Skeptics of a massive taxpayer-subsidized redevelopment project in University City were right to trust their guts. While the City’s website says that “The City will not use eminent domain under the tax-increment financing (TIF) law to condemn owner-occupied residential property,” now it sounds as if that might be an option. In a recent interview, City Manager Gregory Rose said “there may be an option that the developer says ‘we understand what council’s position has been regarding the use of eminent domain but we’d like you to take a look at this’ . . . and so the council will end up making that decision at that time.”

Why might eminent domain be on the table now? Well, my gut is telling me this: City officials have a lot to gain (in terms of sales tax revenue) from the development going through, and now, given that some homeowners don’t want to sell for the price being offered to them by the developer, city officials might be starting to worry. And if they have convinced themselves that this development must happen, no matter the cost to taxpayers, then kicking property owners out of their homes might be a price they are willing to pay.

This is worrisome for several reasons. First, the economic renaissance promised by development proponents, which is the main justification for the project, is unlikely to occur. Unfortunately, TIF—the subsidy mechanism the development most heavily relies on—just hasn’t been shown to increase surrounding property values. Trust me, a part of me wishes TIF did this, as I live just a few minutes from the redevelopment area. Unfortunately as the economic research suggests, TIF projects don’t make the neighborhoods surrounding them more valuable. If the ends justifying a blunt tool like eminent domain aren’t likely to materialize, we might not want to incur the costs of using that tool.

Second and most important is the fact that property owners—especially owner-occupied residential property owners—simply shouldn’t be forced out of their homes for the benefit of a private developer. Perhaps certain public projects, such as interstates and railroads, can justify the coercive removal of property owners from their property, but it is far from clear that homeowners should be ousted from their homes so that a politically-favored big-box store can make a nice profit. We’ve seen how these things can go.

But if you wonder why you, perhaps someone living far away from University City, should care about this, just keep in mind that your local government body is populated by the same sorts of people that populate University City government. If we are to learn anything from public choice theory, it’s that institutions—such as local governments—have values and goals of their own, and that the people behind local institutions are as fallible and greedy as everyone else. This isn’t to cast a blanket of doubt on all institutions, but rather to make clear that the violation of property rights in some areas of Missouri is a threat to the property rights everyone in the state.

In the end, University City officials should get over their infatuation with the I-170 & Olive redevelopment and abandon their apparent “any means necessary” strategy for ensuring its materialization. The threat of use of eminent domain is politically and morally disturbing, and would signal to University City residents and others that their homes and lives are for sale, so long as city hall thinks that the price is right. 

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Consider what that focus, mostly from the Governor’s and Mayor’s offices, accomplished. The plan to spend some $400 million on another stadium in downtown Saint Louis faced significant opposition. Most state legislators were not in favor of state support for the plan. Both the city and county had ordinances requiring votes before public money could be used on a stadium, and the public’s support was anything but guaranteed. The Saint Louis City Board of Aldermen was divided.

But that didn’t stop the committed leadership. The governor and the RSA moved to unilaterally extend state support, cutting out the antagonistic legislature. The RSA sued the city and succeeded in getting the ordinance requiring a public vote struck down. When the county executive said they’d have a vote with or without an ordinance, the Governor’s stadium task force dropped Saint Louis County out of the funding scheme. After lengthy negotiations, the Saint Louis City Board of Aldermen signed off on the stadium financing plan.

The only obstacle stadium backers did not overcome was the resolve of Rams’ ownership to move the team, which was ultimately decisive. If Saint Louis’s regional leadership had had their way, taxpayers would be handing hundreds of millions of dollars to Stan Kroenke. The only thing that saved Saint Louis residents from making a terrible investment of public dollars were the votes of thirty NFL team owners.

The “accomplishments” of the stadium task force expose what’s broken in Saint Louis regional governance. Common-sense reforms, like simplifying the city’s business code, languish in the Board of Aldermen. The sewer system is so out of date that city streets have a habit of collapsing. Fire and police departments are so broke they are using duct tape to fix equipment. No one has answers for a continuing lack of safety throughout the metropolitan area. With these problems, there is little will to push through change, and there is never enough money.

But when the NFL might leave town, suddenly regional leaders found $400 million between the seat cushions for yet another big-bang development project. And the political will was there too, no matter how the public felt about it—and regardless of the sad history of similar projects in the city, and all the economic evidence saying it was a bad idea. That’s how the region’s policymaking process played out, with misplaced priorities and half-hearted respect for the democratic process. With that kind of leadership, is it any wonder Saint Louis has a lagging economy?

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It was plain to see that people who represented a specific organization placed a high priority on funding the project that most affected their group. This is what tends to happens in democratic societies. The people who want the public goodies take the time and effort to get them. For instance, Show-Me Policy Researcher Kacie Galbraith and I were at a table with a woman who represented bicycle enthusiasts. Not surprisingly, she pushed for more funding for bike trails. Show-Me Policy Analyst David Stokes was at a table where a representative from Citizens for Modern Transit talked up the benefits of high-speed rail.

This is not to say that some of the projects that some people favor do not have merit. I favor increased funding for road maintenance and highway safety. But when you get a lot of special interests together, the result is a lot of projects that “need” to be funded. For example, MoDOT has four long lists of proposed projects just for the Saint Louis District, with total costs in the billions.

I do not really blame people for showing up to try to get a piece of state funding. However, we should consider what William Graham Sumner wrote:

Whenever A and B put their heads together and decide what A, B and C must do for D, there is never any pressure on A and B. . . . The pressure all comes on C. Now, who is C? He is always the man who, if let alone, would make a reasonable use of his liberty without abusing it. He would not constitute any social problem at all and would not need any regulation. He is the Forgotten Man.

“C” is the Missouri Taxpayer here. Do not forget that the Missouri Taxpayer will pay for these projects. I believe in funding transportation, but the state should only fund what is necessary, not what every special interest wants to have financed.

The post Road Warriors appeared first on Show-Me Institute.

When I was an assistant at the Saint Louis County Council, I once received a call from a resident who had just moved to an unincorporated part of the county from Saint Louis City. He wanted a new street light installed by his house. I explained in detail the various ways he or his neighborhood association could contact AmerenUE and arrange to pay for and install a new street light. After I went on in detail for several minutes, he finally cut me off and said, “Look, I just want you [meaning my boss, the councilman] to install a street light in front of my house.” The caller then explained that he just moved from the city, and, there, if he wanted a street light, he just called his alderman and he got a street light. He could not understand a system where he or his neighbors might be expected to actually handle something like this on their own.

The current makeup of the city’s board is unusual for at least two reasons. With 28 members for 320,000 residents, it is far larger on a per-resident basis than almost any other major city’s legislative body. By comparison, Kansas City has just 13 councilmembers for approximately 460,000 people. Furthermore, Saint Louis board rules authorize the filibuster, which is rare for local government councils. The filibuster — or often just the threat of it — gives each member of the board of aldermen substantial individual authority. There are benefits to that, but allowing so many officials to make certain their constituents get their “fair share” is a recipe for the creation of political fiefdoms. The benefits of getting a “fair share” for your ward are concentrated, and the costs are widely distributed among many other officials and taxpayers. In simpler terms, “Give that guy a street light!”

The “Law of 1/n” is a widely held finding of public choice economic theory. As any legislature has more members, they will seek a larger share of the pie for their voters. Both total spending and pork-barrel spending increase as an inevitable part of that quest. Taxes increase to pay for that spending. The accounting firm KPMG just released a study that found Saint Louis has the second highest business tax burden of major American cities. Those street lights aren’t free, you know.

There are counterweights to this. Most notably, Missouri’s Hancock Amendment thankfully limits the ability of governments to grow and grow. But another counterweight is a smaller legislative body. In a smaller body, the politician’s constituent will both receive the new street light and pay for a larger share of it. The politician has to consider both benefits and costs.

What about citizen representation? Clearly, there is a symbiosis between having a large number of aldermen and residents asking their alderman to do many things. If an alderman represents a small area, he or she can try to do many things for that area. That may be great, but individuals likely could do some of those things themselves if not for the easy availability of the alderman. I am reminded of the Australians in the “Simpson’s” episode who decide they must speak to their prime minister about a certain issue, and then just run to the neighboring farmhouse to see him.

The current members of the board represent slightly more than 10,000 people each. In Saint Louis County, the councilmember for the sixth council district (South County), along with one assistant, serve the constituent needs of 140,000 unincorporated county residents. If one county councilmember and one assistant can service 140,000 constituents, I think the members of the city board of aldermen can handle 23,000. Unless, that is, they really want to give a new street light to everyone who asks for it. Perhaps the largest benefit to a smaller board of aldermen is that it will say “no” a little more often.

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

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I have been making this argument for a while, and I am excited that one of our two major parties will undertake a serious effort to reduce Missouri’s number of state reps.

Missouri has the fourth-highest number of state reps. I support lowering that number for several reasons. There is strong economic evidence that, in general, the more members in an elected body the more that body spends. It is called the “Law of 1/N.” There is evidence to support this theory at the national level, the state level, the county level, and the local level. However, the Law of 1/N has been found to have less of an effect on state Houses than on other types of political bodies. Nonetheless, common sense tells us that more legislators means more pet projects, more legislative horsetrading, more tightly defined benefits, and more easily diffused costs. Just because something appears to be a partial exception to the rule does not mean the rule should be completely ignored.

Second, I don’t like that many people to have the ability to make rules about my life. I don’t believe that having more reps makes it harder to pass new laws. I’d bet that if I went through the bills introduced by all 163 state reps, I would find that every one of them introduced a bill this year that I think is silly, useless, or worse — although I also think some of them are doing a number of good things this year.

It is human nature to want to act when given a role. For elected officials, that means offering laws to justify their salaries, etc. Too many people in office means too many new proposals and too many people with a say about my life. If Missouri’s legislature met less frequently, for shorter sessions, and received lower salaries (like New Hampshire’s state house), I might change my mind about the number.

Of course, one might wonder why the state’s Democrats are doing this now, because they could have done it at any time when they had several decades of total legislative power. Ultimately, though, I don’t really care. This is about going forward, not casting blame backward. I hope Missourians give this a close look.

For more information about these general public choice economic ideas and how they apply to Missouri, please read my policy study about government in Missouri.

The post Serious Effort to Reduce Number of State Reps appeared first on Show-Me Institute.

Trade boats in Changzhou, China. Photo by Audrey Spalding.

Given the opening sentence, a Post-Dispatch reader might misinterpret the article to mean that the $480 million in taxpayer money is intended to go directly to funding the proposed China Hub itself. But, as reported previously in the Post-Dispatch, a Chinese freight affiliate has already decided to send several cargo flights to the Lambert airport each week. Later in today’s article, the actual subsidy recipients are disclosed: $60 million would go to shipping companies that export by air from Missouri, and $420 million would go to build cargo warehouses and other storage facilities.

So, perhaps a better way for the Post-Dispatch article to start would be: “St. Louis developers’ dreams of building warehouses are going to need some state funding to become a reality.”

From an economic perspective, this doesn’t make much sense. If goals* are already in place to bring in increased air freight and to increase the number of Boeing 747s traveling between Saint Louis and Shanghai, then there surely will be an increase in economic activity, along with a demand for facilities to handle the increased freight and passenger traffic. If all it takes to profit off of that is to build some cargo warehouses, why does the state need to subsidize that construction?

Here are some possible reasons that state legislators are pushing for awarding the $480 million in subsidy:

1. There is a low chance of the “China Hub” idea actually coming to fruition.
    
   Well, then why subsidize the unnecessary construction of auxiliary cargo warehouses?
2. It’s very difficult to make a profit in Missouri.
    
   This may well be the case. But if the state awards tax credits without a corresponding decrease in other expenditures, the tax burden for everyone else (those who aren’t building warehouses in the Saint Louis area) will rise. Because the award of $480 million to the favored few will likely result in other businesses and individuals paying even more in taxes to the state, this proposal will actually make things more difficult for entrepreneurs.
3. Legislators want to award subsidy.
    
   It is also possible that there is no need for this subsidy, but that legislators personally benefit (increased power, campaign contributions, etc.) when they can claim responsibility for awarding millions in subsidy. And, fortunately for the legislators proposing this tax credit, there is little or no cost to them when spending $480 million in taxpayer dollars. There is a terrific branch of economic theory that examines this type of behavior in detail.

A better solution would be to reduce state barriers to trade, not increase them.

Reasons 1 and 2 are not legitimate. The state shouldn’t subsidize high-risk, unlikely projects, and legislators don’t get to spend other people’s money just to demonstrate their political heft. If subsidy is needed because Missouri puts up too many barriers to entrepreneurship, the state should remove some of those barriers instead of adding more. One idea could be to find an additional $500 million to cut from the budget (tax credits, perhaps), and reduce the tax burden for everyone.

But what about me?

Look, anyone can point out that some type of economic activity might not occur without state subsidy. That doesn’t mean that the state should throw millions at the “under-produced” project.

For example, I could say that “Audrey Spalding’s dreams of owning 10,000 pairs of shoes will need some state funding to become a reality.” The reason I don’t already own those shoes isn’t because of a market failure — it’s because I’m not willing to pay for that myself.

Similarly, developers can invest money, and take on the risk and possibility of a profit if they want to build warehouses themselves. If they’re unwilling to do that without nearly half a billion in taxpayer money, then these warehouses, like my 9,990 additional pairs of shoes, will have to wait.

The post Why Spend More Than $400 Million to Subsidize Warehouse Construction? appeared first on Show-Me Institute.

The New York Times has an interactive web tool in which end users can employ different strategies (i.e., raise taxes, cut expenditures) to solve the federal deficit. Although this particular experiment focuses on the federal level (e.g., military spending, Social Security), it highlights some deficit-reducing strategies that policymakers in Missouri could use.

For example, the state government can eliminate loopholes and special exemptions, which are pervasive in Missouri’s status quo. Loopholes concentrate benefits on a select few, and they disperse the costs on those who remain in the tax base. Although this would increase taxes on the groups that currently enjoy an exemption, it will reduce the rate that the rest of the tax base experiences. Furthermore, the policy would result in increased revenue. According to the web tool, the federal corporate tax rate would fall from 35 percent to 28 percent. Individual federal tax rates would fall within all brackets.

Of additional note, it is possible to close the federal budget gap by cutting expenditures and without raising tax rates at all using the web tool.

Although I am confident that the reforms I selected would be good for the economy, they would be difficult to put into practice. It’s a consequence of public choice theory. Special interest groups have a significant incentive to petition the government to enact policies that favor them. Additionally, elected officials want to remain in office, so they have an incentive to focus on short-sighted pet projects that benefit a select number of their constituents rather than the general welfare.

The post Good News: I Solved the Federal Budget Deficit! appeared first on Show-Me Institute.

Josh’s blog post adds important information that today’s WSJ article is missing. Many state legislatures used to be structured like the federal model, with a House based on population and a Senate based on the number of officials per county, or something like that. After the Supreme Court ruled that all public bodies had to be based on population (except the U.S. Senate), the purpose of having separate bodies declined.

So, how do you reconcile these potentially conflicting goals (which I assume many of you visiting this blog share, at least to some degree)?

1. Greater efficiency in government, as measured by lower costs rather than by greater ease of passing laws.
2. The desire for a wide range of viewpoints in government, i.e., enough elected officials that various viewpoints can be included. (Think Ron Paul and Nancy Pelosi both serving in the same House.)
3. The knowledge that legislative bodies with more members spend more money. This is the “Law of 1/N,” a generally accepted rule of public choice economics.
4. The desire to have a system in which it is difficult, not easy, to pass new laws or spend money.

I think points three and four are the real conflicts. I can imagine moving to a unicameral Missouri General Assembly, which would save significant operating costs and would allow for enough members to represent a variety of views. But, once established, it would need to have strict rules that would restrict the incentives to spend more money, but make it easier for the leadership to pass the laws they want (i.e., no filibuster); or, you could do without those rules and empower individual members in a way that would make passing new laws harder but also increase logrolling opportunities and incentives to spend more. (Passing laws and spending money don’t necessarily go hand in hand. Many laws that infringe on our freedoms don’t cost much, and most of the spending occurs within the budget process that every elected body will have.)

I think you can also achieve these goals if you are willing to sacrifice the second goal — a variety of viewpoints. A very small unicameral legislature with empowered individual officials could reduce the logrolling incentives to spend, and make it hard to pass new laws, but this situation would sacrifice the presence of more divergent views in favor of very large districts. However, if it had a very short session length (meeting for one month a year, say, or even just every other year), you might be able to accomplish these goals and also have a larger number of representatives. As with the number of members, time is an important constraint.

Most of the papers that support the statements above are not available for free online. You can read about them, though, and see the citations in sections three and four of my policy study.

The post The Wall Street Journal Weighs In on Unicameral Legislatures appeared first on Show-Me Institute.

If you care about sustainability, you should care about property rights.

Why do I bring this up? According to an article over at the Post-Dispatch, Jefferson City has been chosen as one of five state capitals to receive extensive attention from the Environmental Protection Agency (EPA), in the form of plans intending to make the city greener and more sustainable. The project is called “Greening America’s Capitals,” and calls for “a team of designers to produce illustrations on how targeted neighborhoods in chosen capitals can be improved,” with funding provided by taxpayers nationwide the EPA. The Show-Me Institute’s book club is currently reading a lot about public choice economics, and I could write an entire post about the dispersed costs and concentrated benefits of this particular scheme. Instead, I’ll focus on how everything that is proposed by this federal agency would be better handled by a reduction in hands-on government management.

First, the obvious (at least to me): Strong property rights lead to good stewardship. When the costs of harming things falls on those doing the harm, they tend to try to reduce the harm as much as possible. Namely, when something belongs to you alone, you tend to treat it with more care than if it belongs to someone else. Moreover, when the benefits of improving something accrue to those doing the improvement, more improvements happen. Namely, you’re more likely to work to improve your own things than someone else’s things. There are plenty of historical examples, including the dramatic improvement in crop yield and work participation among the early European settlers in America after switching from a communal system to one based on private property.

When I hear “sustainable” and “going green” I think “good environmental stewardship.” There are two components to this, the first of which is taking care to maintain or improve your own property. The second part involves externalities. For the unfamiliar, externalities are any cost or benefit that falls on someone not directly or willingly involved in an exchange. Maintaining a classic car provides a positive externality to those who enjoy seeing one driven around town but who don’t pay for its upkeep. Pollution is the classic example of a negative externality: harming people who had no say in the pollution’s production. This is a problem with no obvious solution, but (as public choice has clearly shown) a lot of bad possible solutions from the government. Ronald Coase is a Nobel Prize–winning economist who demonstrated that the problem of externalities is really a problem of transaction costs (such as the cost of information). Show me a government solution to an externality problem that doesn’t involve internalizing costs and I’ll show you the law of unintended consequences in action.

Greening America’s Capitals will not help the state of Missouri. It’s a fundamental waste that distracts from the real problems of insufficiently robust property rights and, especially, transaction costs. But these difficult technical problems will never be as broadly appealing as a visible, heart-in-the-right-place EPA program. This is not a new problem in politics.

The post Wasting Green on Going Green appeared first on Show-Me Institute.

As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine what C shall do for X or, in the better case, what A, B and C shall do for X. As for A and B, who get a law to make themselves do for X what they are willing to do for him, we have nothing to say except that they might better have done it without any law, but what I want to do is to look up C. I want to show you what manner of man he is. I call him the Forgotten Man. Perhaps the appellation is not strictly correct. He is the man who never is thought of. […]

He works, he votes, generally he prays — but he always pays — yes, above all, he pays.

Don’t take this as a specific criticism of any of the officials discussed in the News-Leader article. Even more so, don’t take it as a criticism of the programs discussed in the story, especially the great people in the Missouri National Guard. The deal to lease part of the airport may well be a good deal for taxpayers.

However — and I want subtlety to be my friend here — is it really that amazing that politicians will get along at an event where they are all either spending or receiving other people’s money? State tax dollars are being used to lease local government property, and it is supposed to be noteworthy that all the politicians are happy? It does not matter that the expenditure in this example is an arguably fully legitimate use of public money. (I’ll leave aside for a moment that it could be even better if the Springfield airport were privatized, like its competitor to the south in Branson.)

Anyone who sees public officials getting along in an instance like this and thinks that it is a notable example that bears repetition lacks an understanding of public choice economics and interest group politics.

Thanks to johncombest.com and derrickjeter.com for the story links and quote.

The post “The Forgotten Man” in Missouri appeared first on Show-Me Institute.

It appears that they won’t be considering any changes to the partial at-large voting on their county council, which is unique among Missouri’s charter counties. There has been a good deal of work done on the question of at-large versus district representation. Public choice economics has provided some evidence that at-large voting leads to lower spending levels. The theory is simple enough: Officials elected at large have less of an incentive to engage in district-specific spending (think congressional “pork” writ local), because all of their constituents both benefit from and pay for all of the same things. My “Government in Missouri” study for the Show-Me Institute addresses this idea in detail on pages 25 and 26, and provides endnote citations to major public choice studies on the subject, for anyone who is interested enough to do further research. (This is usually the part of my government talks where people start to fall asleep.) When I compared the suburbs in St. Louis County that have at-large voting to those with the more common district voting found in city elections, I found limited evidence that the at-large cities spent less. I say “limited” because the differences were not huge, and the sample size was very small — but it’s all in the study.

The portion of the charter proposals that will generate a good deal of attention is the pay raise for local legislators. The charter committee report recommends:

• Set new pay levels for elected county officials, including boosting current legislators’ salaries by more than 10 percent to $28,916 annually. Legislators also would be guaranteed raises based on the local consumer price index.

I see nothing wrong with raising salaries to $28 K per year for nine council officials serving in a county of 650,000 people. There is nothing out of line with that. I do, however, disagree with the proposal to raise it automatically each year, according to the consumer price index. Raising your pay is one of the tough votes that elected officials have to make. Usually, moderate raises that are implemented rarely enough will be supported by the public, as I expect this one will be. However, it should still require a vote, rather than being turned over to a commission or a computer.

The post Should Jackson County Amend Its Charter? appeared first on Show-Me Institute.