Dan Sheehan: Victim of Eminent Domain Abuse

Posted on by Timothy B. Lee

 

Last November, Clayton business owner Dan Sheehan learned from the newspaper that his property suffered from “age, deteriorated condition, and outmoded design.” That was a surprise to him because the property is located in one of the most prosperous neighborhoods in St. Louis and is home to four thriving small businesses, including his own. If the buildings were “deteriorated” and “outmoded,” their customers didn’t seem to notice. Yet the city of Clayton has begun making plans to seize Sheehan’s property — and four others on the 7700 block of Forsyth — using eminent domain.

The redevelopment project is ostensibly part of Centene Corporation’s plan to build a new corporate headquarters at the corner of Hanley and Forsyth. But strangely, Centene doesn’t need Sheehan’s property to build its proposed office towers. Rather, his property has been vaguely slated for use as new retail and office space.


Business owner Dan Sheehan in front of his “blighted” office in Clayton.

Sheehan believes that Centene included his properties in the proposal at the behest of the Clayton Board of Aldermen. In early 2005, the city issued a request for proposals as a way to “encourage the highest and best use of commercial properties in the central business district.” The city has marked the properties on the 7700 block of Forsyth as blighted because the area is “economically underutilized.”

Sheehan is the president of Dolan Realtors, which has been in its current location since 1977 and has owned the property since 1982. He says he does not oppose the Centene project overall, he would just prefer to be a part of the project instead of a casualty of it. Sheehan does not believe that Centene has negotiated fairly and in good faith. Centene sent its initial letter seeking to purchase the property in October.

He did not respond to the offer because his property is not for sale. Clayton held its first public hearing on the Centene redevelopment project the following month. Many business owners and citizens, including Sheehan, spoke against the use of eminent domain to take their property. But on December 13, the Board of Aldermen passed a pair of ordinances approving Centene’s redevelopment plan and its use of eminent domain.

Clayton
The headquarters of Centene Corp, which has sought eminent domain authority from the city of Clayton.

Citizens and business owners responded by creating the Clayton Committee to Stop Abuse of Eminent Domain. It took them just a few days to collect more than 250 signatures — five times the number needed — on referendum petitions to request the Board of Aldermen to rescind the ordinances.

A referendum would haven given Clayton voters the opportunity to decide whether the use of eminent domain was appropriate. But the city prevented that using a procedural tactic: they passed the ordinances as “emergency” measures, which protected it from the referendum process.

On February 27, Sheehan received a contract saying that he had 45 days to respond to either waive or accept mediation. Sheehan has reluctantly accepted mediation, which is scheduled to begin shortly.


Some of the businesses being condemned to make space for new retail space.

Sheehan argues that it is possible to proceed with the planned Centene project and leave the businesses that do not wish to sell. Clayton’s redevelopment agreement with Centene provides that if requested by Centene, the board of aldermen would give reasonable consideration to eliminating the requirement to acquire all property within the redevelopment area. Essentially, Centene could exempt the two owner-occupied properties from being redeveloped and use the remaining three properties to build new retail space and above ground parking. A similar exemption of active businesses from seizure occurred recently in the Frenchtown redevelopment project in St. Charles.

Sheehan says that as a commercial realtor he has assembled large properties for clients on several occasions, and he has never found it necessary to use eminent domain. He assembled 55 acres for a client in the 1960s, and then assembled 200 acres for the same client in the 1980s. Neither project required the use of eminent domain. “Nobody can defend the use of eminent domain unless it is for a hospital, highway, or other purpose for which it was originally intended,” he says. “Everybody tip toes around that and they talk about the jobs that will be created and the taxes that will be increased, but that’s no reason to kick somebody out on the street.”

Timothy B. Lee is a policy analyst at the Show-Me Institute. Shaida Dezfuli is pursuing a master’s degree in public policy at the University of Missouri, St. Louis.

 

Property Rights Still in Danger a Year After Kelo

Posted on by Timothy B. Lee

 

One year ago today, in the case of Kelo v. New London, the Supreme Court ruled that local governments have wide latitude to transfer property from one private party to another for purposes of “economic development.” The public was outraged. In response, politicians across the nation pledged to enact state legislation to strengthen property rights. Last month, the legislature passed House Bill 1944 into law, which Governor Blunt touted as “protecting the rights of responsible property owners.”

Unfortunately, compared to other states, Missouri’s legislation leaves a lot to be desired. Florida offers a particularly striking contrast. Thanks to action by Florida lawmakers, property owners in the Sunshine State now enjoy robust protections against the abuse of eminent domain for private gain. Missouri property owners, on the other hand, got only crumbs.

Probably the most serious loophole for eminent domain abuse is “blight,” which has become a virtual blank check for city governments to seize private property. One notorious example is in Clayton, one of the most prosperous cities in the St. Louis metro area. At the behest of the Centene Corporation, which wants to build a new headquarters, the city of Clayton is attempting to use eminent domain to force out several small business owners down the street from the company’s current headquarters. They claim that the buildings that house these businesses are blighted, but the buildings don’t look noticeably different from the buildings around them. Those property owners simply had the misfortune of owning property that a larger company wanted.

The new Missouri law does little or nothing to prevent such abuses. The use of eminent domain for the elimination of blight or substandard conditions is still permitted, and no changes are made to the current “anything goes” definition of blight. In contrast, Florida’s reform bans the use of eminent domain to eliminate allegedly blighted conditions. If Centene was located in Florida, it would have to find voluntary ways to acquire the land it wants.

Another example of “blight” abuse occurred in Sunset Hills. The city condemned the entire neighborhood of Sunset Manor because a handful of properties had minor problems. The project fell through due to the developer’s inability to finance the project, and the area has been left in a much worse condition than before.

The new Missouri law would have done little to prevent the Sunset Hills fiasco. If a “preponderance” of the properties in an area are blighted, the legislation allows every parcel in that area to be taken–even those in perfect condition. In contrast, Florida municipalities are only permitted to use eminent domain for truly public purposes such as public roads, parks and utility systems. For truly blighted, slum-ridden and nuisance properties, Florida law allows municipalities to use building codes and nuisance law to force homeowners to eliminate nuisance conditions–powers that are far less subject to abuse than eminent domain. In short, Florida’s legislation would have prevented the Sunset Hills fiasco, but Missouri’s legislation leaves private property vulnerable.

The Missouri law does provide a few token concessions to property owners. Farms are protected from blight takings, and the law provides additional compensation in some cases. But until the “blight” loophole is closed, Missouri property rights will continue to be in danger. Give any property enough time and it will naturally become “blighted” by the terminology currently used in Missouri. Older buildings can become blighted simply because they were built according to different standards with different technology. As long as the law permits an open-ended definition of blight, none of our homes or businesses is safe.

Florida’s legislation is a model for serious eminent domain reform in Missouri and across the nation. Florida’s lawmakers listened to the overwhelming public outrage about the Kelo decision and outlawed eminent domain abuse for private gain. In contrast, Missouri’s lawmakers ducked the hard questions, preferring to tinker around the edges instead. Property owners in Missouri deserve better.

Timothy B. Lee is a policy analyst at the Show-Me Institute. Shaida Dezfuli is pursuing a master’s degree in public policy at the University of Missouri, St. Louis.

Homer Tourkakis: Victim of Eminent Domain Abuse

Posted on by Timothy B. Lee

 

In January of 2004, the city of Arnold unveiled a plan to re-develop a large chunk of Arnold commonly referred to as the Arnold Triangle. The plan envisioned 250,000 square feet of retail space, a Dierbergs Market and a Lowe’s store. Unfortunately, there were 52 homes and businesses already occupying the area. They don’t pay as much in taxes as the city expects to get from the big box retailers, and the city has decided to remove them in favor of wealthier businesses.

One of the property owners the city wants to displace is dentist Homer Tourkakis. He and his wife Julie have put down roots in Arnold. They’ve been in the city since 1985, when they started the practice in the Arnold Triangle. They’ve spent the last 21 years forging friendships and attracting clients from all over Jefferson County. They also raised two daughters, both of whom are now in Missouri colleges.

“When I heard about the city’s plans, I had a lot of concern and consternation,” Tourkakis said. “I was ignorant about eminent domain and all the ramifications, and the power that was available to the city. I still looked at the world through rose colored glasses. I thought the city council would be there to defend me. It didn’t take long for me and other business owners to realize that like it or not, this thing was going to happen.”


Business owner Homer Tourkakis in front of his “blighted” dental office.

On September 16th, 2005 the city voted in favor of giving Overland-based developer THF Realty $24 million in tax breaks and the authority to condemn the homes and businesses of property owners who refused to sell.

Tourkakis and his neighbors protested the plan. “I didn’t want to be part of this development program,” said Tourkakis, “I didn’t want to have to dip into my savings and start all over again.”

In response to those protests, some influential property owners were spared. The city promised to give the Veterans of Foreign Wars land within the development area and build a new VFW hall. A UMB bank was also guaranteed a place in the new plans. And Norman Moss, who sits on the city’s Board of Adjustments, managed to get his business, Arnold Stove and Fireplace, spared from forced relocation outside of the development area.

But no such concessions were offered to small business owners like Tourkakis. Tourkakis thinks that the city is playing favorites. “It just seems really arbitrary,” said Tourkakis, “why do some get red-carpet treatment, while I get my life turned upside down so the city can pick up a few bucks?” Tourkakis says that the city council members of his ward, Phil Amato and Joyce Deckman, refused his requests for help.


Board of Adjusts member Norman Moss’s business, Arnold Stove and Fireplace, will not be forced to relocate outside the development area.

Tourkakis’ property, along with about 12 others, was declared blighted by the firm of Peckham, Guyton, Albers and Viets (PGAV), the same consulting company that made the blight determination in the infamous Sunset Hills redevelopment project. In one instance, PGAV cited broken pavement as evidence of blight–never mind that maintaining roads is a city responsibility.

“They say they offer fair market value, but my business has been established in this area for years. I’ll have costs that ‘fair market value’ simply won’t cover. What about my loss of highway traffic? What about the risks I incur?” Tourkakis asked. “The appraisals were a joke. They looked at property that was miles away from mine. Everybody knows they lowball you.”

The developer, THF, did go through the motions of negotiations. THF principal Allen Bornstein visited Tourkakis on three occasions. But Tourkakis charges that the relocation offers made to him were vague and inadequate. “They just wouldn’t talk seriously about a plan,” said Tourkakis. “At one point, Bornstein said to my attorney, ‘Look, I’m not in the dental building business.’ They all seemed pretty convinced that they could push me where they pleased. They were pretty arrogant.”


A “blighted” home a block away from Tourkakis’ dental practice.

The Tourkakis dental practice isn’t as large as Dierbergs or Lowe’s. He employs a staff of three full-time, fully health-insured persons, two of whom are Arnold residents. His practice is one of a handful which treats Medicaid patients, including the elderly and the developmentally disabled. Treating Medicaid patients who can’t pay their bills means operating at a loss. The government only reimburses Tourkakis ten cents for every dollar he spends treating those patients. “I see doing it as part of being a member of the community,” says Tourkakis, “helping out the community makes for a stronger community.” Tourkakis’s practice has treated Medicaid patients for 21 years.

In the coming weeks, the developer must make a final buyout offer to the remaining property owners, who number about 15. If they can’t get the contracts, they’ll ask the city to file a condemnation lasuit against the property owners.

“It kind of makes you wonder why you work so hard to build something,” said Tourkakis. “If they’re just going to take it away from you, why bother?”

Timothy B. Lee is an editor at the Show-Me Institute. Jonathon Burns is a student at Truman State University.

 

Better Teacher Pay Would Improve Math and Science Instruction

Posted on by Timothy B. Lee

 

In many schools across the country, students hand in lab reports and math homework to teachers who have no background in science or math. The Missouri Department of Elementary and Secondary Education says that Missouri schools suffer from teacher shortages in those subjects. Governor Blunt has pledged to address the problem. He held a Math and Science Summit last month, and he recently named twenty scholars to a Math and Science Alliance.

Such state-wide initiatives are a good start, but we’re unlikely to solve the problem until changes are made at the local level. Unfortunately, when it comes to hiring math and science teachers, school districts’ hands are tied. Under Missouri law, school districts must use rigid salary schedules that apply to all teachers. They can’t offer better pay to teachers of shortchanged subjects, or to teachers with valuable credentials and experience. Those restrictions prevent school districts from hiring the best teachers. Crucial subjects like math and science are the hardest hit.

What causes a teacher shortage? In a recent study, University of Missouri economist Michael Podgursky looked at public school teachers’ wages compared to the wages earned in other professions. He found that teachers as a group aren’t underpaid, but some individual teachers are. Most teachers, if they weren’t teaching, would probably find jobs in nearby fields like social work and library science. Teachers earn more than those professionals on average.

However, math and science teachers might choose to work in architecture or engineering—fields that pay better than teaching. Podgursky found that teaching is an attractive position compared with the other options available to English majors, but that a physics major often has much more lucrative alternatives. Therefore, when school districts offer the same salary to English and physics teachers, physics teachers are in short supply.

A National Center for Education Statistics (NCES) study of biology teachers highlights the problem. Of U.S. secondary-level public school students in biology classes, 39 percent were taught by a teacher who did not have a major or minor in biology. Some of these teachers had studied elementary education, physical education, or English. When science majors go into engineering, preparing the next generation of scientists is left to people who would be better qualified to teach Shakespeare or soccer.

Poor teacher education holds the U.S. back as it struggles to catch up with other countries in math and science instruction. Students in Asian countries such as Japan, Korea, and Singapore consistently score higher than American students on the Trends in International Mathematics and Science Study (TIMSS). The difference between U.S. teachers and teachers in other countries stands out in a TIMSS report on eighth-grade mathematics teachers’ backgrounds. In the U.S., only 41 percent of eighth-grade students were taught by teachers who had majored in mathematics, 30 percentage points below the international average.

In order to solve the math and science teacher shortage, school districts will have to break away from strict salary schedules and offer math and science teachers better pay. This past session State Rep. Allen Icet sponsored a bill that would allow districts to use hiring incentives to attract teachers with desired qualifications or experience. The state of Missouri should give districts the option to reward hard-to-find teachers. If math and science teachers are offered reasonable salaries, they’ll no longer be hard to find.

Timothy B. Lee is a policy analyst, and Sarah Brodsky is a research assistant, at the Show-Me Institute.


 

 

 

Legislation Fails to Protect Property Rights

Posted on by Timothy B. Lee

 

Is it right for the government to take your property for the benefit of another private party? Voters across the nation were outraged last summer when the Supreme Court said “yes” to that question in its infamous Kelo decision. Missouri’s elected officials reacted by pledging to change Missouri law to ensure that Show-Me state residents’ property would be secure.

But judging from the legislation passed last week and expected to be signed by the governor, they didn’t mean it. True, the legislation does impose some new requirements on cities seeking to take peoples’ homes, but it does almost nothing to prevent the use of eminent domain to benefit one private party at the expense of another. If the governor signs the legislation this week, property rights in Missouri will still be in danger.

Our legislators seem to think that private property is an issue of money and paperwork. Municipalities exercising eminent domain must pay an extra 25 percent if they take your primary residence, and an extra 50 percent if the home has been in your family for 50 years or more. And the law requires more public input, more negotiations, and more court oversight before a taking can occur.

Such tweaks miss the point. Fundamentally, property rights are about equal rights before the law. Private property places the smallest homeowner on an equal footing with the largest corporation. If the company wants the homeowner’s land, he must pay a price the homeowner is willing to accept or look for land elsewhere.

In contrast, when the law permits eminent domain for private profit, ordinary property owners become subject to the whim of the powerful and well-connected. We recently saw a clear example of the dangers of eminent domain abuse in Clayton, where the Board of Aldermen is in the process of condemning five small downtown retail establishments to make room for the expansion of Centene Corp’s corporate headquarters. The city justifies the taking on the basis that the retail establishments are “blighted,” despite the fact that downtown Clayton is one of the most prosperous neighborhoods in the St. Louis metro area.

“Blight” has become a catch-all term that allows municipal leaders to condemn anyone’s land. It was the pretext under which the city of Sunset Hills condemned properties in its doomed re-development plan, which collapsed last fall when it was discovered the developer couldn’t finance the project. And it was the justification given by St. Louis alderman Tom Bauer when he sought to condemn several homes and businesses to make room for a QuikTrip gas station—a plan that led his constituents to recall him.

Yet the legislation being sent to the governor this week wouldn’t have done a thing to stop any of those three abuses. “Blight” takings are still permitted, and no change has been made to the current “anything goes” rules for defining blight. Under the current rules, cities commission blight studies by friendly consulting companies that invariably give cities the answers they’re looking for. Such studies often cite trivial problems such as broken drain spouts, declining tax revenues, or windows that are too small for the latest fire code. Amazingly, some studies even cite poor upkeep of public streets and sidewalks as evidence of blight, even though those are the responsibility of the city government that sought the blight designation in the first place.

Even worse, the new legislation continues to allow land to be taken if a “preponderance” of a proposed redevelopment area is blighted. That means that the city can take your home even if it’s in perfect condition, as long as some of your neighbors haven’t been maintaining their properties. In Sunset Hills, several meticulously maintained homes were condemned because their owners happened to live in a neighborhood the city government considered “blighted.”

Missouri’s elected officials have failed to keep the promises they made last summer to pass meaningful restrictions on eminent domain abuse. Instead, they passed legislation that is little more than window dressing, in the hopes that that would satisfy voters’ demands for stronger property rights. Show-Me state voters shouldn’t be fooled by that kind of legislative sleight of hand.

Timothy B. Lee is a policy analyst at the Show-Me Institute.

 

Cable Consumers Deserve Choices

Posted on by Timothy B. Lee

 

“The company that had a monopoly had lousy services until competition came, and then they improved their services.”

That’s how one Texas consumer describes the increased cable TV competition his community has experienced in recent months, after the Texas legislature passed sweeping legislation to open up the cable TV market to new competitors. Another Texas consumer says, “I think I am paying too much for what I am getting and that is why I am switching.”

That’s how competition is supposed to work: several different companies compete for your business, and you choose the one that offers the best service at the lowest price. But that’s not how the cable TV industry works in Missouri. For most consumers, the only alternatives to your local cable company are satellite TV or rabbit ears.

Under current Missouri law, a new company wanting to compete with incumbent cable companies must negotiate hundreds of franchise agreements with individual municipalities. The process can take years and cost millions of dollars in attorneys’ fees. Not surprisingly, few companies have attempted it.

Sen. John Griesheimer has introduced legislation to reform the system and reduce red tape, but his bill has stalled in the Senate. He blames heavy lobbying by the cable industry, which—not surprisingly—would rather not have new competitors.

That is particularly disappointing because it comes just as several new studies find that reform would bring substantial benefits for consumers. Jerry Brito and Jerry Ellig of the Mercatus Center at George Mason University calculate that cable franchise reform could increase competition and save consumers nationwide $5.5 billion per year. Kent Lassman of the Progress and Freedom Foundation published a study last month that focused specifically on the Missouri cable market. He estimated that franchise reform could save Missouri consumers more than $100 million per year.

These predictions are borne out by experience. A survey released last month by the American Consumer Institute shows the dramatic results of the Texas franchise reform: in three of the first communities where Verizon Communications began offering video service in competition with the incumbent cable companies, more than 20 percent of consumers switched to the new service. Customers who switched since Verizon entered the markets have saved an average of $20/month on their cable bills.

But the benefits of competition go beyond saving money. Many of the “switchers” indicated they did so because they preferred the package of channels offered by the new company. Others cited dissatisfaction with the quality or customer service of their previous company. Competition drives down prices, but it also spurs companies to offer higher-quality, more responsive service. Consumers in Texas are reaping those benefits.

Unfortunately, in Missouri, the interests of consumers seem to have taken a back seat. That’s especially problematic because Missouri is in competition with other states for new investment. After Texas passed its franchise reform bill, telecom companies pledged to spend $800 million on new and upgraded infrastructure. Indiana, which enacted similar legislation last month, is seeing a similar windfall, as AT&T has promised to upgrade their infrastructure in 33 rural Indiana communities to offer new services. Virginia has passed similar legislation, and there are numerous other states considering it.

If the Missouri legislature adjourns without passing meaningful franchise reform, it is likely that the telecom companies seeking to invest in next-generation video services in 2006 will invest in other states with less hostile regulatory climates. By the time the legislature convenes again in January 2007, we will likely have fallen behind several more states.

Time is of the essence. Consumers in Texas, Indiana, and Virginia are already enjoying the benefits of increased competition. Why should Missouri consumers have to wait until next year?

Timothy B. Lee is a policy analyst at the Show-Me Institute.

 

Sharon Fitzgerald: Victim of Eminent Domain Abuse

Posted on by Timothy B. Lee

 

 

The summer of 2005 was not a good one for Sharon Fitzgerald. On Memorial Day, she learned she had inoperable lung cancer. Three days later, she got a knock on her door.

It was Jonathan Browne, head of real estate developer Novus Equities. He wanted to buy her house. And he made it clear that this was an offer she couldn’t refuse.

Sunset Hills
Michael Fitzgerald outside his “blighted” home. Sharon was too ill to come outside for this picture.

“He told us that if we didn’t sell, he’d just use eminent domain and take our home anyway,” said Sharon, “What could we do? With my health and everything and the chance to lose our home anyway, we didn’t really have a choice.”

Sharon and her husband Michael reluctantly agreed to sell. They wanted to get the issue behind them so they could concentrate on dealing with her illness. But when the time came to close on the house, they were dealt another blow: “It turned out that Browne didn’t have enough money from the banks to close,” said Sharon.

Residents say that Browne misled them and the city council about his capacity to complete the project. In reality, he didn’t have the money he needed to buy out the properties, and he was having trouble recruiting tenants for the shopping mall he wanted to build. When those facts came to light, the project collapsed.

Sunset Hills
Another Sunset Hills home condemned for “blight.”

That has put many Sunset Hills residents in a bind. Some of them had already entered into agreements with Browne to sell their homes to him, and they had made plans to move on the assumption that the contracts would be honored.

Even worse, some property owners have already moved, leaving their previous homes in a state of disrepair. There wasn’t much blight in Sunset Hills at the start of the process, but there is plenty now. Some of the most neglected homes in the neighborhood are owned by Browne, who has not kept them in good repair.

One Sunset Hills resident died without bequeathing his house to anyone, leaving the house abandoned. Sunset Hills doesn’t have any legal provision for handling abandoned property, and neighbors say that the city council hasn’t made any effort to address the problem, choosing instead to let the property deteriorate.

With the collapse of Browne’s development plan, the uncertainty faced by Sharon and Michael has only increased. There is talk of finding another developer, but that will take time. In the meantime, property values have begun to decline as the looming threat of condemnation discourages anyone from purchasing property in the area.

Sunset Hills
The home of Sharon’s parents, also condemned for blight.

Sharon and her husband weren’t the only ones whose lives were put on hold by Browne’s actions. Sharon’s parents live just down the street from her in the house they’ve owned since 1954. When Browne came to the door with threats of eminent domain, Sharon’s parents became quite frightened. “They were scared out of their minds,” said Sharon. “They’ve lived in that house for decades and they can’t afford house payments now, with their medical bills and other expenses. The entire experience has had a terrible effect on their health.”

Not all of Sharon’s neighbors were so easily intimidated. Resident Kathy Tripp decided to tell Mayor Hobbs about Browne’s strong-arm tactics. She got nowhere. “He assured me everything would be fine, but then he didn’t do anything at all,” said Kathy.

But Kathy isn’t easily deterred. She recently filed suit against Novus and Browne for fraud. The suit details Browne’s extensive harassment of residents.

Sunset Hills
This neglected property is owned by developer Jonathan Browne.

Kathy says that Browne’s harassment campaign was made possible by the city’s decision to use the power of eminent domain. When Browne approached the city with his development proposal, the city enthusiastically agreed to help him get the land he wanted. They commissioned a blight study from Peckham, Guyton, Albers, and Viets (PGAV), a consulting firm notorious for finding blighted conditions everywhere they look. After inspecting only 42 of the 262 homes, PGAV concluded the neighborhood was blighted, citing such problems as a broken rainspout, an unsettled concrete porch, and a family of four living in a 2-bedroom house. With the blight study in hand, Browne had a credible threat to use against residents who didn’t want to sell their homes.

Residents say that eminent domain has pitted neighbor against neighbor, as those who want to move blame those who want to stay, and vice versa. “I’ve been called every name in the book by some neighbors,” said Kathy. “Some people don’t like me standing up for my rights.”

But both Sharon, who signed a contract with Browne, and Kathy, who refused to do so, agree on this much: it’s not right to use eminent domain for private profit.

“It’s not right what Browne has done, or what the city has done.” Sharon said. “People’s homes shouldn’t be taken away just because the city can pocket some extra money. A hospital is one thing, but profit is different. And Brown has nearly destroyed our neighborhood, pitting one against the other. The hardest ones hit are the elderly.”

Timothy B. Lee is an editor at the Show-Me Institute. Jonathon Burns is a student at Truman State University.

 

Stadium Proposal is Unfair to Taxpayers

Posted on by Timothy B. Lee

 

Should Kansas City’s taxpayers pay for the renovation of the Truman Sports Center? Advocates for the proposal offer two major reasons for doing so. They say it will spur economic growth in the Kansas City area. And it’s suggested that if the proposal isn’t approved, the Chiefs and the Royals will move their teams to another city that’s more willing to offer them handouts.

Do stadiums really create economic development? It’s a refrain that’s heard all across the country when sports teams seek subsidies for their stadiums. Unfortunately, it isn’t true.

Supporters like to focus on the new economic activity that inevitably occurs around the stadium. But they forget that a new or renovated stadium is in competition with a region’s existing restaurants and entertainment venues. Although the bars and restaurants immediately adjacent to the stadium may benefit from the new facility, that additional business may be drained away from other parts of the city.

Moreover, when touting the economic benefits of a new stadium, supporters rarely take into account the job losses inflicted by new taxes. When a new stadium is financed by tax dollars, every dollar taxed away to finance the stadium is a dollar that would otherwise have been spent by a private individual or business elsewhere in the economy.

Indeed, the evidence bears that out. The Cato Institute published a study in 2004 that examines the impact of new and renovated stadiums across the country. On average, they found that a new stadium project has a negative impact on the economic performance of the surrounding metropolitan area.

So the benefits of stadium subsidies to taxpayers are debatable at best. What’s indisputable is that the tax would be a windfall for the owners of the Chiefs and the Royals, who have spent hundreds of thousands of dollars promoting the proposal. Most private businesses are required to spend their own money if they want to upgrade their facilities. It’s hard to see why sports teams should be any different. It’s true that sports teams generate new jobs and tax revenues for the state, but so does every other successful business. There’s no reason to single out professional sports for special treatment.

In addition to touting the economic benefits, supporters of the stadium tax suggest that if the referendum fails, the Royals and the Chiefs will leave for another city that’s more willing to offer handouts. Sports teams have become adept at playing cities against each other, using the threat of relocation as a means of extracting ever-larger handouts from cities.

That’s a shame. Kansas City’s sports fans are known for being among the most loyal in the country, sticking to their teams through thick and thin. It’s disappointing to see that their loyalty is not being reciprocated by the teams they love. The proposed stadium renovation is a bad deal for taxpayers, but more importantly, it’s unfair to fans. It’s not right for the Royals and the Chiefs to use their fans’ love to line their own pockets.

Timothy B. Lee is an editor at the Show-Me Institute.

 

Saint Louis Can’t Afford an Earnings Tax

Posted on by Rex Sinquefield

Saint Louis faces a sad irony. It boasts cultural institutions that many larger cities envy — its symphony, opera theatre, botanical garden, art museums, and zoo are among the best in the nation. Its professional and collegiate sports teams have a history of success and draw from the across the Midwest. The entire world recognizes the arch. The city is home to prominent universities, one of the nation’s top-ranked medical schools and a thriving biotechnology corridor. It is filled with beautiful parks, neighborhoods and architecture. All of these advantages ought to draw residents and businesses into the city.

Sadly, however, the city has been on a downhill slide for over 30 years. After adjusting for inflation, total personal income within the city limits has been falling since the 1970s. While the Saint Louis suburbs have been growing steadily, city residents collectively take home less money, in inflation-adjusted dollars, than they did three decades ago. Businesses have been leaving too. In 1970, the majority of Saint Louis area workers had jobs in the city. Today, only 20 percent work within the city limits. Most of the region’s businesses are now in the suburbs.

How can a city that has so much going for it turn in such a depressing economic performance? We believe that the city earnings tax is a major culprit. Of course, many factors contribute to a city’s economic performance. But compare Saint Louis’s performance with that of Missouri’s largest city without an earnings tax — Springfield. Over the same 35-year period, as Saint Louis has been stagnating, total personal income in Springfield has tripled. And Springfield has managed to keep the overwhelming majority of its jobs in the city. Springfield’s share of employment in its metro area has fallen only slightly, from 92 percent to 88 percent.

The same pattern can be seen across the nation. A new Show-Me Institute Policy Study by Mizzou professor Joseph Haslag collects data on per-capita income in 101 of the nation’s largest cities, 23 of which have an earnings tax. He finds a consistent pattern: cities with earnings taxes are falling behind their suburbs in per capita income faster than the cities without earnings taxes.

As Haslag’s report explains, this is what economic theory predicts. Economics tells us that businesses and workers will both seek to locate where their after-tax returns are the highest. The earnings tax penalizes workers and businesses for doing business or residing within the city limits. It’s hardly a surprise, therefore, that the vast majority of Saint Louis–area job creation occurs in the suburbs.

Of course, few will dispute that the earnings tax harms the city. It is not a popular tax. But because it accounts for 16 percent of the city budget, some people consider eliminating it politically impossible. They ask “What services would you cut to get rid of this tax?”

This is the wrong question and the wrong way of thinking about this issue. The earnings tax is killing the city. If we continue as we have, driving residents and businesses into the suburbs, the bad economic news will continue as well. Thirty years of decline will become 40, then 50. The city’s budget woes will only become more severe, and cuts to city services will become inevitable.

On the other hand, if we replace the earnings tax with something more benign, the city will boom once again. That will mean new tax revenues, which will create plenty of room in the budget for improved city services.

Show-Me Institute scholars are actively exploring ways to fix the problem and will present these ideas in the coming months. But the one thing we know is that something has got to change. As long as the earnings tax is on the books, it will continue to hold back the city we all love. Some ask how we can afford to cut the earnings tax, but we ask: can we afford not to?

Rex Sinquefield is the president and Timothy B. Lee is the editor of the Show-Me Institute.

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