How has the project worked out? Did the promises of redevelopment of this part of the city and a great return on the public tax investment pan out? Or did the warnings and concerns of people like Institute analyst Audrey Spalding prove correct?

Of course, Northside has been a total failure, and Audrey and others were correct.

The latest update on almost 20 years of policy failure is that a batch of McKee’s properties (which taxpayers bought for him) is being seized by the city via eminent domain. More of his properties may face the same fate soon. In this particular case, the properties are needed for the National Geospatial Intelligence Agency (NGA) project, so the eminent domain seizures are for legitimate public use. The city tried to buy these properties from McKee, but no agreement could be reached on price, so the city is taking them. The final price paid for them will almost certainly be determined by a court.

Everything you need to know about why economic development using subsidies is a road to failure is wrapped up in this story. The entire project began not based on market forces, but on the forces of lobbyists, lawyers, and politicians. It was sold as a way to save parts of north St. Louis from decades of poverty and blight—conditions that were created in part by government policy in the first place. The entire Northside redevelopment project has been a colossal failure from the start, and the city and state should never have authorized tax subsidies for it. In the state’s case, it created a brand new law just for McKee to do this.

I would hope the city and state would learn a lesson from the failures of tax incentives and subsidies from this project. I doubt very much that they will. As Orwell said, to see the things in front of one’s nose requires a constant struggle—a struggle that politicians rarely have any incentive to engage in.

The post Live By the Sword, Die By the Sword appeared first on Show-Me Institute.

“We have gone from about 80 properties to about 480 properties,” Hulshof explained. “My cup runneth over.”

Like supporters of government-managed economic development programs everywhere, backers of the plan in Charleston think that if the government approves the right plan here, with the right subsidy there, with the right government agency approval soon, that government plans can magically turn a struggling city into a boomtown. As economist Dick Netzer once mocked these eco devo officials, “Who needs oil wells, when a state can be another Kuwait just by increasing the budget of a tiny agency?”

A Chapter 353 plan with mass property tax abatements would not help Charleston. It would, in fact, almost certainly hurt it more. If property taxes are too high for businesses in Charleston (which I doubt, to be honest), then the city, school district, county, etc. should lower the rate for everyone, not give some property owners in downtown Charleston a big tax abatement that will almost certainly force tax increases on everyone else to make up the difference.

There are a multitude of studies that demonstrate the fallacy of believing that government economic development agencies can successfully engineer economic growth through various subsidies. Here is one simple summary from two economists who have looked at the question thoroughly: “The best case is that incentives work about 10% of the time and are simply a waste of money the other 90%.”

There are other economists who wouldn’t even agree they work 10 percent of the time. As one economist said after he reviewed a similar tax-subsidy laden plan for north St. Louis:

Among the most vocal critics of the NorthSide plan was the chair of Washington University’s Department of Economics, Prof. Michele Boldrin, who testified at the trial that the benefits promised by McKee such as new jobs and increases in property value were “dreamy,” “out of thin air,” “unreasonable,” and “completely arbitrary” and further stated that “if an MBA student came up with it, I’d throw him out of my office.”

St. Louis and other cities in Missouri have been using tax incentives as a prop for politicians to claim they are “doing something” for decades. How has it worked out for St. Louis? As author Colin Gordon wrote in him study on that precise question in his book, “Mapping Decline”:

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.

If you think the results in Charleston are going to be any different, I have a bridge over the Mississippi to sell you. A Chapter 353 plan for Charleston will allow politicians and planners to claim they are doing something, it will benefit the politically connected and the lucky, and it will empower city government to get more involved in the local economy. All of these things are, by the way, bad things. What a 353 plan won’t do for Charleston is help revitalize the city or grow the economy.

The post A Chapter 353 Tax Abatement Plan is the Last Thing Charleston Needs 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.

Earlier this month the Saint Louis Board of Aldermen’s Housing, Urban Development and Zoning Committee voted 4-3 to approve the release of a $2.8M TIF note and to establish a community improvement district (CID).  This decision would impose an additional 1% sales tax in the area to assist with the development of a $20M grocery store and gas station that Paul McKee announced back in March.

Both residents and city officials pushed back on this decision in part due to their frustrations with NorthSide’s history, and in part because the CID would increase the burden on residents in the area who may not be able to afford it.  The proposed CID would bring the area’s sales tax up to 9.679% (Missouri’s average is 7.86%).

When we consider how heavily subsidized the development already is, the argument for a CID becomes less convincing.   The development’s costs are estimated at $20M.  Considering that $10M of funding is coming from a U.S. Department of Agriculture grant, $5M from New Market Tax Credits and $2.8M from TIF, the project is almost entirely being taken on with funds from taxpayer pockets. Is such heavy incentive use appropriate for a venture that includes a dime-a-dozen gas station? 

The Northside Regeneration fiasco has received a staggering amount of incentives and has little to show for it.  The bills in question now move on to the Saint Louis Board of Aldermen to determine whether this development needs yet another subsidy. 

The post The North Side’s Unlearned Lesson appeared first on Show-Me Institute.

McKee is asking the city for handouts to complete this new project: at least $5 million in new market tax credits. To date, the city has authorized McKee to take almost $400 million dollars in TIF handouts. McKee’s promises for the north side go back at least to 2009 and include plans to build a hospital, office buildings, retail stores, and homes.

Rather than start any of these projects, McKee’s regeneration project has stalled and held out for more and more tax incentives. In the past two years the regeneration project has been delinquent paying taxes and has had financial problems resulting in foreclosures.

Shelia Rendon, a homeowner who lives in the community Paul McKee has made so many promises to, questions why the city continues to work with Paul McKee. “The community lost faith in him a long time ago,” she told me. Sheila would like to see development in her neighborhood, but not at the expense of the people who already live there.

Unfortunately, the only north side development project associated with McKee that seems to have made any progress, relocating National Geospatial Intelligence Agency (NGA) to north St. Louis, would come at the expense of the existing community. Relocating the NGA to the north side would require using eminent domain to kick St. Louis residents like Sheila out of their homes. This is something members of the community strongly oppose.

The fact that the city government keeps awarding tax incentives to these development projects leaves residents like Sheila shaking their heads, “The city does not need to keep pouring money into projects for Paul McKee. It needs to invest in the existing community.”

The post More Corporate Welfare for St. Louis Land Developer? appeared first on Show-Me Institute.

The NGA is vital to our City’s economic health, and its relocation to North St. Louis will reinvigorate a significant urban area of our community. Conversely, losing the NGA would be a devastating blow to our City’s economy. The many benefits to the future of both St. Louis and NGA are immeasurable, promising and exciting.

With the NGA as the new centerpiece of the Northside Redevelopment Project (which has failed to achieve anything thus far), the city hopes to turn around a significant section of North Saint Louis City. The loss of the facility would, supposedly, be devastating.

You might be forgiven for thinking that the NGA is choosing between sites in Saint Louis and far away cities in Texas or Maryland. But that’s not the case. The NGA is choosing between sites inside the Saint Louis region, including sites in Saint Louis County and near Scott Air Force Base. If the NGA moves from its current location in South City to either location outside the city, it will change commuting patterns for current employees. However, the effects on the regional economy and regional jobs should be nil. The NGA’s move out of the city will not be a devastating blow to the city’s economy (which is ensconced in a larger region), but rather a blow to the city’s tax rolls, which depend on earnings taxes (more than $2 million a year) that the facility provides.

The city’s apocalyptic attitude towards losing tax revenue underscores Saint Louis City’s love-hate relationship with regionalism. When it comes to funding improvements in—and for the benefit of—Saint Louis City (and usually downtown), city leaders call for everyone to chip in for the Arch grounds and convention centers and stadiums and the light rail. Any refusal by outlying areas to throw in their money is treated as myopic, and a deep regional problem. But now that an important source of revenue might move out of the confines of the city, leadership is treating other parts of the region like they’re the surface of the moon.

The message city leadership sends when they speak this way is that regionalism means coming together to build up the city, not the outlying communities. That is hardly going to inspire residents who do not live or work in Saint Louis City (read: most metro residents).

Finally, just as an aside, would anyone have approved the massive tax subsidies to Paul McKee’s Northside Redevelopment project if they had known its success hinged on relocating a large Department of Defense instillation to the Northside? Wasn’t that project supposed to draw new jobs and residents to the city?

The post Regionalism for Thee, But Not for Me appeared first on Show-Me Institute.

However, even many private businesses and residences that are not tax exempt in any legal manner  receive reduced property taxes from the city or state government. The most common of these tax breaks are tax increment financing (TIF) and tax abatements. TIF allows businesses to use the increase in taxes created by their development to help pay for that development. Tax abatement allows a city to reduce or eliminate property taxes for a development. In some cases the property owner agrees to a negotiated level of payments in lieu of taxes (PILOTs) to offset part of the property tax loss (as the Cardinals have), but this is the exception to the rule. TIFs and tax abatements are often used in tandem, as is the case with the Chase Park Plaza.

The vast majority of these selective property tax breaks were designed to encourage development in economically depressed areas; many (including most TIF) require an area to be designated as “blighted” before property there can receive a tax break. However, over time these incentives have become just another tool  city officials use to attract the businesses they want wherever they want, regardless of whether the project is in one of the poorest or wealthiest sections of the city. Blight has been so loosely defined that parcels within Saint Louis City’s most prosperous neighborhoods are regularly deemed “blighted.”

A review of the city’s parcel data shows how pervasive the use of property tax breaks has become. In total, over 9% of the city’s property either receives tax abatements or is in a TIF district (not including government buildings and non-profits that fall within TIF districts). The map below shows all abatements and TIF districts:

Much of the TIF’d area is part of Paul McKee’s Northside Regeneration project, which (whatever the merits of this TIF) does contain many economically depressed properties. However, many valuable properties also receive significant tax breaks, including the Chase Park Plaza, Cortex (which includes IKEA), Ballpark Village, the Renaissance Center, and even a Mercedes dealership on Hampton. Altogether, around 18% of the city’s total assessed value is either in a TIF district or receives tax abatement. Properties in the these areas often pay much less in real property taxes than the city’s official rates would require.

Look for my next post on this issue, which will show the combined effects of government ownership, nonprofits, and tax breaks on Saint Louis City’s real property tax base. 

The post Saint Louis Property Taxes, Part 3: The Tax Breaks appeared first on Show-Me Institute.

So where would the $180 million go? The short answer is that about two-thirds of the money would go to public safety departments (mostly fire), city-owned buildings and vehicles, and city streets. Most of the rest would go to preparing a site for the NGA, building demolition, and a “ward capital improvement fund.”

Beyond the broad categories, it is difficult to know exactly how the money would be spent. However, the city did outline a large capital improvement wish-list in 2014, much of which would likely be funded through this property tax increase.

      With such a diverse set of projects, residents might want to ask a few questions to gauge this tax proposal’s appropriateness:

1. The city already spends a significant amount on public safety, about $365 million in 2014 alone. That’s more than a thousand dollars per resident per year. And spending has not been falling; the city’s public safety spending increased more than 22% from 2008 to 2014. Do these departments really have a revenue problem, or are they not making good use of the money they have?
2. Approximately $15 million would go to preparing an NGA site (listed creatively as “Economic Development”  in most ballot rundowns). How much, if any, of that money will be spent buying back land that developer Paul McKee bought from the city and private owners (using state subsides) just a few years ago?
3. What is the purpose of the ward improvement fund, especially when the city already has a ½ cent sales tax devoted to the same purpose? Who will decide how those funds are spent?

Perhaps there are satisfactory answers to all of these questions and the city truly needs higher tax levels to fund basic city services. However, given the city’s current level of spending and its push to spend tens of millions on yet another downtown stadium, the real problem may be where the money is already going.

The post Proposition 1 Raises Property Tax for Questionable Purposes appeared first on Show-Me Institute.

When we discussed the buyback plans last week, we asked whether the city would be able to buy back the land at the price they sold it for, or whether McKee would profit. Now, shockingly, we are learning that McKee indeed intends to profit. The developer expects to receive $17 million for land that he bought for $3 million. That’s a gain of more than 400 percent.

There’s nothing wrong with a developer buying land from the city and selling it back for a profit if the city decides it needs the property back. But in this case, Northside did not just buy land at a fair price; the city sold it a large number of properties at fire sale prices, and the state reimbursed most of the cost of the private land McKee bought. Northside then failed to pay property taxes on nearly all that land. All this special treatment and public support was supposed to come in exchange for new property and business developments, none of which have happened. Far from a property owner getting lucky from a change in government policy, McKee is expecting to profit from a city policy he helped create and for whose failure he is responsible.

The city has not yet decided whether it will pay the price McKee is asking. If it does, I think state taxpayers should be asking if they get back the $3.5 million in state tax credits McKee received to buy those properties. As for the city, I’d sarcastically ask where eminent domain is when you need it. 

The post McKee Wants to Flip Northside Properties at Taxpayers’ Expense appeared first on Show-Me Institute.

Six years have passed without even the initial parts of the plan coming to fruition. With Paul McKee encountering legal issues it was doubtful whether it ever would. And now, finally, it seems that the city is giving up on McKee. Unfortunately, they’re not giving up by withdrawing the promise of further tax incentives, but by buying many of Northside’s properties to give to a federal agency.

This buyback is part of the city’s efforts to retain the National Geospatial-Intelligence Agency (NGA), which is considering leaving Saint Louis City. To keep the agency, the city plans to gift it a new site in North Saint Louis City, an area where Northside LLC was supposed to bring new development. According to St. Louis Public Radio, the proposed NGA site contains 360 Northside-owned properties. Northside LLC purchased 260 of those properties from the city for a total of $600,000 between 2009 and 2011. The rest were bought from private owners, but Northside LLC received reimbursement from the state to the tune of $3.5 million.

To assemble the land for the NGA site, the city plans to mortgage existing city property to purchase the aforementioned Northside properties for $20 million. Perhaps relieving Paul McKee and Northside LLC of a large chunk of the city will be good for the region in the long run, but all these actions leave a number of important questions unanswered:

1. With much of the property originally slated for the Northside Redevelopment Plan now being bought back, what is the status of the remaining properties and tax subsidies?
2. Will the city be able to buy back the land at the price they sold it, or will McKee (or his creditors) profit from the transaction?
3. Will Northside LLC be forced to return the state tax subsidies it received to buy private land?

More on this to come. 

The post McKee’s Northside Plans Fail, City to Buy Land for NGA appeared first on Show-Me Institute.

The ordinance in question is Chapter 3.91 of the Revised Code of the City, which requires a vote on any public assistance for a professional sports stadium. Assistance is defined as:

. . . any City assistance of value, direct or indirect, whether or not channeled through an intermediary entity, including, but not limited to, tax reduction, exemption, credit, or guarantee against or deferral of increase; dedication of tax or other revenues; tax increment financing; issuance, authorization, or guarantee of bonds; purchase or procurement of land or site preparation; loans or loan guarantees; sale or donation or loan of any City resource or service; deferral, payment, assumption or guarantee of obligations, and all other forms of assistance of value.

Banning both direct and indirect assistance may seem broad, but cities too often spend large amounts of public dollars planning, and then publicizing, controversial projects. For example, Kansas City spent almost $2 million planning a streetcar expansion that was ultimately defeated at the ballot box.

Far from being vague and overly cautious, the ordinance’s language seems prescient, as the RSA plans to use just about everything the ordinance describes as assistance, including:

1. Extension of the $6 million annual bonds that currently fund the Edward Jones Dome. How the dome, which is in need of expensive rehab regardless of what happens with the Rams, will be funded is anyone’s guess.
2. Providing land, which presumably would be bought with public dollars. This would include the Bottle District, which is currently owned by Paul McKee’s Northside Redevelopment Project, to be redeveloped as a parking lot.
3. Transportation Development Districts and Community Improvement Districts. These districts, of indeterminate size, would levy additional sales or property taxes. The larger the size of the district, the greater the revenue.
4. Tax Increment Financing. Sales taxes, earnings taxes, and utility taxes that would otherwise have gone back to the city to fund regular services would instead pay for the new stadium.

It seems obvious the situation here is not that of a badly written ordinance restricting reasonable city planning, but rather an ordinance that blocks, and was designed to block, exactly what the RSA is trying to do: get city dollars for a stadium, no matter the source, without a public vote.

The post Stadium Planners Move to Block City Vote appeared first on Show-Me Institute.

It does not take a Ph.D. in economics to realize this is a foolish regulation. In the absence of proper competitive incentives, the other lemonade stands will continue serving sour lemonade.

Now replace the words “lemonade stand” with “three-bed hospital” and “your eight-year-old self” with “Paul McKee,” and you have a real-life situation.

McKee, a well-known real estate developer in the area, has been working on a project to renovate a portion of North Saint Louis City. On July 9, he unveiled a plan to establish a three-bed urgent care facility within the redevelopment area. According to state law, a certificate of need (CON) must be obtained in order to open a new hospital with costs of at least $1 million. It appears his proposal meets this threshold. However, requiring McKee to obtain a CON to open a small urgent care hospital in an underserved and impoverished area is a totally unnecessary government regulation.

CON programs initially were implemented in order to prevent the duplication of health services in a given geographic area, thereby controlling costs. The reasoning was that an excess supply of medical services would compel hospitals to increase prices in order to cover the high fixed costs associated with medical treatment.

There have been many different studies on how CON regulations impact the cost of care. A thorough survey of the relevant data reveals that CON regulations do very little, if anything, to control the overall cost of care. Furthermore, with respect to certain procedures, CON regulations have been shown to limit patient choice, resulting in worse care delivered from less capable doctors. Additionally, these regulations can create an inefficient market structure and grant existing hospitals monopolies over certain regions.

Some may even argue that McKee will attempt to use the regulatory program to prevent competitors from entering the market in North Saint Louis. Given CON rules, if his project is approved, it likely will be more difficult for new medical facilities to open nearby. But doesn’t the potential to abuse and use CON regulations to create a monopoly give all the more reason to eliminate them?

Additionally, Missouri’s CON program delays groundbreaking on new hospitals. McKee said he intends to submit his proposal by Aug. 22 and, in all likelihood, his application will not be reviewed until early November.

Christien West is an intern at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post Delays and Blockades: Certificate of Need in Saint Louis appeared first on Show-Me Institute.

At the conclusion of the 2013 legislative session, Missouri senators shut down the tax credit that would have opened up millions more to Saint Louis NorthSide developer Paul McKee.

I would like to take credit for this. But unfortunately, there is no one who can really take credit for this happening. Making a bill become a law can often be a confusing and messy process. In this case, the Distressed Area Land Assemblage Tax Credit (DALATC) was set to expire this year, and there were bills proposed to extend the credit. At the last minute, however, the DALATC extension was tacked on to a different bill, House Bill 698. HB 698 was a hodgepodge type of bill including various tax credit provisions.  Eventually, a senator filibustered the bill so it did not pass. (Show-Me Institute Policy Analyst Patrick Ishmael has more detail about the legislature’s failure on this bill here.)

Is this going to stop or hinder in any way NorthSide development? Of course not. McKee’s project has already received more than $40 million in state tax credits, and the City of Saint Louis has promised close to $400 million more in local incentives. Plus, the project still has potential to tap up to $20 million in credits from the state before the DALATC expires later this year.

There is no doubt that McKee wanted access to the $45 million more that extending this tax credit would have opened up. But the project will just have to “make do” with the $440 million in government assistance it will receive.

The post Army Of Lobbyists Fails To Deliver appeared first on Show-Me Institute.

Do you think that pumping hundreds of millions of taxpayer dollars to one developer is the key to successful North Side revitalization? I would love to be wrong on this, but can someone please give me evidence (economic, historic, etc.) where this type of huge subsidy to one developer working hand-in-hand with government planners has managed to successfully revitalize a community? Some say that McKee’s dream is worth a shot despite a high uncertainty that it will work; I obviously do not agree in this case. But who knows, maybe McKee will be to Saint Louis what Baron Haussmann was to the rebuilding of Paris.

If you are not familiar with the NorthSide project saga, I recommend reading this short article in St. Louis Magazine to get the Cliff’s Notes version.

The post NorthSide Receives State’s Largest TIF appeared first on Show-Me Institute.

According to the St. Louis Post-Dispatch, McKee will appear before the Missouri House Economic Development Committee this evening to explain why he needs $50 million more from the state. As we have discussed, McKee has already received more than $40 million in state tax credits. He claims he has made a net investment of $63 million on the project already ($103 million minus $40 million tax credits) — but do not go thinking that his investment validates additional taxpayer money.

McKee is waiting on a $390 million Tax Increment Financing (TIF) package from the City of Saint Louis. If the court decision goes in his favor, I doubt he will have much skin in the game with this project. Add on another $50 million from the state and his total government aid will approach half a billion dollars.

Do we think that NorthSide Regeneration will have a benefit for the state that is worth half a billion dollars? I do not. One of McKee’s supporters claims that the project will save Missouri money in the future. He says NorthSide will reduce problems such as unemployment, high school dropouts, out-of-wedlock births, and murders. But the social problems in Saint Louis will not be solved with large-scale government planning. Just like when the government uses eminent domain to remove neighborhood blight, the problems of the neighborhood do not just evaporate, they move to a new location.

McKee has an army of 21 lobbyists to help him squeeze every last penny out of the state that he can. I would argue that you do not need 21 lobbyists for good ideas, only bad ones.  I am sure the state could find a better use for $50 million than giving it to McKee.

The post More Handouts For McKee? appeared first on Show-Me Institute.

Apparently, in other circumstances, you can play big and always win big if you know the right people and have enough money. Especially if your name is Paul McKee.

I recently wrote about the lack of progress on McKee’s NorthSide Regeneration project in North Saint Louis, despite the $40 million he has already received in tax credits.

One specific state tax credit, that only McKee is eligible for, is set to expire in April. But not if he can help it. Seventeen lobbyists registered on Monday to represent the NorthSide project, which the St. Louis Post-Dispatch notes is the same amount that represents Ameren Corp. and Anheuser –Busch, combined.

When will McKee end his relentless pursuit of tax credits?

Unfortunately, priorities shift when business becomes intertwined with the government. Relying on the government often incentivizes companies to hire people with the ability to work with government, not the ability to complete projects.

Ludwig Von Mises discusses this problem in Bureaucracy (pages 76-77, if you are interested). He writes, “Why bother about bringing out better and cheaper products if one can rely on support on the part of the government? For them [corporate executives] government contracts … and other government favors [are] the main concern.”

This reliance on government favors is not necessarily McKee’s fault; he did not create the system. But this is not an excuse to let it continue. We need to change the system that encourages businesses to spend significant resources on government lobbying instead of investing efforts into their business. It is time for Missouri to cease “business as usual” and put an end to corporate welfare.

The post Gotta Spend Money To Make Money? appeared first on Show-Me Institute.

The state now has given more than $40 million in credits to the NorthSide project to redevelop a 2-square-mile area in north Saint Louis. And for all this money, there has not been much progress to show for it. So far, the state has not seen any real benefits from awarding several million dollars for this project.

If I was reimbursed for (almost) everything I bought, I would not be in much of a hurry either. McKee says he will make progress after he receives the $390 million Tax Increment Financing (TIF) package he is waiting on. As our regular readers know, we have been covering this issue for a long time. NorthSide applied for the TIF more than three years ago but it has been held up in court.

There is a chance that the Missouri Supreme Court will rule against the TIF in the next few months.

“If that doesn’t go our way,” McKee said about the potential ruling, “we’re dead.”

That would not be such a bad thing. Taxpayers would be off the hook for hundreds of millions of dollars, which are likely to be of more benefit to McKee than to North Saint Louis.

The post One Lucky Duck appeared first on Show-Me Institute.

The latest proposal is to transfer the bottle district TIF (tax increment financing) from the original developers to the control of Mr. McKee and his entities. To be clear, McKee and his groups were not involved in the original TIF proposal, so we cannot pin all of this on him. However, unlike tax credits, the TIF law was not drafted with the intention of TIF being transferable. I do not think it is right for one stalled TIF proposal to just be assigned to someone else – and I do not care who that someone else is. (Note: I am not saying transfering the TIF is illegal, just improper.) At least some people in city government seem to be aware of this issue:

[Saint Louis Development Corporation Executive Director Rodney] Crim wouldn’t specify what, exactly, the city objects to. But he suggested officials have concerns about using TIF for one project to help fund another.

“My focus is on what can and cannot be done with the Bottle District TIF,” he said. “We just have some more talking to do.”

I think it is especially wrong to continue to subsidize property that at this very moment is being made more valuable because of major public improvements. Here is one description of the property:

Located just north of the Edward Jones Dome (home of the Rams) along Interstate-70, the site is one of the most desirable development locations left available Downtown. Once the new Mississippi Bridge is complete,  its location next to the bridge will make the site even more visible and accessible than it already is.

Former longtime New York Sen. George Washington Plunkitt would have fully understood developers seeing their opportunities and taking them, but even he would never have asked for the new land to be subsidized on top of it. If this land at the base of a major new bridge has to be subsidized, I guess we are at the point where we just admit everything gets a tax subsidy, unless, of course, you are just a small entrepreneur without political connections.

The post Ceux Subventionnes (The Subsidized Ones) appeared first on Show-Me Institute.

And now we find out from the Kansas City Star that apparently new tax credit provisions are popping up in the legislation, and it looks like no one knows who’s throwing the taxpayers’ money around.

This is a problem (emphasis added):

A reconfigured package of state aid that could benefit a wealthy St. Louis developer is complicating prospects for a special legislative session aimed at creating jobs across Missouri, lawmakers said.

A provision included in one draft of a massive economic development bill could provide additional financial support for developers such as Paul McKee, who has spent years pushing for a sweeping mix of housing, offices and retail space for a two-square-mile area north of downtown St. Louis.

McKee already has received nearly $28 million in land assemblage tax credits, and some lawmakers are frustrated that they haven’t seen much progress in the development….

It’s not clear who put it in the legislation. Lawmakers said provisions can be added to draft legislation without identifying the author.

Two points to consider:

First, how exactly did legislators come to a legislative agreement on July 20 if the legislation hadn’t been finalized? One lawmaker suggested that “various versions of proposed legislation are circulating and that few provisions are set in stone.” Then what precisely was agreed to when the special session announcement was made?

And second, the legislation is well over 350 pages already. How many other tax credit Easter eggs are hidden in these weeds? Legislators and taxpayers shouldn’t have to pass the bill to find out.

The post Unknown Party Slips New-and-Improved Tax Credit Handout into Aerotropolis/Eco-Devo Legislation appeared first on Show-Me Institute.

Weaseling out of things is important to learn. It’s what separates us from the animals … except the weasel.

Anyway, this gives me the opportunity to explain myself a little further, correct any errors I may have made in the post, and point out Noble’s own faulty logic.

The mistake I made in the post was not being clear in this statement:

This is a tax change that will benefit all businesses in the state (at least all large enough to qualify to pay it) — not just those chosen for special tax treatment.

I was referring to tax credits. Rescinding the franchise tax would benefit every business that paid it, which is far better policy than giving out tax credits to select businesses that perform certain things the government decides it wants to subsidize. In my defense, tax credits have been the dominant topic on this blog for the past year or so, so I thought many of our readers would have easily known what I meant. But I still should have been more clear.

I definitely don’t agree that my parenthetical explanation was “weasely” or otherwise improper. It simply clarified that I knew that any business paying that tax had to be large enough to qualify for it, and my post provided an easy link to an article (from Noble himself, at the Star) explaining that the tax applied to corporations with more than $10 million in assets in Missouri. Providing a link to additional information is perfectly appropriate in blogging.

He then criticized my use of the term “serious movement on taxes,” while admitting he does not know what I meant by the term “serious.” I didn’t mean that it is “statistically serious” or else I would have said “statistically serious” (or “statistically significant”). By “serious” I simply meant to indicate a tax cut that had broad legislative support and bipartisan support, as evidenced by the fact that a Democratic governor signed it. Attacking my choice of an adjective seems strange.

Noble’s logic is wrong in his idea that the franchise tax cut will only benefit 2.8 percent of the corporations in the state. Just because there are 109,876 currently registered corporations in Missouri does not mean that 109,876 corporations are providing goods and services, employing people, and paying taxes in Missouri. To provide one example, Paul McKee had 13 different corporations acquiring property as part of his redevelopment project in the north side of Saint Louis, before they were merged into one entity. Thousands of the “active corporations in good standing” in Missouri are just holding companies, or exist simply on paper. I have no idea how many of the 109,876 corporations actively employ people and do stuff, and neither does Noble.

The 3,042 businesses that will benefit from the tax cut may be “by definition, the largest and wealthiest” businesses in the state. They also employ a large number of Missourians, pay a large amount of taxes (property, sales and use, licenses, utility, income, franchise, etc.), and generate enormous economic activity. If the elimination of the franchise tax will encourage companies large and small (nearly every small business wants to be a large business) to expand and invest in Missouri, we will all benefit. I think the benefits of this tax cut will be “widely felt” by Missourians over time. Noble may disagree and think that corporate plutocrats will keep all the phased-out taxes as higher profits buried under their mansions. I never claimed that I had proof of this — a blog post is not a policy study — but Noble’s claim that they cuts won’t be widely felt is also unknowable.

All of this could have been part of a discussion in our comments section or part of a related debate, although I had no intention of making a big deal out of the original post. Instead of disagreeing with me about an issue or asking for follow-ups, though, he decided to call me a liar and a weasel. That was unnecessary and unbecoming.

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