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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This new tax is a bad idea for a lot of reasons, many of them that Saint Charles County Executive Steve Ehlmann has explained well here:

He says his constituents shouldn’t pay higher local taxes to help revamp the federally owned monument and the park surrounding it.

I think he is right, and I say this as someone who thinks the residents of Saint Charles County should pay more in other instances. For example, I think the people of Saint Charles and other counties outside of Saint Louis City and County should be given a choice on either imposing the zoo-museum property tax within their areas or have to pay admission fees to visit those attractions.

But this proposal is crazy. It is possible for this tax increase to pass in Saint Louis County and Saint Charles County, but not in Saint Louis City, which would result in tax money being collected only outside of Saint Louis City but spent entirely within the city. The arch may be a wonderful regional asset, but it should be paid for the way other federal properties are – with federal tax dollars, user fees, and in a case like this, charitable donations. If there are not enough federal tax dollars available to pay for it, then user fees and donations can be increased, perhaps creatively — or perhaps the project should just not be done.

The post Arch Sales Tax Is An Opportunity For A Regional Bad Idea appeared first on Show-Me Institute.

Tax increment financing (TIF) is the Rasputin of Saint Louis County – the bad idea that keeps coming back and refuses to die. Despite TIF’s documented failures, Ellisville and interested developers are considering the establishment of a new TIF district in the southwest quadrant of Clarkson and Manchester Roads. The TIF district would take the tax dollars generated by the development and divert them back to the developer. County leaders from both parties, including Steve Ehlmann in Saint Charles and Charlie Dooley in Saint Louis, have seen the harm that TIF is causing our region. The TIF commission and the city council should reject this proposal.

TIF has had numerous negative economic effects in Saint Louis County. TIF has increased government involvement in the economy, sparked abuse of eminent domain, 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 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.

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.

Consistent with those findings, cities’ heavy use of TIF has distorted economic growth and subsidized less efficient, politically-favored developments in Saint Louis County. Citizens are free to choose between shopping at Walmart or mom-and-pop stores, but cities should not give Walmart an advantage over their competition through subsidies.

Everyone wants a “do-something” leader. So, even though the evidence says TIF is bad for the region’s economy, municipal leaders support TIFs within their city. They can claim political credit for the “new” businesses, while playing kick-the-can with the adverse consequences for the other taxing districts, like the schools. Most residents of the Rockwood School District do not live in Ellisville; they have no way of voicing their opposition.

I urge this TIF commission and Ellisville to recognize that the constant quest for retail tax incentives is harming the region’s economic base. By passing this TIF, Ellisville might gain in the short term, but at the expense of other taxing districts that also serve its citizens. More importantly, it will continue the downward spiral of incentive-based retail developments that shrinks our region’s tax base to benefit private developers.

Ellisville can address long-term revenue issues by switching to pool sales tax status. The city, its residents, and its taxpayers would then benefit from development throughout the county. I hope the TIF commission and Ellisville can lead the way to a new realization for our region, 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.

Related Links

‘Sometimes Nothing Can Be A Real Cool Hand’ Saint Louis County TIF Policy, Punting, And Cool Hand Luke

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Ehlmann gave an excellent talk at the TIF hearing last month. Here is his stated opposition to the TIF:

However, he said a city tax-increment financing subsidy would be “bad public policy” because it would channel into the project some of the new property tax revenue generated that would otherwise go to the St. Charles School District and other governments.

“If the city can do a TIF to make others pay for what is their responsibility, when are we going to start using city money for schools?” Ehlmann said.

Ehlmann and his predecessor, Joe Ortwerth, have been leaders in calling out the fact that these TIFs do not do anything for our economy. They inefficiently redirect activity based on who is giving out the most tax dollars. Saint Charles County has put its money where its mouth is regarding TIF, and actively fought prior TIFs in court, although the rulings have always favored the cities. It is great to see Ehlmann is still fighting that fight against these abuses.

Charlie Dooley has also been leading the fight against these TIFs in Saint Louis County. He has not made a statement directly on the Shrewsbury TIF, so I do not know exactly how he feels about it. But based on his opposition to the last Walmart TIF in Bridgeton, and the comments of the county reps on the current TIF commission, I think he likely is opposed to this one as well. (Someone should feel free to correct me if I am wrong.) Dooley made public comments about the Bridgeton TIF between the TIF commission process and the city council decision. I think that is perfectly appropriate, and I hope he leads the opposition should the Shrewsbury City Council attempt to override the decision of the county TIF commission.

One of the most important legislative changes we need in Missouri is eliminating the ability of cities to override TIF commissions. Cities can approve a TIF even if the commission defeats it. That is an atrocious law that empowers small groups to abuse the tax system at the expense of many other people and entities (such as school districts). Both county executives – Ehlmann and Dooley – deserve great credit for thinking about their whole county (and region) first, and opposing these types of tax abuses.

The post A Tale Of Two County Executives (More Similar Than Different) appeared first on Show-Me Institute.

One thing on which we rank very high is the use of Tax Increment Financing (TIF). This excellent paper on TIF, by Randal O’Toole with the CATO Institute, ranks Missouri third in total and fourth per capita in the sale of TIF bonds from 2005 to 2010. (See page 12 of the paper for the table.) This is not something of which to be proud.

TIF is common in Missouri. Right now, we have more ongoing applications than I can keep track of. The city of Columbia wants a giant TIF for its downtown area.  A TIF is being sought for a section of St. Charles, even though the main landowner of the area in question is a tax-exempt educational institution. Just a few months ago, Kansas City approved a gigantic TIF for the city. Developers are seeking a TIF in Shrewsbury that will do nothing but continue the rearranging of the deck chairs for retail in Saint Louis County. From the Patch story on that proposal, if I may be so bold as to quote myself:

David Stokes, a policy analyst with the Show-Me Institute, said what he heard was “just a terrible economic fallacy.”

“Of course it’s just preliminary, but from what I can tell it is just another example of the economic issues the East-West Council of Governments supported in their report two months ago, which is that every city is doing something to support their own little city, but it’s killing our county’s economic base, and it’s hurting the region,” Stokes said. “It might benefit Shrewsbury in the short run but seems it’s just going to be another type of TIF development that’s going to hurt our region.”

“Maybe if it can’t be done without public dollars, maybe it just shouldn’t be done,” he said.

The problems in these cases is the cities, not the counties. In fact, St. Charles County Executive Steve Ehlmann, along with his predecessor, Joe Ortwerth, have been strident in opposition to TIF in that county, to their great credit. Also to his credit, Saint Louis County Executive Charlie Dooley has recently taken the lead in opposition to these TIFs – he really gets it that a few cities are helped but the entire county is hurt. And Jackson County Executive Mike Sanders at least sued to get more equal representation on the Kansas City TIF commission.

But, even though they have instituted county TIF commissions in Saint Louis and its currounding counties, the insane rule still applies that city councils can override the TIF commission with a supermajority vote. So, the city council for the 15,000 people of Bridgeton gets to override the Saint Louis County TIF Commission and determine tax policy that will affect the one million people of Saint Louis County. I totally support county TIF commissions, but the part of the law that allows city councils to override the TIF commission with just a supermajority vote is insane. They should not be allowed to override it at all. Lot’s more to come on this issue in the coming weeks and months. And this time, I mean it.

The post Missouri’s TIF Infestation appeared first on Show-Me Institute.

With revenues down by about $1 million, the Saint Charles County Council met to debate the merits of granting $80,000 to market an airport expansion project that doesn’t fall within the county. The project is a proposed expansion of the Lambert–Saint Louis International Airport that would create a China hub in the hopes of increased international trade.

Developer Paul McKee, who put forward and completed the Winghaven development in Saint Charles County, has been a strong backer of the China hub expansion. McKee has said publicly that his latest project, a 1,500-acre redevelopment of the city of Saint Louis’ north side, hinges on Chinese business for many of the project’s promised 22,000 new jobs.

But county council members were skeptical when they held a work session on Monday to review the proposed county’s 2010 budget. Council member Cheryl Hibbeler brought up the issue first.

During 2009, she said, the county council allocated $37,500 for marketing of the China hub expansion. In 2010, the amount increased to $80,000, a significant amount of money for the county, with what she saw as no guarantee of a return.

“It basically boils down to finding enough to pay this one guy … to attract enough China business to Lambert,” she said.

The $80,000 is part of a $931,000 bill for annual marketing costs that the county, along with others, such as Saint Louis County, is considering paying. According to County Executive Steve Ehlmann, the marketing costs include not just salary for one man, but work to be done by a number of individuals working for a single marketing firm.

Oversight of how that money will be spent was another concern for Hibbeler.

“Who’s going to be deciding whether this $931,000 is really working?” she asked.

And, even then, she wondered aloud, what were the chances of the China hub coming to fruition, and bringing new jobs and business to the county? At one point, Hibbeler characterized the project as a “crapshoot.”

County Council Chairman Joe Brazil also questioned why the county should spend money on marketing the project. Brazil, who is critical of tax incentives and subsidies, asked whether the county could expect competitive bid reports and cost documentation if it granted the $80,000.

“I don’t know that you’re required to bid this,” Ehlmann responded.

In 2008, stemming from concerns about bids being awarded as political favors, the county auditor conducted a review of a few tax development districts (TDD) in Saint Charles County, including Winghaven. Of the five TDDs surveyed, all failed to adhere to a complete competitive bidding process. The Winghaven TDD was cited in the review because two of the project’s codevelopers were connected to contractors hired to do work for the development.

Ehlmann was the most vocal supporter of the budgeted marketing expense. The project, he said, has the support of the governor, the chamber of commerce, and the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), and would bring spillover business to the county.

“If we don’t get this China trade, that’s where it will go, it will go to Chicago,” he said.

Other counties and municipalities weren’t asked to be a part of the project, Ehlmann said, but Saint Charles was invited to participate.

“I don’t think this is going to rise or fall [based on] whether we put our money in,” Ehlmann said. “The question is, do we want a seat at the table?”

After more debate about whether the county could spend the $80,000 elsewhere, council member Nancy Matheny suggested that the group reconsider the expenditure at a later date.

“As tight as we are, with no raises or anything else, it’s hard to allocate to something we don’t understand,” she said.

The council made no decision during its work session, and the $80,000 remained in the proposed 2010 budget. But, said Brazil after the work session, the council will likely vote on whether to strike the expenditure during the next few weeks.

The post Saint Charles Debates $80K Funding for Publicity of Developer’s Airport Expansion appeared first on Show-Me Institute.

As a former St. Louis County deputy sheriff, I am uniquely qualified to comment on this story. The Political Fix has a post here about the decision in a lawsuit brought by St. Charles and St. Louis counties. Now, my own post is not a comment on the decision in the lawsuit. I have no idea whether the specific legal claims have merit. I just know that this is one more example in which the taxpayers in our larger counties have to pay higher taxes (or, in this case, a higher fee) for something because the smaller counties refuse to tax themselves enough.

I have absolutely no problem with smaller counties choosing to tax themselves less, but I do have a problem with taxing the larger counties more in order to pay employees in smaller counties more. I do not know whether this could be considered “socialism” or not, as County Executive Steve Ehlmann said, but I do know that it is terrible public policy, and blatantly biased as well.  Both county executives Ehlmann and Charlie Dooley deserve credit for fighting this new law.

The post How Is Service of Process Fees Like the School Funding Formula? appeared first on Show-Me Institute.

Should people from surrounding counties tax themselves to pay for the district like people in St. Louis county and city do? Or should the free riders just be allowed to continue enjoying the zoo without paying for it? I support the bill before the legislature requiring counties like St. Charles, Franklin, and Jefferson either to tax themselves or face having their residents pay an admission fee when they go to the zoo, history museum, et al. If they don’t want to pay the property tax, that is fine, but then say goodbye to free admissions for people outside St. Louis County and city.

I think the St. Charles county executive makes a fair point, though:

[…] Steve Ehlmann said his constituents would be unlikely to vote to join the district unless some of the tax money is earmarked for some institution or service in their county.

I think it is very reasonable to add one park or institution in each county that elects to pay the property tax into the fold of entities supported by the tax. We could add the Daniel Boone home in St. Charles, the historic Washington riverfront park in Franklin County, the first meth lab ever busted in Jefferson County, and — if Illinois got in the game — Pops could be included.

P.S. — Just kidding, Jeff Co., you know I love you. …

The post A Tax I Pay That Others Should, Too appeared first on Show-Me Institute.

Political Fix has the story here. Now St. Charles will use current employees to handle those duties — but from within the scope of their current jobs, not as brand-new positions devoted to doing the same things the lobbyist did. Kudos to County Executive Steve Ehlmann for making this move. We do not need one level of government paying lobbyists to get money from other levels of government. That just grows the leviathan, and the influence of government at every level in our lives.

As I have said before, don’t take my words here as an attack on lobbying as such. I have nothing against lobbyists, and certainly nothing against Jim Cooper, whom I have never met. I just dislike the practice of using tax dollars to lobby for more tax dollars from another government. Thanks to Combest for the link, and to Brian Simpson for covering the move as well.

The post Another Thing to Like About St. Charles County Government appeared first on Show-Me Institute.