A Place That Puts Some Fun Into Life

Posted on by John Payne

The Wall Street Journal ran an article over the weekend about Saint Louis’ beloved City Museum, its potential hazards, and the lawsuits they sometimes generate. The museum is privately owned — few government agencies would ever make something as quirky and fun as the City Museum — by Bob Cassilly, who emerges from the article as a heroic if offbeat businessman fighting to keep his dream alive against tiresome safety scolds:

“We like to be the devil’s advocate for society,” says Bob Cassilly, the museum’s 60-year-old founder, a self-described “idiot savant” with wild gray hair. “When you have millions of people do something, something’s going to happen no matter what you do.”

The City Museum, housed in 10-story brick building, shows none of the restraint or quiet typical of museums. A cross between a playground and a theme park, it recycles St. Louis’ industrial past into such attractions as slides made from assembly-line rollers. Just about everything can be touched or climbed, including dozens of Mr. Cassilly’s sculptures, among them a walk-through whale on the first floor.

Despite the whiff of danger, or perhaps because of it, the City Museum is one of St. Louis’s most popular attractions. Its 700,000 annual attendance is roughly twice the population of St. Louis and dwarfs the turnout at refined destinations such as the St. Louis Art Museum.

The injuries and lawsuits put the City Museum at the center of an enduring argument over the line between liability and personal responsibility. Some of the injured and their lawyers say the museum is deceptively dangerous and doesn’t do enough to publicize its risks through signs or other warnings.

Mr. Cassilly counters that it is as safe as it can be without being a bore. “They [lawyers] are taking the fun out of life.”

How very true. There are numerous warnings throughout the museum to avoid certain activities and that everything done there is at your own risk, but apparently that’s not enough for people who think life should be risk free. The City Museum is essentially a giant playground for children and adults alike, and like all playgrounds, the players occasionally get injured. That’s unfortunate, but it’s no reason to sue playgrounds out of existence.

Should Florissant Keep Its Strong Mayor System?

Posted on by David Stokes

This weekend’s Post-Dispatch had an interesting article on Florissant Mayor Robert Lowery. The article discussed at length the political difficulties and fights he is engaged in, but that is not my focus here. I will, however, briefly comment on one aspect of that — the criticism of his work schedule:

Lowery sets his own work schedule, often not getting to City Hall until midafternoon.

I think I have to side with the mayor, here, and not just because I’d like that schedule, too. I have been active in local politics, and I have no doubt that the mayor goes to innumerable nightly meetings of neighborhood associations, community groups, etc. I also believe him when he says that many of his lunch meetings are work-related. His job involves city management, various methods of civic boosterism, and sometimes just returning a bunch of phone calls. If he can do the job successfully from home, work, and the car, then I really don’t think the amount of time he spends in the office is an important measure.

Without going into detail, I think the article’s criticisms of using city workers for campaign purposes are much more valid. But onto the system debate.

Most cities like Florissant have a city manager. There are only two really comparable cities to Florissant in St. Louis County: Chesterfield and University City (where I live). Both of them use a full-time city manager or administrator. If Florissant were to choose such a system, the mayor could focus on the civic and political leadership aspect of the mayor’s office, a set of responsibilities that he is very good at performing, according to everything I have heard.

If the people of Florissant want the mayor to keep some role in daily city operations, they could choose the city administrator form of local government. If they want the mayor to have a very limited role in daily operations, they could choose the city manager form. In both instances, though, the role of the hired professional is to manage day-to-day government operations. The mayor would become more focused on the leadership aspects of the job, and less on the management aspects.

Obviously, the salary of the mayor would likely be cut significantly if either of those options were chosen, but the city manager form of government might be the proper compromise for Florissant. It would entail a limited role in daily operations for the mayor, and — considering the experience he has had as mayor and a police chief — the people might want to continue making use of that value. Here is the Missouri Municipal League’s description of the city administrator position:

The city administrator is employed by the governing body with the approval of the mayor. The administrator serves as the chief administrative assistant to the mayor and has general superintending control of the administration and management of city business and municipal employees, subject to the direction and supervision of the mayor. When the governing body adopts a city administrator ordinance, they may provide that all other officers and employees of the city, except elected officers, may be appointed and discharged by the city administrator, subject to reasonable rules and regulations of the governing body. However, the ordinance may provide that such powers are to be retained by the mayor.

Florissant is a charter city, so it has some latitute in establishing a government that works best for its residents. I think that the city administrator form might be a good compromise for Florissant.

A Self-Defeating Proposal

Posted on by John Payne

Writing in the St. Louis Beacon, Washington University professor of Earth and planetary sciences Bob Criss argues that raising the Missouri gas tax could solve a number of environmental and social ills. Although I’m opposed to pretty much all taxes, I’m somewhat amenable to Criss’ argument. If we have to tax something, it is far better to tax something no one wants, like pollution, than to tax something everyone wants, like income (or general consumption, for that matter).

However, the Missouri Constitution makes implementing Criss’ proposal somewhat problematic. The state Constitution requires that funds generated by the gas tax be dedicated to building and repairing roads, bridges, and highways. The goal of a higher gas tax for Criss is that people would use less gasoline by driving less or using more fuel-efficient vehicles, but more and better roads will at least marginally increase people’s incentive to drive by allowing them to reach more destinations more quickly and comfortably. Increased roadwork would also generate a fair amount of air pollution. Those effects probably would not completely eliminate the environmental gains of a higher gas tax, but they are worth considering.

Furthermore, if people drive less but there are more gas tax revenues to spend, we will end up wasting that money on underused roads and highways. In short, while Criss’ proposal is not without merit, implementing it properly would involve a much greater challenge than simply raising the gas tax.

Tax Loophole Analysis Sinks in Its Own Metaphor

Posted on by Caitlin Hartsell

Initially, when I saw the title of this piece from the Missouri Budget Project, “Missouri should close tax loopholes,” I expected to agree with the article’s arguments. After all, tax credits and loopholes are inefficient and counterproductive for economic growth. But the piece goes on to call for increasing state revenue as the solution to Missouri’s budget issues.

The author emphasizes the problems with Missouri’s budget by repeatedly comparing it to a “sinking ship.” She calls for tax credit transparency, but taxpayers would benefit even more from tax credit limits or reductions, as the governor has suggested.

The author also suggests raising taxes. At any point, but especially during a recession, taxes impinge on further economic growth because an increase in the tax burden decreases compensation for additional time spent working. The decision to work or not work is a marginal trade-off; the lower per-hour compensation makes other activities — like leisure or spending time with family — more appealing. Economists have shown that economic growth occurs when production increases, but taxes decrease the incentive to work and save.  A recent study released by the Show-Me Institute demonstrates this inverse relationship with taxes and economic growth. Spending cuts are better for Missouri’s overall fiscal health than tax increases because they promote growth and allow money that would have gone toward government spending to instead flow toward generally more efficient market uses.

The 2011 budget relies on $7.22 billion in tax revenue, which is lower than the $8 billion collected before the recession, in fiscal year 2008, but still higher than the $6.97 collected in fiscal year 2010. Within that budget is room to pay for the vital services the author calls for, like schools, roads and health care for the elderly. It is a matter of prioritizing and “rearranging the deck chairs.” If tax credits are not the most efficient expenditure of resources, as the higher education system is currently contending, as the recent audit suggests, and as Show-Me Institute scholars have repeatedly pointed out, then it makes sense for Missouri to place more stringent limits on tax credits. In any case, Missouri’s present and future economy would benefit the most from lower taxation and spending rates, which would promote future growth and higher living standards for the state’s residents.

Friday Night Live

Posted on by Dave Roland

If you don’t have any other plans tonight, come out to the Plaza Frontenac Cinema to see The Cartel, a new documentary discussing the troubles facing public schools in New Jersey. The main showing will begin at 6:45 p.m., after which yours truly will open up the floor for a brief Q&A session about the ideas contained in the film and how they might make a difference for Missouri. Hope to see you there!

Farm Subsidies Are Not an Energy Policy

Posted on by John Payne

The big news in Missouri today is President Barack Obama’s visit to an ethanol plant in Macon, so I thought it would be worth briefly rehashing the airtight case against ethanol subsidies, as we have done here so many times in the past.

Most obviously, ethanol costs more than gasoline, so consumers have to pay more for energy to run their vehicles. However, because ethanol diverts foods like corn from their more traditional use as energy for humans and farm animals, food prices are driven up by greater ethanol use. Ethanol backers like to claim that such costs are justified by the environmental benefits of ethanol, but those benefits appear to be completely illusory. From the abstract of a 2008 study on biofuels:

Most prior studies have found that substituting biofuels for gasoline will reduce greenhouse gases because biofuels sequester carbon through the growth of the feedstock. These analyses have failed to count the carbon emissions that occur as farmers worldwide respond to higher prices and convert forest and grassland to new cropland to replace the grain (or cropland) diverted to biofuels. By using a worldwide agricultural model to estimate emissions from land-use change, we found that corn-based ethanol, instead of producing a 20% savings, nearly doubles greenhouse emissions over 30 years and increases greenhouse gases for 167 years.

Research has repeatedly confirmed that ethanol subsidies only drive price inflation for both energy and food without cutting greenhouse gas emissions, and it is long past time for politicians to admit that such programs are nothing more than a means for buying favor with voters in agricultural states.

Audit Confirms What Show-Me Institute Scholars Have Said All Along: Tax Credits Are Overhyped

Posted on by Caitlin Hartsell

On Monday, Missouri State Auditor Susan Montee released a study of tax credit cost controls. The audit’s conclusions have been covered by the media, as well as on Show-Me Daily. The audit seems to affirm much of the Show-Me Institute’s scholarly work on tax credits; it reports that the economic impact of tax credits is routinely overestimated and their costs underestimated. Some key findings from the audit are outlined below:

Fiscal Notes

Fiscal notes tended to understate the cost of tax credits, some of which underwent further expansions after their initial passage. Of the 15 tax credits reviewed, the fiscal notes underestimated their total cost by $1.1 billion over a five year period. This is not surprising given the tendency that Show-Me Institute research assistant John Payne noted for politicians to overestimate the impact of their policies and underestimate the costs.

Four of the five tax credit programs for which fiscal notes underestimated the amount that the credits would disperse were new. They had lower participation than expected, as well as annual limits on the amount that could be redeemed. (See page 8 of the audit for a table displaying the projected and actual costs for all 15 of these tax credit programs.)

The audit notes that the short time frame — three years — of the cost estimates limits their ability to predict long-term effects. On the flip side, the audit also notes that even longer estimates are inaccurate and unable to predict true costs. Given that the fiscal notes had poor predictive power, the audit suggests that limits and sunset clauses may be necessary methods to limit the costs of tax credits.

Annual or Cumulative Limits

Annual or cumulative limits cap the amount of tax credits that can be redeemed from any particular program. This is one measure that the audit suggests be put into place for all tax credits, although 23 of the 53 programs redeemed in 2009 did not have annual or cumulative limits.

Some tax credit programs have seen their limits increased substantially, like the Missouri Quality Jobs program, which initially had a $12 million annual limit and currently has a $80 million limit. Officials’ ability to increase these limits through committees or departments, without having to go through the full legislative process, circumvents the purpose of limits.

Sunset Provisions

In 2003, Missouri passed the Sunset Act, which stipulated that each program must be reauthorized after six years. This allows the economic impact to be evaluated before further extensions are granted. Of the 18 tax credit programs passed after 2003, only 10 have sunset provisions. The audit suggests that sunset provisions be included in every new tax credit.

Conclusions From the Audit

Sunsets and both annual and cumulative limits could substantially control the cost of tax credits. As the audit points out, it is difficult to predict the long-term effects of specific tax credits; with a sunset provision, the effects are reviewed and evaluated before a program is continued. Annual and cumulative limits would hold tax credits to the amount specified by the bill, which would discourage underestimates as well as control tax credit expenditures. Currently accounting for 7.8 percent of the 2009 Missouri budget, tax credits will continue to grow if cost-control measures are not better implemented.

How has the legislature responded to the audit’s pronouncement on tax credits? The speaker of the House issued a press release disagreeing with its conclusions:

“Auditor Susan Montee and Governor Jay Nixon are playing a dangerous and damaging political game creating a fictitious conflict between education and Missouri jobs. Education and economic development are mutually beneficial, not mutually exclusive,” [the speaker] stated. “In the House, we have always welcomed independent, objective scrutiny on how to best reform and enhance tax credit programs. Missourians need jobs. Therefore, the Missouri House will continue to protect responsible economic development programs that create those jobs. And we will have the last word on this matter.”

With all of the evidence that tax credits cost more than anticipated with less impact than predicted, greater scrutiny is warranted before the state considers passing any further credits. The audit brings to light important issues that proponents of tax credits must face in order to bring greater fiscal responsibility to Missouri’s budget.

Aside from the audit’s careful consideration of the unforeseen costs that tax credits entail, it’s also important to consider some of the broader economic reasons that such targeted industry credits are not as effective as their proponents suggest. As Show-Me Institute scholars have repeatedly pointed out, tax credits are less efficient than lower tax rates, both because legislators have no special talent for picking winners and losers in the economy, and because the credits distort economic incentives, causing a misallocation of capital — subsidized producers have an incentive to produce more than is efficient, and some other set of unsubsidized goods or services are slightly underproduced as a result.

Perhaps this audit will encourage a the legislature to consider lower tax rates in lieu of inefficient tax credits.

Taxes and Sports: The Earnings Tax (Part One in a Series)

Posted on by David Stokes

This is the first in what will be a series of posts on taxation and professional sports in Missouri written by Audrey Spalding and myself. By “professional sports,” we mean the four main leagues — one of which is no longer represented by a Missouri team. (Where have you gone, Tiny Archibald?) This Show-Me Daily series aims to examine taxation levels for the Rams, the Chiefs, the Cardinals, the Royals, and the Blues in regard to income and earnings taxes, land and property taxes, tax subsidies of various types, sales taxes, and more. You can probably tell from this list that some examples will show that the teams and athletes benefit greatly from subsidies and taxpayer support, and other examples will show where they pay a hefty tax tab. Let’s start with one of the latter.

It is not exactly groundbreaking research for me to state that teams and players pay substantial income taxes in various forms. Here are the most recent payrolls and league ranking for the five Missouri teams:

  1. Rams, $62,384,821 (32)

  2. Chiefs, $83,187,156 (31)

  3. Cardinals, $93,540,751 (12)

  4. Royals, $71,405,210 (21)

  5. Blues, $46,485,000 (22)

As far as I know, the location in which a team plays its regular season home games is the primary determinate for which taxes must be paid. So, the city of St. Louis, which hosts the home games of all three St. Louis teams, gets $1,518,079 per year in earnings and payroll taxes just from the Cardinals, Rams, and Blues players. Kansas City gets $772,962 from Chiefs and Royals players. (This post originally mistakenly said that the KC stadiums were outside of Kansas City proper. Thanks to David Nicklaus of the Post-Dispatch for sending me a correction, and for reading our blog!) Of course, when you account for team employees and the profit tax levied on each organization, the earnings tax receipts grow even larger.

Missouri receives an estimated $10,710,088 each year from applying the 6-percent income tax rate to athletes from each of its five sports teams. (With deductions, etc., this figure would be a little lower.) Missouri, like many other states, enforces its income taxes on visiting athletes, too. However, just as players from visiting teams must pay the income and earnings taxes, all the players get credit for taxes paid to other cities and states. The result is that the total taxes paid are just moved around between jurisdictions, as our former editor Tim Lee first pointed out when writing about the “jock tax” in 2005:

But Missouri athletes who pay other states’ jock taxes are able to subtract those tax payments from their Missouri tax bills. When you subtract the revenue lost from other states’ jock taxes, the result is practically a wash. If all 20 states repealed their jock taxes simultaneously, states would get virtually the same revenue with a lot less administrative overhead.

Two lists help us determine whether players pay more or less taxes: states without an income tax, and cities with an earnings tax. The Cardinals players don’t appear to do so well here. They pay both a state income tax and city earnings tax at home, and regularly travel to Pittsburgh, Cincinnati, New York, and Philadelphia. Only when they travel to play the Astros — and, less frequently, the Marlins — do they really get a pay raise. The Royals also pay the local earnings tax when they travel to Detroit, Cleveland, or New York. Both the Cardinals and Royals pay the other city’s e-tax each year when they travel across I-70 for the annual “rivalry” series.

The Blues pay a local tax on their frequent visits to Detroit or Columbus, but get a nice tax vacation when they head to Nashville. Of course, Canadian taxation becomes a issue for any hockey player, and for the Royals to a lesser extent.

The NFL schedule rotates from year to year more than other leagues, but the Rams players have to like getting to play one guaranteed road game in Seattle each year, because Washington has no state income tax and Seattle has no earnings tax. The Chiefs and Rams play this year in the regular season, so both teams will be paying the host city’s e-tax then, as well. (The two football teams usually play in the pre-season for the much-coveted “Governor’s Cup” but I don’t think athlete’s salaries are based on pre-season games so no earnings tax would be collected in that case.) If you are looking to avoid taxes, the AFC south is where you want to play — aside from the smallish earnings tax in Indianapolis, of course. The Chiefs have to pay high California state taxes for at least two games per year. (Disclaimer: All team opponent and schedule info listed here has been pulled from my own memory, with a little help from ESPN.com.) Of course, other factors such as where an athlete keeps his primary residence, the agressiveness of his accountant, etc., will all play a factor here. A player who lives full time in Missouri is going to pay Missouri income tax on salary earned, but not taxed, playing in Texas, while someone who lives in another state might not. I am a policy analyst, not a CPA.

What does all of this prove? Nothing really, yet. This post is less debatable than future posts in the series might be, because in these cases the teams and players are treated just like other businesses, and the taxes paid are substantial. That does not mean I think they should be substantial, just pointing out that the applicable tax policies show no favoritism. Also, it is simultaneously difficult to say that the athletes and teams are not paying enough in taxes when around 100 individual players generate more than $1.5 million per year to the city of St. Louis alone, and it is almost as hard to seriously complain about the taxes paid by modern professional athletes, who earn enormous salaries to play a game for a living. (Am I jealous? Absolutely!)

Future posts in this series will deal with areas in which teams are not treated like other businesses, for better or worse.

Two Market Distortions Do Not a Free Market Make

Posted on by Christine Harbin

According to an article in the Wall Street Journal, Mayor Michael Bloomberg proposed that New York City assess a $300 permit fee on film shoots, in an effort to assuage the city’s budgetary problems.

This represents an unfortunate trend in public policy: to counteract the negative consequences of one policy, government officials propose another policy that further distorts the market, instead of repealing the first policy. It’s similar to the way in which the federal government subsidizes the production of corn, then proposes to tax products made with corn syrup. If New York City were serious about solving its budgetary problems, perhaps it would consider eliminating the 5-percent film tax credit that it offers to producers, instead of slapping fees on top of subsidies.

I have additional concerns about the policy. From the article:

“Everybody I’ve talked to about this—and I’ve called a number of producers—they couldn’t stop laughing because it’s $300 one time,” said Mr. Bloomberg. “They go anyplace else, they pay $1,000 every two weeks. And it’s such a small percentage of their budget.”

If a producer is in Bloomberg’s list of contacts, he has probably already experienced success in the film or television industry and has a large budget. I am skeptical that Bloomberg has any small-scale, independent filmmakers on speed-dial. Additionally, I’m not surprised at all that these large-scale producers would support an additional barrier to entry in the film industry — the fee positively affects them because it protects them from future competitors. This is a prime example of rent seeking.

Mayor Michael Bloomberg […] said the fee was too small to impact Hollywood business decisions.

Although $300 may not be significant to productions with large budgets, this fee could have a measurable effect on smaller, independent productions. Many of these producers will decide to move away from New York City as a result of this policy, and it’s possible that some of them may end up in Missouri. According to the Missouri Film Commission, Missouri does not require local film permits.

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