Page 669 – Show-Me Institute

At Least They Aren’t Asking for Government Assistance (Yet?)

Posted on April 12, 2010May 5, 2026 by Christine Harbin

In an article in yesterday’s St. Louis Post-Dispatch, Bill McClellan asked his readers to “Support St. Louis’ Culinary Landmarks.” I am very supportive of people voting with their feet, and choosing to support local restaurants in favor of national chains is a great example of this. Later in the article, McClellan illustrated — probably unintentionally — why many local restaurants fail: They fail to respond to changes in the market.

I told him I’ve heard that the recession is hurting a lot of restaurants, especially the high-end places. (Al’s is high-end. My steak was $38. Jack’s veal was $35. With salads, sides and drinks, our bill was $155.)

The meal for two cost $155? No wonder there were only two other people in the restaurant!

According to the law of demand, consumers will buy more of a good when its price decreases and less of a good when its price increases. Fewer people demand a steak that’s $38 than one with a lower price.

Although a person may experience positive marginal utility when they frequent restaurants that have history and character, that value may not be enough to meet or exceed the cost of a $155 dinner for two. Furthermore, people who eat at high-end restaurants face a high opportunity cost; instead, they could pay for multiple meals at a lower-end restaurant, buy groceries and make meals for the rest of the week, or spend the money in a different way.

The demand curve for high-end restaurants in Saint Louis has shifted to the left in recent history, and this can be attributed to many reasons. Reduced patronage from businessmen is a reason that McClellan identifies in his article, and he explains that this is because Saint Louis has fewer corporate headquarters and fewer conventions than before. Additional explanations for the leftward shift in demand for high-end restaurants include: the declining population of Saint Louis, reduced levels of disposable income, and the rise of close substitutes that are less expensive (i.e., chain restaurants).

Supply and Demand for High-End Restaurant Meals in Saint Louis

As shown in the preceding graph, the leftward shift in demand places a downward pressure on the equilibrium quantity and the equilibrium price. This means that the number of high-end restaurants will be lower (i.e., some will go out of business), and it also means that the price charged by the restaurants that remain will be lower.

If a restaurant owner wants to stay in business, then he or she should be responsive to shifts in demand such as this. The restaurant owner can either exit the market, or work toward a better chance at survival by adapting — perhaps by lowering his or her prices.

Getting It Backward

Posted on April 12, 2010May 5, 2026 by John Payne

Today is the Saint Louis Cardinals’ home opener, and — like all good Saint Louisans — I am excited about the beginning of what looks to be a great season. Because Saint Louis is such a great baseball town, today will be a huge celebration downtown, which is as it should be. In an attempt to make the atmosphere even more festive, the mayor’s office declared that the parking meters near Busch Stadium will be turned off for two hours before and after the game.

Naturally, this helps those few people who are lucky enough to snag a temporarily unmetered space, but shutting off the meters is actually detrimental to everyone else involved. Parking spots are a scarce resource, and they are rarely scarcer in downtown Saint Louis than on opening day. By eliminating the fees for parking on the street, the city encourages more people to drive downtown instead of carpooling or taking mass transportation. This imposes extra costs on everyone, because travel will take longer with the extra traffic. With demand for parking skyrocketing today, the city should raise parking fees to encourage people to conserve scarce parking spaces.

Unfortunately, this solution would be extremely difficult to implement in Saint Louis for an event like opening day, because the city parking meters only allow people to pay for two hours maximum. No one is going to pay for two hours before the baseball game and then return to their car to pay for another two in the middle of the sixth inning. Until the city upgrades its parking meters, it will have to forgo the efficient allocation of parking spaces (and the concomitant revenue) during big events.

Time to Celebrate!

Posted on April 9, 2010May 5, 2026 by Charis Fischer

Today is Tax Freedom Day! That means that Americans have earned on average enough money to pay all federal, state, and local taxes for the year (Missouri’s average Tax Freedom Day was actually a few days ago, on April 4). Unfortunately, as the Show-Me Institute’s new online tool, IDEAS, shows, the tax burden on Missouri’s citizens has increased at a fairly steady rate since 1980:

This year’s Tax Freedom Day is two weeks earlier than 2007’s date, but the Tax Foundation cautions that we shouldn’t get too excited: Tax Freedom Day does not include the deficit. If Americans were required to pay for all government spending this year, they would be working until May 17 to pay all of their taxes. Unfortunately, someone will have to pay those taxes someday.

In the meantime, though, celebrate the fact that you are done working for Uncle Sam for the year.

Mizzou Students March in Support of Poverty, Unemployment, and Extreme Energy Costs

Posted on April 9, 2010May 5, 2026 by David Stokes

A group of idealistic young whippersnappers marched in Columbia to protest the campus’ use — and, by extension, the entire state’s use — of coal as an energy source. I have to wonder whether these students have any idea what the economic effects would be if Missouri, or the rest of the country, just abandoned coal use overnight.

Coal miners have it pretty tough already, but I don’t think putting tens of thousands of them out of work is going to help them or their families much. I am also willing to bet that these exact same students would be leading the protests over higher tuition if Mizzou itself (somehow) suddenly went cold turkey on coal power and started using more expensive options. Finally, I’ll rescind these comments if I find out the protesting students were advocating that Mizzou should use nuclear power instead — but somehow I doubt that anything other than thousands of windmills and solar panels would satisfy them.

Thanks to Combest for the catch.

What Does the Patient Protection Act Do to the Average Missourian Today?

Posted on April 9, 2010May 5, 2026 by Stephen Feman

As we are all aware, President Barack Obama signed the Patient Protection and Affordable Care Act on March 23 (P.L.111-148). It is far-reaching, and will influence many parts of our lives for many years. The concern of this report, however, is what it will do to you today. When examined from the perspective of a single individual, its biggest immediate effect will be the requirement that every U.S. citizen and legal resident have qualifying health care insurance coverage. The new law indicates that those without coverage will have to pay a penalty. This penalty will start to take effect in 2014, and be phased in over a two-year interval. By 2016, the penalty will be the greater of $695 per year per person, up to a maximum of three times that amount ($2,085) per year per family, or 2.5 percent of a family’s household income. That is, those with an income of $27,800 per year or more will be fined an amount equal to 2.5 percent of what they report as income to the Internal Revenue Service. In addition, starting in 2016 this penalty will be increased annually by a cost-of-living adjustment.

Interestingly, exemptions will be granted for some very specific cases. The most common ones are financial hardship, religious objections, and those without coverage for less than three months. The exact level of financial hardship is spelled out in the law quite succinctly; the only people who qualify are those with incomes below the tax filing threshold (in 2009, the threshold for taxpayers under age 65 was $9,350 for singles and $18,700 for couples).

The other side of the situation is that if you have employer-sponsored health care insurance, or pay for your own insurance, you can keep your current policy. However, the new law requires a higher minimal standard of benefits for all participants. As a result, it is expected that by 2016 all policies will cost 10 to 13 percent more than the expected future cost of a current policy extended to that year. Countering that expense will be a potential tax credit by which a family of four that has an income of less than $88,000 will receive tax credits to help pay insurance premiums and deductibles. At the same time, people at the other end of the economic spectrum will be given a new burden. Those families that report an income of more than $250,000 per year will have to pay more in the form of a Medicare payroll tax; their unearned income will be subject to an additional 3.8-percent tax.

As you know, in the past some of my colleagues advised individuals and small businesses to purchase health savings accounts (HSAs). The new law will have an immediate effect on people that took that advice. It will exclude a currently accepted practice, in which the costs of over-the-counter drugs not prescribed by a doctor were reimbursed on a tax-free basis. The law will increase the penalties for inappropriate distributions from HSAs, also; that is, for withdrawals that are not used for qualified medical expenses. But, to the best of my knowledge, none of my friends were using their HSAs for unqualified expenses.

So, what does this mean to the people of Missouri today? At this specific point in time, very little seems to be happening that has a direct immediate impact on most readers of this blog. The fines and penalties that might become associated with an independent attitude won’t kick in for another few years. But a lot more will happen in other aspects of the health care arena by that time. They say that the true art and science of economics involves an understanding of the changes that occur at the margin, and we need to look at all the little bitty changes, one at a time, to see how they fit. So far, and from this single perspective, these marginal changes are quite minimal. But this is just the beginning. Going through the health care bill section by section during the next few weeks will give us a better idea of what it is really all about.

Scholarship Cuts for Private University Students Favor Institutions, not Students

Posted on April 9, 2010May 5, 2026 by Abhi Sivasailam

Meanwhile, the General Assembly, through House Bill 1812 and Senate Bill 784, is focused on reform of the Access Missouri grant. Currently, Access Missouri is structured to award a maximum of $1,000 in aid to students enrolled in two-year Missouri public schools, $2,150 to students at four-year public schools, and $4,600 for students attending Missouri's private colleges and universities. The bills in consideration would equalize these aid amounts to a maximum of $2,850 for all students, across all participating schools.

Choking the channels of aid to private school students while continuing to lavish aid on public school students only exacerbates the inequality and inefficiency that is characteristic of how the state currently supports its students. The current level of funds that the state awards to public school students already dwarfs the pool of funds directed toward private school students. In 2009, the General Assembly appropriated roughly $808 billion for four-year public higher education institutions. This amounts to an average per-student subsidy of approximately $7,280.

On top of this, qualifying public school students enjoyed an additional $56 million of publicly funded scholarships. Meanwhile, private school students received no per-student subsidies and shared a slightly smaller total of $52 million in public scholarship funds. Those who argue in favor of equalizing Access Missouri funds are misguided when they consider only Access Missouri and ignore the state's larger funding apparatus. Put simply, moving toward greater equality in Access Missouri is also a move toward greater inequality in total state support. There is, and always has been, a large disparity of public aid distributed between public and private students. Both reform proposals increase the size of this wedge. It is imperative, then, to consider whether this wedge is justified.

In 2008, Missouri's Coordinating Board for Higher Education adopted a set of basic values to guide higher education policy in the state. First among the list of values, the board recognized that the system is focused on students, learning, and each individual's realization of his or her full educational potential. The proposed reforms to higher education funding fail to do this vision justice.

First, the reforms do not support the full realization of student potential because they fail to honor the individual interests, skills, and needs of Missouri's diverse student population. For example, no public institutions in Missouri offer a complete architectural studies program, so students with an interest in architecture must turn to private institutions. On the margin, students unable to finance a private school education without assistance will necessarily settle for public-institution programs to which they are comparatively less suited.

Second, the proposed reforms pervert the vision of a higher education funding apparatus as centered on students. Instead, the reforms elevate the importance of institutions and suggest that students who attend public institutions are somehow more deserving of the taxpayer dime than students attending private colleges and universities. This is especially disturbing when considering that students attending private institutions contribute along with their parents funds to the pool of tax dollars that finance Missouri's support for higher education. The reform bills in the legislature would only serve to more unevenly distribute the resources of this pool. Meanwhile, Nixon's proposal would restrict private students access to the pool entirely.

The governor has said, In times like these, we simply can't continue to subsidize the choice to attend a private school.â€ This seems to suggest that the institutional choices that students make should be more relevant to the amount of aid they receive than their income, ability, or interest. This view fails to recognize that it is precisely in times like these that Missouri cannot afford to abandon its principles, or its investments in higher education students regardless of the institutions they choose.

Abhi Sivasailam is an intern with the Show-Me Institute and an economics student at the University of Missouri Columbia.

Check Out the Show-Me Institute’s Newest Web Tool in Action!

Posted on April 9, 2010May 5, 2026 by Christine Harbin

In an article published today at Kansas Liberty, Holly Smith used Show-Me Institute’s newest web tool, IDEAS: Interactive Database for Economic Analysis and Synthesis, to analyze Kansas’ tax burden over time. Smith compares many fiscal figures for Kansas and other states in the Midwest. For example, she found that Kansas generated $104.3 from alcoholic beverages in 2007, which is more than its neighboring states. Missouri, in comparison, generated $32.26 million in 2007.

Using the IDEAS web tool, I restricted the selective tax rates on alcoholic beverages for Missouri and Kansas over time, and then exported this information to Excel to produce the following graphs:


Click graphs to enlarge.

Generally, residents of Missouri are taxed less on alcoholic beverages than residents of Kansas are taxed. Specifically, Missouri assesses lower tax rates on beer and spirits, but as of 2005, the state has higher tax rate on wine.

In an effort to encourage or to protest their economic and social situation, people tend to vote with their feet. This is why I included domestic net migration data for Kansas and Missouri in the second graph. The data show that Kansas has experienced negative net migration every year in the last decade (i.e., people are moving out of the state). Missouri experienced positive net migration during this period, except for 2008 (i.e., people are moving into the state).

Although these trends can be attributed to a combination of factors, it may be possible that the higher taxes on alcohol in Kansas influenced some marginal number of people to move out of the state, and the low taxes on alcohol in Missouri influenced people to move into the state.

I encourage our blog readers to play with the IDEAS web tool and determine to which states they would consider domestically migrating.

Should Nonprofits Pay Property Taxes?

Posted on April 8, 2010May 5, 2026 by David Stokes

The Post-Dispatch had an excellent article Monday about the city’s issues with such a sizable proportion of land in St. Louis being owned by nonprofit entities, and thereby exempt from property taxation. The article discusses in detail the phenomenon of payments in lieu of taxes (PILOTs), which you frequently find in St. Louis County but not very often in the city. (I believe the Cardinals are making PILOTs to the city school district in exchange for their Ballpark Village TIF.)

When I worked at the St. Louis County Council for Councilman (now judge) Kurt Odenwald, he chaired the council’s Revenue and Personnel Committee, which had as its primary role the study of tax exemption issues. You might be surprised to know that there is no hard-and-fast state law governing what gets to be exempt and what doesn’t. While it is obvious that a church or school is exempt, what about a nursing home that sets aside 5 percent of its rooms for charity cases? In cases like that, it is often up to the county in which the facility resides as to whether it is tax exempt. Sometimes, a promise by the applicant to make PILOTs that partially make up for the lost taxes can be an important factor in the county’s decision. I really remember this one example cited in the Post article:

Closer to home, Lutheran Senior Services, a nonprofit, gives Webster Groves $28,000 a year[.]

I remember it so well because when Lutheran Senior Services decided to make the first PILOTs to the city, school district, library district, and county, they didn’t know how to go about doing it, so they just mailed all the checks to Councilman Odenwald’s office. The next day, I had to hand-deliver all these substantial checks to various government officials — who were, not surprisingly, very happy to see me. (The process of making the payments was clarified the next year.)

A very important point in the story is found near the end:

He said cities that have an earnings tax typically don’t have PILOTs. Detroit and Pittsburgh are two exceptions.

I’ll point out that Pittsburgh depends primarily on its property — especially land — taxes, so tax exemption is particularly noticeable there. And I think that generally you always want to do the opposite of what Detroit does. Of course, St. Louis County has no earnings tax, so the PILOTs are more understandable there. (Do you ever notice that nobody ever expresses concerns about city residents who work in the county being free riders in the county? Why does it only come up as a defense of the earnings tax?)

My basic belief is that nonprofits generally receive the same services everyone else does, so I see nothing automatically wrong with them being required to pay some type of property tax. Although the Post article focuses on large nonprofits, I think it is the small nonprofits (the ones without their own security forces) that genuinely use government services like everyone else. But I would only really support these efforts if they entail broadening the property tax base so that the overall rate can be lowered — not as an excuse to raise additional taxes or fix a budget hole. Beyond that, I would only support something like it in St. Louis or Kansas City if the earnings tax is eliminated. But if that were to happen, I think requiring nonprofits to pay some type of property or land tax would be reasonable.

Just How Much State Money Will It Take?

Posted on April 8, 2010May 5, 2026 by Audrey Spalding

In an unexpected turn of events, Paul McKee, the developer behind a projected $8.1 billion development project in the city of Saint Louis, is facing the possibility of eminent domain. The Missouri Department of Transportation (MoDOT) has made offers for several NorthSide properties, and, unable to come to an agreement with the developer, has filed suit. A map of the properties in question is included below.

Map by Audrey Spalding.

When I spoke with Drew Gates, a spokesperson for MoDOT, he emphasized that McKee and MoDOT could likely reach an agreement, and that negations for the properties were ongoing. The suit, he said, is simply the first step of the paperwork process that MoDOT has to follow.

I have to wonder why McKee is digging in his heels in these price negotiations. After all, the state has already paid in part for these properties — and not an insignificant amount.

In late December 2009, the state of Missouri awarded NorthSide Regeneration LLC $19.6 million in tax credits under the Distressed Areas Land Assemblage Tax Credit Act. The act, the purported purpose of which is to encourage development, grants developers who purchase a large of area of land up to 50 percent of the land acquisition costs and 100 percent of the interest costs. The state’s definition of acquisition cost includes the purchase price of the land, closing and brokerage costs, and costs for environmental assessment, demolition, and maintenance.

In its DALA tax credit application, NorthSide submitted a list of properties eligible for the tax credit, along with the associated reimbursable costs (the linked document includes purchase price and interest costs, but not demolition, maintenance, brokerage, etc.). So, I checked the properties named in the MoDOT suit against the properties NorthSide claimed as eligible for partial reimbursement.

As far as I can tell, every property that MoDOT is trying to purchase was claimed for the DALA tax credit.*

Because the state awarded NorthSide the $19.6 million as a sum, instead of calculating the credit per individual property, it’s impossible to ascertain exactly how much the state has already paid for each of these properties. But the state did pay, and a good estimate for the amount paid for each individual property would be at least 50 percent of the price NorthSide claimed on its DALA tax credit application.**

When I spoke to Philip Morgan Jr., the attorney for MoDOT in this suit, he seemed to have no idea that the state had awarded tax credits for these properties. Gates, when asked whether these tax credits were a factor in the price negotiation process, paused, and said the negotiations were “based on the value of the property.”

Gates would not disclose how much MoDOT has offered for the properties. But if MoDOT and NorthSide do come to an agreement, it will be interesting to compare the price MoDOT paid to what NorthSide listed as the property purchase prices in its tax credit application. The costs NorthSide reported are as follows:

1101 O’Fallon St. — $537,000

1401 N. 11th St. — $537,000

1443 N. 10th St. — $537,000

1401 Hadley St. — $212,500

1201 Cass Ave. — $145,000

1525 N. 10th St. — $230,000

1600 and 1616 N. 11th St., 1601 and 1617 N. 10th St., and 1000 Howard St. — $135,000 (total)

1400 N. 13th St. — $537,000 (not pictured)

I am not aware whether this is a violation of the tax credit statute. However, it seems as though the state will be paying for these properties more than once.

* You can download a spreadsheet of the NorthSide properties in question here. I was unable to locate a property with parcel number 05760000308 on either Geo St. Louis or within the city assessor’s property database. Given the parcel number, which is only slightly different from that of 1401 Hadley (05760000300), I suspect the parcels are located at the same address.

** The state awarded just slightly more than 80 percent of the total amount that NorthSide requested. Given that acquisition costs other than the purchase price of a property, not to mention interest fees, can add up to a significant amount, estimating the state’s payout per property at 50 percent of the reported price seems reasonable.

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