In July 2010, Missouri politicians joined the state’s economic development agency to announce the awarding of $17 million in state tax incentives, along with $39 million in local tax subsidies, to the Mamtek project in Moberly. The project called for making artificial sweetener using a process that would start in China and finish at a new plant in Moberly, creating 600 local jobs here. There was just one problem—it was all a scam.

It may seem unfair of me to criticize a government agency for falling victim to a criminal conspiracy, albeit one that really wasn’t that sophisticated, but government economic development agencies are a Catch-22 for taxpayers. When they do a bad job—as they did in Mamtek—they waste our tax money. As with the Bass Pro Shop in Independence and the Jamestown Development near Springfield, we can list plenty of private business projects government had no reason to get involved in but did to the detriment of taxpayers. But we can only wish they always did a bad job. It’s when they do their jobs right that taxpayers and average citizens really get burned.

When economic development officials do their jobs right, all they are really doing is subsidizing economic activity that likely would have happened anyway for the benefit of politically connected companies. As the old joke goes, economic development officials are great at creating jobs for other economic development officials. For everyone else, not so much. For all their skillful use of political buzzwords and claiming credit when none is deserved, it remains true that “government is a bad venture capitalist,” to quote President Obama’s economic advisor, Larry Summers. Summers was being polite. Government, in the form of local, state, and federal economic development agencies, is a terrible venture capitalist. It’s not that government officials don’t get their bets right often enough; it’s that they actively get them wrong because economic development officials are heavily influenced by the political incentives to reward supporters of the politicians who employ them. A short-term political payoff is more important than long-term success.

Late to the subsidy game but catching up fast, Springfield—having seen how St. Louis and Kansas City have operated their own subsidies and failed by every measure—has decided to follow in their footsteps. The trucking industry has long been important in Southwest Missouri, and there are numerous companies, stations, and stores in Springfield to service the various fleets. But not enough for the City of Springfield’s Department of Economic Vitality (that’s its actual name), which decided to use over $4 million in taxpayer funds (along with other subsidies) to entice an enormous new gas station company, Buc-ee’s, to locate in town.

The head of another local convenience store company, Rapid Robert’s, rightfully took issue with the plan. He didn’t object to the competition, but rather the use of tax subsidies in a field full of local companies that had grown without them. His objections fell on deaf ears, and likely would have been meaningless to the members of the city’s “economic vitality” department. They, like economic development officials everywhere, care nothing about history, propriety, or capitalist theory. They care about getting the forms marked up, the tax money spent, and the deal done so that they can claim credit, add it to their resume, and start searching for the next job.

Economist Dick Netzer mocked the exaggerated claims of success made by economic development officials when he wrote, “Who needs oil wells, when a state can be another Kuwait just by increasing the budget of a tiny agency?” Claims of subsidy successes often border on the absurd. The author once heard a Clay County economic development official claim that “All of the growth” in the town of Liberty—a fast growing, exurban community north of Kansas City, the likes of which have been growing across the nation for decades—was due to a tax-increment financing (TIF) package they passed. As if suburbanization hadn’t existed until Missouri’s TIF law was passed in the late 1980s.

Economists Alan Peters and Peter Fisher studied tax incentives closely and concluded that they work about 10 percent of the time and are simply a waste of money the other 90 percent. They added that, like the Clay County officials mentioned above, economic development officials often credit all new employment and growth to tax subsidies.

As Christmas approaches, Springfield residents could get no better Christmas gift than the elimination of state and local economic development agencies. They are a blight on capitalism and an actively harmful influence on the civic and economic life of our state.

The post Springfield Should Eliminate Its Economic Development Agencies appeared first on Show-Me Institute.

This TIF incentive package was previously touted as imposing “no financial risk” on the city, but there’s simply no way to guarantee that a TIF agreement will not have negative financial effects on a city. Along with the numerous other problems posed by TIF (as outlined in my new paper), TIF can pose a financial risk to cities, and it has in Missouri on several occasions across several decades.

In the 1990s, the St. Louis Marketplace TIF bonds were backed by the city, meaning that the city was on the hook for the bond payments if the project did not generate enough revenue. Spoiler alert: it didn’t. A similar situation took place in Independence, Missouri, when a TIF project anchored by a Bass Pro shop failed to meet sales-tax revenue projections, so lawmakers used $3.5 million from the general fund to cover the shortfall in the bond payment.

While these situations aren’t a normal occurrence, there’s clearly no guarantee that TIF won’t present a huge financial burden to the city. Apparently, this is a lesson that Missouri municipalities cannot learn. Local lawmakers should be wary of TIF and bold statements like those made about the Brody Corners project. Its good news for Springfield that this plan was dismissed, and hopefully it won’t return in the new year.

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TIF is an economic development incentive tool used to try and spur development. When a TIF project is approved, governments return a portion of a developer’s tax payment back to the developer to help fund the development. It’s a classic case of the government picking winners and losers by choosing which developers receive handouts. This practice is almost always a misuse and waste of taxpayer dollars. Independence, MO, had a particularly frightening experience with TIF.

TIF is often financed through debt bonds. Normally, the increment (the extra taxes generated by a development) is returned to the developer. When TIF is financed via debt bonds, that money is returned to the developer, but the developer then uses those funds to make bond payments. A TIF district in Independence anchored by a Bass Pro Shop was funded with bonds issued by the city. However, when the project failed to meet sales tax revenues projections, the developers couldn’t make the bond payments. Independence lawmakers decided to use $3.5 million from the general fund to cover the shortfall in the bond payment. The city wasn’t required to do this because the bonds weren’t guaranteed, but it did so to “ensure the city’s strong financial credit rating.”

Independence’s bad bet cost taxpayers. Paying the $3.5 million to cover the shortfall and protect the city’s credit rating may or may not have been the right move, but the point is that the decision could have been avoided altogether. Taking money from the general fund to bail out a development that already received tax dollars means even less funding for other critical city services. TIF cases such as these, and other taxing district failures, are policy scare stories. Cities such as Webster Groves that are currently considering large TIF projects need to consider the considerable risks with tax subsidies. Maybe it’s time for lawmakers to end this nightmare for good and stop using TIF to fund private developments.

The post A Policy Scare Story: TIF appeared first on Show-Me Institute.

Using tax subsidies for economic development rarely benefits the public. Instead, it lowers the risk and increases the returns for the private investors. Under a capitalist system, the relationship between risk and reward for investors can a wonderful thing, but in recent decades the government has somehow decided the public should get involved in private business dealings with tax subsidies and incentives. Taxpayers in Independence were left holding the bag for the failed Bass Pro tax increment financing (TIF) plan, and most economic development schemes are like an expensive game of musical chairs where the taxpayer is always the one with nowhere to sit.

The Paragon Star development, which includes youth athletic fields, hotels, office space, apartments, restaurants, and more, has already been approved for significant taxpayer subsidies, including a $32 million TIF, another $32 million in transportation bonds, and $5 million in special sales taxes. Now the developers are requesting $6 million in neighborhood improvement district (NID) subsidies. Keeping track of all the TIFs, CIDs, NIDs, and more requires an advanced degree in acronyms.

Subsidizing all of this in the floodplain of the Little Blue River makes it even more absurd. In fact, as of August 28, using TIF in the floodplain in most of Missouri will be illegal. But Lee’s Summit has nothing to fear; Jackson County got itself exempted from that law. It will remain perfectly legal in Jackson County to use tax subsidies to develop in the floodplain, which will raise the height of the water in the next flood—causing more damage than before and requiring public money to rescue or reimburse those harmed. As insane as it is, it all makes perfect sense in the world of the developer-subsidy complex.

I have no illusions that the Lee’s Summit city council will deny the NID and risk the project at this late point. There are eleven current TIFs within the city, whose leaders seems to believe that it must subsidize its way to growth. Numerous economic studies have proven the fallacy of that belief. Prosperous, desirable communities like Lee’s Summit are fully capable of economic growth without tax subsidies. However, part-time city councilmembers are rarely willing or able to fight back against the well-paid phalanx of lawyers, planners, and lobbyists that developers employ in their quest for other people’s tax dollars.

Whether it is a TIF, CID, or NID, the taxpayers are always the ones without a chair when the music stops. I hope the citizens of Lee’s Summit realize this before it is too late.

The post Lee’s Summit Is Generous to a Fault appeared first on Show-Me Institute.

David Stokes’s previous appearances with McGraw Milhaven:

• on the recent privatization of the gift shop at the St. Louis Botanical Garden (2/17/14)
• on his new case study which documents examples of privatization from across the state (2/10/14)
• on new credit card parking meters in St. Louis and the ongoing legislative session in Missouri (2/3/14)
• on government subsidies in St. Louis (1/27/14)
• on a government subsidy that Kirkwood turned down (1/13/14)
• on the horse-drawn carriage industry (1/6/14)
• on the St. Louis land bank–the Land Reutilization Authority (LRA) (12/23/13)
• on the Affordable Care Act (12/16/13)
• on a proposal to give $150 million in corporate welfare for Boeing (12/2/13)
• on a proposed South County connector a toll road (11/25/13)
• on property tax exemptions for non- and for-profit nursing homes (11/18/13)
• on the failed vote to unincorporate Uplands Park (11/11/13)
• on the vote to unincorporate Uplands Park and a ballot measure to increase taxes in the Pattonville School District (10/21/13)
• on the privatization of mail delivery (10/7/13)
• on St. Ann’s permanent speed trap (9/30/13)
• on the Zoo-Museum Taxing District (9/23/13)
• on the proposed tax subsidy to move Laclede Gas two blocks (9/16/13)
• on the defeat of a tax subsidy for Walmart in Ellisville (9/9/13)
• on tax subdies (TIFs) to Bass Pro (9/3/13)
• on the closing of Augusta Bottom Rd and municipal liability (8/26/13)
• recounts his role in exposing the taxi-cab scam (8/19/13)
• on the defeat of a tax increment financing (TIF) proposal in Crestwood (7/29/13)
• on how St. Louis county schools will incorporate transfer students from failing districts (7/15/13)
• on students in failing schools have the opportunity to switch schools (7/8/13)
• on St. Louis city’s fee and licensing of street performers (7/1/13)
• on patronage jobs in the St. Louis Treasurer’s office (6/24/13)
• on user fees for photographers at St. Louis county parks (6/17/13)
• on reforming city manager rules (6/10/13)
• on zoning and its alternatives (6/3/2013)
• on speeding tickets, parking meters, and why we should get rid of the penny (5/28/2013)
• on the recently completed legislative session (5/20/2013)
• on property assessments (5/6/2013)
• on Missouri’s alcohol distribution laws (4/29/2013)
• on sales taxes (4/22/2013)
• (3/25/2013)
• (2/11/2013)
• on the funding of Missouri roads (2/4/2013)
• (1/28/2013)

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Transcript:

Remember alphabet soup when you were a kid and trying to make the letters into words? Lawmakers like to play with letters, too, with tax subsidies: TIFs, EEZs, TDDs…

The list goes on and on, but they all have one thing in common. They give corporations our tax dollars.

Take TIFs for example: Tax Increment Financing. Because of a TIF, Independence tax payers have paid 8 million dollars on top of the original subsidy to support a Bass Pro store.

You may think any new business is good no matter the tax break, but studies have found that TIFs cost areas billions of dollars without achieving economic growth.

Let’s say “goodbye” to the alphabet soup of tax subsidies like when Lee’s Summit rejected an EEZ and focus on real economic growth.

This has been the Show-Me Minute. Learn more about the Show-Me
Institute, where liberty comes first, click on our website at ShowMeInstitute.org.

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“Bass Pro Shops could only have happened in America – the home of the free enterprise system.” Those were the words of Bass Pro founder Johnny Morris in a recent Bloomberg News article.

Bass Pro has become a household name throughout America, synonymous with the great outdoors, and undoubtedly is an exceptional business.

It has completely changed the nature of sporting retail with its Walmart-size stores filled with unimaginable stocks of outdoor equipment, aquariums, wildlife displays and gun libraries.

Morris clearly benefited from a free enterprise system in America. However, one cannot overlook the fact that much of Bass Pro’s success and expansion are due to taxpayer-funded subsidies.

Many of those subsidies are from tax increment financing. TIF districts originally were created to spur economic development in portions of cities deemed economically depressed or blighted. Yet, cities across the country have long used a very loose definition of what constitutes a “blighted” area. The wealthy St. Louis suburb of Des Peres once declared a local shopping mall blighted because it lacked a Nordstrom’s.

Bass Pro has routinely received at least some amount of public assistance with many of its stores. According to the Public Accountability Initiative watchdog group, Bass Pro had received $500 million in taxpayer subsidies as of 2010.

The outdoors megastore sells itself to suburban communities as a destination retail attraction, capable of bringing in customers from hours away and even across state lines. To local leaders, bringing in a store the caliber of Bass Pro seems like a surefire way to increase local property and sales taxes.

However, Bass Pro does not always live up to its promise as an economic kick-starter and job creator. Many of the stores fail to raise the tax revenue that cities imagined, as happened in Mesa, Ariz. Bass Pro projected the Mesa store would produce $5.7 million a year in sales tax revenue for the city; instead, it has only managed an average of $1.7 million in four years.

In Missouri, Independence witnessed a similar result with the TIF it passed for a Bass Pro store.

What city officials fail to realize is that a large, new store does not give people more money to spend on fishing poles or waders.

Often, Bass Pro Shops only consolidates the market of outdoor supplies by killing smaller competitors, which negates the total growth that the development added.

Local leaders across the country are desperate to take credit for creating jobs and bringing a marquee brand to their community. In this desperation, they may dole out overly generous taxpayer subsidies for a few select businesses, which puts local, smaller businesses at an immediate disadvantage.

Big box retailers like Bass Pro often are built in affluent areas that could attract businesses without subsidies. We do not need the government picking winners and losers.

Bass Pro can build its stores on its own, as it did in Columbia, just north of Interstate 70. Instead of conjuring up incentives to bring businesses to their town, local leaders should focus on creating a pro-business atmosphere for all. That means lowering taxes and reducing regulations. If cities create a business-friendly environment, the rest will take care of itself.

Will Reynolds, an Ozark native, is an intern at the Show-Me Institute promoting market solutions for Missouri public policy.

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Matthes cited Independence, a suburb near Kansas City, as an example of a community that has enjoyed success with TIFs. I wonder if he was referring to the Bass Pro TIF in Independence that has failed. The city of Independence has had to kick in more than $4.1 million to cover bond payments associated with the project.

Matthes also said that “(TIF) does prevent and eliminate blight” and “it does increase property value and tax revenue over time.” Though the Missourian highlighted a TIF in North Kansas City that is characterized as successful, it failed to mention the notorious Citadel TIF in nearby Kansas City.

In late 2011, Kansas City officials voted to pay $15 million to purchase property that had been razed and contaminated with asbestos. The Citadel site now sits vacant, and is an example of a TIF project that made an area much, much worse, instead of eliminating so-called blight.

Moreover, earlier this week, the Wall Street Journal characterized Kansas City’s downtown entertainment TIF development, the Power & Light Development, as a “budget hole.” The Journal reports that the Power & Light Development is generating less than one-third of the tax revenue needed to cover debt costs associated with the project. As a result, Kansas City is setting aside $12.8 million to make up the difference.

On the eastern side of the state, TIF does not look much better. Matthes’ statement that TIF eliminates blight and increases tax revenue over time ignores the findings of a multi-year study of TIF and other development subsidies in the Saint Louis area that those subsidies were frequently concentrated in “higher-income communities.” The same study found that retail jobs associated with TIF projects came at a cost of more than $370,000 in taxpayer dollars.

Those findings are not surprising: Years earlier, the Brookings Institution concluded that TIF in Missouri “. . . is used extensively in high-tax-base Missouri suburban areas with little need for assistance . . .”

Perhaps I am being unfair. When Matthes said that TIF has proven to eliminate blight, he may have been referring to the TIF awarded to a Saint Louis area mall. The mall was deemed “blighted” because it lacked a Nordstrom’s. I suppose, because the West County Mall now has a Nordstrom’s, one could consider the “blight” removed.

The post Revisionist TIF History From Columbia’s City Manager appeared first on Show-Me Institute.

TIF allows local government to reimburse developers for some of the project’s costs. With TIF, if a property generates $50,000 in property taxes before it is developed but generates $75,000 after being constructed, the developer gets to keep the $25,000 difference to pay for development costs.

In theory, TIF encourages developers to undertake projects in areas in dire need of economic growth. In reality, TIF is used to subsidize politically-connected developers, to help cities lure chosen businesses from other cities, and to fund an entire cottage industry of urban planners, lawyers, and bankers. TIF projects have to pass a “but-for” test (demonstrating they would not happen without the assistance) and meet a series of eligibility tests. But those tests are a sick joke and a rigged game, as I can’t find one TIF proposal (out of several hundred) in the entire state over the past two decades that has failed to pass them.

The Briarcliff development in the Northland received a Super-TIF (a rare plan where the developer keeps all the incremental sales taxes as well as all the property taxes) on top of an existing TIF plan, even though the area is thriving and has no legitimate need for public subsidies.

A Chicago-area study of TIF use found that cities that use TIF grow at a slower rate economically than cities that do not use it. The reason is that, with TIF, developers make business decisions based on the subsidy; not economic best uses. That is exactly what has happened in Independence, where the city has had to step in and help make debt payments for the giant Bass Pro Shop development done with a TIF. That is an example of a TIF where the taxpayers are both directly and indirectly on the hook for the developers.

A recent study by Washburn University Professor Paul Byrne for the Show-Me Institute documents how TIF is used in Missouri. Byrne shows that the ability of cities to implement a TIF unilaterally leads to cities making decisions that benefit the city, at the expense of other public agencies. Cities that are authorized to enact sales taxes might push for TIF projects that will generate new sales tax dollars without caring about the property tax dollars that the local school district will have to do without. As a result, public tax dollars can end up funding economically-inefficient projects.

This, of course, is exactly how TIF has played out in Missouri, particularly in Saint Louis County, over the past two decades. The East-West Gateway Council of Governments found that the Saint Louis region has subsidized retail development at a cost of approximately $370,000 for each job created — and these are mostly low-paid retail sales jobs. TIF leads not to economic development but to regional bankruptcy. A similar study of TIF in Kansas City would likely find the same results.

Missouri should dramatically tighten its TIF laws. Jackson County Executive Mike Sanders deserves credit for successfully fighting for a more equitable Kansas City TIF Commission. However, he should go further and work both to implement a countywide TIF commission with jurisdiction over all TIFs in Jackson County (including within Kansas City) and removal of the state law giving cities the right to override TIF commission denials. If those two changes were accomplished, perhaps Missouri could finally have a reasonable TIF policy.

David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post TIF Gives Cities An Unfair Advantage Over Other Governments appeared first on Show-Me Institute.

When Homer Tourkakis set up his dentistry practice 20 years ago in Arnold, Mo., he never dreamed that the city could take his well-kept office and give it away to someone else — but that is exactly what the city’s officials are trying to do. Hoping that a new shopping center would generate more tax money than Dr. Tourkakis’ practice, the city declared his building and those around it “blighted,” in an effort to justify giving the properties to THF Realty for construction of the Arnold Triangle project.

Knowing that the state Constitution is supposed to protect Missourians’ right to keep private property, Dr. Tourkakis asked the courts to enforce his constitutional rights and prevent the taking of his business. On January 17, the Missouri Supreme Court will hear his case, and its decision will have repercussions for nearly every home and business owner in the state.

One hundred years ago, there would have been absolutely no doubt that the Court would side with Dr. Tourkakis. Missouri’s Bill of Rights has four separate provisions that emphasize citizens’ fundamental right to keep what they own unless their property is necessary for a true public use, like roads, parks, or public buildings. The early cases interpreting those provisions made clear that the right of individuals to “enjoy the gains of their own industry” was vital and could not be subverted unless the government proved the necessity of violating that right.

During the last 50 years, however, judges have steadily given municipalities, unelected government authorities, and even some private companies more and more power to take homes, businesses, and houses of worship from their owners so that other private interests could profit from them. This is usually accomplished using a legal loophole that allows municipalities to condemn properties, and possibly entire neighborhoods, in areas they deem “blighted.” Dozens of Missouri cities have applied blight designations to thousands of normal, well-kept properties in order to create sweetheart deals for commercial developers. As a result, Missouri has developed one of the nation’s worst records for eminent domain abuse.

These sorts of abuses have been pervasive among cities in the Saint Louis metro area.  For example, the city of Sunset Hills only recently ended a seven-year nightmare for more than 300 citizens threatened with condemnation in the name of redeveloping what had been a perfectly normal neighborhood. Eureka designated as “blighted” more than 900 acres of the old Allenton area to intimidate unwilling homeowners into selling their properties to the developer of Eureka Commons — eventually leading to several uses of eminent domain. Meanwhile, Valley Park’s residents have been forced into a state of perpetual anxiety because of the city’s repeated efforts to designate homes and businesses as blighted in order to attract commercial developers.

The Kansas City area has also seen its share of cities abusing eminent domain. The city of Liberty threatened to condemn Liberty Christian Union Church, two charities, and several small businesses to make way for the Liberty Triangle development. Despite the developer’s insistence that it does not plan to use eminent domain, Raytown’s downtown redevelopment plan reserves the right to take homes and businesses whose owners prove unwilling to sell on the city’s terms. Meanwhile, the Sugar Creek Board of Aldermen is using the city’s own negligent upkeep of roads, sidewalks, and utility lines to “blight” more than 70 homes and businesses so their owners can be forced to sell them to the city’s chosen developer.

In addition to the widespread use of eminent domain in Missouri’s major metropolitan areas, many smaller cities in more rural areas have demonstrated a willingness to sacrifice their citizens’ rights in the pursuit of higher tax revenues. The city of Branson condemned two properties and used threats of eminent domain to force Harvest Evangelical Free Church and a number of businesses to make way for a Bass Pro Shop, hotels, and luxury condos in the Branson Landing development. Rolla spent four years tailoring its blight findings to suit potential commercial developers and threatening eminent domain against the affected properties before finally allowing the rightful owners to manage the area’s redevelopment. Meanwhile, Ozark’s City Council recently voted unanimously to leave in place a blight designation whose 47 acres include numerous well-kept properties near the Finley River. Even though the city recently passed an ordinance forbidding the use of eminent domain for its redevelopment project, the threat to property owners will only truly be extinguished if the bogus blight designation is lifted.

When the Missouri Supreme Court hears arguments in City of Arnold v. Tourkakis on Thursday, it will have to choose between two very different paths. The Court could side with the city and its commercial developers, meaning that virtually every home, business, and house of worship in the state could be condemned and given away for the profit of a government-chosen owner. Or the Court could turn the tide in favor of individual liberty by deciding that the state Constitution’s protections for private property still have meaning. So watch this case carefully — your constitutional freedoms are hanging in the balance.

Dave Roland has litigated eminent domain cases in state and federal courts and has offered expert testimony on the issue to state legislatures. He is a policy analyst at the Show-Me Institute, a Missouri-based think tank. The Show-Me Institute’s “friend of the court” brief in City of Arnold v. Tourkakis is available online.

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