Show-Me researchers might argue there is never a good time for government handouts such as this one, but times like these should add even greater scrutiny to government actions. We need to be disciplined about government priorities and reel in needless spending on projects that ought to be privately financed. This deal means that the government will lose out on $5.7 million it could otherwise spend on the needs of Missourians, and maybe more if the stadium garners additional subsidies in the coming years. We can all probably think of a few uses for that money right now.

Sure, the soccer stadium may give us hope for a time when social distancing is a thing of the past, but private endeavors shouldn’t be funded with government incentives. It’s unfair that some developers get tax credits while others pay in full; the government is again picking winners and losers, and this time the owners of the MLS franchise are the winners and taxpayers are the losers. If a project such as this needs government assistance to be built, then maybe it isn’t such a good idea in the first place.

Whether or not you support assistance to the soccer stadium, the question remains: Is this really the time to be carving out special deals for wealthy team ownership when our attention should be focused on so many basic needs?

The post The Absolute Worst Time to Ask for a Stadium Incentive Package appeared first on Show-Me Institute.

Back in July, my colleague Graham Renz wasn’t thrilled with the proposed deal, but conceded that it was better than what taxpayers had been offered in 2017. That deal involved public subsidies and set-asides worth $120 million; the current deal’s public cost was about $40 million in local subsidies plus the $30 million in state-issued tax credits. If the tax credits are reduced as the St. Louis Post-Dispatch suggests, the total value of all the incentives may be closer to $52 million. That is a lot, but less than what has been considered previously.

Both deals were promoted at the time as the best deal taxpayers could get. We know now that wasn’t true. The owners of the new franchise stand to make a lot of money from this deal. While city and state officials should welcome investment in the area, they don’t need to put public funds at stake. Just ask Stan Kroenke, who is investing about $1.6 billion of his own money to build a sports complex in Los Angeles using only privately raised funds.

The lesson here for public officials at every level is that there is almost always a better deal to be had. In fact, if you want to protect taxpayers, the best deal might be no deal at all.

The post The MLS Deal Keeps Getting Better for Taxpayers appeared first on Show-Me Institute.

Listen to the segment here.

The post Graham Renz on the Marc Cox Morning Show appeared first on Show-Me Institute.

The one-year extension came together after O’Fallon in October 2018 terminated the Rascals’ lease at CarShield Field and barred the team from the facility, saying at the time that the team’s ownership was “repeatedly behind on rent.” O’Fallon later let the Rascals back into the facility as it worked through negotiations with the team for new lease. O’Fallon said Monday that the Rascals still owe the city a balance of $36,600 on a debt of $60,000 from several years ago, and plans to discuss the debt with the team as it winds down operations.

Let’s not mince words: The city of O’Fallon was spending taxpayer money on a private enterprise exactly because the people of O’Fallon and the surrounding areas decided not to spend their own money on it. How was this ever a good idea? This comes on the heels of a similar situation in Wyandotte County, Kansas that we discussed and wrote about previously: A city spending limited taxpayer resources on a faltering private enterprise that only postposed the inevitable.

Incredibly, the larger cities on both sides of Missouri are contemplating even bigger versions of the same mistake, either by building a baseball stadium in downtown Kansas City or a Major League Soccer stadium in downtown St. Louis. The owners may be different, but the policy remains the same: City leaders using taxpayer dollars to shift the risk (but not the reward) from private investors to public taxpayers.

The post The Entirely Predictable Failure of Sports Teams Subsidies appeared first on Show-Me Institute.

Proponents claim the current stadium deal, negotiated between the prospective team’s owners and city officials, is far superior to the previous proposal to lure the MLS to St. Louis. While this is true, the deal is still not all that great.

Before explaining why, let me reiterate that the current deal to bring the MLS to St. Louis is better than the 2017 effort. That effort (led by a different ownership group), which lost at the polls by a narrow margin, pushed intelligence-insulting stadium benefits, would have cost taxpayers more than $100 million, and seemed generally dishonest. Along with the St. Louis Post-Dispatch’s Dave Nicklaus, I’m glad voters rejected that effort. Moreover, I’m glad the current effort has engaged in relatively little economic pandering (save this (p. 1), and this).  

So what of the new ownership group’s current proposal?

The current plan, approved by the Board of Aldermen late last year, includes the following public incentives:

·         Free use of the land the stadium will be built on (the land will be purchased by the city from the Missouri Highway and Transportation Committee).

·         A complete abatement of property taxes on the stadium and the land it sits on (since the property will be owned by the city).

·         A 3 percent sales tax, generated by three distinct and overlapping special taxing districts, which will be levied on stadium-goers and may go toward stadium funding.

·         A reduction in the city’s 5 percent amusement tax for soccer ticket sales, bringing it to 2.5 percent, and the squirreling away of that 2.5 percent for future stadium improvements.

·         A complete sales tax exemption on materials used to construct the stadium.

Overall, the above incentives are valued at just shy of $40 million.

So what makes this plan better than the previous one?

First, the amount of incentives is significantly lower; the total incentives offered in the previous proposal totaled more than $120 million. Second, some of the incentives in the current proposal act like user fees, impacting only those who visit the stadium. The previous proposal would have relied on use taxes levied on city businesses, and ultimately would have been passed on to ordinary consumers, whether they visited the stadium or not. That also means we don’t need to further exhaust St. Louis’s sales tax capacity to make the deal work. (That funds are being saved for future improvements is also a plus, but how those funds may be spent will need to be hammered out in a lease agreement, which is yet to be finalized.)

Even so, I wouldn’t call this deal a good one for taxpayers.

First, there still is that $40 million. While that’s less than what city officials across the country usually cough up for a major league sports stadium, it is still $40 million. Second, since the city will purchase the land from the Missouri Highway and Transportation Committee, city taxpayers will likely bear that cost. And even though the land is currently publicly-owned, if it were sold to a private entity that would be tax liable, it could generate property taxes for local jurisdictions. Third, the city will lose out on millions from the sales tax exemption on construction materials. While the city is projected to come out on top in terms of overall sales tax revenue under the current proposal, it is no serious shot in the budget division’s arm. It’s also unclear (I have requested the analysis from the city but have yet to receive it) whether those “new revenues” will be genuinely new revenues or just diverted from other spending in the city.  

Now, none of this is to say that the current deal isn’t worth it, or is a bad deal all things considered. St. Louis may very well be better off with an MLS team than with $40 million. But that doesn’t change the economic reality of the situation: government is giving very special treatment to a select, wealthy few. Even if the (30-year!) sales tax revenue projections are right, and the city makes some money on the deal, there are often more pressing needs or better investments the city could throw its limited resources at. But the decision has been made, and, not surprisingly, taxpayers are now at the behest of a major league sports entity.

(And a word for Bernie Miklasz: I live in St. Louis, and so, am very welcome to criticize St. Louis policies.)

The post Better Is a Relative Term appeared first on Show-Me Institute.

So we did the next best thing: We created a response video to show what that honest discussion might have looked like. Enjoy.

The post Patrick Tuohey Responds to WXOS’s Bernie Miklasz on MLS Stadium Deal appeared first on Show-Me Institute.

For now, though, downtown baseball is and should be off the to-do list. The region must deal with more urgent priorities first.

Subsidizing sports stadiums is a bad idea regardless of the timing. Recently, Saint Louis has spent an inordinate amount of time and money trying to force taxpayers to do exactly this. First, there was an effort to build a new riverfront stadium for the Rams. When that plan failed, there was a sprint to build a soccer stadium in hopes of luring an Major League Soccer team to town. Stadiums are said to generate jobs in their construction (they don’t), and drive economic development once they are built (they don’t). At best, they divert people’s disposable income from one activity to another. Stadiums only create wealth for the team owners—who don’t have to share their profits with the taxpayers underwriting their team’s overhead. (In Wyandotte County, Kansas, taxpayer subsidies likely just postpone the inevitable closing of a baseball park.)

These aren’t just the musings of free-market, small-government cranks, either. There is a robust body of research from organizations left and right and in-between that shows stadium handouts are a waste of public resources. Nor do we need to rely on academic studies. The dome formerly known as Edward Jones failed to attract the economic development or population density its boosters promised. Anyone who doubts this should just look at aerial photos of Truman Sports Complex. Much of the land around two stadiums lays un- or under-developed.

Subsidizing sports stadiums, wherever they are built, is bad public policy. Not because of timing, or because there are other more pressing matters in Kansas City, which is true. It’s bad because diverting tax dollars to help big businesses build their own buildings is wasteful of limited public resources intended to provide basic services.

The post Subsidized Downtown Stadiums, Forever and Always, a Bad Idea appeared first on Show-Me Institute.

Dr. Patrick Rishe of Washington University in Saint Louis argues the current MLS stadium deal is one of the best he’s ever seen, as it includes numerous safeguards for the city and taxpayers and doesn’t use sales taxes to fund construction. Moreover, only 39% of stadium costs will be paid for by the public, compared to the usual 65% to 70%. Therefore, it’s a good public investment—and it certainly isn’t “corporate welfare.”

While his premises are true, the conclusions Dr. Rishe draws are not.

• Rishe states that this deal protects taxpayers in ways previous stadium deals did not. For instance, the ownership group must pay for cost overruns from construction, and the team has to stay in Saint Louis for 30 years (if the MLS doesn’t fold before then). These are reasonable provisions, but they don’t have anything to do with whether a stadium will grow the economy or redevelop downtown. The contractual safeguards simply manage the city’s risk; they don’t guarantee any of the glitz and glam proponents are promising. The stipulation that taxpayers won’t cover cost overruns doesn’t mean the benefits used on to justify the public expense, like economic growth, will be realized.
• Rishe points out that use taxes, which are paid by businesses, will go toward funding the stadium—not sales taxes paid by all city residents. Supposedly, it follows that residents won’t pay for the stadium unless they own a business or buy tickets. But while sales taxes won’t go directly to the stadium, city residents must increase their sales tax rate to get the stadium. That’s because use tax revenue can only be diverted to the stadium if voters first approve a sales tax hike for the MetroLink expansion. So while your sales taxes won’t pay for the stadium, you have to pay extra sales taxes for the stadium.
• If 39% is a breathtakingly low public contribution for a private venture, I’m in the wrong business. Cities across the country have been scammed by sports teams for decades, and the fact that other cities have agreed to worse deals than this one is hardly reason to celebrate. If $60 million is such a negligible contribution, why doesn’t the ownership team simply pay it themselves? Only cash-addicted millionaires would look at an offer to pay 61% of the cost for their own pleasure-dome as a selling point. (As for the $150 million expansion fee the ownership group is coughing up, recall that when the MLS announced the fee would be $50 million less than originally announced, stadium boosters didn’t reduce their ask for public assistance.)
• Rishe contends that giving away $60 million in handouts isn’t corporate welfare because MLS teams don’t turn a good profit. First, the profitability of an enterprise doesn’t bear on whether or not its receipt of subsidies counts as welfare. And second, if the teams currently in the league aren’t turning a profit, what does that say about the long-term prospects of a franchise in Saint Louis? We already have one stadium without a team downtown—do we want to risk adding another?

Joe Reagan, head of the Saint Louis Chamber of Commerce, notes (along with others) that the ownership group will invest $5 million over 20 years in youth sports programs. Moreover, an economic analysis shows the stadium will generate $77.9 million in taxes for the city over the next 30 years. Mr. Reagan presents these factors as evidence that the stadium deal is worthwhile. But here too some perspective is in order:

• The ownership group’s commitment to youth sports is commendable, but this is still a $5 million commitment in the context of a $60 million subsidy.
• The analysis stadium boosters rely on makes rosy assumptions and must (at the very least) be taken with a grain of salt. For instance, it assumes every man, woman, and child will spend roughly $50 on tickets, concessions, and food each time they attend a game, and that spending will increase faster than inflation for 30 years.
• More importantly, most of the economic activity at the hypothetical stadium won’t be “new,” but simply redirected from elsewhere in the city and region. This isn’t money that people were planning to keep hidden under the mattress—much if not most of it would be spent on other entertainment options if there were no soccer games to attend. And let’s not forget the $60 million that businesses are losing because of the use tax. But even assuming proponents’ analysis is correct, the stadium would only bring the city an average of $2.4 million annually—less than a quarter of a percent of the city’s $1 billion annual budget!

The history of stadium deals in Saint Louis and across the country shows these projects fail to make good on the promises made by their promoters. If sports stadiums were such lucrative investments, private investors would be flocking to Saint Louis to get their cut. Despite its supposed virtues, the facts and history indicate that the MLS deal is a bad one for taxpayers. 

The post Cheerleading Won’t Make the MLS Stadium a Good Deal for Taxpayers appeared first on Show-Me Institute.

The post Mike Ferguson Breaks Down Public Funding For MLS on Allman Report appeared first on Show-Me Institute.

Would-be owners of a Saint Louis Major League Soccer team are trying to persuade the public to part with $60 million so they can build a new stadium just west of Union Station. In their effort to woo tens of millions of dollars away from an already over-burdened public, proponents and officials are promising a host of economic benefits if the stadium is built.

Unfortunately, the vast majority of economists can’t find any evidence that these promises will be kept—and Saint Louis is definitely the wrong place to start looking. Despite hundreds of millions of public dollars for the convention center and dome, downtown Saint Louis continues to languish. In fact, the areas adjacent to the dome are mostly empty, and development on Washington Avenue is propped up mostly by decades of subsidies through tax increment financing, abatement, and special sales tax districts. Why should Saint Louisans think that “investing” in a new stadium is anything but doubling down on the same-old, wrongheaded policies?

Stadium boosters often come armed with reports predicting their projects will deliver prosperity in a handbasket. These promotional studies completed by for-hire economists will be packed with predictions of new jobs, urban revitalization, and boosted tax revenue. But as economists Dennis Coates and Brad Humphreys explained in a 2008 Econ Journal Watch article on the topic, such promotional studies suffer from “a long list of methodological and theoretical problems.” And as far back as 2000, John Siegfried and Andrew Zimbalist wrote in the Journal of Economic Perspectives that studies cited by developers “inevitably adopt unrealistic assumptions regarding local value added, new spending, and associated [economic] multipliers.” In short, we should be suspicious of “studies” commissioned by stadiums proponents for stadium proponents.

The scenarios presented by stadium boosters aren’t just fanciful—they are in direct conflict with expert economic opinion. Eighty-five percent of economists are in favor of eliminating subsidies for stadiums, while only 5% are against jettisoning such handouts. Consensus like this exists virtually nowhere else in the economic literature. And why are economists all singing the same tune? Because the economic benefits touted by stadium proponents are as elusive as Bigfoot. As Coates and Humphreys put it, “No matter what cities or geographical areas are examined, no matter what estimators are used, no matter what model specifications are used, and no matter what variables are used, articles published in peer reviewed economics journals contain almost no evidence that professional sports franchises and facilities have a measurable economic impact on the economy.”

If your doctor tells you a medicine won’t cure your illness, you don’t go purchase five bottles of it. If your financial advisor warns that a company is far too risky for its potential payoff, you don’t buy a majority share in it. And if economists counsel against subsidizing a stadium in order to grow the economy . . . well, you see the pattern here. Before committing millions of taxpayer dollars to a new soccer stadium, Saint Louisans should demand something more compelling than “analysis” from the only people these stadiums have been shown to benefit—the developers themselves.

The post Missing: Credible Evidence that Stadiums Grow the Economy appeared first on Show-Me Institute.

In this post I’d like to address something besides the economic issues with subsidizing stadiums. And that’s the claim (see page 13 here) that “if you aren’t a business paying the Use Tax or don’t go to the stadium, your money will NOT be used for this project.” This claim is simply incorrect.

To understand why, we need to look at how the stadium proposal is connected with another proposed tax-hike. There is a proposal to increase the city’s sales tax rate by 0.5%, with the new revenue dedicated to MetroLink expansion and other “economic development” projects. If approved, this increase in the sales tax (on goods purchased in the city) will trigger an increase in the use tax (a tax paid by businesses on goods purchased outside of the state but used in the city). The money that would be generated by an increased use tax isn’t dedicated to a specific purpose—at least not yet. Funding for the soccer stadium would tap into this new use-tax revenue. But that new use tax revenue will only exist if the sales tax hike is first approved. So, in short, to dedicate use tax revenue for the stadium, taxpayers would have to approve a sales tax hike. And to increase the city’s sales tax rate is to make city residents pay for the stadium, whether they visit it or not. 

In addition, the use tax increase will ultimately be paid by consumers—again, city residents included—through higher prices. Businesses in the city will initially pay the higher use tax, and while they may try to absorb some of the cost, it is nearly inevitable that they will pass some of it on to consumers. And when city residents buy goods and services from city businesses, they will end up paying the increased use tax (in the form of higher prices). Again, city residents will pay for the stadium, just not directly.  

The claim that city residents will not pay for the stadium unless they visit it is specious. Taxpayers deserve straight-talk where their money is concerned, and in this case, they don’t appear to be getting it.

The post Yes, the Soccer Stadium Proposal Will Cost City Residents appeared first on Show-Me Institute.

Last Thursday, city officials advanced two bills full of questionable spending. One bill proposes that the city’s already high sales tax rate (10.054% on average) be increased by 0.5% to help fund a section of a planned North–South MetroLink route. (Read about MetroLink’s poor track record here and here.) The other bill would raise the city’s use tax by 0.5% to help fund the construction of a Major League Soccer stadium downtown. The use tax increase is supposed to raise some $60 million.

The widespread economic consensus is that public spending on stadiums is a terrible use of taxpayer dollars. But even more troubling is the way in which the bill advanced out of an Aldermanic committee in the first place.

When it was first considered, the bill abated an amusement tax that would have been levied on ticket purchases, diverting revenue from the city. It also would have given tens of millions of dollars to developer Paul McKee, no stranger to subsidies. Why? Well, that’s the troubling part: no public officials knew why the bill abated the amusement tax or gave funds to a developer unrelated to the stadium project. As the Post-Dispatch’s Tony Messenger aptly notes, “This is the story of development in St. Louis. Assets are given away and nobody even knows why.”

But even after one alderman proclaimed that he wasn’t elected to “rubber stamp bad proposals for a City that is already on the financial brink,” the board arguably rubber stamped a bad proposal for a city that is on the financial brink. After closed-door discussions between the board and the ownership group behind the stadium proposal (SC STL), the bill emerged with amendments that abated half the amusement tax and still gave Paul McKee several million dollars in tax-increment financing subsidies.

After passing a vote of the committee, the amended bill was heralded as a win for the city and for taxpayers. Compared to the original bill (which abated all of the amusement tax), the amended bill is estimated to bring in $17 million to the city over 30 years. But does this really constitute a win for taxpayers? For one, although it is described as “new revenue,” this $17 million (and more) is what the city should have been slated to collect if not for the abatement in the original bill that no one could explain. Also, the city will contribute $60 million over that same 30-year period. That makes the stadium deal a loss for the city. Some claim (without providing any financial evidence) that the proposal was originally revenue-neutral for the city, and now will turn a $17 million profit for municipal coffers. Assume, for argument’s sake, that these rosy projections are true. That means the city will net $17 million on a $60 million, 30-year investment. Even if those figures are presented in what’s known as net-present value (which takes inflation into account), that hardly makes this a lucrative investment.

After the bill received approval, SC STL executive Dave Peacock said “The city drives a hard bargain, but they should.” It’s difficult to see how agreeing to this deal constitutes “driving a hard bargain.” But, Peacock is correct—that’s what the city should be doing, which is why recent developments with the stadium bill are so troubling.

The post No, the City Does Not “Drive a Hard Bargain” appeared first on Show-Me Institute.

The chart below compares the old and new funding proposals.

Note that the new funding proposal only modestly reduces the level of public funding. While the old proposal was set to be 65% privately-funded, the new proposal is only 73% privately-funded. And when we exclude the MLS expansion fee, the share of private funding has risen to just 49% from a previous 39%.

In short, while the new SC STL proposal has reduced the public cost of their project, it still calls for $90 million in subsidies. Just because spending $125 million in taxpayer money on a stadium was a bad idea, it doesn’t mean spending $90 million is somehow a good idea. Plus, the City’s Budget Director admits the deal as it’s currently crafted could require more money than the new use tax would provide, requiring the city to dip into the general fund.

Unfortunately, that isn’t the end of it. The new 50-page SC STL proposal was announced less than a week before the city’s Board of Aldermen needs to vote on whether or not to put it before voters. The proposal will be heard by an aldermanic committee once more next Monday morning.

Alderwoman Ingrassia, who’s sponsoring the deal, even admitted she isn’t clear on what’s in the new deal, or if it makes sense. But if our policymakers aren’t clear on legislation that would place a $90 million burden on taxpayers, should they be moving that legislation forward as quickly as the SC STL proposal appears to be?

Many public needs are competing for attention and dollars across the state and in the City of St. Louis especially. Shouldn’t we focus on addressing those needs before spending tens of millions more on corporate welfare?

The post When Bad Policy Won’t Stay Dead appeared first on Show-Me Institute.

Let’s start with some uncontroversial data.

• The hospitality industry constitutes a small fraction of the Saint Louis economy. Less than 4% of the city’s payroll comes from the hotel and restaurant industry.
• Nearly all convention business in Saint Louis could be accommodated by existing hotel and event space. In 2015, only 9 conventions had more than 10,000 attendees. In 2016 that figure rose, modestly, to 11. For 2017, Saint Louis is currently slated to host only 10 events with 10,000 or more guests.
• The Saint Louis Visitors Commission, which runs the convention center, loses some $16 million a year.

Now let’s review convention center history.

• The Saint Louis convention center opened in 1977, underwent a $150 million expansion in the late 1980s, and was flanked by the $280 million Edward Jones Dome in 1995. The expansion and dome were promised to boost hotel “room nights”—a measure used to assess convention center success—to more than 800,000 annually. But in 1999, convention business generated barely over 200,000 room nights. In 2014, annual room nights were just over 425,000.
• Nationally, nearly every convention center expansion or renovation has dramatically underperformed. Washington D.C.’s convention center saw roughly 36% of the room nights that were projected when renovation was undertaken. Austin’s saw 47%; and Portland’s saw 44%.
• While the America’s Center and dome were supposed to be profitable ventures for the city over the long term, the public still owes some $100 million on them, and won’t pay off that debt for at least 5 or so more years.  

In short, empirical evidence suggests that the financial prospects for a major overhaul of the convention center are bleak. Perhaps that’s why no private developers are interested in funding the project. But if the private market indicates that the investment isn’t worthwhile, should taxpayers be saddled with the risk?

Convention-center boosters will object, insisting that a renovation will help the local economy, especially because a high percentage of convention spending comes from out-of-towners. This objection misses the mark in several ways. For one, demand for convention center space has remained flat over the last few decades. Is investing hundreds of millions of public dollars in a buyer’s market the best way to get windfall returns? Secondly, the tax revenue that would pay for a renovation could be used in myriad other ways that would have a much greater impact on the economy, regardless of whether that revenue came from outsiders. If we’re really interested in economic growth, why not spend the money on meaningful infrastructure or use it to provide tax relief to city residents and businesses?

The driving force behind massively expensive convention center renovations—much like sports stadiums, light rail expansions, and other “transformative projects”—appears to be a desire to rebuild the downtown core. But like most transformative projects dangled in front of taxpayers, the prospects for success are low and the costs dispersed; a small and well-connected few are given a sweetheart deal while taxpayers are left on the hook.

For what it’s worth, the economist Heywood Sanders, in his 2014 book, Convention Center Follies, devotes an entire 78-page chapter to the failures of Saint Louis’s convention center. Perhaps that, if anything, is an indication that we should be skeptical of proposals to reinvent the convention center with taxpayer dollars.

The post Convention Center Renovations: Picking Winners and Losers with Taxpayers’ Money appeared first on Show-Me Institute.

As someone who ran his own business for many years, I am aware of the difference between cost and price, even if it is something that eludes many political leaders and more than a few businesspeople with their noses in the public trough.

Cost is the expense that a business incurs in making a product or performing a service. Price is the amount of money that a customer pays for the product or service. The difference between the two is the business’s profit or loss. In a competitive marketplace, profitability is the acid test that separates winners from losers.

In an article that appeared in the St. Louis Post-Dispatch on Dec. 24, Missouri Gov. Jay Nixon spoke in favor of awarding $120 million in subsidies to a group of wealthy businessmen who want to build a brand-new stadium and bring a Major League Soccer (MLS) franchise to downtown Saint Louis.

“It’s the price of doing business,” Nixon said, adding: “Folks may want to anguish a little bit” over the ladling out of such a large sum of public money to underwrite a private venture but not to worry — because, “quite frankly,” this is a necessary and “cost-effective” way of putting a new business (the MLS franchise) on its feet.

The suggestion here is that the city of St. Louis and the state of Missouri must be willing to part with $120 million — that being the price demanded by the group of businessmen (with the enthusiastic support of MLS Commissioner Don Garber) — in order to have a good chance of landing the soccer franchise.

But wait a minute.

If this was such a great business opportunity, why were these self-described businessmen and the MLS panhandling for public support? Why didn’t they think they could cover their costs — including the cost of building the stadium — through the sale of tickets, merchandise, and TV rights? And if they can’t cover their costs through their sales and still make a decent profit, why should anyone think that what they are trying to do is anything other than a foolhardy venture?

Running a business isn’t supposed to be easy. If misguided or self-interested political figures try to make it so (through public subsidies to private ventures), they inevitably divert scarce resources to less productive uses.

They make it possible for those without a solid business plan, and without any real appetite for innovation or risk, to enjoy an undeserved moment in the sun — at taxpayer expense.

At the same time, they encourage others to eschew enterprise for the seemingly easy but dead-end path of cronyism.

In short, they only poison the well that produces prosperity under the free market system.

What our outgoing governor called “the price of doing business” has nothing to do with business in any serious sense. Incoming Gov. Eric Greitens called it by its proper name.

It is “corporate welfare” for the idle rich.

The post The ‘Price’ of Doing Business appeared first on Show-Me Institute.

Saint Louis appears to have gotten the memo.

Earlier today, Alderman Christine Ingrassia said that a bill that would raise $80 million for a stadium will not be moving forward. City officials have asked the ownership group to lower the amount of money they’re asking for.

And the city’s request is completely reasonable. If stadiums do little to boost local economies, then what is the rationale for using public funds to help build them?  This question took center stage last week when Gov. Eric Greitens completely ruled out state funding for stadiums. As a result, the prospect for public subsidies for SC STL does not appear to be good.

Time and again, stadiums fail to spur the economic growth that developers promise. Subsidies can help bring a beautiful new stadium to a city, and people may well attend the events held at the new venue.  But much (if not most) of the economic activity taking place at the stadium isn’t actually new; instead, it reflects spending reallocation.  In other words, if people purchase game tickets, they won’t eat out as often or spend money on other forms of entertainment.

With two weeks left before the Board of Aldermen’s deadline for approval, public funding for MLS is not completely off the table, but economists everywhere may rejoice to learn that people are acknowledging their research. 

Avoiding wasteful spending is definitely a step in the right direction, but we should keep in mind that Ballpark Village recently received $16 million in public funding, the Blues are asking for assistance with $138 million in renovations, and many, many, many non-sports–related projects are in line for similar subsidies.  The MLS discussion has engaged many citizens, but the issues with tax subsidies run far deeper than one project.  

The post Prospects Bleak for MLS Proposal-and That’s a Good Thing appeared first on Show-Me Institute.

Right now, because of reckless spending by career politicians, we can't even afford the core functions of government, let alone spend millions on soccer stadiums.

The project’s ownership group, SC STL, has taken Greitens’s words seriously and delayed a request for $40 million in tax incentives from the state. In addition to this $40 million are plans for Saint Louis City to pay $80 million, but before any public funds are awarded we should ask what return the city will see on its investment. Are there benefits to owning a stadium? Here are some claims that SC STL made in its written proposal to the state:

Claim 1: Publicly financing an MLS stadium will help make Saint Louis a “first-class city” and will “complete one of the great corridors of sports, culture, and entertainment in the nation.”

What being a “first-class” city means is ambiguous, and Saint Louis taxpayers have heard this song before. The $3 billion spent on MetroLink (thus far) was supposed to make the city first-class. Today, MetroLink trains carry less than 1% of metro-area commuters and have failed to spur significant economic development. In the 1990s, the Edward Jones Dome was pitched as a way to grow the economy and revitalize downtown; it failed on both fronts. Exactly how another professional sports team will help Saint Louis climb the urban ranks, and how that ascension justifies a massive subsidy, is unclear.

Claim 2: SC STL has made “significant effort to minimize the public financing component of the project.”

It is, at best, unclear what efforts SC STL has made to minimize the need for public subsidies. SC STL originally estimated that the expansion fee for joining MLS would be $200 million, but MLS recently announced that the fee would be only $150 million. One might expect that the $50-million cost reduction would be passed along to the city and the state, but SC STL made clear it would still ask for the full $120 million. Can SC STL really claim they have made “significant effort to minimize public financing?”

Claim 3: The recent departure of the NFL Rams reduced tax revenues for the city, and an MLS team would help recover some of those lost revenues.

This is a little like a doctor prescribing more of the same “medicine” that made the patient sick in the first place. Pushing for a stadium deal to help make up for revenue shortfalls caused by a previous stadium deal lies at the border of questionable and crazy. Of course, the proposed MLS stadium deal isn’t 100 percent identical to the deal city officials offered the Rams, but we won’t fix the outcomes of poor policy with more of the same bad policy.

Claim 4: Taxpayer subsidization is justified because a stadium will spur economic growth.

The Missouri Economic Research and Information Center (MERIC) conducted a study concluding that an MLS stadium would generate $24.5M in net state general revenue over 33 years, but this study deserves some scrutiny. Economists overwhelmingly agree that benefits from stadiums are overstated due to studies failing to take into account that spending is taken away from other businesses. Moreover, these studies rely on a controversial economic concept known as a “multiplier effect,” which is a measure of the overall impact of money in a local economy. In short, studies assume a multiplier effect far higher than most economists believe exists, and so, project rosy but unrealistic, outcomes. This is why, despite studies claiming stadiums will be boons for the economy, history and economics show promised economic benefits don’t pan out as projected.

The current proposal for publicly subsidizing an MLS stadium in Saint Louis is heavy on optimism, but that optimism isn’t justified by research or by past experience. Taxpayers should be wary of doubling down on a bet in hopes of paying off the debt we’re already stuck with.

The post A Critical Review of the SC STL Proposal appeared first on Show-Me Institute.

Cost is the expense that a business incurs in making a product or performing a service. Price is the amount of money that a customer pays for the product or service. The difference between the two is the business’s profit or loss.

In an article that appeared in the St. Louis Post-Dispatch on Dec. 24, Missouri Gov. Jay Nixon spoke in favor of awarding $120 million in subsidies to a group of wealthy businessmen who want to build a brand-new stadium and bring a Major League Soccer (MLS) franchise to downtown Saint Louis.

“It’s the price of doing business,” Nixon said, adding: “Folks may want to anguish a little bit” over the ladling out of such a large sum of public money to underwrite a private venture, but not to worry – because, “quite frankly,” this is a necessary and “cost-effective” way of putting a new business (the MLS franchise) on its feet.

The suggestion here is that the city of Saint Louis and the state of Missouri must be willing to part with $120 million – that being the price demanded by the group of businessmen (with the enthusiastic support of MLS Commissioner Don Garber) – in order to have a good chance of landing the soccer franchise.

But wait a minute.

If this was such a great business opportunity, why were these self-described businessmen and the MLS panhandling for public support? Why didn’t they think they could cover their costs – including the cost of building the stadium – through the sale of tickets, merchandise, and TV rights?

Running a business isn’t supposed to be easy. If misguided or self-interested political figures try to make it so (through public subsidies to private ventures), they inevitably divert scarce resources to less productive uses.

They make it possible for those without a solid business plan, and without any real appetite for innovation or risk, to enjoy an undeserved moment in the sun – at taxpayer expense.

At the same time, they encourage others to eschew enterprise for the seemingly easy but dead-end path of cronyism.

In short, they only poison the well that produces prosperity under the free market system.

What our outgoing governor called “the price of doing business” has nothing to do with business in any serious sense. Incoming Gov. Eric Greitens called it by its proper name.

It is “corporate welfare” for the idle rich.

The post Fuzzy Thinking on the “Price” of Doing Business appeared first on Show-Me Institute.

Opportunity beckons.  This is your chance to do something big. In breaking into your midnight slumbers, I hope only to point the way forward – with a few thoughts on how to accelerate growth and quicken prosperity in Missouri come the New Year.

One is to tell you plainly: Stop trying to pick winners and losers with taxpayer money. Let’s say (to use a real example) a group of businessmen tell you that they need $120 million in public support ($40 million from the state and another $80 million from the city) to build a new soccer stadium and bring a Major League Soccer franchise to downtown Saint Louis. While predicting that the project will create jobs and ancillary development, backers are asking for taxpayer money to pay for about two-thirds of the cost of building the stadium.

You must say “No” to all such proposals. If professional investors demand major subsidies for a profit-seeking venture, then you know (or should know) it’s a bad deal for taxpayers. Governor-elect Eric Greitens has already signaled his opposition to the $40 million in state tax credits for the proposed stadium. You can go further – much further – by reducing annual spending on state tax credits for targeted economic development from more than $350 million per year down to zero. That would free up money for better purposes (see next point).

Two is to leave more after-tax money in the pockets of wage earners and business owners alike. People and businesses vote with their feet. They move out of states where the “tax price” of living, working, or running a business is too high and into states where it is lower. If you include the 1 percent earnings tax in our two biggest cities, Missouri has a top income tax rate of 7 percent, which is more than all but 11 states. You should slash state income taxes 50 percent over the next three years.

Three is to end compulsory unionism as a condition of employment. Six out of eight neighboring states have already passed right-to-work legislation. Missouri should join them in embracing greater freedom and competition in the workplace.

Four is to promote public sector union democracy and transparency. Public sector employees should have the right to say “yea” or “nay” to continued union representation at intervals of every two or three years. At the same time, Missouri should close the loophole that allows public officials and government unions to conduct collective bargaining in closed sessions.

Five is to allow charter schools – now limited to the Kansas City and Saint Louis areas – to expand statewide without limitation. Missouri should adopt innovative programs, such as education savings accounts and tax credit-funded scholarships, enabling public school students trapped in underperforming school districts to attend private schools.

Six is encourage greater competition and choice in another area ripe for reform – health care. You can begin by converting much of Missouri’s Medicaid program into health savings accounts (HSAs).   After purchasing catastrophic health care plans, beneficiaries would be free to tailor their spending to their needs and roll over unspent money from one year to the next.

Seven is to eliminate a major disincentive that keeps many poor people from looking for jobs – the loss of public welfare benefits that too often results from finding gainful employment. Earned income tax credits (EITCs) are one practical solution to this problem.

Arise and shine, Missouri legislators.  This is a once-in-a-lifetime opportunity to make exceptional progress across a broad range of important public policy issues.

The post Listen Up, Missouri Lawmakers: Here Are Seven Resolutions for 2017 appeared first on Show-Me Institute.

The state just cut $50 million (including $40 million from Medicaid) from its budget due to shortfalls. So how can it afford to chip in $40 million for a sports stadium? And what could justify placing a new burden on taxpayers for a project that Governor-elect Eric Greitens recently described as “nothing more than welfare for billionaires?” Perhaps Greitens will find out from SC-STL investors directly; earlier today they asked to meet with the Governor-elect to discuss the proposal before moving it along any further.

One recent claim is that taxpayers, the state, and the city itself will see big returns on their investment. That is: (1) the economy will grow, (2) jobs will be created, and (3) the city and state will see increased tax revenues. But do any of these promises stand up to scrutiny?

• Economists are divided on many issues, but on the economic impact of sports stadiums there is broad consensus. The research is clear: major league sports stadiums have a negligible effect on the economy. Rather than create new economic activity, stadiums simply rearrange existing activity. Sure, people will spend money at a new stadium, but it’s likely that most of those dollars would have gone to movie theaters and restaurants, etc., had the stadium never opened.
• But what about all the jobs created by the stadium? To the extent that those jobs are funded with taxes, they are funded with money being taken out of the economy. But more importantly, the 1,883 projected construction and permanent jobs that backers project the stadium would generate would cost taxpayers more than $68,500 each!
• What about the claim that the stadium will boost local tax revenue and thereby improve basic government services? For one, just as the economic activity at the stadium would have happened somewhere, so too the taxes collected at the stadium would be have been collected somewhere in the region. It’s doubtful the city or state will see any significant new revenues from the stadium. But, more importantly, the city shouldn’t embark on a risky venture with taxpayer money just for the chance to increase its own revenue.

Researchers find that stadium benefits are often overstated and oversold (see here, here, here, here, here, and here). Missourians should demand that the city produce what dozens of economists could not—credible evidence that a stadium investment will produce returns for Missourians—before agreeing to subsidize this project.

The post The Wrong Kind of Bet with the Wrong Kind of Money appeared first on Show-Me Institute.