It’s been said many times that there is nothing as permanent as a temporary government program. While it may be a partisan campaign remark, it contains a simple truth. Each new program generates its own newly entrenched bureaucracy and special interest groups that have an interest in expanding and perpetuating the program. We can see this with big, bold programs, but often that plan to maintain or expand power happens behind the scenes in ways the public never knows about. That is exactly what is happening now with the EEZ program before the Kansas City Economic Development Council, a city advisory committee that makes recommendations regarding tax subsidies.

Kansas City gives away enormous sums in tax subsidies—an estimated $175 million in 2018 alone. The development community and its allies in finance, law, and politics (hereafter the developer-subsidy complex) do not view these subsidies as a program to be used in occasional, necessary instances. Developers view them as their hereditary birthright, to be exploited with all the subtlety of King Henry “asking” if he could have another divorce.

Just as current Kansas City leadership is taking steps to place modest limits on tax subsidies—better known as corporate welfare—the developer community is taking steps to keep the spigot flowing. What steps has the city has taken? The city lowered the maximum property tax abatement developers can receive from 75% to 70% for 10 years, and from 37.5% to 30% for five more years. While this change is commendable, it is hardly a major decrease in subsidies. But try telling that to the developer-subsidy complex.

It’s latest maneuver regards EEZs, an all-too-common business incentive package that is tied to job creation aims. EEZ tax credits have always been focused on jobs and business activity—the explanatory language on Missouri’s website is clear on that—but the development community is now trying to argue that large apartment complexes should also quality for new tax subsidies through the EEZ program. While there is no evidence that EEZs work at growing the economy—the EEZ program was a major part of the failed Waddell and Reed downtown development—they do work (all too well) at shoveling tax dollars to influential developers.

It is important to note that major residential developments like apartment buildings already qualify for plenty of incentive programs: low-income housing tax credits, historic tax credits, the above-mentioned property tax abatements, tax-increment financing, and other programs. What they have not been able to access are EEZ tax subsidies. That, apparently, has to change.

Lawyers for housing developers have been quietly arguing with EDC officials for months that the tax credits and abatements previously reserved, as intended, for businesses that create jobs should also go to housing developments. The EDC officials have resisted, but the developers are now appealing to the city’s lawyers. If the lawyers change the interpretation of the law to include housing—which it has not previously been used for—then all of the progress, modest as it may have been, in reducing the use of tax subsidies in Kansas City will be undone.

No matter how the developer-subsidy complex tries to spin it, this is a naked attempt to take more money away from taxpayers and government bodies, like the school district, and put it into the private hands of developers and their advisors.

Hopefully, someone in Kansas City government will have the courage to say “No” to these demands by the developers. If that happens, we hope it works out better for them than it did for Thomas More.

The post Kansas City Needs a Patron Saint of Tax Subsidy Reform appeared first on Show-Me Institute.

• Accounting: Missouri is behind in funding its public pensions because of flawed accounting assumptions.
• Alphabet Soup: Lawmakers offer favored corporations tax subsidies like TIFs, EEZs, TDDs, and many others. Let’s end corporate welfare.
• School Choice: We have liberty in America, but our kids are assigned to a public school based on where they live. Let’s change that and give school choice a try.
• Tax Credits: Elected officials gamble your money on their favored corporations. Let’s end corporate welfare.
• Privatization: Privatization—public services provided by private companies—can deliver needed services at lower costs to taxpayers.

The post Show-Me Minutes appeared first on Show-Me Institute.

2. No political subdivision of this state shall by ballot measure impose any restriction on any public financial incentive authorized by statute.

This proposal is almost certainly in response to the attempt to limit tax incentives for Peabody and other energy companies within the City of Saint Louis. A judge’s order turned away that ballot initiative. While I certainly agreed with the attempt to limit tax subsidies, I was never comfortable with the way the initiative targeted one industry. So, you didn’t hear me objecting to the judge’s ruling. Furthermore, I have, in the past, supported legislative preemption of initiative petitions in certain cases, so I am not saying a referendum should always trump local officials.

However, a blanket prohibition against any local votes against the use of tax incentives such as Tax Increment Financing (TIF), etc., goes way too far. This is terrible public policy and improperly restricts local voter rights. If a city or county has an allowance for initiative petitions under their charter, they should be allowed to use it. If local voters want to reduce or eliminate the use of TIF, Transportation Development Districts (TDDs), Community Improvement Districts (CIDs), Enhanced Enterprise Zones (EEZs), abatements, etc., via their local tax dollars, they should be able to do so.

Attempts to use initiative petitions after the fact against approved TIFs have failed for several legal reasons. However, there should be no legal problem with preemptively prohibiting corporate welfare in a community, as long as the prohibition is even and not targeted at select industries. (Feel free to tell me how I am wrong there, lawyers, but the mere existence of these amendments tells me that is correct.)

These amendments are trying to create a legal roadblock against citizen involvement and input into how people’s own tax dollars are spent, and that would be unfortunate for Missouri.

The post Going Too Far To Limit Voter Input appeared first on Show-Me Institute.

David Stokes’s previous appearances with Manny Haley:

• on the recent election, the Morgan County lawsuit settlement, and the TIF commission in Sunrise Beach (11/7/2013)
• on the Morgan County lawsuit and food trucks in Camden County (10/31/2013)
• on a fire district tax increase and the film tax credit (10/24/2013)
• on the government shutdown and ethanol fuel regulations (10/17/2013)
• on parking at Shady Gators and Obamacare (10/3/2013)
• on zoning changes in Camdenton and Obamacare (9/26/2013)
• on the maintenance of private roads and taxes on golf courses (9/19/2013)
• on the Missouri General Assembly’s veto session and dock regulations (9/12/2013)
• on a utility rate increase and public vs private utilities (9/5/2013)
• on a lawsuit brought by the Morgan County Treasurer against the county for back pay (8/22/2013)
• on the results of the August fire district election in Sunrise Beach, MO, and other elections around the state (8/8/13)
• on the upcoming election in the Sunrise Beach Fire District, the defeat of a TIF proposal in Olivette, and regulating food and fashion trucks (8/1/13)
• on changes to dock inspections in the Osage Beach Fire District (7/25/13)
• on the possible opening of a horse slaughter plant in Missouri (7/11/13)
• on Gov. Jay Nixon’s vetoes of pending legislation and Missouri’s General Assembly (7/4/2013)
• on ambulance fees and service (6/20/2013)
  
• on use taxes, the recent special election in Laurie, MO, economic development, and enhanced enterprise zones (EEZs) . (6/6/2013)
• on the recently completed legislative session (5/23/2013)
• on the proposed Enhanced Enterprise Zone (EEZ) for Camden County (5/16/2013)

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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.

The post Show-Me Minute: Tax Subsidies appeared first on Show-Me Institute.

The Show-Me Institute testified before the City Council in April that EEZs are as effective at creating jobs and economic growth as doing nothing. The data simply doesn’t support EEZ supporters’ claims. In fact, when questioned at a subsequent informational meeting, the consultant the city hired had to admit that numbers showing the success of EEZs don’t take into account what the growth may have been without EEZs. Basically, the whole program is built on the logical fallacy knows as Post Hoc Ergo Propter Hoc — after, therefore, because of.

Figures showing how many other places in Missouri have adopted EEZs did not sway residents. They were skeptical of claims of growth as a result of EEZs, and they were hostile to the claims that blight would do no harm. They wanted none of it.

Lee’s Summit has a lot going for it. As we wrote in our guest commentary in the Lee’s Summit Journal:

In 2006 and again in 2010, Money Magazine cited Lee’s Summit as one of the 100 Best Cities in the United States. The Lee’s Summit Chamber of Commerce boasts on its website: “Lee’s Summit is an ideal place to live and work, providing a desirable lifestyle that everyone can enjoy — high-quality, affordable housing in safe neighborhoods endowed with fine schools and excellent health care facilities.”

Governing a city is difficult, and my guess is that it’s even harder than it need be because everyone is trying to second-guess the free market to get ahead. City officials don’t want to just create jobs, they want to create the right kind of jobs, whatever that means. But the truest path to success in Lee’s Summit and elsewhere is to do less. Keep taxes low for everyone, streamline the bureaucracy, and let the free market thrive.

When it comes to EEZs, Lee’s Summit has chosen the road less traveled, and that will make all the difference.

The post Lee’s Summit And The Road Not Taken appeared first on Show-Me Institute.

Rules like repeating past discussion points, being respectful and not talking over each other went right out the window early on. Several people that live or own property in the proposed zone acted like they had never even been to a public or council meeting – and perhaps they haven’t.

The author may be right. Most of these people have spent a lifetime being busy working, trying to earn incomes and pay the federal, state, and local taxes that Lee’s Summit city officials now want to spend on an economic development tool that does exactly nothing. But what he characterizes as “an anti-government rally, complete with cat calls, cheering and cries of ‘you’re not taking my property!’ echoing throughout the room” seemed to me to be a very civil meeting of 250 people. People who, while intellectually opposed to what the Lee’s Summit City Council was considering, remained very civil. You can judge the proceeding for yourself online here.

It may be true that citizens of Lee’s Summit do not understand EEZs and fear the impact on their homes. But it is also likely true that members of the EEZ Advisory Board and City Council do not understand EEZs either. Because if they were familiar with the research on EEZs, they wouldn’t be wasting so much time on a policy that is such a complete failure.

Sure, members of the establishment like these taxpayer giveaways — which amount to nothing more than corporate welfare — because they will be first in line to receive them. The consultants and state employees who encourage such programs also benefit. Having to stand in the dock and answer questions from mere voters made them uncomfortable. The Journal publisher wrote that he:

. . . felt sorry for city staff, for EEZ Advisory Board chair Keith Asel, for city consultant Chris Sally and for the five councilmen that were lined up along the back wall during the two-hour event.

Poor dears. I hope they recover. (Note, most of the councilmen snuck out long before the meeting adjourned.) And I hope the people of Lee’s Summit continue to demand answers to difficult and unpleasant questions. Even if — or better yet, because — it makes those in the establishment earn their keep.

The post The Establishment Strikes Back appeared first on Show-Me Institute.

To a person, those in the room were opposed to the implementation of the EEZ. They asked questions about the zone, the required findings of blight, and the implications for the property values. Some were upset about the implications of blight and if their property could be subjected to eminent domain as a result. The Lee’s Summit Journal reported:

By state statute, such a zone does not alter local zoning nor can a city enact eminent domain on an EEZ area, a claim made by members of the Show-Me Institute.

“Any use of eminent domain within an EEZ is deliberately misleading,” [city consultant Chris] Sally told the crowd, adding that the term “blight” doesn’t mean a residence is blighted or run down and would not decrease property values, a claim that brought groans and sighs from the audience.

Members of the Show-Me Institute do not make this claim. We asked the Journal for a revision, but did not receive one. In our brief discussion about eminent domain in the testimony and op-ed, we put EEZs into the larger context of incentive and subsidies programs such as Tax Increment Financing (TIF), which do sometimes involve eminent domain. This is appropriate because recent history shows that when cities start implementing programs like this, they do not just stop at one. If you blight an area once for an EEZ, it will be even easier next time to blight it again for a TIF, and that very well could involve eminent domain abuse.

It is understandable that economic development consultants such as Sally are frustrated by research showing that the economic development “tools” from which they make their living are useless. Sally had to admit as much when he was asked if the job growth claims of Enhanced Enterprise Zones accounted for growth that was already happening in the area. He answered that they did not. In other words, and as the Show-Me Institute research pointed out, consultants and politicians just use EEZs to claim credit for economic growth that was already going to happen.

What is deliberately misleading, however, is the designation of EEZs themselves, and several attendees  commented the process was dishonest. In order to blight the area in which the Lee’s Summit City Council wants to attract development, it must include other “low-income” areas so that the whole EEZ qualifies. As a result, some of the so-called low-income areas are, in reality, neighborhoods with a large number of retired people. The City Council must also rely on 13-year old Census data regarding poverty and income — because more recent and accurate data won’t provide the numbers they need to create the EEZ. As a result, consultants like Sally draw lines around a Lee’s Summit that doesn’t exist, and state bureaucrats and city leaders seem willing to go along with the charade.

Democracy is alive and well in Lee’s Summit. The people understand a bad idea when they see it, even if city officials cannot.

The post Democracy Alive And Well In Lee’s Summit appeared first on Show-Me Institute.

In 2006 and again in 2010, Money Magazine cited Lee’s Summit as one of the 100 Best Cities in the United States. The Lee’s Summit Chamber of Commerce boasts on its website: “Lee’s Summit is an ideal place to live and work, providing a desirable lifestyle that everyone can enjoy — high-quality, affordable housing in safe neighborhoods endowed with fine schools and excellent health care facilities.”

So why in the world is the Lee’s Summit City Council rushing to adopt an economic development program aimed at blighting large swaths of the city?

There is only one possible answer: The city council has been bitten by the same parasitical EEZ bug (Enhanced Enterprise Zone) that has attached itself to other cities and counties across Missouri.

In fact, almost a third of our state has been officially declared “blighted” as a result of the widespread use of EEZs, TIFs (Tax Increment Financing), TDDs (Transportation Development Districts), and other such programs that combine local subsidies for commercial development with the use of eminent domain — enabling developers to force residents out of their homes and small business owners out of their shops and offices.

On April 11, we presented testimony to the city council on the efficacy — or, more accurately, the inefficacy — of Enterprise Zones in Missouri. The Show-Me Institute had recently conducted a study comparing the economic performance of two groups: (1) eight Missouri counties that employed Enterprise Zones, and (2) 12 neighboring and economically similar counties that did not. We found that economic growth in the two groups was almost identical.

In other words, there was no evidence that Enterprise Zones had any positive impact on economic growth or employment. They seemed to be a waste of time and money.

Our statements to the Lee’s Summit City Council made this perfectly clear, and none of the economic development officials, city staff, or consultants at the meeting made an effort to argue otherwise.

Yet it was a clear that most members of the city council, along with the consultants and development staff, had already made up their minds: They wanted to move ahead as quickly as possible in setting up an EEZ.

One reason for the rush is the fear that the 2010 Census numbers, which are still being finalized, will show that poverty and unemployment rates in Lee’s Summit have dropped since the previous Census — which could have the effect of making Lee’s Summit ineligible for the subsidies from the Missouri Department of Economic Development (DED).

Not that Lee’s Summit was any kind of an economic basket case 10 years earlier. Based on the 2000 Census, the median income for a family in Lee’s Summit was $70,702, or close to double the median family income for the state as a whole.

Nor does Lee’s Summit suffer from a lack of growth. Between 2000 and 2010, the population of Lee’s Summit grew from 70,700 people to 91,364 — an increase of 29 percent.

But neither prosperity nor rapid growth has dampened the enthusiasm of some city council members at the thought of spending some easy money.

On the night that we testified, one member of the city council argued that because the DED is giving the money away, Lee’s Summit might just as well take it. The proposed EEZ for Lee’s Summit is a particularly egregious example of throwing away taxpayer money for no good cause — in promoting a solution for a problem that does not exist.

Patrick Tuohey is the western Missouri field manager and David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post Lee’s Summit EEZ: A Solution In Search Of A Problem appeared first on Show-Me Institute.

Ray County is in the process of establishing eight different EEZ districts under one county umbrella. This is a massive bet government planners make that they know what, where, and how economic growth will occur in the county over the next two decades. I have studied the results of Enterprise Zones (EZs, the very similar precursors to EEZs in Missouri) in counties that adopted large EZs in the 1980s in Missouri. The economic data shows that the counties that adopted these zones did no better than neighboring counties that did not. Government planners cannot see the future, and they should not be empowered to use tax dollars to bet on it.

The dirty little secret that the DED, MARC, and the Ray County EEZ proponents do not want you to know is that EEZ, Tax Increment Financing (TIF), Transportation Development Districts (TDD), and other similar subsidies do not work. They do not succeed in growing the local economy. All this myriad of subsidies does is shrink the local tax base, encourage more government planning of the economy, and increase the chances of eminent domain abuse. As a famous Swedish economist once said, “It is not by planting trees or subsidizing tree planting in a desert created by politicians that the government can promote . . . industry, but by refraining from measures that create a desert environment.”

If you ask a DED or MARC official how effective EEZs are, they will tell you how much investment has occurred within EEZs over the past decade. Their hope is that you will assume all the investment is because of the EEZ. Their lie-by-omission is that they have no idea how much the EEZ aided that investment and how much would have occurred anyway. The consensus among economists is that special tax incentives such as EEZs matter little, and only a very small portion, if any, of investments within a zone can be credited to the subsidies. Yet government planners will happily let people assume the incentives make all the difference while hoping nobody asks any follow-up questions.

Most people would claim to oppose corporate welfare, but that is exactly what is being hoisted upon us in Missouri; one special taxing district at a time. This is all being done under the cover of fixing blight, without any real definition of what that means. But the word “blight” is not empty talk. It means many things. One thing it means is that Ray County is taking a major step toward much heavier use of taxpayer subsidies for all types of commercial activity. Once you have blighted a major portion of the county, it is but a short walk to the point where almost every development in the area has some type of subsidy. That is not a “maybe.” That is the current reality in Kansas City and Saint Louis.

Tools such as EEZs fail because politicians cannot see the future better than markets can. Ray County should focus on low taxes for all businesses, not special incentives for a few. It already has the lowest commercial property tax surcharge in the region. Ray County should trumpet that loudly. It does not need a massive implementation of Enhanced Enterprise Zones.

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

The post Ray County Does Not Need Enhanced Enterprise Zones appeared first on Show-Me Institute.

The post Three Ways Bad Public Policy Hurts Missouri appeared first on Show-Me Institute.

The dirty little secret that the DED and the Callaway County EEZ proponents do not want you to know is that EEZ, Tax Increment Financing (TIF), Community Improvement Districts (CID), and other subsidies do not work. They do not succeed in growing the local economy. All this myriad of subsidies does is shrink the local tax base, encourage more government planning of the economy, and increase the chances of eminent domain abuse. As a famous Swedish economist once said, “It is not by planting trees or subsidizing tree planting in a desert created by politicians that the government can promote . . . industry, but by refraining from measures that create a desert environment.”

If you ask a DED official how effective EEZs are, they will tell you how much investment has occurred within EEZs over the past decade. Their hope is that you will assume all the investment is because of the EEZ. Their lie-by-omission is that they have no idea how much the EEZ aided that investment and how much would have occurred anyway. The consensus among economists is that special tax incentives such as EEZs matter little, and only a very small portion, if any, of investments within a zone can be credited to the subsidies. (This should not be a surprise unless you believe politicians have the ability to see the future and know exactly what business to invest taxpayer dollars in 25 years from now.) Yet the DED will happily let people assume the incentive makes all the difference while hoping nobody asks any follow-up questions.

Most people would claim to oppose corporate welfare, but that is exactly what is being hoisted upon us in Missouri; one special taxing district at a time. This is all being done under the cover of fixing blight, without any real definition of what that means. But the word “blight” is not empty talk. It means many things. One thing it means is that Callaway County is taking a major step toward much heavier use of taxpayer subsidies for all types of commercial activity. Once you have blighted a major portion of the county, it is but a short walk to the point where almost every development in Callaway has some type of subsidy. That is not a “maybe.” That is the current reality in Saint Louis and Kansas City.

The Callaway supporters of the EEZ say that other cities have used these tools with great success (see the KRCG Channel 13 news story on Nov. 29, 2012, for one example). In this, they are completely wrong. The can say it works elsewhere all they want, but they might as well be staring you in the face and telling you the sun rises in the north. The City of Saint Louis has been using urban redevelopment tools such as Enterprise Zones and many others for half a century. How has it worked out? “Mapping Decline,” by Colin Gordon, is a 2008 book that documents the decline of the city of Saint Louis. The book’s research is exhaustive. The dominant theme is the use of urban renewal tools and tax subsidies (including EEZ) — and their absolute, total failure. From the conclusion:

The overarching irony, in Saint Louis and elsewhere, is that efforts to save the city from such practices and patterns almost always made things worse. In setting after setting, both the diagnosis (blight) and its prescription (urban renewal) were shaped by — and compromised by — the same assumptions and expectations and prejudices that had created the condition in the first place.

I can already visualize Callaway residents saying, “But we’re not Saint Louis.” You are correct, you are not; so do not follow a path that will make your city repeat Saint Louis’ mistakes. It is one thing for Saint Louis to try these projects and have them fail. It would be even worse for a place such as Callaway to follow that example already knowing that the entire process has failed. At least the trailblazer who takes the wrong path has an excuse.
Tools such as EEZs fail because politicians cannot see the future better than markets can. Callaway County should focus on low taxes for all businesses, not special incentives for a few. It does not need an EEZ.

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

The post Callaway County Does Not Need An EEZ appeared first on Show-Me Institute.

They range from large programs, such as the historic preservation tax credit and the Quality Jobs program, to the small, such as the state’s film tax credit. There are at least half a dozen more state-authorized local tax incentive programs, such as Tax Increment Financing (TIF). Missouri, like many states, aggressively uses these programs to encourage investments the government deems desirable.

But do these programs work? Do they accomplish their various goals, which have many different angles but all fall eventually into the categories of economic growth and job creation? These programs may not be as intense as a Soviet Five-Year Plan, but they are centralized economic planning nonetheless. Any time the government takes tax dollars and directs them to other areas of a market economy, it is engaged in central planning. Some planning is essential, but has this type of economic planning benefitted our state or our local communities?

This study relates closely to the current debate over Enhanced Enterprise Zones (EEZs) in Missouri.

Note: The data source for Personal Income, Per-Capita Income, and Total Employment is the U.S. Bureau of Economic Analysis. The source for Labor Force is the Economic & Policy Analysis Research Center at the University of Missouri-Columbia. The source for Assessed Valuation is the Missouri State Tax Commission.

Related Links

Commentary: Why Enhanced Enterprise Zones Are A Bad Deal For Missouri Cities

Commentary: EEZs Are An EZ Path To Corporate Welfare

Commentary: Callaway County Does Not Need An EEZ

The post The Effectiveness of Enterprise Zones in Missouri appeared first on Show-Me Institute.

The Columbia plan is thrilling to me in that its supporters do not even bother trying to couch their intentions. TIF was passed originally as a way to revive blighted communities. But, from the beginning, it was used to subsidize retail establishments. Now, in Columbia, they are basically admitting it is a tool of progressive urban planning; using other people’s (and other government’s) money to get what they want. Doubt me? Take this letter in support of a new TIF district (scroll to end) in Columbia from Rosalie Gerding with the Downtown Leadership Council:

Developers who come forward with plans that will accomplish the designs proposed in the report could be encouraged to apply for TIF funds.

Here, TIF is blatantly proposed as a carrot for urban planning, not a way to revitalize a depressed area. Of course, because downtown Columbia is not the least bit depressed, that makes sense in a weird way. Like being wrong by 359 degrees almost makes you right.

There are more unsettling aspects to this plan. Eminent domain abuse goes hand-in-hand with TIF, so it should be frightening for Columbia residents to read this line from the letter (emphasis added):

Without incentives in place, we continue to run the risk that projects we don’t necessarily want will go up in the very spots that we have targeted for higher-use development.

My translation, “We need to use other people’s money to subsidize our friends’ developments because we can’t allow the free market to determine what happens in downtown Columbia.”

The plan that the Columbia City Council accepted last week (see p. 35) clearly states they want to turn all of downtown into a huge TIF district. (To be fair, they just accepted the plan, they did not pass the TIF.) I continue to find it amazing that a great city like Columbia wants to imitate the failed examples of Kansas City and Saint Louis by passing more and more TIFs and other subsidies (EEZs) to encourage things that have been happening without subsidies. Then again, maybe the market forces were making plans that the “urban planners” did not like, and Lord knows you cannot allow that to happen.

I cannot commend Boone County Assessor Tom Schauwecker enough for his continued fight on this issue.

The post TIF Menace Growing in Missouri appeared first on Show-Me Institute.

Speaking as a professional economist, the likelihood that an EEZ board could outperform the marketplace in redirecting taxpayer money to selected enterprises is about as high as the chance that I could pick the Jack of diamonds from a pack of playing cards on my first try.

These reflections are prompted by what I have observed in following the sometimes heated debate about Columbia’s Enhanced Enterprise Zone. Some citizens are worried that the application of an EEZ in Columbia could lead to indiscriminate use of blighting and eminent domain confiscations. Others question whether EEZs work.

Let me tackle the second of those two issues first. Supporters treat the EEZ as a kind of free lunch for city economic development in conferring benefits on selected developers. But the benefit or subsidy has to come from somewhere. If the subsidy is a state tax credit then the resources are coming from all Missourians who pay taxes. Alternatively, in the case of property tax abatements, resources that would normally go to local schools or local services are redirected to benefit a particular company or developer.

Once we agree that the benefit or subsidy is a redirection of resources, the question becomes whether we can expect a better result from the proposed EEZ subsidy/investment than we would get through the ordinary working of the marketplace, with no subsidies.

The short answer to that question is “No.” On economic grounds, it is impossible to make a convincing case that EEZs work. No matter how well-intentioned and how smart the members of an EEZ board may be, the deck will always be stacked against them.

For one thing, the set of projects that they will be asked to consider will be too small. For another, the incentives are not lined up; the EEZ board does not have any skin in the game and therefore the careful vetting that occurs when people are spending their own money will be missing.

What then of the fears of eminent domain abuse?

I submit that Columbia officials are being truthful when they answer these concerns by saying that widespread eminent domain abuses are the farthest thing from their minds. I do not see the current group wielding power willy-nilly to drive residents from their homesteads just to make property available for some startup from California. However, once on the books, there are no restrictions on those in future city governments that see opportunities. Time inconsistency is what economists call this lack of a commitment by current government on future governments. And there is no way to impose anti-abuse conditions on these future city governments.

Thus, in order for a Columbia EEZ to be a net positive for the city’s economic development, the board members would have to be at the top of their game (channeling Warren Buffett and no Mamteks), there has to be a strong enough multiplier effect (from a discredited economic theory), and the future governments must be no less noble and forbearing than current government. If any one of those three conditions fail (and the odds are that all three will not be satisfied), then the EEZ is a bad economic deal for Columbia.

Of course, the same is true for other Missouri cities considering EEZs.

Joseph Haslag is chief economist at the Show-Me Institute, which promotes market solutions for Missouri public policy, and a professor of economics at the University of Missouri-Columbia.

The post Why Enhanced Enterprise Zones Are A Bad Deal For Missouri Cities appeared first on Show-Me Institute.

That is pretty much how Columbia city leaders responded to objections to the recent Enhanced Enterprise Zone (EEZ) designation declaring more than half of Columbia as blighted.

“The word ‘blight’ is just semantics,” the Columbia mayor told a crowd.

“Blight” is not semantics. In this context, it is a word loaded with hidden meaning that the mayor and others do not want to discuss. It does mean that Columbia is taking a major step toward much heavier use of taxpayer subsidies for all types of commercial activity. Once you have blighted more than half the city, it is a short step to the point where almost every development receives some type of subsidy. That is not a “maybe.” That is the current reality in Saint Louis and Kansas City.

The dirty little secret that Regional Economic Development, Inc. (REDI), the local media, and Columbia city officials do not want you to know is that EEZ, Tax Increment Financing (TIF), Community Improvement Districts (CID), and other subsidies do not work. They do not succeed in growing the local economy. “Call me blighted and give me the money,” as one city councilman stated, may be an oafish example of out-of-control government, but even worse is the abject economic ignorance it displays.

The panoply of subsidies that come into play when a large area is declared blighted have a number of adverse side effects. They shrink the local tax base, encourage more government planning of the economy, and increase the chances of eminent domain abuse.

As a famous Swedish economist once said, “It is not by planting trees or subsidizing tree planting in a desert created by politicians that the government can promote . . . industry, but by refraining from measures that create a desert environment.”

The Columbia supporters of the EEZ, the same group that supported the recent TIF projects and the downtown Columbia CID, say that other cities have used these tools with great success (for example, an editorial in the Columbia Daily Tribune, Aug. 13, 2009). In this, they are completely wrong. They might as well stare you in the face and tell you the sun rises in the north. The City of Saint Louis has been using urban redevelopment tools such as Enterprise Zones and many others for half a century. How has it worked out? Mapping Decline, a 2008 book by Colin Gordon, documents the decline of the city of Saint Louis. The book’s research is exhaustive. The dominant theme is the use of urban renewal tools and tax subsidies (including EEZ) – and their absolute, total failure. From the conclusion:

The overarching irony, in Saint Louis and elsewhere, is that efforts to save the city from such practices and patterns almost always made things worse. In setting after setting, both the diagnosis (blight) and its prescription (urban renewal) were shaped by — and compromised by — the same assumptions and expectations and prejudices that had created the condition in the first place.

I can already hear readers in Columbia saying, “But we’re not Saint Louis.” You are right, you are not; so do not follow a path that will make your city repeat Saint Louis’ mistakes. It is one thing for Saint Louis to try to these projects and have them fail. It would be even worse for a city like Columbia to follow that example with the knowledge that the entire process has failed. At least the trailblazer who takes the wrong path has an excuse.

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

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Last week, the Columbia City Council attempted to assuage fears of eminent domain. An advisory board:

recommended an ordinance that would safeguard against the use of eminent domain as part of the program by preventing the EEZ-related blight designation from being used to meet blight requirements for other laws.

Unfortunately, the recommendation does not provide full protection for Columbia residents. Other definitions of blight are exactly the same as the one the board used to blight half the city. What is to stop the city from blighting areas using statutes that expressly permit eminent domain?

The real problem Columbia residents face is the unconstrained use of blight. As long as the definitions of blight remain so broad, any property can be blighted and seized (except farmland). No residential or commercial property is safe. The definition of blight must be reformed.

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