I remember my first visit to “the Mills” shortly after it opened in 2003. The 1.2 million square foot building was bustling with people. The line for Panda Express was more like that of an amusement park ride than a mall food counter.

Today, only 77 percent of the mall is occupied (the average occupancy rate for malls is 92%). “Ghost town” is the best way to describe what I saw during my visit last November. The stores I once frequented as a teen were gone—replaced by metal bars and “for rent” signs.

You could look at the decline of the Mills Mall as a sign of the times—malls are out, online shopping is in. In fact, survey data supports this conclusion. In 2014, 34% of Americans said they did more than half of their shopping online—a 99% increase from the 2006 shopping season.

It’s certainly true that digital retailers like Amazon have disrupted the shopping industry, but the decline of the Mills Mall signals more than just the need for mall rats to find a new place to hang out. The failure of the Mills exemplifies why governments shouldn’t use tax increment financing (TIF) as a mechanism for economic development.

TIF is a method of attracting businesses to blighted communities through government subsidies. In 2003, an $18.5 million TIF in conjunction with a $34 million transportation district helped fund the mall’s development. In a 2006 Primer on TIF, UMSL professor Kenneth Thomas pointed out a few problems with this instance of TIF use.

• The building of the Mills Mall displaced sales tax revenue from Northwest Plaza in St. Ann, a shopping complex nearby.
• The project was environmentally harmful—the mall and surrounding road system was constructed on top of a wetland.
• The median income in the community was $52,656—hardly blighted.

Hazelwood’s Economic Developer David Cox told the St. Louis Business Journal, “If the developers could have looked into a crystal ball, they probably would have built it smaller.”

But that underscores another problem with funding large development projects like the Mills—crystal balls don’t exist.

The construction of the Mills Mall had promised 3,000 new jobs. Only half that number was realized.

The Mills Mall points to a serious need for TIF reform in Missouri. Malls may, indeed, be on their way out. Inappropriate uses of TIF should follow suit.

The post St. Louis Mills Auctioned Off for 6 Percent of Its Original Cost appeared first on Show-Me Institute.

Of the cities named in the lawsuit, only four (Bellerive Acres, Moline Acres, Normandy, and Vinita Terrace) were sued for actually exceeding the 30 percent cap. The other cities have been cited for failing to meet reporting requirements or using improper methods of recording fees as a percentage of revenue. For example, one city divided the fines it received in six months by total revenue for the entire year, in what appears a very ham-fisted attempt to show compliance with the law. The chart below, with data from Better Together, shows the portion of revenue from fines that each city named in the lawsuit collects.

This lawsuit may be a step in the right direction, but it is only one step. As we pointed out in a previous blog post, there are at least five other cities not listed in this lawsuit that have more than 30 percent of their revenue coming from fines and fees. Among these are Calverton Park and Bella Villa, which collect more than 50 percent of their revenue from fines. These municipalities may be within the law, but state confirmation of this seems prudent.

Furthermore, many cities in Saint Louis County, while perhaps not in violation of the law, are still collecting very large portions of their revenue through fines. Twelve municipalities, mostly in North Saint Louis County, collect between 20 and 30 percent of their revenue from fines. In most municipalities, this percentage is less than 15 percent. The state could lower the cap on fines in the Macks Creek Law to further protect state residents from law enforcement acting as tax collectors.

But as the current situation demonstrates, it matters little if fines are capped at 30 percent, 25 percent, or 15 percent of general revenue if the state does not enforce existing law. The state clearly has not done this in the past, and without the tragic events in North Saint Louis County and subsequent scrutiny of city policing tactics, who knows how long it would have taken for Macks Creek Law to be enforced? The state could benefit from a more systematic, not crisis driven, approach to statutory oversight.

The post Enforcing Macks Creek Law: Progress in Saint Louis County appeared first on Show-Me Institute.

Saint Louis County contains 90 municipalities, some with less than 1,000 residents. Many of the smaller municipalities are in North Saint Louis County and rely heavily on traffic tickets and court fees. For example, Beverly Hills (population of 571) issued more than 3,000 tickets and collect more than $200,000 in court fees last year. Charlack, a small city in North Saint Louis County (population 1,362), derives 29 percent of its revenue through traffic fines alone. By contrast, most cities in Missouri receive less than 5 percent of their revenue from fines and fees.

But size is not everything. As the Post article points out, even the larger municipalities in North Saint Louis County are guilty of issuing numerous citations. Florissant (population 52,000) issued almost 30,000 traffic tickets for more than $3 million in fines last year, accounting for 13 percent of its revenue. Saint Ann, notorious for its I-70 speed trap, expects that 36 percent of its revenue ($3.3 million) will come from fines and court fees in 2014.

Furthermore, small Saint Louis County municipalities do not all rely so heavily on fines. For instance, Grantwood Village (population 863) only issues around 120 traffic tickets a year. In 2012, it collected only $34,000 in fines and fees. Black Jack, a small municipality in North Saint Louis County (population 6,920), receives less than 5 percent of its revenue from fines. What do Grantwood Village and Black Jack have in common? They both contract out police from Saint Louis County and do not operate their own police departments.

A combination of necessity and opportunity likely drives cities, large and small, to pursue aggressive citation policies: the necessity arising from a dearth of other funding sources, the opportunity from having a piece of Missouri’s highway system.

Fining residents to generate revenue, instead of promoting public order, is not the way to achieve good governance in Saint Louis County. In future blog posts, we will discuss these problems further and explore ways residents and policymakers can reform local governments.

The post Saint Louis County: Does It Have Too Many Municipalities appeared first on Show-Me Institute.

In 2010, Walmart announced that it would close a store located in both Saint Ann and Bridgeton (two suburbs of Saint Louis), and open another store 2 miles away, located solely in Bridgeton. The move seemed, in part, to be an attempt to capture more than $7 million in public subsidies. Even though the Bridgeton City Council approved the subsidy, the $7 million will come primarily from public schools and other taxing districts.

Of course, the subsidy at fault is TIF, which allows cities like Bridgeton to capture money that would have gone to other taxing entities and use it how the city desires — in this case, to subsidize a Walmart that replaced an existing Walmart. Cities gain sales tax dollars right away, while all the other taxing districts bear the burden of having the tax base of the property held steady — while expenses increase — for the next 23 years. Oftentimes, this results in tax increases on the rest of the community. In Liberty, Mo., earlier this year, the superintendent and school board were forced to campaign (unsuccessfully) for a tax increase that they said was necessary due to the harms that heavy use of TIF caused in that community.

TIF allows local government to reimburse developers for some of the project’s costs. With TIF, if a property generates $50,000 in property taxes before it is developed but generates $75,000 after being constructed, the developer gets to keep the $25,000 difference to pay for certain development costs. Fifty percent of sales and other taxes can be diverted as well.

In theory, TIF encourages developers to undertake projects in areas in dire need of economic growth. In reality, TIF is used to subsidize politically-connected developers, to help cities lure chosen businesses from other cities, and to fund an entire cottage industry of urban planners, lawyers, and bankers. There is so little accountability that even if the TIF commissions that are supposed to govern the process reject a proposal, a city can override that determination and go ahead with the project. That is exactly what happened with the Bridgeton Walmart.

TIF has had numerous negative economic effects in Missouri, and in particular in the Saint Louis area. TIF has increased government involvement in the economy, sparked abuse of eminent domain, shrunk the tax base, and made subsidies a permanent fixture of development. Furthermore, TIF has failed at its main purpose: economic growth. The East-West Gateway Council of Governments (the major government planning organization in Saint Louis) concluded that TIFs and other incentives have created jobs at the rate of one retail job for every $370,000 in taxpayer subsidies. That is not a road to growth — it is a road to ruin.

It is a fact that the use of TIF is often accompanied by the abuse of eminent domain. With Enhanced Enterprise Zones (EEZ), the threat of eminent domain abuse may be small, but with TIF, it is very real. Many — if not most — of the examples of eminent domain abuse in Missouri have involved TIF. This includes instances in Sunset Hills, Arnold, Sugar Creek, Rock Hill, and more.

An Iowa study of TIF usage concluded that, “On net . . . there is no evidence of economy-wide benefits, fiscal benefits, or population gains.” Another study from Illinois found that economic growth in cities that did not use TIF was stronger than in cities that did, because TIF subsidies caused an inefficient allocation of resources.

A recent study by Washburn University Professor Paul Byrne for the Show-Me Institute documents how TIF is used in Missouri. Byrne shows that the ability of cities to implement a TIF unilaterally leads to cities making decisions that benefit the city, at the expense of other public agencies. Cities that are authorized to enact sales taxes might push for TIF projects that will generate new sales tax dollars without caring about the property tax dollars that the local school district will have to do without. As a result, public tax dollars can end up funding economically inefficient projects. This is what has happened in the large urban areas of the state, and what will happen in Columbia and Boone County if the use of local tax incentives keeps increasing.

The dirty little secret that Regional Economic Development, Inc. (REDI), the local media, and Columbia city officials do not want you to know is that EEZ, Tax Increment Financing (TIF), Community Improvement Districts (CID), and other subsidies do not work. They do not succeed in growing the local economy. As a famous Swedish economist once said, “It is not by planting trees or subsidizing tree planting in a desert created by politicians that the government can promote . . . industry, but by refraining from measures that create a desert environment.”

The Columbia supporters of increased use of incentives within the city say that other cities have used these tools with great success (for example, an editorial in the Columbia Daily Tribune, Aug. 13, 2009). In this, they are completely wrong. The City of Saint Louis has been using urban redevelopment tools such as TIF and many others for half a century. How has it worked out? Mapping Decline, a 2008 book by Colin Gordon, documents the decline of the city of Saint Louis. The book’s research is exhaustive. The dominant theme is the use of urban renewal tools and tax subsidies — and their absolute, total failure. From the conclusion:

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

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

Missouri should dramatically tighten its TIF laws. At a minimum, TIF should be decided at the county level, and the ability of cities to override rejections from TIF commissions should be eliminated. I hope that Columbia can lead the way to a new realization for our state, where economic development works for everyone when governments do not play favorites and businesses succeed or fail on their own merits.

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

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I do not recall ever seeing such a brazen example of an elected body ignoring the will of the people. Combined with the terrible economic policy they are now instituting, the choice of the Ellisville City Council to enact this TIF is one of the worst decisions I have ever seen a government make.

Now more than ever, we need the state legislature to pass major TIF reform for Saint Louis County and all of Missouri. The ability of cities to override a county TIF commission must be removed. Furthermore, TIF districts should be required to make other taxing districts whole through alternate tax dollar arrangements. In other words, cities should share the sales tax dollars placed into the PILOT (Payments In Lieu Of Taxes) fund.

We still have many more TIFs to fight in Shrewsbury, Saint Ann, and Richmond Heights; and that is just Saint Louis County. Add in the Enhanced Enterprise Zone (EEZ) in Columbia, the Transportation Development District (TDD)/Community Improvement District (CID)  in Chesterfield, the incessant use of subsidies for every project in Kansas City and Saint Louis, and I can assure you we will be very busy. When it comes to pointing out the economic flaws in the terrible arguments for local development subsidies, the Show-Me Institute has only just begun to fight.

Now I am going to get some lunch. (Go to the 2:04 mark.)

The post Depressing News From Ellisville appeared first on Show-Me Institute.

My Tim Hardaway writing skills aside (that reference will be lost on just about every one of my readers, except for one loyal dude who reads from London), we all know how the current economy has really hit the financial health of malls and the cities that depend on them. One such city in St. Louis County is St. Ann, home to Northwest Plaza, which will go into foreclosure soon, and has been in trouble for some time. This will have a significant impact on St. Ann’s finances, but the city does have options.

Option one, which it will likely follow, would be to pour even more tax incentives into the property in an attempt to revive it. The St. Ann city manager is quoted in this Post-Dispatch article:

Conley said the structure of the public assistance for mall redevelopment remains. He noted that city officials hope for an eventual revival of St. Ann’s largest commercial property.

“I don’t think there’s anybody who would disagree that something needs to be done up there,” he said.

Well, I disagree, for whatever that is worth.

Option 2, which is probably a long-term solution with short-term budget pains, would be NOT to pour more tax dollars into a failing developement, and instead just become another sales tax pool city within St. Louis County. I doubt anyone in St. Ann is seriously considering this, although I would love to be wrong. If St. Ann became a pool city, it would benefit from growth around the county, and would not be so dependent on one particular mall. This move would increase the total amount of tax dollars available in the pool, and with St. Ann’s large population, the city would get a significant amount from it each year — although not near what they used to get when Northwest Plaza was a thriving mall. Those days are gone, however, and an investment in public dollars might change things around, or it might not. A switch to “B” or “Pool” status would be in the long-term interest of the city and its people.

Lest you think I am picking on St. Ann, I think Crestwood should do the exact same thing.

The post St. Ann Could Become a “Pool” Sales Tax City appeared first on Show-Me Institute.

In a response to fiscal problems caused by a decline in sales at Northwest Plaza, St. Ann has decided to put a large utility tax increase on the ballot. Prediction: It will lose badly, just like the tax increases on the ballot yesterday in our area all did. My thoughts: Utility tax increases are a particularly terrible idea — balancing a budget on the backs of people trying to pay for the basic necessities of life. A general property tax increase would be better than this. At least that would be tax deductible for state and federal income taxes, practically speaking.

University City will be installing red light cameras at Big Bend and Hanley on Delmar. Regular readers (both of you) will recall my hatred of these things. I was going to speak against them at the city council meeting on Monday, but my hatred of red light cameras ran up against my love of going to Cardinals games. As my family has long known, the Cardinals always win those battles. So we have red light cameras now, but at least I saw a 10-run inning and took my son, Nate, to his first game. In the interest of full disclosure, I was heading to play tennis last night, driving northbound on Hanley at Delmar, when I stopped in the right lane for the yellow and the driver next to me completely blew the red. He certainly deserved something for that move.

Missouri and Illinois are slowly getting closer to an agreement on a new Mississippi River Bridge. This is good news, and I look forward to the final agreement — which I understand, for better or worse, will not be using tolls. 

I appreciated the feedback and critiques from the gentlemen at Missouri Political News Service on my post about 911 systems and expansion. I am always happy to defend my posts and discuss my ideas, and am open to hearing new thoughts and opinions on what I write about.

Finally, I am just gonna give a general credit to Combest, as I linked to a lot of articles here and I almost certainly got some most every one of them from his great website.

The post Quick Updates All Around … appeared first on Show-Me Institute.

St. Ann’s Board of Aldermen is expected to vote in September on Somera’s request for $96 million in redevelopment assistance — including a 1 percent tax on sales at the shopping center.

After the renovations are made, the city is predicting an increase in sales tax collections. First comment — there is no guarantee of that. Second comment — even if it does happen, it will just take tax money from some other city (Hazelwood and St. Louis Mills, perhaps), leading to the same problem, different location. As Charlie Brennan often says on KMOX, we are all just eating the same pie, and the retail pie in St. Louis is not growing. All that changes is where we bite.

So, what should St. Ann do? As I said, they have done some good things in regards to making tough choices, so I want to give them credit where it’s due. One thing I highly recommend, although this is not financial, is to stop electing the Chief of Police. That is just silly. Next, the county matrix shows that St. Ann does contract with St. Louis County Public Works to perform a number of functions, but they can certainly contract for more. Finally, follow the lead of Clayton, Maplewood, and Richmond Heights, and give serious consideration to sharing municipal services with Overland, Woodson Terrace, Edmundson, and other neighboring cities. Perhaps this is already being done, but it does not appear to be. Finally, give serious consideration to leaving “A” sales tax status, joining the pool, and rejecting Northwest Plaza’s insistence on public money. I know that would lead to dramatic cuts in city services at the start, but the long-run stabilization might be well worth it. If more cities did this, we could stop the cannibalization of sales tax money within our area.

The post Familiar Story of Financial Woes for St. Ann appeared first on Show-Me Institute.