 Photo from the Kansas City Star. |
Sing along:
Go ahead and hate your gasoline,
Go ahead and scam a friend.
Do it in the name of subsidies,
You can justify it with an E-10 blend.
There won’t be any markets working,
Come the judgment day,
On the inefficient morning after …
(continue singing)
And, I should add, rides away with 3 percent less gas mileage.
Thanks to Billy Jack Combest for the KC Star link.
Forbes recently published an article that praises Gov. Jay Nixon, and describes him as “cutter-in-chief”:
Nixon proposed to “right-size” government by merging agencies, eliminating state holidays, laying off more employees, getting rid of state vehicles, scaling back employee pension and health benefits, privatizing child support collections and curtailing Missouri’s expansive tax credit programs.
He may talk the talk, but he doesn’t consistently walk the walk — he has continued to support giving tax credits to specific businesses. Here, I reference the $28 million in state incentives that the Missouri government is giving to IBM to locate in Columbia, Mo., or the proposed $15 million in tax credits to support the Ford plant in Claycomo, Mo.
Even though the incentive package for Ford’s Claycomo plant didn’t pass the state legislature, the governor strongly supported the proposal. According to the Kansas City Star:
The bills’ failure was a disappointment to Democratic Gov. Jay Nixon, who had pushed hard for both the jobs bill and retirement reform, and worked through the day Thursday and Friday to make a deal on their passage.
“Unfortunately, the General Assembly missed a critical opportunity by failing to pass this package,” Nixon said.
The recession has provided a new opportunity to evaluate the appropriateness and the effectiveness of specific government programs. I do give credit to the governor for communicating his commitment to reduce state expenditures. However, I wish that he would advance a consistent message regarding tax credits.
By now, it’s old news that state and local governments awarded IBM a $31 million incentive package to persuade the company to build a service center in Columbia, Mo. What’s astounding, though, is the following headline in the Columbia Missourian:
In the article, reporter Molly Harbarger writes that at a press conference, Columbia’s mayor claimed that the new service center could bring in an additional $4.3 million in tax revenue for the Columbia Public School District during the next decade. District Superintendent Chris Belcher said that would amount to about $400,000 of extra income for the district per year.
Yet the school district, the city, and the state are forgoing large amounts of tax revenue to bring IBM to Columbia — that’s what this $31 million incentive package represents. To say that the school district will see its property tax revenues increase as a result of this project is, at the very least, to rely on uncertain and disputed methods to calculate the economic benefit of a new development.
As research analyst Christine Harbin wrote on Monday, the total $31 million price tag is actually an understatement of all the incentives awarded to IBM. Because the city owns the property where IBM will locate its service center (and will be leasing it to IBM for only $1 per year), the company will not have to pay property taxes on that property. In Harbin’s words, “this is a bigger subsidy than the $3 million the city paid for the building.” Furthermore, she noted, the $31 million does not include the sales tax exemption on personal property or the 50-percent property tax abatement on personal property awarded by Boone County.
So, at this point, there is no additional money going to the school district. After all, the city owns the building in which IBM will locate. Because the city will be leasing the property to IBM for the next 10 years, any improvements to the building will not bring additional tax revenue to the school district. In fact, it is a likely bet that some other company would have bought that building in the future, which means that the school district is not simply forgoing additional tax revenues, it is also missing out on the future property tax revenues that another, unsubsidized, company would have paid.
So, where exactly did the projected $431,000 in additional revenues for the district come from? The Missourian article doesn’t say. A quick search of Columbia’s website reveals a presentation from Regional Economic Development, Inc., about the purported benefits of the project, including the $431,000 figure — but no supporting research or background about how REDI came to that number is included.
In fact, as the Columbia Tribune reported, some government officials have suggested that the approval process for the IBM service center was less than transparent. Former city council member Karl Skala told Tribune reporter Jodi Jackson that “he was critical of Regional Economic Development Inc. for not providing more information to the Columbia City Council earlier in the economic recruitment process.”
I am skeptical of the claims made by Columbia’s mayor and district superintendent about the increase in property tax revenues. If nothing else, the school district cannot expect those benefits to accrue immediately. Had IBM itself paid for the building, the school district would have seen an immediate increase in its property tax revenues, to the tune of about $47,000.* Instead, the district appears to be banking on revenues that have yet to materialize — and probably won’t for a number of years, if at all.
In fact, most subsidized projects such as this fail to deliver on the promised economic activity. The Mackinac Center for Public Policy, a nonprofit think tank in Michigan, reported, after conducting an extensive survey and review of Michigan’s tax credits, that of 127 incentive packages awarded by the state, only 10 actually created the number of jobs initially promised within the expected time frame. That comes to less than 8 percent of projects that actually delivered the total number of jobs that had initially been pledged.
If projects supported by tax credits do such a poor job of delivering on job creation, we can likely expect similar errors to be made in the estimates of increased property tax revenue. There is a good chance that neither a total of 800 new jobs nor the additional tax revenue will come to fruition.
In short, the claimed future benefits of this project are promises, and nothing more.
* The $47,000 figure is based on the price that Columbia paid for the property. The purchase price of a property is not a perfect estimate of the appraised value of a piece of commercial property, but it is a good place to start.
A piece from the Kansas City Star this weekend highlighted current political disagreement over “Know Your Farmer,” a $65 million program run by the U.S. Department of Agriculture designed to educate people about the sources of their food, and something I’ve written about on the blog before. According to the Star, some politicians have taken issue with the program’s slant toward organic farmers over conventional farmers.
When the government promotes one business over another, it chooses economic winners and losers — something that government officials have no special skill for doing well. Some argue, though, that this governmental expenditure hardly rivals the ones for conventional farming:
Bruce Babcock, an economist and director of the Center for Agricultural and Rural Development at Iowa State University, said it was “ironic” that [Sen. Pat] Roberts and others objected to the USDA spending $65 million on Know Your Farmer.
Babcock pointed out that commodity producers received $5 billion over the last two years, and the crop insurance industry received $7 billion.
Just because one group gets a subsidy does not mean that another group should get a subsidy as well. In fact, I would argue, consumers and taxpayers are better off if neither get subsidies.
Agriculture, like all businesses, is best left to the marketplace. Subsidies lower the cost of producing politically favored products; this distorts the market by shifting the supply curve. In the case of agriculture, subsidies have led to an overabundance in the production of certain commodities, like corn and soy, which drives down their prices relative to other products, making them less expensive to purchase and use as ingredients in other foods.
Agricultural subsidies have decreased the price of — and, thus, increased the demand for — products like high fructose corn syrup and corn feed for livestock. Some researchers have suggested that such subsidies have led to poor health outcomes and higher rates of obesity. Some disagree with this claim, although still and other researchers, including the American Medical Association, maintain that the subsidies have led to an increase in unhealthy foods in the United States. At any rate, more corn is being grown and subsequently incorporated into people’s diets than would otherwise happen. The subsidies have also lead to an increase in corn-based ethanol production, which costs taxpayers and may well result in marginal increases in environmental harm.
In real terms, subsidies don’t make food less expensive. Rather, they divert taxpayer funds from the market price of food to the production stages of farming. This influences farmers to grow more of the subsidized crops than people would otherwise demand, and so taxpayers end up paying more for their food than they would in an otherwise free market.
Some may argue that the promotional program discussed by the Star helps organic farmers to gain an advantage similar to that of conventional farmers. If people are interested in organic foods, though, they will purchase organic foods. Indeed, films like Food, Inc. and books like The Omnivore’s Dilemma have convinced many that they should vote with their wallets for organic foods. It’s unnecessary for the government to create an educational program to support organic farming.
Although $65 million is a small expenditure in comparison to the overall budget for agriculture, it still represents a substantial amount of taxpayer funds. Whether it be subsidies or educational programs, the government oversteps its role when it encourages one business over another, or one form of agriculture over another. If government officials truly want people to consume healthier food, the best strategy would be to level the playing field by eliminating subsidies and promotional programs, instead letting market forces work.
Sunday’s Post-Dispatch had an excellent story about the use of taxpayer-funded cars for public officials. In past decades, when government employees really did make a lot less than private-sector employees, a perk like the car might have made sense. Now, with the growth of public sector salaries, it is a practice that really should be abolished. I highly recommend that you read the Post story, but keep in mind that the people cited in it are not to blame for a practice that has been going on for a long time.
The real purpose of this blog post is to note that there is a private-sector solution to this issue. The Reason Foundation has done some great work on the subject of private companies managing government vehicle fleets. It might be the right time for state, county, and city governments in Missouri to give this idea serious consideration.
The Columbia Missourian recently published a summary of the $31 million incentive package that the state and local governments are providing to IBM to persuade it to locate a service center in Columbia, Mo. It includes more than $28 million in state tax credits.
From the article:
State incentives:
- $8.6 million through the Missouri BUILD Program
- $14.7 million through the Missouri Quality Jobs program
- $4.2 million in new jobs training
- $300,000 for customized job training
- $412,500 worth of recruitment assistance
- Sales tax exemption on personal property under the Chapter 100 program
Local incentives:
The city of Columbia will buy the building at 2810 LeMone Industrial Blvd. for $3 million and will lease it to the company for $1 per year for 10 years with an option to extend it for an additional 5 years at the same price.
Boone County will provide a 50 percent property tax abatement on personal property for the depreciable life of equipment and will exempt personal property from sales tax.
According to another article in the Columbia Missourian, IBM has promised to bring 600 jobs to Columbia during the next 10 years. Given the $31 million incentive package, this means that taxpayers will be subsidizing each job by $51,670. Meanwhile, IBM will only have to pay its employees a minimum average annual wage of $43,750, and it will contribute zero property tax revenue. In exchange, IBM will provide exactly $10 in rent over 10 years.
Furthermore, because the city owns the property and is leasing it to IBM, the company will not have to pay property taxes on it — this is a bigger subsidy than the $3 million the city paid for the building. IBM will not be required to contribute personal property tax revenues for this facility to the state government, either.
The government shouldn’t carve out sections of its tax base, via methods like property tax abatements or tax increment financing, because this type of behavior shifts and increases the burden to those who do pay taxes. Additionally, this $31 million cannot be spent on other services, like education, or returned to taxpayers to spend in the private sector.
The incentives may increase employment in Columbia in the future, but given that the increase will come at such a supreme cost, it may not be worth it.
According to the Columbia Missourian, an internal investigation into the SWAT raid of Jonathan Whitworth’s home (which I have also covered here, here, here, and here) has cleared all the officers involved of any wrongdoing. Given my vociferous criticism of using SWAT tactics to serve search and arrest warrants for nonviolent crimes, you probably expect me to decry this decision as a miscarriage, but you would be wrong. From everything I know of the case, the officers did not violate any policies or statutes, whether federal, state, or local — but that’s precisely the problem. We need stricter rules for SWAT raids because under the rules in place at the time, there was nothing technically wrong with the raid.
As Radley Balko puts it, “this wasn’t a ‘botched raid.’ It was a routine raid. The police got the correct house. They found the guy they were after. They arrested him. No one was killed. Most of these raids don’t turn up huge stashes of drugs or weapons. Most result in misdemeanor charges.”
There is some reason to hope that — in Columbia, at least — using SWAT teams for nonviolent crimes will become the exception rather than the rule. Columbia Police Chief Ken Burton concedes that the department has “utilized SWAT routinely in circumstances and situations where we should not,” and promises that new reforms should cause the number of SWAT raids to “plummet.” Those reforms should be strengthened and expanded statewide to help ensure that SWAT teams are used for the intended purposes and not to shock and awe nonviolent people.
Rand Paul, the newly designated Republican candidate for one of Kentucky’s seats in the U.S. Senate, has taken a lot of flack over the past couple of days as a result of his views on the landmark Civil Rights Act of 1964. MSNBC’s Rachel Maddow spent roughly 15 minutes of interview time with Mr. Paul trying to get him to directly express his belief that the government should not prohibit private business owners from engaging in racial discrimination. Rather than offer a soundbite that would allow political opponents to caricature him as a closet racist or opponent of civil rights, Paul first emphasized all that he found admirable and beneficial about the Civil Rights Act, then tried to express the difference between discrimination as a governmental policy, which he believes to be both abhorrent and unconstitutional, and discrimination as a private choice, which he believes to be both abhorrent and unwise, but beyond the proper authority of government to prohibit.
It’s true that a strict libertarian or free-market perspective might prevent the government from interfering when individuals choose to act in a discriminatory fashion. This may make people uncomfortable. But, as Mr. Paul pointed out, the very idea of freedom requires us to tolerate certain decisions that we might find distasteful, in order to ensure that we have the liberty to make decisions that others might find distasteful. For example: Our nation prizes freedom of expression so much that our constitutions deny governments the authority to restrict or punish speech, even if the ideas expressed are almost universally regarded as offensive. Respect for this form of freedom is so ingrained in our culture that its wisdom is only rarely challenged. Mr. Paul was trying to help Ms. Maddow understand that, similarly, if one believes in individual liberty then one must necessarily be prepared to tolerate the fact that some individuals will use that liberty in ways that others might find offensive.
The proper question, I believe, is how best to deal with those situations when they present themselves. Where speech is concerned, if someone says something offensive, the ideal solution for those offended would be either not to listen to that speaker or to respond with their own speech. Likewise, the best response to discriminatory business establishments would have been for others to boycott the offending establishments and/or to open non-discriminatory establishments of their own. The same principle can be applied to businesses that refuse to hire or promote qualified minority or female applicants. These discriminatory decisions create an opportunity for competing businesses to hire those same applicants — which, presumably, will allow them to offer higher-quality services than the discriminatory employer. The effect might not be immediate, but eventually it will become plain that discrimination is both foolish and costly.
It is also vitally important to remember that governmental power is a double-edged sword. A power that can be used in ways of which you approve can also be used in ways that you find repugnant. The problem of segregation/desegregation is a useful example, because the governmental action at issue represented flip sides of the same freedom-denying coin. In much of the Jim Crow South, segregation was not optional. Those allowed to vote — almost exclusively white people, many of whom had an interest in maintaining a privileged status in society — elected representatives who decided that individual business owners were not permitted to offer a desegregated environment. Thus, all people were forced to live with governmentally enforced segregation. After the Civil Rights reforms were enacted, individual business owners were not permitted to offer a segregated environment — all people were forced to live with governmentally enforced desegregation. At all times, individual citizens had only a limited ability to make these choices for themselves.
In a libertarian or free-market paradigm, the government would not have the authority to dictate these matters to individual in either direction. The government’s sole responsibility would be to ensure that those who sought actively to harm others would be brought to justice and, if necessary, their victims compensated for any demonstrable, quantifiable injuries suffered. Those who believed strongly in the importance of segregation would be permitted to live out their choice — but would also be forced to suffer the disadvantages that would flow from their choice. Those who favored integration would realize a unique competitive advantage that, eventually, would reveal the wisdom of that approach.
To sum up, governmental control over the decisions that individuals may make for themselves presents a seductive shortcut for those who believe that the world ought to be ordered in some particular way. But not only does it represent a denial of individual liberty, a government vested with the power to dictate decisions made by its citizens can very easily turn against those who had hoped to use it to pursue their vision of a “good” society. As George Washington once warned: “Government is not reason; it is not eloquence; it is force! Like fire, it is a dangerous servant and a fearful master.”
Today’s Kansas City Pitch has a short story on a new Brookings Institution study that places modern American cities into various categories. According to the study, Kansas City and St. Louis are different types of cities, which is not surprising to anyone who has spent much time in both. Speaking for myself, I get a different urban feel in Kansas City than I do when home here in St. Louis. It’s not better or worse, and I doubt I could define it much further, but I definitely sense it. But this really isn’t the point of my post.
As soon as I read the list of cities to which St. Louis is judged as being similar, the issue of government structure jumped out at me:
St. Louis fell in the “Skilled Anchor” category. These cities are typified by slower growth, lower diversity and higher educational attainment. Baltimore, Pittsburgh, Akron and New Haven are other Skilled Anchors.
Which two American cities have a metropolitan government structure most like St. Louis? Baltimore and Pittsburgh, and I doubt anyone would dispute that. Baltimore is also an independent city-not-within-a-county, like St. Louis, and the metropolitan Pittsburgh and St. Louis areas are the two most fragmented in the country (as defined by government units per capita). Both of these cities, especially Pittsburgh, were covered in detail by my “Government in Missouri” policy study. (For the fragmentation info, check out Table 9 on p. 29, and read endnote 23.)
I am not trying to draw any causation here, or even really any correlation. It may be just coincidence that St. Louis, Baltimore, and Pittsburgh are all judged as similar cities by the measures of the Brookings Institution. But then again, perhaps the similar government structures have resulted from how the three communities have adapted to various changes over time, now bringing them into similar circumstances.
