Occupational licensing increases costs to consumers and people entering the workforce, favors politically influential groups, and serves, in most cases, as a protectionist measure designed to benefit incumbent practitioners of the licensed occupation at the expense of future practitioners and the public. Show-Me Institute analysts have long written about the harms of occupational licensing in Missouri.

While we may finally be moving in the proper direction of less licensing, there remains a bureaucratic minefield of licensing apparatchiks who have to justify their positions on the public payroll. They do so by filing absurd cases like this one involving dentistry in Bridgeton. (For the record, one study found that dentists’ incomes and dental prices were 12 to 15 percent higher in states with more restrictive dental licensing rules.)

In Bridgeton, we have someone replacing rubber bands on braces—which many people simply do themselves. My son does it with his braces every day. You don’t need a dentist to replace a rubber band any more than you need an orthopedic surgeon to autograph an arm cast.

The second part of the case is, I admit, more complex. This person being sued has also apparently been applying cosmetic veneers to teeth.  They are, as the link describes, entirely cosmetic procedures. Why can’t this person apply veneer to a willing customer? Provided that her customers are fully informed that she is not a dentist, I see no problem with any of this. The article gives zero indication that anyone has been harmed. It simply appears that someone—possibly a dentist with nothing better to do—came across the ads and filed a complaint.

There could also be a middle ground here. Perhaps a basic license similar to those required for nail salon technicians could be required for cosmetic veneer sales instead of a full dentist license. That is another thing about occupational licensing: even in cases where it may be beneficial, the government goes way beyond what it needs to do in order to get the other aspects (usually protectionism), into the mix. Taxi cab licensing is a perfect example of this.

This lawsuit seems to me to be another overreach of licensing boards in Missouri. I hope the lawsuit gets tossed, but I also hope this goes the way of hair braiding laws and the legislature fixes the licensing rules here.

The post A Thin Veneer of Protectionism appeared first on Show-Me Institute.

A few decades back, the City of Hazelwood annexed some adjoining land into the city. That land was previously unincorporated and had been served by the Robertson Fire Department. Because of an arcane and misguided law applicable in St. Louis County (RSMO §72.418), Hazelwood was required to pay Robertson the property tax revenue in the annexed area for Robertson to continue providing service there, even though Hazelwood was entirely willing and able to provide fire services in that area via its own municipal fire department at lower cost. As part of the agreement reached after the annexation, the residents of the area pay a portion of the property tax (as is normal), but the city itself pays anything above the initial tax level. Since that agreement was reached a long time ago, voters in Robertson have approved extremely high property tax rates, which is easy to do because the city—not the property owners—is responsible for the increased property taxes for the portion of the fire district that lies in Hazelwood. Confusing? Yes, it is, and that’s the point. Fragmented government, low-turnout elections, obscure special taxing districts, politically active public-employee unions: taken together, they create the perfect environment for government mismanagement and abuse.

The situation has gotten so bad that Hazelwood is saying it may have to declare bankruptcy. Some residents of Hazelwood have put together a citizen’s group to demand change, and they have successfully placed a recall election for the Robertson board on the November ballot. Average citizens are now engaged in this issue, and that is what the Robertson board should fear the most.

What is the solution here? Well, there are several options. There is the political solution, which will be addressed in the upcoming recall vote. Then there is the direct policy solution, which is to repeal RSMO §72.418 and allow municipal fire departments to serve annexed areas. But there is a bigger issue here, and that is the political influence of the firefighters union and its ability to dominate independent fire districts (and some municipal fire departments, too, no doubt). From this Post-Dispatch story:

Also opposed is Local 2665 of the International Association of Fire Fighters. Only a handful of districts in St. Louis, St. Charles and Jefferson County—including the Northeast district—have fire boards controlled by directors whose campaigns weren’t backed by the union.

The Robertson issue is just one local example of this larger debate. I saw what happened when local politicians in University City tried to oppose the fire union, and it wasn’t pretty. I commend the Hazelwood elected officials for their stance here, but to stop the abuses of firefighters unions in our area many more voters and local officials will need to get involved.

The post Where Is Robertson Fire District, and Why Do They Take So Much of Hazelwood’s Tax Money? appeared first on Show-Me Institute.

The case is complicated. My purpose here is not to get into the legal minutia of the lawsuit filed by the ice rink owners against the city of Hazelwood. But the broad strokes are important. The suit claims that the city has harmed the owners of the ice rink by taking ownership of much of the property in the mall. With the city owning much of the land, it becomes tax exempt, thereby making the ice rink pay even more of the bond debt. The suit also claims that the City of Hazelwood is dragging its feet on approving a youth sports center proposed for the site, and instead favors building an industrial park. The ice rink owners want the youth sports project to help share in the current tax burden, and clearly don’t want to wait for a possible industrial park years down the line.

The whole thing, as Marty Huggins might say, is a mess. SMI analysts have discussed this failure before and for good reason. The entire project from its inception is a perfect example of why local governments need to stay out of the economic development game, not get more involved in it. The mall is partly within a floodplain, in a struggling area, and was launched when indoor malls were already falling out of favor. The original project building the mall may well not have gone forward if Hazelwood and Bridgeton had not supported it with tax subsidies. If it had gone forward anyway, it would have done so with private money. But no, tax dollars—in the form of subsidies—helped propel this financial failure.

Hazelwood seems to be doubling down on its efforts by taking ownership of the land to promote its preferred use of the land. The city’s track record doesn’t justify such a move. A private entity wants to put a sports complex there now. Unfortunately, this sports complex will be getting some tax subsidies. But those subsidies are coming from St. Louis County, and they’ve already been approved.  The best Hazelwood can do at this point is get out of the way and approve the project—more taxpaying entities in the mall will help ease the unfair burden on businesses such as the ice rink. The city doesn’t need to try and do more—it has done enough damage already.[/vc_column_text][/vc_column][/vc_row]

The post “It’s A Mess” Up There in Hazelwood appeared first on Show-Me Institute.

Missouri’s State Auditor recently released an audit on the City of Bridgeton’s Employee Retirement Plan, and the picture painted was bleak. In addition to finding that the city’s Finance Commission failed to meet even once from 2012 to 2014, the report says the plan is only 67% funded and that the unfunded liability is approximately $14 million. The plan’s current funds will not be able to pay the benefits that retirees have been promised. The combination of insufficient contributions and lackluster investment returns has brought put the existing plan in its current condition.

Defined-benefit plans like Bridgeton’s typically involve a commitment to make monthly payments to employees for the remainder of their lives. In order to sufficiently fund the promised benefits, plans assume a rate of return on the contributions that they invest. Those assumptions are often too rosy; Bridgeton’s assumed rate has been 7.5%, while over the past ten years the time-weighted return has only been 4.16%.

Over time, the funding gap widens and the result is a large gap between the amount the city has promised retiring employees and the amount the city has set aside for that purpose. In Bridgeton’s case, no payments have been withheld from retirees, but in order for the city to meet its future obligations, contributions have to increase. Either funds must be allocated away from other public services, or taxes must go up.

This is exactly what has happened. In April 2015, Bridgeton increased its hotel service occupation tax from $0.85 to $3.00 per day. A portion of the additional revenue goes toward increasing the plan’s contributions by $200,000 each year.

Bridgeton is not alone. The Pew Charitable Trusts reports the shortfall between state-run promised pension benefits and available funding is nearly 1 trillion dollars nationwide. Defined-benefit plans are often legally binding, so when investment returns fall short of what was predicted for the plan years ago, taxpayers can be forced to foot the bill.

The good news is that Bridgeton’s defined-benefit plan was closed to future employees in 2012 and replaced with a defined-contribution plan. In a defined-contribution plan – think 401(k) – benefits are not paid out indefinitely to employees. Rather, upon retirement the funds that have been accrued are made available to the employee. The key difference between the two is that a defined-benefit plan makes a promise it may not be able to keep without taxpayer assistance, while a defined-contribution plan, by definition, cannot incur a funding gap.

Defined-contribution plans can protect taxpayers, municipalities, and employees from having to worry about underfunded pension plans or budget shortfalls. Bridgeton took the leap to defined-contribution in 2012 to avoid exacerbating its current funding problems; other defined-benefit plans in Missouri should consider doing the same.

The post Of Underfunding and Overpromising appeared first on Show-Me Institute.

Last week Missouri’s State Auditor found that, as of plan year 2015, the City of Bridgeton’s Employee Retirement Plan was only 67% funded and had unfunded liabilities of nearly $14 million.  Bridgeton’s defined benefit (DB) plan was retired in 2012, but insufficient contributions from the city and lower-than-expected investment returns coincided with a lack of government oversight (the Finance Commission did not hold a single meeting from 2012–2014) to create the perfect storm.  The plan’s current funding trajectory apparently leaves Bridgeton with two options: reduce payments to retirees, or put future taxpayers on the hook for the $14 million gap. 

Mayor Terry Briggs spoke of the funding crisis, saying “If you were guaranteed that pension, you’re going to get that pension.  We will have to scrape and come up with other means which may be . . . to contribute more money into it.…”  Defined benefit (DB) plans typically guarantee monthly payments for life, so any financial risk falls upon taxpayers.  In Bridgton’s case there may be no legal obligation to pay benefits if the plan’s funds are insufficient, but a recent local hotel tax increase indicates that Bridgeton policymakers acknowledge their obligation to retirees.

Bridgeton is not the only city that has been confronted with unfunded liabilities.  The Pew Charitable Trusts has valued the shortfall between promised pension benefits and available funding at nearly 1 trillion dollars nationwide. 

One alternative that avoids any possibility of incurring this funding gap is a defined contribution (DC) plan.  In a DC plan—think 401(k)—benefits are not paid out indefinitely to retiring employees. Instead, contributions are invested during an employee’s career; upon retirement the funds are made available to the employee.

DC plans can protect municipalities and future taxpayers from devastating budget shortfalls, and protect retirees from the possible bankruptcy of municipalities. Bridgeton moved to a DC plan in 2012 to curtail the growth of its potential liability; other cities in Missouri should consider doing the same.  

The post Public Pensions Hadn’t Planned for This appeared first on Show-Me Institute.

The partners have expressed interest in developing a vast retail, commercial, and residential district that, if subsidized, could cost taxpayers millions. Unfortunately, history in the Saint Louis region shows that if you ask you shall likely receive, even if the project is of questionable merit. A prime example of this occurred in 2010 when a Walmart located in both Saint Ann and Bridgeton (two adjoining suburbs of Saint Louis) relocated a spot in Bridgeton 2 miles down the road in order to capture $7 million in public subsidies. Kroenke's plan would not only be costly for Maryland Heights residents; it would also likely move economic activity from other areas in the region, rather than creating new activity.

Periodically reshuffling existing businesses across the metro area was not the original purpose of tax increment financing (TIF). TIF was intended to encourage the development of blighted areas in need of economic growth. Instead, it is often used as a subsidy to attract businesses to areas that are already economically healthy, forcing other government entities like school districts to shoulder the costs of those decisions.

Then there is the separate question of whether it's wise to subsidize construction in a flood plain.  Flooding is still a threat in the areas where the Kroenke development would be built. In fact, as recently as last year hundreds of families were forced to evacuate their homes as a result of flooding. Saint Charles County and the Great Rivers Habitat Alliance (GRHA) have sued Saint Peters over flood plain developments in the past for environmental endangerment, and David Stokes, executive director of the GRHA and a former Show-Me staff member, contends that further development on the flood plain “will just make the [environmental] problems we’ve experienced in the past even worse.” 

Fortunately, Saint Louis is beginning to acknowledge the TIF problems we’ve been discussing for years at the Show-Me Institute.  In the past, municipalities could simply override a county veto with a two-thirds vote and proceed with the projects of their choice, but this year legislation passed both the House and Senate that would limit municipality overrides to financing costs of demolition and clearing land. If this law goes into effect on August 28 as expected—the governor has not technically signed off on it yet—then the seemingly limitless public financing of projects like Kroenke's might be scaled back considerably. 

If subsidizing construction on the flood plain is economically questionable, would hurt local school funds, and could actually threaten the safety of nearby residents, shouldn’t the flood plains be left alone?  

The post TIF in a Flood Plain–A Recipe for Trouble appeared first on Show-Me Institute.

Hotel taxes are not an uncommon occurrence in Missouri. In fact, the Show-Me Institute’s Sales Tax Fast Facts pamphlet has 17 entries for cities/counties with a hotel/occupancy tax, and that list is by no means exhaustive. As you can see, hotel tax rates can range from 3 percent in Hermann to 12.25 percent in Hazelwood. In most cases, visitors to Saint Louis County pay the same hotel tax rate (7.25 percent) because of the countywide pool which, among other things, goes to pay off construction costs for the Edward Jones Dome.

The Bridgeton City Council, however, wants more hotel taxes to go directly to them. The council placed a proposal on the April ballot that will raise its hotel tax from 85 cents a night to three dollars a night. I can see why this would be an attractive option. Many people who stay in hotels are not residents of the city/county where the tax is imposed. For politicians and residents alike, getting others to pay for city services sounds like a good idea. However, just because a city can extract revenue from visitors, doesn’t mean it should.

Hotels already pay commercial property taxes and the Saint Louis County property tax surcharge (the highest in the state). They have to pay business licensing fees, and guests already have to pay the city and county sales tax. Why does Bridgeton need to levy even more taxes? Is it because it keeps relying on TIFs? Maybe Bridgeton should stop giving away special handouts and broaden their tax base instead of shrinking it and relying on higher rates to make up for lost revenue.

I highly doubt I will ever stay in a Bridgeton hotel, so when I wake up in the morning, the effects of this proposal won’t be staring me in the face. However, city residents should ask themselves whether they want to approve a tax increase, no matter who it may hurt.

The post Paying for the Privilege . . . to Stay in Bridgeton appeared first on Show-Me Institute.

Both the Saint Charles and Saint Louis County Executives have been leading the fight against TIF, to their great credit. They are dead right that TIF is nothing more than cities pursuing their interests at the expense of everything else, all while leading to the economically harmful scenario of developers chasing subsides.

Mayor Conrad Bowers of Bridgeton is totally wrong with this quote in defense of TIF:

“Cities have a legitimate right to do what they think is in the best interest of their community and it certainly was in our best interest to keep Walmart in the city of Bridgeton . . .”

What he is so wrong about is that by using TIF, the city is also making tax decisions that impact every other tax district in the area: school, fire, community college, zoo-museum, county, library, and more. If they were acting only with city money, that would be one thing. They are not. They are acting with everyone’s money, and in a manner that will increase Bridgeton’s sales tax collections while hurting the property tax base of all the other districts.

There is no more important policy change in Missouri than removing the ability of cities to override a county TIF commission’s rejection of a TIF proposal. For more on the Show-Me Institute’s work on TIF and the closely-related sales tax pool, check out these links.

The post Why On God’s Green Earth Can Cities Override The County TIF Commission? appeared first on Show-Me Institute.

One thing on which we rank very high is the use of Tax Increment Financing (TIF). This excellent paper on TIF, by Randal O’Toole with the CATO Institute, ranks Missouri third in total and fourth per capita in the sale of TIF bonds from 2005 to 2010. (See page 12 of the paper for the table.) This is not something of which to be proud.

TIF is common in Missouri. Right now, we have more ongoing applications than I can keep track of. The city of Columbia wants a giant TIF for its downtown area.  A TIF is being sought for a section of St. Charles, even though the main landowner of the area in question is a tax-exempt educational institution. Just a few months ago, Kansas City approved a gigantic TIF for the city. Developers are seeking a TIF in Shrewsbury that will do nothing but continue the rearranging of the deck chairs for retail in Saint Louis County. From the Patch story on that proposal, if I may be so bold as to quote myself:

David Stokes, a policy analyst with the Show-Me Institute, said what he heard was “just a terrible economic fallacy.”

“Of course it’s just preliminary, but from what I can tell it is just another example of the economic issues the East-West Council of Governments supported in their report two months ago, which is that every city is doing something to support their own little city, but it’s killing our county’s economic base, and it’s hurting the region,” Stokes said. “It might benefit Shrewsbury in the short run but seems it’s just going to be another type of TIF development that’s going to hurt our region.”

“Maybe if it can’t be done without public dollars, maybe it just shouldn’t be done,” he said.

The problems in these cases is the cities, not the counties. In fact, St. Charles County Executive Steve Ehlmann, along with his predecessor, Joe Ortwerth, have been strident in opposition to TIF in that county, to their great credit. Also to his credit, Saint Louis County Executive Charlie Dooley has recently taken the lead in opposition to these TIFs – he really gets it that a few cities are helped but the entire county is hurt. And Jackson County Executive Mike Sanders at least sued to get more equal representation on the Kansas City TIF commission.

But, even though they have instituted county TIF commissions in Saint Louis and its currounding counties, the insane rule still applies that city councils can override the TIF commission with a supermajority vote. So, the city council for the 15,000 people of Bridgeton gets to override the Saint Louis County TIF Commission and determine tax policy that will affect the one million people of Saint Louis County. I totally support county TIF commissions, but the part of the law that allows city councils to override the TIF commission with just a supermajority vote is insane. They should not be allowed to override it at all. Lot’s more to come on this issue in the coming weeks and months. And this time, I mean it.

The post Missouri’s TIF Infestation appeared first on Show-Me Institute.

Here’s the back story: Evidently, government officials decided that two runways weren’t enough for Lambert. Construction on the runway began in 1998, and it continued despite several setbacks. (As the Riverfront Times aptly put it, “Still, the bulldozers rolled on.”) Following the 9/11 terrorist attacks in 2001, Trans World Airlines went bankrupt and American Airlines bought it. In 2003, American Airlines cut its operations in half at Lambert, and revoked the airport’s hub status. In the meantime, people flew far less than projected.

Unfortunately for Missouri taxpayers, this story doesn’t have a happy ending. The new runway did not reduce delays. Plus, with each passing year, Lambert saw fewer takeoffs and landings. Just one year after the new runway was built, only 5 percent of flights used it. Several airlines asked to avoid using the new runway altogether. Because it was built so far away from the terminal, planes had to taxi as many as three miles to the terminal, burning more fuel.

Not only did the project fail to bring the traffic it promised, it tore apart the city of Bridgeton. Government officials used eminent domain to move seven major roads, kick 6,000 people out of their homes, and bulldoze six churches and four schools in order to make room for a third runway.

Government does not have a good track record in steering economic development — particularly in the Saint Louis area. Studies repeatedly show that they fail to produce the results that they promise. Most recently, the East-West Gateway Council of Governments concluded that the Saint Louis government has provided $5.8 billion in subsidies to private development in the city, but doesn’t have much to show for it.

Expanding the airport didn’t work then, and there’s no compelling reason to believe that it will work now. (Remember: No formal agreement has been signed, nor has any study been completed.) Lawmakers are in danger of repeating the same mistakes, so they should take a longer look at this.

We have a shared goal: an economy that is thriving and attractive to new businesses. Lawmakers are sticking the same old policies (tax credits!) — even though they have been shown to fail. If lawmakers in Missouri were serious about growing the economy, they would abandon the failed policies of the past and take a different strategy.

The post Airport Expansion Failed in the Past; Why Will This Time Be Any Different? appeared first on Show-Me Institute.

Economic development tax incentives, no matter how they are packaged, are not effective. They allow government officials, who have no special knowledge of how to maximize growth, to pick winners and losers in the market. As Show-Me Institute Executive Vice President Joseph Haslag has written before, lowering broad tax rates is a much more efficient method of stimulating the economy than targeted tax credits. This allows everyone to benefit, rather than a few select industries chosen by the state.

Empirically, studies analyzing the benefits that development tax credits deliver in comparison to their costs show that such tax credits have not worked. A recent Missouri state audit report found that tax credits are less effective (and more expensive) than their proponents claim. Yesterday, St. Louis Public Radio broadcast a segment featuring a study that examined another form of tax incentives in Missouri, tax increment financing (TIF). Kenneth Thomas, a political science professor at the University of Missouri–St. Louis, recently coauthored a study that found the use of TIF is not effective in most cases. He noted that the St. Louis area uses TIF more than nearly every other area in the nation. In the interview with St. Louis Public Radio’s Matt Sepic:

Sepic: That’s one longstanding criticism, is that TIF pits communities against one another. A prime example is that tussle between Bridgeton and St. Anne over a Walmart. Is that a bigger problem in the St. Louis area than elsewhere, with this panoply of municipalities that we have here?

Thomas: Oh, yes, certainly having more municipalities makes the competition more intense.

The study argues that, although many economists have found TIF to be ineffective, this method of funding continues to be used because of the competitive nature of tax incentives. When one area offers a tax incentive, other areas nearby often try to “win” a company’s business by offering competitive tax incentives. The result is a bidding war in which the taxpayers lose. This can be seen in the Claycomo Ford tax credit situation, as well — other states, like Kentucky, have offered tax incentives to Ford in an effort to persuade them to relocate their plant. In order to compete, Missouri would have to offer a better deal, while recognizing that this game will be played again the next time the credits run out.

Later in the interview, Thomas notes an important misunderstanding — the idea that tax incentives like TIF “create” jobs:

Thomas: [T]hose estimates never take into account the fact that, well, yes, we are going to create 200 jobs here, but what’s going to happen is we’re going to knock out 180 in the next mall over.

Tax credits and TIF tend to shift economic activity from one area to another, without creating wealth. Missouri’s tax dollars would be much better spent in the hands of individual Missourians than on enticements for companies like Walmart or Ford.

As Milton Friedman pointed out on his PBS TV series “Free to Choose,” even if other nations, states, or localities offer tax incentives to lure businesses, we’re better off if we don’t do the same — because we benefit from the lower prices their subsidy creates. Missouri will experience better economic growth if it unilaterally removes itself from the tax incentive bidding wars.

The post Tax Incentives Are a Game We Can’t Win appeared first on Show-Me Institute.

However, the following statement in the article concerns me:

[Garry Earls, Dooley’s chief of staff and chief operating officer of the county,] pledged “the county will help Bridgeton find a better deal.”

The government should not be in the business of “finding a better deal” or picking economic winners and losers. The free market does this fairly and more efficiently — and at zero cost to taxpayers. Instead of getting involved, local and county governments should allow development to happen naturally in an unrestricted market. Having general low-tax and pro-business policies is the most efficient way to attract businesses to an area and incite economic growth. Developments that use TIF are not guaranteed success, and those that are successful may have been successful independently.

If there is a sufficient level of consumer demand for the new Walmart, then the company will decide to move to the location independent of government assistance. If there is not enough demand in the area, then Walmart will decide to move elsewhere, and local governments would not have to forfeit revenues in the short term to pay for the project.

The post “The County Will Help Bridgeton Find a Better Deal.” appeared first on Show-Me Institute.