Pathological Community Development, Paid For By You, Me, and Me Again

Posted on by Thomas Duda

I do my best thinking at night. At least, that is how I justified my late-night walk this week through downtown St. Louis, where I could not help but feel a sense of utter helplessness. It was not simply seeing “Space Available” signs on every corner that prompted my emotional response; rather, it was my understanding that the slack in the retail, housing, and office markets represents a striking illustration of government’s inability to intelligently deploy our limited public resources.

View to Southeast, 10th and Locust Streets, Downtown St

After all, the image above is representative of dozens of corners recalled to ‘life'” with public funds in what some term “a vital pillar of Missouri’s economy.”

At present, the above-pictured TIFed and tax credited property is home to a small chain retailer, thousands of vacant square feet, quite a few presumably sold condominiums, two dozen available condominium units ranging in price from $250,000 to more than $750,000, many presumably leased apartments, and some parking.

If this building and its appearance were solely the products of truly private investments, I would feel far less concerned about its future. However, given that the city of St. Louis is going to start making me pay for trash service, I get a little upset when passing empty corners like the one pictured above.

All levels of government irresponsibly allow private actors to externalize their risks and costs to the public. In times of austerity like those that we now confront, these long-term public debt obligations increasingly become a drain on our individual resources.

So, how much did the corner shown above cost Missouri taxpayers? More than $30 million. (And likely more than $40 million, assuming that it also utilized the 20-percent federal historic preservation tax credit.)

Report Detailing North Side Redevelopment Tax Credit Application Discrepancies Now Online

Posted on by Eric D. Dixon

Thanks to everybody who listened to Audrey Spalding’s segment on KMOX this morning about discrepancies in the tax credit application filed late last year by NorthSide Regeneration LLC.

Audrey’s report is now available on the Show-Me Institute website, detailing how the property value amounts that NorthSide reported to the state appear to be overvalued by more than half a million dollars in comparison to the certificate of value amounts filed with the city of St. Louis.

For more of Audrey’s work covering the north side redevelopment project in St. Louis, follow the article links on her staff bio page.

Tune In to Hear Audrey Spalding on KMOX Friday Morning!

Posted on by Eric D. Dixon

Audrey Spalding, the Show-Me Institute’s public information specialist, will appear on The Charlie Brennan Show tomorrow, Friday morning, at 10:20 on KMOX in the St. Louis area. If you don’t live near St. Louis, you can also listen in online.

Audrey will be talking about the use of state tax credits for redevelopment in the north side of the city of St. Louis, and about how the tax credit application formally submitted by redevelopment company NorthSide Regeneration LLC appears to have overstated the value of its properties by more than half a million dollars. We’ll be posting much more about these topics in the near future, but in the meantime be sure to listen to Audrey address them on the radio tomorrow morning.

Tax Incentives Are a Game We Can’t Win

Posted on by Caitlin Hartsell

Today, Show-Me Institute Research Analyst Christine Harbin appeared on the Sarah Steelman Hour radio show in Springfield, talking about tax credits in general and, specifically, the proposed credits for the Ford plant in Claycomo.

Economic development tax incentives, no matter how they are packaged, are not effective. They allow government officials, who have no special knowledge of how to maximize growth, to pick winners and losers in the market. As Show-Me Institute Executive Vice President Joseph Haslag has written before, lowering broad tax rates is a much more efficient method of stimulating the economy than targeted tax credits. This allows everyone to benefit, rather than a few select industries chosen by the state.

Empirically, studies analyzing the benefits that development tax credits deliver in comparison to their costs show that such tax credits have not worked. A recent Missouri state audit report found that tax credits are less effective (and more expensive) than their proponents claim. Yesterday, St. Louis Public Radio broadcast a segment featuring a study that examined another form of tax incentives in Missouri, tax increment financing (TIF). Kenneth Thomas, a political science professor at the University of Missouri–St. Louis, recently coauthored a study that found the use of TIF is not effective in most cases. He noted that the St. Louis area uses TIF more than nearly every other area in the nation. In the interview with St. Louis Public Radio’s Matt Sepic:

Sepic: That’s one longstanding criticism, is that TIF pits communities against one another. A prime example is that tussle between Bridgeton and St. Anne over a Walmart. Is that a bigger problem in the St. Louis area than elsewhere, with this panoply of municipalities that we have here?

Thomas: Oh, yes, certainly having more municipalities makes the competition more intense.

The study argues that, although many economists have found TIF to be ineffective, this method of funding continues to be used because of the competitive nature of tax incentives. When one area offers a tax incentive, other areas nearby often try to “win” a company’s business by offering competitive tax incentives. The result is a bidding war in which the taxpayers lose. This can be seen in the Claycomo Ford tax credit situation, as well — other states, like Kentucky, have offered tax incentives to Ford in an effort to persuade them to relocate their plant. In order to compete, Missouri would have to offer a better deal, while recognizing that this game will be played again the next time the credits run out.

Later in the interview, Thomas notes an important misunderstanding — the idea that tax incentives like TIF “create” jobs:

Thomas: [T]hose estimates never take into account the fact that, well, yes, we are going to create 200 jobs here, but what’s going to happen is we’re going to knock out 180 in the next mall over.

Tax credits and TIF tend to shift economic activity from one area to another, without creating wealth. Missouri’s tax dollars would be much better spent in the hands of individual Missourians than on enticements for companies like Walmart or Ford.

As Milton Friedman pointed out on his PBS TV series “Free to Choose,” even if other nations, states, or localities offer tax incentives to lure businesses, we’re better off if we don’t do the same — because we benefit from the lower prices their subsidy creates. Missouri will experience better economic growth if it unilaterally removes itself from the tax incentive bidding wars.

Are Missourians Ready for Toll Roads?

Posted on by David Stokes

Yesterday, Combest linked to a story in the Post-Dispatch about a talk that former MoDOT director Pete Rahn gave in St. Louis. His point was that we need to reinvest in our transportation infrastructure, yet Missouri does not tax enough to pay for our needs. According to Rahn:

Add up gas taxes, registration fees and license plate fees and the average Missourian pays $129 in state transportation taxes a year, Rahn said.

That sounds about right, but it is important to point out that you pay more when you include federal and local transportation taxes. My calculation is that the average Missourian who lives in one of our larger cities (where they have transportation sales taxes) probably pays around $450 per year in total transportation taxes. Assuming you drive 15,000 miler per year at 20 mpg, own a $100,000 home and a $10,000 car, and spend $10,000 a year on taxable goods, that would roughly lead to:

  • $138 in Federal gas taxes

  • $129 in state gax taxes

  • $100 in local transportation sales taxes (using Columbia’s rate of $0.01 per $1; the St. Louis rate is slightly higher after the recent Metro vote)

  •  $23 in local property taxes (using the St. Louis County road and bridge rate of $0.105 per $100; this rate varies widely by county)

  • $50 per year in plates and registration (varies by horsepower of vehicle, length of registration, etc.)

  • $10 per year in local car fees (city stickers, etc.; again, varies greatly between areas)

My guess is that most people would have guessed more than $450 if you asked them to estimate their total transportation-related annual taxes. Other points Rahn made include:

Don’t count on the gas tax, said Rahn. It pays most of the bills now, but raising it is “extremely unpopular,” Rahn notes, and it has a limited shelf life, with alternative fuel vehicles expected to take bigger and bigger market share.

I disagree with that. I think Missourians might approve a reasonable gas tax increase, if asked. The article continued:

One alternative, a “vehicle miles traveled” tax, which charges heavy drivers more than light ones. Another? The opposite approach, a general sales tax, which would hit everyone about equally, recognizing that we all benefit from highways even if we don’t use them.

It did not seem from the article that Rahn was advocating for a sales tax increase, thankfully. Increasing sales taxes to pay for highway investment is a terrible idea. That moves in the direction of externalizing the internal costs of a car, which is completely the wrong direction. Truckers and bicyclists should not face the same tax burden to pay for roads. A gas tax increase far better approximates a user fee.

Finally, Rahn gets to the key point:

And, he said, get used to one thing we don’t have much of here:

“Tolls are going to have to be a part of it,” Rahn said.

Tolling is something I support completely. Our transportation funding should be a mixture where gas taxes serve as the baseload, dedicated property and sales taxes support local transportation, and tolls increasingly augment the highway and bridge system.

St. Louis and Pittsburgh, Lead and We Shall Follow

Posted on by David Stokes

I came across this St. Louis Business-Journal blog post from a week ago arguing that St. Louis should follow the example set by Pittsburgh. I liked the post, and have no qualms with the main recommendation. However, it did seem a little heavy on top-down central planning, and — most unfortunately — does not mention Pittsburgh’s transition to land taxes as one of the reasons for their resurgence. I absolutely agree that St. Louis should adopt land taxation to replace its earnings tax! And Kansas City, too.

Questionable Comparisons, Questionable Conclusions

Posted on by Caitlin Hartsell

The Commonwealth Fund published a study comparing the health care system in America to the systems of six other developed nations, and found it lacking in a few of the categories. Many Americans believe that the health care system needs some sort of reform, although they conflict on what type is necessary. While there is definitely room for improvement within the U.S. system, I take issue with some of the Commonwealth Fund’s analysis and conclusions that call for a more centralized, universal system.

First, some of the data relies on physician and patient surveys. Individuals in different countries have different expectations for their health care systems, an important factor that the study’s authors admit might have affected the ratings:

Patients’ and physicians’ assessments might be affected by their experiences and expectations, which could differ by country and culture.

One of the categories I find most objectionable is “long, healthy, and productive lives,” which has a rather ambiguous meaning. The authors used three indicators to determine what constituted a “long, healthy and productive life.” (Table data excerpted from the study):

Exhibit 8. Long, Healthy, and Productive Lives Measures

Raw Scores Ranking Scores
AUS CAN GER NETH NZ UK US AUS CAN GER NETH NZ UK US
Overall Ranking — — — — — — — 1 2 3 4 5 6 7
Mortality Amenable to Health care (per 100,000) 71 77 90 82 96 103 110 1 2 4 3 5 6 7
Infant mortality 4.7 5 3.8 4.4 5.2 5 6.7 3 4.5 1 2 6 4.5 7
Healthy life expectancy at age 60 (average of women and men) 24.6 23.8 23 22.8 23.7 22.5 22.6 1 2 4 5 3 7 6

These three indicators do not fully capture “productive” or “healthy” lives. There are more relevant measures of productivity and quality of life, such as statistics about morbidity, the amount of time spent ill, or disability-adjusted life years (DALYs), which account for degree of sickness as well as length of life. These are sometimes difficult to calculate, but they are standard measures used by the World Health Organization (WHO) and far more relevant for a category about “healthy” and “productive” lives.

The indicators used do not capture the fact that someone waiting 18.3 weeks for surgery in Canada may also be losing four months of work productivity, as well as spending a long time with an impaired quality of life. The United States ranked first in wait times for specialists and nonemergency surgeries. When one includes those factors, a different story emerges from the data.

For the indicator “Health life expectancy at age 60” the United States ranks sixth, but a closer look at the raw percentages shows a very small range from first to last; whether these differences are even statistically significant was not addressed in the study. Nor does the category capture that Americans work longer — both in their work week and in their lifespan — than the other countries listed, which could explain the slight difference in the raw percentages. American work ethic is a cultural issue, not an implication of the health care system.

Also, infant mortality is a contentious indicator for the success of a health care system. Different countries use different measurements to calculate the statistic. The United States strictly follows WHO guidelines by counting all babies that have shown any sign of life, whereas Germany, for instance, only counts babies that weigh at least one pound at birth. Other countries do not count births earlier than 26 weeks. This disparity in measures of reporting artificially skews the rates, without factoring in cultural differences, like teen births, that also contribute to higher infant mortality.

In developed countries, a large portion of the increase in life expectancy is not attributable to the health care system. During the past century, the average life expectancy in the United States has increased by 30 years; modern medicine can only account for five of those years, while public health measures account for the other 25. Attributing small changes in mortality to medical care is very tricky. Lifestyles can affect health outcomes as much — if not more — than health care. The obesity rates in the United States are much higher than the other countries listed. Holding health care systems equal, that one factor would lead the United States to have lower health outcomes. Again, this is a cultural issue, and not an indication that a universal system would improve U.S. results.

A conclusion some may reach after reading the study is that universal health care is the solution to perceived disparity; this seems to be the conclusion the authors hoped to make. In fact, the study actually suggests that the new federal health care legislation will improve U.S. outcomes:

Newly enacted health reform legislation in the U.S. will start to address these problems by extending coverage to those without and helping to close gaps in coverage—leading to improved disease management, care coordination, and better outcomes over time.

Incentives need to be realigned, but that has more to do with the disconnect between patient and physician — the health care wedge, explained in the Show-Me Institute study “Prognosis for National Health Insurance: A Missouri Perspective.”

The Commonwealth Fund study admits that none of the other nations considered have “ideal” health care systems, and makes some questionable comparisons in order to “prove” that universal health care is the best way to solve problems in health care. Show-Me Institute staff and scholars have discussed better solutions for health care reform in blog entries, op-eds, and policy studies.

The Commonwealth Fund study notes that the largest problem in the U.S. system is affordability of health care; the study thus concludes that universal health care is the solution, rather than making health care more affordable. The Congressional Budget Office has calculated that the recent legislation, lauded in this study, will actually increase the cost of health care. The Commonwealth Fund study suggests a solution that will bring the exact opposite of the problem it anticipated: Health care will become too expensive for some people.

Just because a few countries are getting (questionably) better results by some carefully selected measures under universal health care systems does not negate the fact that market-based solutions are a better solution for Missouri and the whole United States.

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