receive bona fide proposals from firms, partnerships, consortiums, etc., with the technical expertise and financial resources to enter into a public–private partnership for the long-term lease, management, operation, and development of the Airport. The Airport Lease RFP shall be in a format acceptable to the FAA and shall be appropriate for submission as part of the City’s final application document.

The Show-Me Institute filed an open records request for the request-for-proposal document (available here), the proposals the city received, and the resulting contract with the winning bid. Those 11 bids are listed below, with links to the full text of each. Note that in two cases the document we received was divided into two parts, perhaps to make electronic transmission easier. Note also that some bids contain redactions, perhaps to protect sensitive information.

• Credit Suisse proposal
• Ernst and Young proposal
• Faegre Baker Daniels proposal
• Moelis & Grow Missouri proposal (part 1 and part 2)
• Hardwick proposal
• Katten proposal
• Lazard proposal
• P3Point proposal (part 1 and part 2)
• RBC Capital Markets proposal
• Stifel proposal
• UBS proposal

The selection committee for the city chose the Moelis & Grow Missouri proposal. The resulting contract with the city is here. We note that Rex Sinquefield, the president of the Show-Me Institute, is associated with Grow Missouri.

Show-Me Institute researchers have not had the opportunity to go through the proposals, but the information is presented above for public review.

The post St. Louis Airport Privatization Documents appeared first on Show-Me Institute.

On Tuesday, April 5, Saint Louis voters will decide whether to extend the city’s 1 percent earnings tax for five more years.

Without a doubt, this is a hugely important decision.

In inviting me to talk to you, Ron Zager (co-chairman of the Missouri Progressive Action Group), asked that I begin by presenting both sides of the argument—for and against the earnings tax .

I am happy to do so. It makes for an interesting—and even a startling—contrast.

Supporters cite three principal reasons for extending the earnings tax:

1. It is simple, fair, and easy to collect. Businesses withhold $1 out of every $100 from the paychecks of all of their employees and pay it directly to the city. They also pay a 1 percent tax on their net profits.
2. It brings in a lot of revenue—almost as much as the combined receipts from the city’s property, sales, and utility taxes. It provides a third of the city’s General Revenue Fund, used to support fire, police, courts, streets, parks, recreation, and other day-to-day city services.
3. A large portion of this revenue is like manna from heaven. People who commute into Saint Louis from the surrounding suburbs account for more than half of the city’s annual earnings tax receipts of about $160 million. And why not? The high-earning commuters are significant consumers of city services, swelling the daytime population of the city by about 35 percent.

To sum up the case in favor of retention: The earnings tax is critical to the continued functioning of city and the continued provision of police and other services to a population that includes a high proportion of low-income residents. It is a real lifeline. The city would be in danger of going bankrupt without it.

Opponents have three main reasons of their own for eliminating or phasing out the earnings tax:

1. It encourages people and businesses to move out of the city.
2. It also encourages an ongoing merry-go-round of tax carve-outs and special favors for large and well-known firms. The city does not extend the same benefits to thousands of smaller businesses, which take care of most of the daily needs of people who live in the city, such as the neighborhood grocer, cleaners, pharmacist, or auto repair shop.
3. Though not a regressive tax (applying the same 1 percent to people at all income levels), it is a cruel one. Unlike federal and state income taxes, there is no exemption from the city earning tax for working people at or below the poverty line. The tax hits the first dollar of income even from the lowest-paying jobs. A still greater problem is the narrowing of job opportunities in parts of the city experiencing a rapid out-migration of people and the closure of many small businesses.

The minuses are really the flip side of the pluses I have just mentioned.

Yes, the earning tax is easy to collect, but it is also easy to avoid. As a business owner, you can avoid the tax on your net profits simply by moving your business to the suburbs—anywhere outside the city. There is no earnings tax in Clayton, here in Frontenac, or anywhere else in Saint Louis County and other surrounding counties and municipalities. If you did move your business, many or even most of your employees who already live in the county would, out of their own self-interest, applaud your decision. And others who live in the city would be given a reason to move to the county.

Yes, the earnings tax pays many big bills for the city. By the same token, it provides a strong incentive for individuals and businesses—who have bills of their own to pay—to relocate in order to avoid the tax.

By collecting more than half of earning tax revenue from commuters, the city is (inadvertently) making a powerful argument for downtown-based law firms and other businesses with a large number of highly paid employees to take flight—for both economic and personal reasons. At one stroke a firm can give many of its officers and employees an instant 1 percent raise while sparing them the bother of a long commute. So what can the city do to prevent such businesses from moving?

If you are the sitting mayor or other high-ranking city official, here’s the answer: Offer big potential flight risks all kinds of tax breaks and other incentives to stay downtown. Find ways to abate property taxes to keep prestigious firms from leaving downtown. Waive the half-percent payroll tax (separate from the earnings tax) for large employers such as Anthem and Wells Fargo. And lobby the state for more handouts.

But of course, given your obsession with preserving earning tax receipts, you do that only for the big guys and you forget all about the little guys who are so numerous (even in decline) that you know little or nothing about them.

A classic example of how this works can be taken from 2011, when Stifel Financial Corp., which has had its corporate headquarters in downtown Saint Louis since 1890, announced plans to buy its downtown office building and expand its workforce in the city by a couple hundred people. Mayor Francis Slay called it “tremendous news for the future of downtown.” He also helped Stifel get some $17 million in public financing for the purchase and renovation of the building.

Why would a large and successful financial firm need help in feathering its own nest? Ron Kruszewski, Stifel’s CEO, said it all: “There’s very little investment going on right now without some incentives.”

That prompted Bill McClellan of the St. Louis Post-Dispatch to comment in one of his columns: “When liberals like me argue for comprehensive health care, critics call us socialists. But when businesspeople demand public money to underwrite their projects, hardly anyone says anything.”

(I’ll take issue with McClellan on one point here: There is at least one institution that has fiercely and consistently opposed all forms of corporate welfare and crony capitalism, whether it is providing public funds for new corporate headquarters, public funds for professional sports stadiums, or any other kind of commercial development. That is the Show-Me Institute.)

To sum up the minuses: the earnings tax is a tax on work and enterprise, and when you tax something, you get less of it. In this case that means fewer jobs and less growth. The earnings tax has also encouraged unfair and unwise favoritism in tax practices—decisions made up on the fly to keep big-name businesses from bolting to the county. It’s time for a long look at Saint Louis city government—how it is financed and, more fundamentally, how it thinks.

Let us take a moment to consider decade-to-decade changes in the relative importance of Saint Louis among major cities in the United States over a long period of time—both before and after the introduction of the earnings tax in 1954.

According to census data, the last time Saint Louis moved upward in the ranks of U.S. cities was in the 1890s. The population grew from 452,000 people at the beginning of the decade to 575,000 in 1900, and Saint Louis moved from being the 5th largest city in the country to the 4th (behind New York, Chicago, and Philadelphia).

Of course, that was just prior to the Saint Louis World’s Fair. In that same amazing year of 1904, Saint Louis also hosted the world’s third modern Olympics—following the 1900 Olympics in Paris and the 1896 Olympics in Athens.

Saint Louis held onto 4th place until the 1920 census, when it was overtaken by Detroit and Cleveland, dropping to 6th. It was passed by Los Angeles in 1930 and Baltimore in 1940, falling to 8th. It remained in that spot in the 1950 census—when the city’s population hit an all-time peak of 857,000.

At that point the city’s population went into a steep decline that continues to this day. Since 1950, its population has dropped from close to 900,000 to a little more than 300,000—discarding almost two-thirds of its human body weight—and Saint Louis has gone from being the 8th-largest city in the country down to the 60th, behind such places as Tulsa, Oklahoma, and Wichita, Kansas.

It would be absurd to place all or even most the blame for this decline on the earnings tax. It would be equally absurd to deny that the earnings tax has made a significant contribution to the depopulation of the city and the growth of surrounding areas.

For one thing, we know that downtown Saint Louis no longer rules the roost as the unchallenged commercial center of the Saint Louis region. Clayton has become a strong second center, and other places around the county are also filled with offices and business enterprises. It is only in Saint Louis City that you find acres and acres of abandoned houses, deserted storefronts, and boarded-up factories.

Here’s a statistic that may surprise you: There are now more people who commute into Saint Louis County . . . both from the city and from Saint Charles and other counties . . . than there are people who commute into the city from the county or other jurisdictions. There are 236,000 people commuting into the county versus 172,000 commuting into the city, according to recent census data.

Somehow, Clayton and other municipalities receiving this great daily influx of commuters have been able to handle it . . . without instituting an earnings tax or having everything from the streets to public safety fall to pieces. Why is it any different for the city of Saint Louis? Why is the city unable to cope without taxing the earnings of people who come there to work?

Let’s turn then to the question of whether it is possible to phase out the earnings tax without throwing the city into bankruptcy and fulfilling the worst predictions.

Bear in mind that the proposal on Tuesday’s ballot in the city calls for phasing out the earnings tax over 10 years—whittling away at a $160 million funding gap that would occur in the year 2026 through spending cuts or revenue enhancements averaging $16 million a year between now and then.

Is $16 million a year too tall a mountain to climb? Somehow, in the city’s desperate efforts in recent months to persuade the Rams and the NFL to keep the team in Saint Louis, the city funneled $16 million through the Saint Louis Convention & Visitors Center Commission to pay legal fees and other expenses in what turned out to be a losing effort.

Before that, Mayor Slay and Missouri Gov. Jay Nixon were prepared to raise about $400 million to pay for a large portion of the cost of building a new downtown stadium for the Rams. That alone would have equaled the revenues from the earnings tax over a two-and-a-half-year period.

If almost any large business you can imagine were to lose customers year after year—eventually losing more than half of its business base—you would expect it to downsize drastically, if not go out of business.

Why is it—despite the steady, continuing loss in population—that the city’s budget continues to grow, if only slowly, from one year to the next, with few if any large reductions in its workforce?

Faced with such questions, city officials typically shift the focus to public safety, saying they need more rather than fewer police and firemen. Public safety accounts for a little over half of general funds expenditures. Why, then, is it so hard to trim the other expenditures that make up about 45 percent of the budget?

There are other ways that the city can either cut expenditures or raise revenues besides the shock of instituting sudden and drastic increases in property or sales taxes. It could raise hefty sums of money by privatizing assets such as the airport or the water system.

It could also make a serious effort to raise some revenue from its large nonprofit institutions. As Post-Dispatch business columnist David Nicklaus pointed out in a recent article:

These universities and hospitals depend on city service but don’t pay property taxes. Boston and other cities have negotiated payments from their big nonprofits; Saint Louis could try to do the same. Eliminating the 1 percent earnings tax should make it easier for these institutions to attract and retain employees; wouldn’t they pay something to make the tax go away?

But none of those things is going to happen without a fundamental change in thinking on the part of city officials who have come to look upon the earnings tax as the sine qua non of Saint Louis city governance.

Following the last election, when voters re-approved the earnings tax, city officials heaved a sigh of relief, agreed that the tax did indeed put the city at a competitive disadvantage, and promised to study alternatives. That was five years ago. And since then they have done nothing.

Maybe if the vote is closer this time, they will begin to think differently. But maybe not. Maybe they will just go on hoping for miracles while continuing to pursue policies that have contributed the city’s decline and fall from the heights it once occupied as a great American city.

The post The Saint Louis City Earnings Tax: Lifeline or Noose? appeared first on Show-Me Institute.

                The recent downgrade saw Saint Louis’s general obligation debt rating fall one notch, from Aa3 to A1. That still leaves the city with a rating denoting an upper-medium investment grade, even if the rating is well below prime. And as some news sources have pointed out, that means Saint Louis’s rating is higher than Chicago’s or Detroit’s. Unfortunately, if we don’t compare Saint Louis to cities exiting or very likely entering bankruptcy, its rating is relatively low, as the chart below demonstrates:

                A lower bond rating can lead to higher borrowing costs. In the same way that an individual with a low credit score might have to pay higher interest rates on a car loan or a mortgage than someone with a great credit score, a lower rating for a city can mean it has to pay more to borrow. As cities regularly borrow money to make civic improvements, the higher cost of borrowing means residents pay more for large projects like, say, a football stadium. Speaking of stadiums, the rating for nonessential debt (read: convention center and stadium) issued by the Saint Louis Municipal Finance Corporation was also downgraded, to A3. That corporation would responsible for issuing bonds for a new stadium.

                The primary reason for Saint Louis’s weak credit rating is the city’s “weak socioeconomic profile,” which is admittedly difficult for city leaders to fix. However, there are ways city hall could work to increase the city’s bond rating. According to Moody’s, the city is too reliant on the earnings tax. In addition, the city could boost its rating by making an effort to reduce total debt. Unfortunately, with the city prepared to go even further into the red to build a billionaire a new football stadium, it may be a while before Saint Louis can brag about its credit rating to people who don’t live Chicago. 

The post Bad for Borrowing: Saint Louis Bond Ratings Slip appeared first on Show-Me Institute.

Meet the new ideas, same as the old ideas.

The Minority Leader in the Missouri House of Representatives says rather than focus only on ideas that have already been vetted, the legislature needs to consider some fresh ideas.

Mike Talboy (D-Kansas City) points to the states neighboring Missouri, all of which he says have angel investment opportunities. Those could be tax credit programs or funds that are typically smaller than some of the economic development programs already in Missouri.

He says putting programs like that into effect can provide “good bang for your buck in the beginning. But then also as the budget years get better and as we have more revenue in the state and as we see the returns on those types of programs, then you can look at expanding them if you need to or be able to expand them into different parts of the state.” Talboy says there is nothing like what he is talking about currently offered by DED.

“Angel investments” typically give the investor an ownership or convertible debt stake in a company, which oftentimes is a startup. They usually are differentiated from “venture capital investments” as investments measured in hundreds of thousands of dollars rather than millions of dollars. Angel investments — like so many investments — are inherently risky because success for a startup company is not certain, but such a high risk also has the potential for a high return. According to Jake Halliday, CEO of the Missouri Innovation Center, entrepreneurs oftentimes must give up “a 25 percent to 30 percent ownership stake in his or her startup for a $300,000 angel investment.” If the company grows, so does the angel investor’s money.

So if taxpayers underwrite these investments, will they also get a cut of the capital? I asked a similar question last year when it was revealed that half of the building Stifel Nicolaus was buying in Saint Louis — that is, the building it already occupied — was being subsidized with public monies. Taxpayers did not get to own half of the building it was paying for back then, and they almost certainly will not get a cut of the upside that could be realized from startups under an angel investor tax credit program. In short, we now are being told that Missourians should help defray the risk of high risk/high return investments that rational investors may not have undertaken. Sounds an awful lot like a bubble in the making.

If state officials really want to help businesses in Missouri, they need to stop treating the state’s economic development plan like they are throwing tax credit flapjacks against a wall to see what sticks, and instead cut taxes for everybody. Missouri’s tax credit problem has gotten so bad that Missouri officials could eliminate the corporate income tax entirely, and the state still would have millions of dollars in tax credits remaining. Even if elimination of the corporate income tax is not immediately feasible, officials easily could make deep cuts. They could eliminate millions of dollars of waste that regularly causes the state to lose all but a fraction of the money it expends in those tax credits.

Isn’t there a better way than the conventional wisdom in Jefferson City? Are more tax credits really the answer to our tax credit-fueled economic development problems?

The post Doing the Same Things Over and Over and Over . . . appeared first on Show-Me Institute.

The Worse News? It looks like taxpayers could end up paying almost as much for Stifel’s new business plan as Stifel is.

In this case, according to the application, Stifel is seeking $2.8 million in Build Missouri Bonds, a state program designed to defray the cost of expansions. That request will go before the Missouri Development Finance Board next week.

The company also plans to apply for $2.6 million in Missouri Quality Jobs tax credits, which reimburse companies that create jobs paying above-average wages.

Stifel predicts the average new employee will earn $65,000 a year.

From the city of St. Louis, it plans to request a $15 million allocation of federal New Markets Tax Credits, which translates into $3 million in equity for the project. Stifel also will seek property and earnings tax breaks worth $5 million over 10 years, and up to $500,000 a year in breaks on other local taxes — though Stifel agreed to make payments to St. Louis Public Schools.

Much of that aid, including all the state incentives, are dependent on Stifel actually creating the jobs it is promising. All of it, after expenses are counted for, will amount to $17.1 million in public financing for the $35 million project. The rest will come out of Stifel’s pocket.  (Emphasis mine).

“The rest will come out of Stifel’s pocket.” Thankfully.

The Post-Dispatch’s Bill McClellan highlights the contradiction at play here.

Of all the businesses that ought to understand the business of business, it’s Stifel. It’s a brokerage and investment banking firm. The people who run Stifel profess a belief in capitalism.

Except, of course, when it comes to their own affairs. Risk and reward? Nonsense! No investment without incentives.

Well, fine. I can understand the sentiment. If you can get public money, why not get it? What I can’t understand is the way the public always goes along with this stuff.

Just two days ago, David wrote a blog post about how some young entrepreneurs are looking for government assistance to get their businesses off the ground. Unfortunately, it seems they learned the wrong lessons from their predecessors.

The post So, Does This Mean Taxpayers Will Own Half of Stifel Nicolaus’ New Building? appeared first on Show-Me Institute.

Less excusable are the actions of supposedly wise politicians who lay down billions in tax dollars in the vain hope of hitting it big with a stimulus or economic development bill. We are promised that a dollar in government spending will create more than a dollar in economic growth.

This idea, known as the fiscal multiplier, has never been borne out by evidence. When the actual results of government spending on the economy are examined, they show lackluster or even negative returns. However, that has not stopped proponents of greater government spending from using the multiplier to promote everything from the federal stimulus bill to state and local subsidies for warehouse construction around Lambert–St. Louis International Airport.

The multiplier is based largely on the work of economist John Maynard Keynes, who argued that higher government spending combats people’s propensity to hoard money in a recession and puts unemployed people and resources to work. As the spending ripples across the economy, a dollar in government spending should cause substantially more than a dollar in economic activity.

The Barack Obama administration invoked multiplier theory to promote the $787 billion federal stimulus package. The president’s economic advisers assumed every dollar spent by the stimulus would add $1.50 to gross domestic product (GDP). In a March 2 column for the New York Times Economix blog, University of Chicago economist Casey Mulligan showed that stimulus spending did not boost GDP, and may have caused it to shrink.

Nor has stimulus spending delivered the bounty of jobs that its supporters promised. Obama claimed that the stimulus would prevent unemployment from exceeding 8 percent., yet it hit 10 percent and now remains stubbornly stuck at 9 percent.

Others have taken this idea a step further, claiming a still bigger multiplier effect for specific projects — thinking, just as I did in my youth, that it must be easy to toss the ring around the bottle. When final plans for Ballpark Village were announced in 2006, the Saint Louis Regional Chamber and Growth Association (RCGA) estimated that Phase I of the project would cost $387 million, but generate $273 million annually — paying for itself in a year and a half. Of course, this assumed that everything would go as planned. Almost five years later, construction has not started and the investment has been downgraded to $155 million, with at least $57 million of that coming from various levels of government. Furthermore, Ballpark Village is primarily shuffling existing businesses around instead of attracting or creating new ones. Stifel Financial Corp., the village’s largest future tenant, will move all of seven blocks.

Despite these failures, politicians of every stripe recently trotted out the multiplier to support subsidies for warehouses around Lambert, through “Aerotropolis” legislation. Although the precise equation behind it remains shrouded in oracular mystery, an RCGA study predicts that $300 million in public funding will lead to almost $34 billion in private economic activity over 20 years, suggesting a truly absurd return of more than 10,000 percent. Here, the Keynesian multiplier has itself been multiplied by the central planner’s conceit of being able to pick winners successfully — truly a sucker’s game.

The government cannot create resources from thin air. It must take them from taxpayers through taxation or borrowing. Resources used by the government therefore cannot be used by the private sector. Increasing government spending does not in itself increase the country’s capacity to produce — it just shifts existing production away from goods and services that consumers demand, and toward those demanded by politicians.

The multiplier is a lie, but an attractive one, luring the listener like the familiar siren song of my youth: “Ring the bell, win a prize!”

John Payne is a research assistant with the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

The post Development Spending by Government Only Multiplies Madness appeared first on Show-Me Institute.