I wrote recently that in the lead up to the public vote, even earnings tax defenders could not defend the earnings tax. Despite urging yes votes, they conceded many, if not all, of my claims that the tax makes for bad policy.

Now we might be seeing this story repeat itself with stadium subsidies. It’s being reported that Kansas City’s package of subsidies for a downtown baseball stadium includes bonds issued by the city—and backed by them. This means that if the stadium fails to generate enough revenue to pay the bonds, city taxpayers will make up the difference. This is exactly the type of deal that requires the city to direct over $10 million each year to cover Power & Light District debts.

The Kansas City Business Journal reports city leaders are aware of that same risk with a downtown ballpark for the Royals. They concede:

. . . estimates for Power & Light District sales and economic activity tax generation proved “spectacularly wrong.” The entertainment hub’s annual bond gaps have required about $10.5 million a year from the city’s general fund and $199 million total to date.

City leaders now say they’re being more careful — even as they plan to support as much as two times the district’s original debt for a stadium at Washington Square Park.

How times have changed. Twenty years ago then-Mayor Kay Barnes told a columnist for The Kansas City Star, regarding her deal on the Power & Light District:

“We’re going to look like geniuses” in five or 10 years, Barnes said. The city is paying low interest rates for projects that are capable of paying off the debt, she added.

Barnes could not have been more wrong. (Though she was named the 2018 Kansas Citian of the Year by the Chamber of Commerce, which says more about the chamber than it does Barnes.)

Public subsidies for private interests such as a baseball stadium is still bad policy. They don’t benefit taxpayers. But it’s some comfort that at least Kansas City leaders are capable of learning from their mistakes—right?

Right?

The post Another Policy Concession from Kansas City—Kind of appeared first on Show-Me Institute.

In 1939 the power to appoint members of the Kansas City Board of Police Commissioners was given to the governor in order to combat rampant local corruption. Kansas City is the only major city in United States whose local elected political leadership does not control the police. In speaking with several former members of the Board of Police Commissioners—appointed by different governors and serving at different times with different mayors—I learned that governors are not all powerful nor are mayors powerless.

First, the observation that the Kansas City police department lacks local control is misleading. Members of the commission, including a seat reserved for the sitting mayor, are all local figures who must be residents of Kansas City. The tradition for appointing commissioners is to choose people who already have distinguished themselves in the community—thus reducing the chance that people use their position as a political platform. And while the appointments are made by the governor with Senate approval, none of the former commissioners with whom I spoke ever felt as if they were serving a gubernatorial agenda. Some reported hearing from the governor’s office about every 12 to 18 months, and then just to be kept abreast of lawsuits. Despite the power of appointment, Republican and Democrat governors alike do not exercise significant authority over the KC police in practice.

While the police board provides local control, they do not represent local political control. In other cities, police chiefs must be wary of municipal politics and palace intrigue that can only distract them from their main concern: public safety. In Kansas City, police chiefs are a step removed from politics because they do not owe their position directly to elected officials.

None of this is to say that the mayor does not have a significant amount of power. Commissioners all indicated that there was deference given to the various mayors who served on the commission—even though their level of participation varied. For example, Mayor Funkhouser was engaged in police processes. Mayor Berkeley was attentive but passive. Mayor Barnes’ attendance was sporadic and picked up toward the end of her tenure.

Though Kansas City has a city manager form of government, the mayor has one power that researchers have found is among the most consequential any mayor can have: the veto. While a mayoral veto can be overridden by the vote of 9 councilmembers, it presents him with a great deal of influence over legislation—including the budget of each city department. What greater power over local policing could there be than the budget?

If a mayor wanted the police department to hire more social workers, hire more uniformed officers and/or provide more and different training, decrease the number of officers with take-home cruisers, or increase foot patrols and community policing, he has a great amount of leverage to do so. The power of the purse makes the mayor a more consequential figure than any single governor, any single police board commissioner, any single police chief. No Missourian has more power over policing in Kansas City than the mayor—should he wish to use it.

The current extraordinary challenge to public safety requires an extraordinary response from city leaders. The tools are in place—but will we have the leadership?

The post Who Runs the KCPD? appeared first on Show-Me Institute.

Kansas City Councilman Scott Wagner worries that people need to be convinced of a particular project before moving ahead.

“Increasingly, the burden is falling on the developer to show residents that there will be a benefit for the area, that the ‘but for’ clause is real,” Wagner said. “If people don’t believe a financial need exists, it’s easy to fight it.”

Is this too much to ask? Should taxpayers just trust the Economic Development Corporation (EDC)—a nonprofit organization funded mostly from the fees assessed on the projects it recommends—to have the final say? Apparently, yes. According to one developer, the people just don’t know enough to have a worthwhile point of view,

Whitney Kerr Sr., a longstanding area real estate developer, fears an anti-development tide could thwart the city’s momentum. He worries that “people who have no knowledge of real estate economics” have become too empowered.

Clearly, Kerr and developers like him would prefer the people to just be quiet and keep forking over their tax dollars to the supposed real estate experts at City Hall. Remember, it was former Mayor Kay Barnes who actually said in 2006 of the Power and Light District,

"We're going to look like geniuses" in five or 10 years, Barnes said. The city is paying low interest rates for projects that are capable of paying off the debt, she added.
 

Quite the opposite, the District is a swirling financial black hole that will swallow up about $15 million from the general fund each year from now through 2040. And there is no evidence that the District has netted the city any additional businesses, jobs, or tax revenue. In fact, according to the Missouri Department of Revenue, projects in tax increment financing (TIF) districts regularly fail to meet their developers’ own job creation projections. The great cost and low return of these subsidies is the reason that states and localities have been reforming TIF across the country. California, which was the first state to adopt TIF in 1952, ended it altogether in 2012.

Popular opposition to these development subsidies isn’t a product of the people’s ignorance of real estate economics, but rather of their understanding. They don’t want to hand their money to Kerr and others for dubious development projects when the city cannot keep Westport from flooding in the rain.

As for Mr. Kerr and other apologists for the status quo, it is unlikely that they have read a lot of the economic research literature on but-for analysis, or else they would understand the public’s discomfort. As a public service, here is a link to a study conducted by the University of North Carolina-Chapel Hill on TIF in Chicago. Before complaining about the lack of “knowledge of real estate economics” in others, perhaps they should educate themselves.

The post Taxpayers’ Subsidy Skepticism Is Warranted appeared first on Show-Me Institute.

Consultant suggests convention-center expansion. Expansion disappoints. Consultant suggests 1,000-room hotel. No one questions consultant about previous suggestion. Instead, city officials gleefully accept hotel recommendation and hire the consultant to conduct further study.

The above was taken from a Pitch piece in May 2010, and it is certainly as true today as it was then. Actually, it explains Kansas City’s long 46-year dance of expanding convention space and increasing hotel rooms. Consider the following timeline:

•  1969: A number of bonds were put before voters, among them a $23 million bond for a new exhibit hall. A front-page Kansas City Star editorial claimed (12/15/69), “The prime consideration at the polls tomorrow is whether Kansas City is to grow or retrench in the 1970s.” All the bonds failed to get the required supermajority.

•  1971: Undaunted, the City Council developed a plan to fund a convention center through bonds in a way that avoided the two-thirds approval necessary in 1969. The Star again endorsed the plan, editorializing (12/16/73), “Tuesday can be a great turning point for Kansas City.” The bonds were approved, and the Bartle Hall Convention Center was completed in 1976.

•  1986-89: Consultants told city leaders that in order to support the convention center Kansas City needed a new hotel. The Vista International Hotel opened in 1985, but it quickly ran into trouble. According to The Pitch:

Called the “Miracle on 12th Street,” the 22-story hotel was expected to revive the city’s dying center. But within 18 months, its owners were contemplating bankruptcy. The building was damned ugly, too. Donald Hoffman, the Star‘s architecture critic, called the hotel “a public embarrassment” when it opened.

•  The hotel changed management in 1987, and Marriott bought it in 1988.

•  1990: Again wanting to capture more convention business, a campaign launched to increase taxes to expand Bartle Hall. A column in the Star by H. Marshall Chatfield, the then-chairman of the Chamber of Commerce urged a Yes vote and fretted (1/31/90),

[W]ithout an expanded Bartle Hall, we will be able to accommodate fewer shows—and we will lose dollars we could have gained.

    Yael Abouhalkah went one step further in the Star (2/4/1990),

Nothing in this world is 100 percent guaranteed. But the Bartle expansion would create a strong possibility that more development will occur downtown.

    The voters approved new taxes for the expansion. The Star reported (2/7/1990) that not only was the city eager to expand Bartle Hall but,

[Developer Whitney] Kerr and H. Ross Perot Jr. pledged to build a trade center office tower if the city expanded Bartle. “We’ll keep pressing Ross on the trade center,” [Mayor Richard L.] Berkley said. “I’m confident it will be built.”

    The trade center was never built.

•  1994: The expanded Bartle Hall opened to much fanfare. At a gala event, Carl Hubbell, then-board chairman of the Convention and Visitors Bureau and president of a convention services contracting company, told the Star (undated Star souvenir insert),

This means an opportunity for Kansas City to get back into the national picture as a premier destination city. This is a major step to get us back to where we were in the mid-70s when Bartle first opened. We’re 80 percent there. More hotel rooms will take care of the other 20 percent.

•  1992-1998: Kansas City used Tax Increment Financing to tear down Muehlebach Towers and renovate the Muehlebach Hotel. Marriott reopened the Muehlebach in 1998, but according to The Pitch, “The transaction has cost taxpayers millions because demand for the hotel rooms has fallen short of expectations.”

•  2002: Fearing that the city needed more convention space to attract conventions, leaders decided to expand Bartle Hall with the Grand Ballroom. Voters were urged to support new spending and were again told that without a Yes vote the city would continue to lose convention business, just like 1990. Back to The Pitch:

“This is going to be the economic engine,” said Chuck Eddy, then a city councilman, dreaming of the possibilities in 2004. . . . Former Mayor Kay Barnes took a hammer to a wall, celebrating Bartle’s second expansion in 15 years.

•  2015: Kansas City leaders say the city is losing convention business because it doesn’t have enough hotel rooms. And we’re off to the races again . . .

The desire to subsidize more development never abates; developers’ hunger for public funds is never satiated. Each new project costs taxpayers millions that could go to basic services such as police and infrastructure, libraries and schools, but instead the money funds dreams that never seem to deliver on their promises.

The post A History of Kansas City’s Convention Pursuits appeared first on Show-Me Institute.

Kansas City taxpayers often hear that City Hall is strapped for cash.

No, it’s not. Residents and businesses are shouldering a much larger burden than ever in financing public safety, street maintenance and water service improvements.

City spending has gone up far faster than the rate of inflation, even after accounting for small population growth.

To their credit, this is not the first time Star editorialists have sounded the alarm over city spending on maintenance and basic services.

• February 18, 1990: An editorial titled, “Sales Tax Money Still Is Misspent,” details how a capital improvement sales tax passed in 1988 was misspent on other items;
• May 18, 2006: Yael Abouhalkah wrote, “[Mayor Kay] Barnes and the City Council—without much attention—have reduced the amount of general city funds (separate from the bonds) that are supposed to be used for deferred maintenance.”
• December 25, 2008: Abouhalkah wrote of an effort to consider a new trash pick up fee, “The earnings tax passed by voters in 1970 still brings in more than enough revenue to pay for weekly trash service.”

Their most recent editorial ends with this:

City Hall is not in the poorhouse. Taxpayers provide plenty of funds for public services. City officials must be extra vigilant in making sure that money is used efficiently before requesting even more taxes or fees from residents.

Indeed, City Hall is not in the poorhouse. So when Mayor James says that another tax increase may be necessary to pay for basic city services, the Show-Me Institute looks forward to a vigorous public debate about city priorities and spending. We even imagine that we may be on the same side as the Star.

The post KC Spending Still Doesn’t Add Up appeared first on Show-Me Institute.

Abouhalkah starts off where our post on the matter leaves off, a 2006 quote from then-Mayor Kay Barnes about how they’ll be seen as “geniuses” for saddling the city with a $15 million annual debt. He then moves on to conclude that, well, that’s okay.

City officials took bold moves to finally try to eliminate a lot of blight and reinvest in a more vibrant downtown through the Power & Light District, hoping it would lead to even more reinvestment in the city’s central core, wooing residents and companies.

While the downtown area has seen an uptick in residents, the city at-large is floundering. Even the creative-class millennials that we hear so much about are coming to Kansas City in much lower numbers than our peer cities. Some even suggest the trend of young educated people moving to urban areas has peaked.

As for jobs, even Abouhalkah admitted on last week’s episode of Ruckus that there hasn’t been job creation downtown. Tax revenue from restaurants and hotels has not kept pace with inflation, and the number of liquor licenses and bartender permits has decreased over the past several years. So much for a successful entertainment district. But hey, they respond, we built pretty buildings. (And built them near the Star‘s headquarters!)

As for a solution, Abouhalkah suggests more of the same:

Looking forward, I hope the city has learned its lesson and will help build a convention hotel with the lowest possible use of taxpayer subsidies.

Sadly, such sentiment is nothing more than the triumph of hope over experience. Time and again we read of awful city-negotiated deals like Power & Light, Citadel, and Burns & McDonnell while the real city core is left to fend for itself. We can’t wait another nine years for columnists to regret their current support of the latest taxpayer-subsidized scheme.

The mayor and city council seem to be waging a border war of their own, but instead of fighting neighboring states or cities, they’ve pitched downtown versus the rest of the city in an economic civil war.

The post The Star Responds to Show-Me Daily Post appeared first on Show-Me Institute.

Kansas City leaders want to point to downtown as a great monument to government planning. Look at the revitalization, they say. But given the high cost of the investment and the low return in jobs and businesses, taxpayers should be wary of this so-called success.

We’ve written recently on the premise underlying the investment of downtown and found it lacking. The very notion that those sought-after millennials are moving to urban areas is contested. That they are doing so in Kansas City in any fashion worthy of public cost is demonstrably false. That the city is seeing any financial benefit to the development is likewise risible.

Even the Kansas City Star, which has championed the profligate spending downtown, had to report on the failure:

Nick Benjamin of Cordish, executive director of the Power & Light District, thinks the debt shouldn’t overshadow all the positives, and in other ways the city’s investment has more than paid for itself.

“The point of Power & Light and the city’s investment wasn’t solely for Power & Light,” he said. “It was to revitalize downtown. It’s hard to argue that’s not happening.”

It’s happening? Certainly, the city has paid for very expensive buildings that weren’t there before, but what about this “revitalization”? We wondered if there was any way to justify the expenditures for the Power & Light District based on the number of entertainment venues or jobs or the tax revenue they generated. Given that the city is on the hook for $15 million each year to cover business losses, any increase would have to be substantial. Unfortunately, there appears to be no growth in any of our measures.

According to the city’s Comprehensive Annual Financial Report (CAFR), tax revenue from hotels and restaurants grew 16.56 percent, from 2006 to 2014. According to the inflation calculator at the Federal Reserve Bank of Minneapolis, inflation for that same period was 17 percent—meaning revenue growth from Kansas City hotel and restaurant tax was exactly flat.

In response to a Sunshine Request to the Regulated Industries Division in Kansas City, we learned that from 2007 to 2014 the number of businesses possessing licenses to sell liquor dropped over 13 percent from 870 to 769. Likewise, the number of employee liquor permits, such as those required of bartenders, dropped 7.5 percent from 11,767 to 10,937. In both cases these declines were slow and steady over time.

Kansas City did not get a hockey team or a basketball team out of the downtown development. It did not get a concert venue that it didn’t already have in Kemper. It did not see a net gain in jobs or businesses. It did not see an increase in tax revenue. However, it did get more debt to be paid out of city coffers—meaning less money for roads, parks, and public safety. And the city will be paying that debt for a long time. According to the same Star piece:

Even with a double-digit bump in sales, it’s not nearly what was anticipated in 2004, when consultants projected that new city and state tax revenues paid by the district’s residents and businesses would be able to cover the debt.

“I don’t think there will be a point at any time in the foreseeable future, probably the next 20 years, where it actually pays for itself,” acknowledged City Manager Troy Schulte.

Back in April 2006, the Kansas City Star quoted then-Mayor Kay Barnes:

“We’re going to look like geniuses” in five or 10 years, Barnes said. The city is paying low interest rates for projects that are capable of paying off the debt, she added.

Whoops! If this is genius and the downtown development is a success, it is the sort of genius and success that Kansas City cannot afford.

The post A Tale Full of Power & Light, Signifying Nothing appeared first on Show-Me Institute.

Missouri 6th District congressional candidate Kay Barnes today released a major policy stance on energy, a 5-point plan to deal with rising gas prices.

Naturally, I have a point-by-point response.

The 5 points of her new plan are:

• Increasing domestic drilling, by compelling oil companies to use the leases they currently have to drill on federal lands.

Increasing domestic drilling is a good idea to help alleviate the effects of the high price of gas in the short term. However, compelling oil companies to drill more is the wrong way to go about this. I’m not sure about the details of the leases to these federal lands, but I can suggest one way to structure them: If the leases were tradeable commodities (perhaps they wouldn’t be leases anymore) then we can expect whoever values the lease the most to purchase it — which probably would be whoever is willing to drill now. On the other hand, the oil companies may be betting that there is no end in sight, and holding oil in the ground until the price rises even more. If that is the case, a bit of pain now is much better than extreme pain later.

• Repealing tax breaks and subsidies for big oil companies, or redirect such subsidies toward renewable energy sources such as biofuels.

I’m all for making the tax system less complicated by removing exceptions, and I’m in favor of eliminating subsidies — but redirecting them toward biofuels is a bad idea. The incentive to develop alternatives is already huge, and not likely to be affected by government action. Attempts to manipulate the market may end up doing more harm than good.

• Supporting House-passed legislation directing the Commodity Futures Trading Commission to curb speculation in the energy markets. A so-called “Enron loophole” had previously exempted electronic energy traders from U.S. regulation.

Speculation actually eases the pain of economic change. When speculators bet on future price changes, they either prematurely increase or decrease the price, depending on what they think the future holds. This eases the pain of economic change because it makes price changes more gradual, rather than arriving as sudden shocks. These speculators also probably know more about future price movements than anyone else. After all, they are the ones with money on the line.

• Lowering federal trade and budget deficits, which would strengthen the value of the dollar when buying foreign oil, thus indirectly lowering the cost of oil.

A surefire way to strengthen the value of the dollar would be to raise interest rates by slowing the growth of the money supply. Barnes wouldn’t have control of that, however, so it’s hard to fault her for leaving this out. However, the high price of oil isn’t the only concern when it comes to manipulating exchange rates. A more favorable exchange rate means less foreign investment in the U.S., and fewer exports.

• Increasing fuel economy standards for cars and trucks, something that Congress started doing again for the first time in three decades when it passed higher fuel economy standards six months ago.

This will either be irrelevant or raise the cost of cars for the average consumer. It will most likely be irrelevant, because consumers are voluntarily choosing to buy more fuel-efficient vehicles. It’s amazing how well markets coordinate action.

This policy bundle seems rather questionable to me. There is some merit to at least part of some of the five points, but I have trouble throwing my hat behind any single policy on the list. I wonder what Kay’s opponent, incumbent Sam Graves, is proposing.

The post The Points of Energy appeared first on Show-Me Institute.