article:

Griggs said Project Unicorn is focusing on a data center that would create up to 70 jobs that pay an average salary of $70,000. He said that new sales taxes, home purchases and other economic activity — including data center vendors that might set up shop in the same area — would benefit the community.

According to the U.S. Census, the median household income in Columbia was only $33,729 in 1999 (which is the most recent year available). The median household income in the state of Missouri was $37,934. Because they will be stuck subsidizing the employment of people who earn twice as much as they do, individuals and families in Columbia will have less money to spend in the private sector. For this reason, a subsidy of this magnitude could well reduce economic activity in the region.

University City Considers Its Trash Options

Posted on by David Stokes

There is a detailed story in this week’s West End Word about University City considering privatizing its trash services. As a University City resident (and a proud one) who works at a free-market think tank covering privatization issues, I am in a unique position to comment here. University City already funds its trash services by user fees instead of taxes, so that should minimize any changes that the residents see with privatization. That has not prevented some residents from vocally voicing their opposition. From the story:

“I am totally not in favor of privatizing if that is an option,” [Marva] Miller said. “We will not be able to ask the private company for help, they will only be obligated to do what is written in the contract. The constituents, especially the elderly, will be underserved. We need to be a revenue-generating city. We have a few assets and we need to maximize what we have and not outsource these people who have worked so hard.”

Where to begin? Of course we would be able to ask for help (whatever that means) from the private company, which would be no more or less obligated to “help” than are the current government employees. (Important note: I think the trash service employees in U. City have always been terrific.) Why the elderly would be “underserved” by a private company is beyond me. They will get their trash picked up, same as always. U. City does not need to be a “revenue generating” city. It needs either to perform or see to the provision of agreed-upon public services as efficiently as possible. That is all.

University City has dealt with its budget issues during the past few years by making tough decisions. City officials have enacted budget cuts and laid off employees, while some other suburbs in the mid–St. Louis County area have focused more on tax increases. University City’s leadership over the past couple of years deserves a great deal of credit for this. I hope the privatization idea gets the serious consideration it deserves.

BILLIONS: Bad News for Michigan, Great News for Missouri

Posted on by Audrey Spalding

As a former Michigan resident and current Missourian, I am both dismayed and elated by the latest news from the Great Lakes State. Yesterday, Michigan’s governor announced that the state had awarded more than $2 billion (yes, billion) in tax credits. The bulk of these tax credits will go to car manufacturers: Ford Motor Company is set to receive $909 million from the state, while Chrysler, a company that has already received a great deal of public subsidy, is set to receive an additional $1.3 billion.

As has been discussed on this blog before, tax credits are not free money. A tax credit is a dollar-for-dollar reduction in an individual’s or company’s tax bill. In short, if a state awards you a $1 tax credit, that credit reduces your tax bill by $1, and the state’s revenue by $1, all else being equal. Looking at yesterday’s tax credit bonanza, Michigan has promised away more $2 billion of its future revenue. This strikes me as less than prudent, especially because the AP has recently reported that Michigan is already facing a budget deficit of more than $1 billion. It will also have negative fiscal consequences for the state’s other residents, because when targeted industries are exempted from paying taxes, the marginal tax rate for everybody else will rise if government spending doesn’t decrease by the amount of the credit issued.

This is terrible news for current Michigan residents. The governor justifies the $2 billion in credits by promising, in her press release, a great deal of new economic activity that will be spurred by the public subsidy. Michigan officials anticipate more than 6,000 new jobs, and a retention of more than 216,000 jobs.

They should know better than to make such lofty promises of job creation. The Mackinac Center for Public Policy, a nonpartisan research and educational institute, showed in an extensive study that the award of tax credits rarely creates the economic activity it promises. According to the Mackinac study of tax credits awarded in Michigan during a 10-year period, 127 projects were approved (just like the projects announced by the governor’s office yesterday), but only 10 projects had created the number of jobs promised. Michigan’s tax credit program success rate is a minuscule 7.87 percent.

Michigan’s tax credit failure rate fits with Show-Me Institute Research Analyst Christine Harbin’s recent observation, in her testimony before the Missouri Tax Credit Review Commission, that when it comes to subsidizing economic activity, governments frequently end up supporting industries in decline:

The government has no special ability to predict which businesses and industries will succeed. Yet tax credits are an attempt to identify and subsidize future successes. Unfortunately, in the game of picking winners and losers, the government almost always picks losers. This is because tax credits are an attempt to protect companies and industries that the market has already rejected to some degree. If they were successful and viable on their own, these companies and industries wouldn’t need to seek the favor of the government.

In the context of Harbin’s analysis, the following statement from the press release is downright depressing: The tax credits awarded to Chrysler and Ford will “[guarantee] the auto industry’s long-term future in Michigan.”

But there is good news for Missouri residents. The Michigan release specifically notes that two of the companies awarded tax credits were considering locating in Missouri.

Michigan awarded one company $1.5 million in order to “convince the company to expand in Michigan over competing sites in Missouri and Illinois.” Michigan awarded another company $1.1 million “to expand in Michigan over a competing site in Missouri.”

If we consider only the promised economic activity, it may appear that Missouri has lost out on some opportunities for job creation. However, now that these companies will locate in Michigan and receive subsidies from Michigan taxpayers, Missouri residents will not have to pay the millions it would have taken to persuade the companies to move here (assuming the state doesn’t decrease spending elsewhere in its budget to make up for the resulting revenue loss).

Furthermore, we have to keep the tax credit failure rate in mind. Tax credit awards, according to the Mackinac study, rarely result in the promised economic activity. More likely, Missouri would end up with the cost of the tax credit, but without promised resulting job creation and growth.

I am more excited and optimistic about the economic growth that has, and will, come about in Missouri as a result of widespread individual enterprise.

P.S. — I hope that none of these Michigan tax credits will be awarded to convicted embezzlers, although that has happened in the past.

Healthier Smiles, One Dental Therapist at a Time

Posted on by Caitlin Hartsell

Good news for deregulation!

The W.K. Kellogg Institute released a study yesterday evaluating the success of the Alaskan dental therapist program over the past two years. The results reflected both high patient satisfaction and quality of care. Dental therapists — a topic we’ve discussed on Show-Me Daily before — are mid-level dental professionals that can provide basic and preventive oral health care at a lower cost than traditional dentists. Alaska’s recent results add to a growing body of research showing that deregulation in dental care can improve health by bringing quality care to underserved areas.

For Missouri, this is just further proof that loosening the restrictions on dental practitioners could be beneficial. Of Missouri’s 114 counties, 50 have a shortage of dental professionals, a problem that is most profound in rural areas. This has led to fewer Missourians receiving dental care: Missouri was ranked 47th in the nation for the percentage of its adult population who visited the dentist during the past year.

While rural Alaska reaps the benefits of this dental deregulation, Missouri still only allows dentists certified by the American Dental Association to perform even basic dental care. With the benefits of mid-level practitioners becoming increasingly apparent, Missourians stand to gain from a reconsideration of state dental regulations.

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