How to House Your Family—and Make it Affordable

Posted on by William Redington

Despite the potential to provide more affordable housing, accessory dwelling units (ADU) are currently illegal to build in much of St. Louis. A new city bill could change that.

Often referred to as granny flats or in-law suites, ADUs are built near or inside existing homes and provide a separate living space from the main house.

You might hear of the university student who rented out space above someone’s garage or in their basement to afford an education–that student is renting an ADU. And if you search Airbnb (with the filters “Entire Place” and “Guest House”), you can get an idea of what ADUs might look like.

Historically, ADUs have been used to house older family members or relatives—hence the names granny flat and in-law suite. This helps promote multigenerational living, making it easier to maintain relationships with close friends and family (which could help ease a recent increase in loneliness).

ADUs are not currently illegal by name in the City of St. Louis, but a convoluted set of regulations make it extremely difficult for many homeowners to build them; the city requires 4,000 square feet of land per dwelling unit, so residents need at least 8,000 square feet of land to build an ADU. Additionally, parking minimums and setback regulations make it very difficult to build ADUs in homes of certain sizes and shapes, even on larger lots.

ADUs can help lower-income residents afford mortgages and other living expenses while also providing an affordable living space for renters. They also have the potential to increase the value of homes for owners—the extra living space, as well as the potential to rent it out and earn passive income, can increase a home’s appeal.

Board Bill 43 will allow ADUs to be built and used in all residential zones of the city (this interactive map shows how the city is zoned if you’re interested).

Allowing people to use their properties as they see fit and strengthening the rights of homeowners will let the market work freely, increasing the amount of affordable housing in Missouri. This is a much better approach to affordable housing issues than misguided regulations and tax-credit programs.

The now awaits discussion in the Housing, Urban Development and Zoning Committee.

What to Do about Property Taxes in Missouri

Posted on by David Stokes

Several years ago, my colleagues and I were debating what the worst possible tax policy change could be. (I work at a think tank, so conversations like this are normal.) We settled on “exempting lottery winnings from income taxes.” While it may not be quite that bad, the current bill on the Governor’s desk, which would allow counties to freeze the property taxes for senior citizens, is a similarly misguided attempt at tax reform that will have harmful effects on our state if it becomes law.

The state legislation, Senate Bill 190 (SB 190), authorizes any county to freeze the real property taxes of the primary homes for senior citizens who qualify under the eligibility rules. Their property taxes will stay at the same amount they are when they become eligible for the plan, which for most people would be when they turn 62. The purpose of the bill is to help senior citizens stay in their homes as they age, but there are several major problems with this proposal.

This proposal is harmful simply because it reduces the property tax base. Unless local governments cut services in response to the enactment of this tax freeze for seniors, it will almost certainly lead to higher tax rates on those property owners not eligible for the freeze. This bill is every bit as much of a tax increase on non–senior citizens as it is tax relief for some senior citizens. People who live in homes of similar value with similar public services should pay similar property taxes. The young couple who has lived in their home for a year should not pay higher property taxes than their neighbor just because their neighbor has lived there for two decades.

Passage of this bill would also lead to the problematic situation in which people vote on property tax increases that they themselves do not pay. The single best aspect of property taxation is that it imposes the costs of local services on the people who use those services, unlike sales or earnings taxes that are exported in part to visitors, commuters, and others. Instituting a system in which people vote on property taxes they won’t pay breaks that beneficial connection.

Furthermore, there are important questions about the enabling state legislation. In order to receive a property tax freeze, it says you have to be “eligible” for social security. Does that include social security spousal benefits for people who are themselves not senior citizens yet? Are teachers not eligible for this program? Some Missouri public school teachers are not in the social security program. Are they not included? These are just two flaws in the state legislation that are repeated in the county bill.

For a cautionary tale about the dangers of property tax subsidies, consider California’s famous Proposition 13, which was passed in 1978. Prop 13 limited the increases in property assessments and taxes for homeowners. The measure has certainly had its intended effect of keeping property taxes low for longtime California homeowners. However, it has also reduced mobility, dramatically increased alternative taxes, limited homeownership opportunities, and caused substantial tax disparities between similar properties. This is not what we need in Missouri.

A major tenet of good tax policy is that the tax base should be broadly based. St. Louis County, for example, is considering a property tax increase for major public building construction and renovations, yet at the same time it is poised to become the first county to move forward with a local ordinance to exempt senior citizens from property tax increases (if the governor signs the authorizing legislation). In other words, it’s debating a property tax increase while also considering exempting a large swath of residential property from those same future property tax increases. In economic terms, this is lunacy.

According to data from the Federal Reserve, people ages 65 to 74 have the highest net worth of any age group. So why, if we were to pick any age group for tax exemption, would we pick the wealthiest among us? (People over 75 have less wealth than those 65–74 or 55–64, but they have a higher net worth than any age grouping under 55.) We shouldn’t be handing out property-tax exemptions to any individual, whether those exemptions take the form of corporate subsidies, developer abatements, or senior citizen tax assessment freezes.

While SB 190 would benefit some Missouri senior citizens, it would alter our property tax and assessment system in a myriad of harmful and biased ways. Property taxes work best when the assessments are accurate, the base is wide, and the rates are low. SB 190 does not move us in that direction.

Landlord Island

Posted on by David Stokes

City of St. Louis officials are taking sides in disputes between landlords and tenants, and they are decidedly on the side of the tenants. The city just passed a bill to use tax funds to pay for lawyers for tenants facing eviction. This is, it bears emphasizing, a civil matter, not a criminal matter. City government has no business involving itself and using tax dollars to assist one party in a civil dispute.

St. Louis already has a ridiculous “source of income” rule that forbids landlords from rejecting Section 8 housing vouchers from applicants. Keep in mind that Section 8 is a federal program, and the federal government has no such requirement for landlords. The program is supposed to be voluntary, yet the city is making participation mandatory. Clayton, Webster Groves, and Maplewood also have this terrible policy on their books.

Missouri has a state law forbidding rent control rules, so at least St. Louis can’t pass that next.

Housing in St. Louis is very affordable. Passing laws that limit how and to whom landlords rent their property limits supply and makes housing more expensive. (Obviously, there are anti-discrimination rules for housing that everyone supports.)

Using City of St. Louis tax dollars to assist tenants in their civil disputes against landlords is an inappropriate use of tax dollars. I know, I know, city officials will say they are just paying for “representation,” not taking sides, but if you hire a lawyer for one party and not the other you are clearly taking sides.

The eviction moratorium during the pandemic did plenty of damage to landlords, even if it may have been an unfortunate, short-term necessity. Using city tax funds to oppose landlords in court is just another bad decision by elected officials who likely claim they want more affordable housing. This move will give them less.

On Short-Term Rentals

Posted on by William Redington

I recently attended a meeting of the Transportation and Commerce Committee of the Saint Louis City Board of Aldermen held for public testimony. The committee discussed Board Bills 33 and 34, which both deal with short-term rentals (STR).

Often synonymous with Airbnb or Vrbo, STR properties are units intended to be rented out for less than a month. These properties provide a place to stay for people passing through and visiting St. Louis, encourage competition within the lodging industry, and bring revenue to their communities. Some owners, however, have been renting to unpredictable tenants, leading to out-of-control parties, violence, and even murder.

STR regulation has become common in major cities such as New York and London. Even some Missouri municipalities are adopting new rules. Citing similar frustrations to the City of St. Louis, St. Charles just placed a moratorium on new residential STRs in most of the city for a year.

The proposed regulations in St. Louis would, among other changes, create a permit and punishment system to hold STR operators accountable, require a Graduated Business License for owners renting out property they do not live in and a permit for individuals who rent out their primary residence, require a 24/7 available contact for the STR, and limit individuals to four permits for units they do not live in.

While some regulations on STRs are warranted due to the disturbances and dangers they can cause, parts of the proposal appear excessive.

The limit of four STR properties per owner seems like a solution in search of a problem. The city might have included a limit to prevent STR owners from operating many units (so many that someone could not realistically operate them alone) and ensuring that there is always some level of oversight for the STR properties. However, the requirements for each rental (24/7 contact, licenses, permits, punishments) should be more than enough to keep STR owners in check without more regulation. If someone can properly run several STRs without harming the community, why is the government trying to place further restrictions on them and create incentives to subvert the law?

More troubling is requiring permits for owner-occupied units. An STR is considered an owner-occupied unit when a property owner rents out a space where they live (such as a finished basement, or a garage converted into a studio). From the bill:

Applicants for a Short-Term Rental permit for an Owner-Occupied Dwelling Unit shall submit, on an annual basis, an application for a Short-Term Rental permit to the Building Division. The application shall be accompanied by a non-refundable application fee in the amount of $150.00. – Board Bill 33, Page 5, Line 19

Not only does this degrade a means by which countless people have been able to afford academic programs or help lodge friends and family, it might run afoul of state law. Missouri Statute 71.990 limits restrictions on “home-based businesses” and may conflict with the proposed bills. St. Charles’s legislation might not be legal either. It is likely that courts will have to sort out the interplay between Missouri statute and local ordinances.

Overall, these bills appear to do a good job of regulating non-owner-occupied properties. They would give communities more power in mitigating problems with STRs while not being restrictive on those who rent their property. The proposals for owner-occupied properties, however, could be improved.

My colleagues Avery Frank and David Stokes discuss their opinions on the proposed bills here.

St. Louis Should Privatize Its Water System

Posted on by David Stokes

A version of this commentary appeared in the St. Louis Post-Dispatch.

You have probably heard about all of the large water main breaks throughout the St. Louis region over the past month, leading to boil-water orders, traffic mayhem, and extensive repairs.

Wait, they haven’t been throughout the St. Louis region? They’ve all been in the City of St. Louis? Yes, indeed they have been, but what difference is there?

The difference is twofold. First, the city’s water system is simply older, and in fairness an older system is going to have more problems than a newer one. But the other problem is that the city water division is owned by city government, whereas in most of our region—including all of St. Louis County (with the partial exception of Kirkwood)—the water is provided by a private company (in most cases Missouri-American Water). While water line breaks can and do happen to every water utility, the recent, dramatic trend in the City of St. Louis is not being experienced elsewhere.

The fundamental problem with government utilities is that politics inevitably interferes with the management of the utility. It can do so in ways that may seem beneficial, like holding water rates artificially low because politicians don’t like increasing rates on their own voters. Did you know that the city’s water division has never installed meters in many homes to help allocate billing and prices? That technology is almost a century old, yet it has never been adopted citywide.

In a 2002 study on water utility privatization, the National Research Council stated (emphasis added throughout):

Some studies show that the public is willing to pay for reliability and for high water quality. . . . Yet water managers and city councils often lack the political will to practice cost-based ratemaking. They may want to protect residential customers (who are also voters) from higher rates and use water pricing and availability policies to promote economic development even though there is scant evidence to support the usefulness of this strategy.

Compare those findings with these recent quotes by city officials, as reported by the Post-Dispatch:

The city’s water chief told aldermen Monday he needs two 20% rate increases in the next fiscal year—one in July and one in January—to shore up a division struggling to manage rising costs and aging infrastructure.

The increases . . . would be the largest in nearly three decades.

The system is supposed to pay for itself by charging ratepayers enough to cover the cost of operations and upkeep. When it can’t, the mayor and the board are supposed to step in and adjust rates.

But they don’t like to do it. The last time they obliged was in the late 2000s, another time when staff was telling them they had no choice.

While the proposed water rate hike is absolutely necessary, and the related proposal in the current bill to reduce political influence by automating future price hikes would be beneficial, I have zero faith that future politicians wouldn’t respond to pressure to reduce rates by backtracking as soon as possible. The city’s leaders have a history of ignoring recommendations to deal with the water infrastructure until every decade or so it becomes impossible to ignore it further.

Other communities in our region have privatized their water and sewer systems in recent years. Eureka recently completed the sale of both to Missouri-American Water for $28 million. Florissant and Webster Groves both privatized their water systems 20 years ago, also to Missouri-American. Other utilities are also potential bidders. Voters in Olympia Village in Jefferson County approved the sale of its sewer system to Liberty Utilities in 2021.

I hope city residents reconsider the benefits of cheap, public water the next time they have to boil it before drinking or get home late due to a massive traffic jam. Politics has gotten the St. Louis water division into this mess, and politics isn’t going to get it out. It is time to privatize the entire system as part of an open, transparent process that will hopefully lead to the city’s vital water system being operated by a private, regulated utility. Customers of private water utilities don’t have to think very much about their water supply, and that’s the way it should be.

Second Time’s the Charm?

Posted on by Elias Tsapelas

Drivers, it’s time to start preparing your receipts. On July 1st, Missouri taxpayers will again be eligible to claim gas tax refunds for the prior year. This will mark the second time that Missourians have had the opportunity to get some of their gas money back, and I am hopeful that more taxpayers will take advantage of the program this year.

As I’ve written in the past, I’m not a fan of the refund scheme. The bill that created the refund raised the state’s gas tax by 2.5 cents per year for five years, but avoided a public vote by offering a path for Missourians to get back what they paid in new taxes at the end of the state’s fiscal year. The catch is that you need to keep all your gas receipts for the year and file a claim with the state’s department of revenue between July 1st and September 30th to be eligible for a refund.

If the refund were too easy to claim, the gas tax hike approved by legislators in 2021 would never raise much money for state roads. But our elected officials were willing to bet that taxpayers wouldn’t want to go through all the hassle to get a meager refund, and based on the refunds claimed last year, they were correct. Very few taxpayers claimed refunds last year, but it was also the least lucrative year for claiming a refund (only 2.5 cents per gallon was eligible for refund).

This year, the refund has doubled up to 5 cents per gallon, which means that drivers that fill up a 12-gallon tank every week for a year would receive around $30 back. While the total is still not a lot, it’s more than before, and the department of revenue now has an online portal available for filing claims, which is supposed to make the process a bit easier.

Of course, I would have rather Missouri’s legislature make the process easier—something like what was proposed in the bill I discussed here—or gotten rid of the tax hike altogether. But with prices up all across our economy, every little bit helps. Personally, I did not file for a refund last year, but I wish I had. This year, I did a better job of keeping track of my receipts and will be submitting my claim once the window opens. I hope many other Missourians join me in doing the same.

20 Missouri Districts Seek Exemption from the Missouri Assessment Program (Part 2)

Posted on by Avery Frank

Twenty districts in Missouri are seeking a federal waiver in order to be exempt from the Missouri Assessment Program (MAP). In partnership with the Department of Elementary and Secondary Education (DESE) and the Success-Ready Student Network (SRSN), these districts are participating in the SRSN Demonstration Project to implement a new type of standardized test and “seek to create a reimagined assessment and accreditation system.” I’ve discussed the details of the new standardized testing and my opinion on seeking a federal waiver in a previous post. In this post, I will dive deeper into some of the underlying issues.

There are legitimate issues with using the MAP to evaluate individual student performance. The current test delivers lagged results—students take the test in the spring, but schools do not get the results until the fall. Additionally, the MAP does not shed enough light on what particular concepts a student is struggling with. My colleague, James Shuls, previously wrote about this and provided an image of a sample test result. As one can see, there is not a lot of specific information for educators to work with to target learning weaknesses in different students.

One of the goals of the new standardized test is to better inform educators on what topics students are struggling with. But what is the point of quizzes, homework, tests, presentations, essays, and in-class discussions? Are our districts not paying adequate attention to their students as they progress through their classes? Having a continuous testing structure throughout the year could be a useful tool, but a district’s understanding of its student body should not be contingent on it.

A standardized test should be built to compare your school district to others around the state to ensure your teachers are actually teaching the material and not handing out free A’s. If students flunk an algebra section of a standardized test even when a vast majority of them receive high marks in the classroom, it would raise questions about the rigor of the course. Standardized tests can also be useful for comparing teaching strategies. If a similar district nearby receives high scores on its algebra standardized test, struggling districts can mimic its practices.

Unfortunately, DESE has made it harder to compare and contrast district achievement over time with repeated changes to our standardized tests and accountability system.

It is also fair to wonder about the timing here. As mentioned before, one of the goals of the project is to create a reimagined assessment and accreditation system. The first results from the new Missouri School Improvement Program 6 (MSIP 6) were released a few months ago—and they were not pretty. Do officials believe the system they designed is so bad that they want to change it as soon as possible? Or are they concerned that far too many districts were provisionally accredited?

The biggest takeaway from this story is how many problems there are in education policy in Missouri. The status quo needs to be changed in numerous ways. It remains to be seen if these 20 districts will find success with this trial program (I hope they do), but the problems in our state go much deeper than deciding which standardized test to use.

Tensions Simmer as Jackson County Property Taxes Explode

Posted on by Patrick Ishmael

How much of their taxes will the Royals not have to pay? Until recently, that question was the hottest tax policy debate in Jackson County as the baseball team considers their options for a new stadium and the county considers a tax incentive package for them. But for local leaders, the Royals’ tax question may be the least of their public relations headaches.

A property tax assessment completed by Tyler Technologies has caused frustration and concern among several Jackson County residents. The county estimated an average increase of 30%; however, some residents report their assessment increased their property value by 80% or more. (emphasis added)

“The problem was their process,” said real estate agent Stacey Johnson-Cosby. “They picked a company that had problems and other areas that had to be rolled back. And why did we spend $17 million of our taxpayer dollars to put this fiasco on?”

Johnson-Cosby organized workshops to educate residents of the appeals process. She reported 1000 people attended the first scheduled workshop and hundreds were in attendance at both the second and third sessions.

“People are desperate. They’re scared. They’re fearful of being forced from their homes,” Johnson-Cosby said.

What can be done? In the long term, the Missouri Legislature could pass a law to cap the extent to which property taxes can rise in a reassessment cycle. A Jackson County legislator is also suggesting the county set aside the current reassessments and place a 15% cap on increases; whether that will happen is unclear.

But what isn’t unclear is that the situation is boiling over. Earlier this week, County Executive Frank White sent a pointed letter to Kansas City Mayor Quinton Lucas, who had been critical of the county’s property tax problems, which of course affect hundreds of thousands of Kansas Citians. Along with telling Lucas that he doesn’t understand the law surrounding property taxes, White also called Lucas out for living in what the executive described as a “white neighborhood” that would disproportionately benefit from limits to property tax increases.

White’s letter is worth calling out here for a few reasons.

  1. White says the county can’t do what Lucas is demanding, including halting reassessments entirely;
  2. White is saying Lucas is being self-serving for his own taxes, aggressively asserting that his home is the benefit of a sort of privilege; and,
  3. These are the same two guys in charge of Jackson County and Kansas City’s push to keep the Royals in the jurisdiction.

 

That this conversation is happening as the debate on the Royals’ tax incentive package reaches its final stage is, perhaps, karma. Government has no business giving away tax revenues to professional sports teams, especially while it’s lifting taxpayers by the ankles and shaking the change out of their pockets. Kansas City and Jackson County need to get back to basics.

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