My conclusion was simple: AOC was right to oppose the tax giveaway.

The question of whether, or to what extent, incentives are necessary isn’t just an issue in the case of Amazon, either, and research into the incentives that include or imply “but for” language—“but for the incentive, the project won’t happen”—[is] helpful here. For example, a study by the W.E. Upjohn Institute published last year reveals that the vast majority of businesses that receive tax incentives under a “but-for” rubric likely would have pursued their projects even without the incentive. . . .

This failure of stewardship from governments across the country costs state and local taxpayers billions of dollars annually. That affects not only government services, including roads and education, but also a government’s ability to reduce taxes for everyone, if it so desired. The city of Kansas City, Missouri, where I’m from, redirects $90 million annually from its budget through tax incentives, but that doesn’t include the additional $42.5 million those decisions redirect from the city’s public schools and other taxing districts, who rely on these tax streams but have relatively little say in their diversions.

When a government incentive package is worth billions of dollars, it has truly reached the outer frontier of questionable economic interventions. At $3 billion, New York’s Amazon package was prodigious, but what if I told you last year Kansas City put together an incentive package worth up to $8.2 billion for a nondescript data center development? What if I told you the state of Missouri was also kicking in potentially millions of dollars?

And what if I told you that last week, Facebook—I mean, “Meta”—accepted their offers?

The data center, set to open in 2024, will support up to 100 permanent jobs and is the first of its kind in Missouri. During construction, the job will bring in an additional 1,300 jobs. . . .

The $800 [million] facility will come to Golden Plains Technology Park, a 5.5-million-square-foot land development in Kansas City’s Northland.

Tax incentives are always a dicey proposition because they substitute government decision making for the market. But tax incentives for data centers are especially dicey because the number of permanent jobs they generate is almost always paltry, with the “cost per job” of these packages often landing over $1 million. Although the final accepted package remains to be published, the KC Meta data center project seems likely to far exceed that already absurd baseline of cost per job.

Economic development policy that is determined by the number of ribbons that get to be cut and hard hats that get to be donned by politicians is inherently fraught with perverse incentives that force every other taxpayer to carry the weight of government on behalf of an increasingly select group of developers and corporations. Local government should be reducing taxes on everyone rather than just for some of the wealthiest companies in the world, especially in an era of historic inflation.

That Facebook gets priority over every other individual and company in Missouri is infuriating—but unfortunately, it is not surprising.

The post So Meta: New KC Data Center Heavy on Tax Incentives, Light on Jobs appeared first on Show-Me Institute.

The report provides a good overview of TIF, how it is used and how it impacts taxing jurisdictions. Much of the narrative will be familiar to regular readers of this blog, including this quotation of a study from the W.E. Upjohn institute for Employment Research:

Incentives are still far too broadly provided to many firms that do not pay high wages, do not provide many jobs, and are unlikely to have research spinoffs. Too many incentives excessively sacrifice the long-term tax base of state and local economies. 

The report cites a story in The Kansas City Star indicating that in 2018, Kansas City issued $175 million in tax breaks, of which $94 million would have otherwise gone into city coffers.

The League’s recommendations include some social and economic justice planks that might only further developers’ ability to game the system, such as Community Benefits Agreements and things such and “sustainable construction.” However, its recommendations for oversight could have come from the Show-Me Institute. The study recommends a more rigorous but-for analysis, capping such incentive packages at 10 years in length, using the blight standard more narrowly and increasing transparency both before and during the period of the incentive.

One additional recommendation from the League that fits well with previous Show-Me research, which focused on the relationship between campaign contributions and TIF awards: “Those seeking public financing, including their representatives, declare city and council campaign contributions and gifts for the prior ten years.”

The desire to rein in economic development incentives is not a function of ideology or partisanship. It is simply a matter of good government and fiscal responsibility. The League has provided a valuable service to its members and policymakers. The time for serious and significant reform is overdue.

The post KC’s League of Women Voters Weigh in on TIF appeared first on Show-Me Institute.

A new paper by Evan Mast of the W. E. Upjohn Institute for Employment Research concludes:

The short-run effect of new market-rate housing on the market for middle- and low-income housing is crucial to the current policy debate, where government intervention and market-based strategies are often pitted against each other. My results suggest that new market-rate construction loosens the housing market in such areas and, moreover, could do so in less than five years. This implies that market-based strategies can play an important role in improving housing affordability for middle- and low-income households.

In other words, building housing of all types helps those seeking middle- and low-income housing. This is a promising conclusion and largely intuitive. If there is more of a thing available, prices go down. Perhaps Kansas City and St. Louis really need to focus on building housing of all kinds, knowing that this alone will increase the availability of affordable housing.

Still, there will be advocates for more government subsidies to try to direct the housing market to provide for so-called affordable housing, such as a state low-income housing tax credit (LIHTC) to match the federal program of the same name. Despite the lofty intentions, research shows the state version of the program is largely ineffective.

To borrow from a common phrase regarding energy, Missouri governments ought to encourage people to “build, baby, build!” Governments don’t need to offer subsidies, but they ought to review their building codes and permitting processes with an eye towards reducing the burden on builders. Government has demonstrated it cannot solve the housing shortage; it ought to get out of the way and let the private market do what it does best: meet demand.

The post Does Building Market-Rate Condominiums Help the Affordable Housing Market? appeared first on Show-Me Institute.

The immediate aftermath of Amazon’s announcement featured the kind of Democratic recriminations that are the thing of Republican fever dreams. On one side were establishment Democrats like Andrew Cuomo and Bill de Blasio, who like many politicians are conventional when it comes to tax incentive–laden economic development strategies; on the other side were Democrats like Alexandria Ocasio-Cortez, who viewed the tax incentives as denying revenue to state and local government services.

At first, conservatives on Twitter were “rooting for injuries” and joking about the Left’s internecine conflicts. But eventually the conventional wisdom on the Right seemed to coalesce around the Cuomo and de Blasio perspective on tax incentives. It’s crazy, they said, that AOC would have come out against a tax incentive package that would have brought (more) Amazon jobs to New York! Think of the jobs!

But while conservatives delighted in the aftermath of Amazon’s exit as an opportunity to proclaim Ocasio-Cortez’s economic ignorance, Ocasio-Cortez is more correct about the Amazon deal than she is wrong, and far closer to the path of good tax policy than many conservatives.

In fact, there is a larger seen vs. unseen consideration in the Amazon debate that centers not only on whether the average “economic development” project would go forward even without a tax incentive, but also on the overall impact of profligate tax incentive policies on governance objectives generally.

First, we cannot know for sure whether Amazon would have come to New York without, or with reduced, tax incentives, but we do know that the bookies who handicapped Amazon’s search always had Virginia and New York among the favorites for the HQ2s, in no small part because both already had highly skilled workforces, to say nothing of their preexisting proximities to power. In fact, many tax incentive offers to Amazon from other states far exceeded the value of New York’s. Amazon’s statement on its HQ2 withdrawal from New York can easily be read not as one ultimately about the cash, but about the public relations fiasco Amazon was about to endure at the hands of New York’s activist class.

The question of whether, or to what extent, incentives are necessary isn’t just an issue in the case of Amazon, either, and research into the incentives that include or imply “but for” language— “but for the incentive, the project won’t happen” —are helpful here. For example, a study by the W.E. Upjohn Institute published last year reveals that the vast majority of businesses that receive tax incentives under a “but-for” rubric likely would have pursued their projects even without the incentive: that many of these projects are getting tax incentives not because the project wouldn’t happen without them, but because business interests have become accustomed to receiving them and know how to work the system to get them. The result? As local tax incentives proliferate, fewer and fewer taxpayers become responsible for greater and greater portions of local government funding.

This failure of stewardship on the part of governments across the country costs state and local taxpayers billions of dollars annually. That impacts not only government services, including roads and education, but also the ability of a government to reduce taxes for everyone, if it so desired. The city of Kansas City, Missouri, where I’m from, redirects $90 million annually from its budget through tax incentives, but that doesn’t include the additional $45 million that those decisions also redirect from the city’s public schools and other taxing districts, who rely on these tax streams but have relatively little say in their diversions.

Joining this concern with Upjohn’s findings, it’s clear in the case of Kansas City that tens of millions of dollars every year aren’t going to kids, to roads, or to other necessary projects simply because some connected businesses want special taxing treatment for projects they would undertake even if they did not receive the incentives.

In some respects these revenue diversions are only now coming into sharper focus with the promulgation of new GASB accounting standards requiring greater transparency about the money that governments across the country are forgoing in the name of “development.” If you haven’t looked up how much your local and state government is giving away, you probably should; it will reframe the financial picture the next time those governments come to you claiming to be cash poor and looking for tax hikes.

Would some tax incentivized projects be withdrawn if there was no tax incentive? Certainly. Would most others proceed as planned? Evidence suggests that they would.

I’m not arguing that Amazon specifically would have come to New York with no, or fewer, tax incentives, as no one really knows the answer to that question; I’m also not arguing that New York government “deserves” to be funded at a higher level and that Amazon’s HQ2 departure will allow that.

What I’m arguing is that Amazon and other private companies play state and local governments against each other for their own financial benefit, and that politicians are usually more than happy to be played for the sake of donning their hard hats and planting a spade in the ground in front of a bunch of cameras.

What’s mystifying to me is that while national conservative pundits (rightfully) guffaw at the idea of ethanol and sugar cane subsidies and all the rest, that they may not view state and local tax policy failures as similarly deserving of unambiguous and pointed criticism. Perhaps in the context of the players involved – Amazon, Jeff Bezos, Alexandria Ocasio-Cortez, Bill de Blasio and Andrew Cuomo – it is simply too delicious to watch the conflagration of cultural and economic trainwrecks, and comparatively disadvantageous to say, however plainly, that both Amazon and New York will be just fine, and that these tax incentive deals are rarely in the interest of the taxpayers who subsidize them.

More to the point, conservatives would do themselves a favor by recognizing clearly, and repeating loudly, that tax incentives are not indicative of healthy “tax competition,” and that deals like the one struck between Amazon and New York are instead a showcase of a national policy disease that rides the paychecks of individuals and small businesses across the country, to dole out money to the enterprises of the well-connected.

Milton Friedman was right:

You talk about preserving the free market system. Who has been destroying it? The business community must take a large share of the responsibility. … You must separate out being pro-free enterprise from being pro-business.

New York was pro-Amazon; it wasn’t pro-market. And conservatives would do well to focus on the latter approach as their guiding principle on these and similar matters of local tax policy in the future, regardless of the state, and regardless of the players involved.

The post New York Shouldn’t Have Offered Amazon $3 Billion. No One Should Have. appeared first on Show-Me Institute.

We’ve built a new entertainment district along with several luxury apartment high-rises, corporate headquarters buildings, and hotels—including an 800-room convention hotel. We’re trying to build a new single-terminal airport, revive the 18th and Vine Jazz District, and expand the streetcar. There is also talk of building along the riverfront, possibly including a new sports stadium!

But along with building structures, we’re also building a reputation—and not a good one.

Perhaps you have also heard about a years-long, nation-leading spike in homicides, an underperforming Kansas City Public School District, and a nonexistent affordable housing policy. Maybe you’ve read about blighted structures on the East Side collapsing under their own weight. You may be aware that the police department has about 10 percent fewer uniformed officers than it did before the homicide rate jumped.

These things are related. Our leaders are falling over themselves to offer generous tax incentives to everyone from Amazon to Burns & McDonnell to Cerner while city services are being starved of tax revenue because those companies are no longer paying. Recently, both the Kansas City Library and Mid-Continent Public Library turned to taxpayers to make up for funds lost to such subsidies. Sometimes service providers like the Community Mental Health Fund are less able to help those in need.

Like a crazed Christmas shopper, we’ve paid for much of this development spree armed with credit and questionable judgment. Kansas City’s leaders were warned about high levels of debt in 2012 in the Citizen’s Commission on Municipal Revenue. But since then our debt per capita has only risen, and last year city leaders sought and were granted 40 more years of debt.

If you’re looking for a metaphor from the season, it might be that we’re hanging a lot of shiny ornaments on a dry, dying Christmas tree.

Proponents argue that without generous subsidies, wealthy corporations could not afford to build their luxurious headquarters buildings. Beyond the question of why taxpayers should support such things, the research from around the country tells quite another story. A 2018 study from The Upjohn Institute for Employment Research concludes in part, “for at least 75 percent of incented firms, the firm would have made a similar location/expansion/retention decision without the incentive.”

Another cost of these burdensome baubles on our community Christmas tree is they make it harder for us to keep the tree itself alive and healthy. Consider the time and attention spent on the new airport terminal or the convention hotel that might have been used addressing housing policy or the homicide rate.

We are diverting money and seeing no real gain. So why do city leaders keep doing it?

One reason might be explained by another Christmas metaphor: gift giving. A Show-Me Institute study of tax-increment financing (TIF) projects in Kansas City from 2002 through 2018 found that developers’ campaign contributions to city council and mayoral candidates increased in the years leading up to their TIF applications and then dropped off in the years after TIF was awarded. This finding suggests a TIF-for-tat arrangement between developers and city leaders, and it could help explain why an economic development policy universally decried as suspect remains popular—and increasingly so—in Kansas City.

The final days of a year are often a time to take stock and reflect. As Kansas City prepares for local elections, we need to focus more on the real issues affecting our municipal tree—crime, infrastructure, education, and debt—and less on the distracting and ultimately unsuccessful policies of economic development subsidies.

The post Kansas City’s Christmas Tree appeared first on Show-Me Institute.

Contrary to what proponents of economic development subsidies are claiming, the incentives aren’t really driving companies’ decision-making. The Upjohn Institute for Employment Research released a study in February which concludes in part that, “for at least 75 percent of incented firms, the firm would have made a similar location/expansion/retention decision without the incentive.” Amazon’s choice to move its new headquarters to New York City and a suburb outside Washington, DC, illustrates the point: companies do what is best for them, and tax incentives are rarely enough to outweigh other factors (like quality of workforce, for example) that influence decisions about where to set up operations.

Cities are starting to reevaluate their incentive programs. Nashville recently suspended the use of tax-increment financing (TIF) pending a study. St. Louis completed a broader study of economic development incentives in 2016 and is now considering reforms.

Kansas City undertook an effort to study its incentive regime, but the process seems intended to obfuscate. In a July 2016 story in The Kansas City Star, Mayor Sly James seemed to appreciate exactly how important a well-done study of incentives could be in improving policy. He said,

Such an analysis, if done correctly, will take some time to complete; however, we will be working to complete it as soon as possible. The report will provide the sort of data and facts that can lead to reasonable and responsible improvements to our economic development policy.

By October 2016, the mayor appeared to be backpedaling. In a speech to city employees he said, “City Hall doesn’t do a good enough job of promoting how economic development benefits the city.” That suggested a shift in purpose from a serious analysis of city policy to merely a public relations effort to promote existing policy.

Kansas City received eight bids—ranging from $174,000 to $287,000—on the proposed study, including from the PFM Group, an asset management company that had conducted the above-mentioned study in St. Louis. The highest bid came from the Council of Development Finance Agencies (CDFA), which according to its website is “a national association dedicated to the advancement of development finance concerns and interests.” It is not an accounting or economic evaluation firm, but a trade group seemingly placed in a conflict of interest.

Kansas City contracted with CDFA and paid the firm $350,000—more than what CDFA bid on the project, and approximately twice as much as St. Louis paid PFM for their 2016 study. There was now more reason to suspect this was not going to be a serious or rigorous analysis.

CDFA presented its report to the Kansas City Council on August 16, 2018—16 months past the original contract deadline. The report was a disappointment, but not a surprise. Rather than undertake the rigorous work of measuring the real impact of subsidies, CDFA simply assumed that subsidies had a positive economic effect. For example, it appears that the authors tallied up the value of a given economic development incentive and then divided it into the jobs or tax revenue that project generated. As a result, the CDFA report concluded, incredibly, that “each incentive dollar invested generated $3.83 in additional tax revenue.”

Importantly for policymakers, the report made no attempt to determine how or if a given incentive caused the subsequent development. It made no effort to determine if some projects generated more and better returns on incentives invested than others. During the presentation, council members continually questioned the consultants assembled about how the report could help them make better decisions in the future, or when incentives in a particular part of town met with diminishing returns. The consultants could not answer, because the study avoided such important questions.

Some organizations with an interest in promoting economic development incentives, such as the Greater Kansas City Chamber of Commerce and the Downtown Council, have uncritically parroted the $3.83-per-dollar-invested return rate on incentives. They should have known better. The editor of the Kansas City Business Journal called the report a “hot box of poo” and wondered, “did Kansas City blow a couple hundred thousand dollars on a completely useless study?”

While other cities are taking this issue more seriously, it appears that in Kansas City the answer is yes.

The post How Not to Study Economic Development Incentives appeared first on Show-Me Institute.

Sadly, my worst fears were realized when I received a draft copy of the report via an open records request. And the release of the final report hasn’t made things any better.  In short, the report tallies up the amount of subsidies awarded in Kansas City, tallies the investments made, and divides the latter by the former. Their conclusion was that “each incentive dollar invested generated $3.83 in additional tax revenue.”

During the years this study took to complete, was any effort made to answer the central question before policymakers—how much development happened because of incentives? If so, I can’t see any evidence of that effort. The question has been tackled by other researchers—most if not all of whom seem to arrive at the same answer: very little—or certainly not enough. The Upjohn Institute for Employment Research concluded in a July 2018 study that “for at least 75 percent of incented firms, the firm would have made a similar decision location/expansion/retention decision without the incentive.” That is a devastating conclusion, suggesting that three out of four dollars spent on incentives is unnecessary.

As a result, policymakers were vexed when the CDFA’s report was presented to the City Council on August 16. The report gives them no information that could help them distinguish good incentive investments from bad.  Councilmembers’ repeated questions about how this report can inform future decisions were met with answers that seemed designed to obfuscate.

Consider the following exchange between one councilmember and the director of the office of economic development (starts at 48:15):

Councilman Lucas: So there is some public conversation at times to the idea that we should not incentivize on the Country Club Plaza, we should not incentivize downtown. I guess the answer that I am hearing is that we can’t quite answer that question. Is it your view, Ms. Tyndall, that this study can actually help answer the question as to whether we have provided sufficient incentivizing activity such that we do not need to continue to extend incentives in certain areas?

Kerrie Tyndall: The way that I would respond to that question is to say that I think that this study shows that in general economic development incentive tools do work. They do provide an overall positive return on investment to the city when we apply them, but they are ultimately—at the end of the day—a tool. And someone has to take advantage of those tools in order for us to see an impact and from a public sector perspective we can certainly invest our dollars and be in control of how we invest our dollars when we’re trying to leverage investment of the public sector we’re somewhat dependent upon them to take advantage of those tools in order to accelerate some of the social gains that we want to achieve . . . [I gave up transcribing here].

In other words, no. City officials seem to be saying that taxpayers ought to subsidize every project in order to realize that three-to-one investment return. After about 90 minutes, the mayor seemed frustrated that council members weren’t buying the report’s conclusions. He asked one of the consultants—PGAV Planner’s Adam Stroud—about whether the incentives created the return that the report touts (starts at 1:25:55),

Mayor James: If $288 million [in incremental real property taxes*] is as a result of some incentive being used, if there is no incentive being used, would the number be zero?

Adam Stroud: I can’t answer that.

James: Would it be less than the $288 [million]?

Stroud: I also can’t answer that.

Again, unlike so many other studies of economic development incentives, this one simply omitted any analysis of whether incentives were necessary to drive development. This report just makes that assumption, but as Stroud honestly points out, he doesn’t know because this study didn’t consider it.

Despite the costliness and tardiness of the study, this giant hole in its design makes the report essentially worthless, both for assessing of existing incentive subsidies and for guiding future policymaking.

*The $288 million that the mayor refers to is actually the amount that will be returned to the developer instead of going to fund city services, so it’s unclear why the mayor asks the question this way. Nevertheless, it’s clear from the context that the mayor is looking for a link between subsidies and higher tax revenues, but this study can’t establish such a link.

The post How Bad was the CDFA Study of Incentives in Kansas City? appeared first on Show-Me Institute.

The Kansas City Business Journal reported that the consultant who prepared the study couldn’t show “how much development might have occurred in the absence of all incentives.” This is no small oversight. Kansas City is spending or diverting hundreds of millions of dollars into various development schemes at significant cost to school districts, counties and other basic services. We ought to have some sense of whether this is working. No private sector CEO worth her salt would permit such a significant investment of resources without any idea of the return it was likely to generate.

Worse, the report’s inability to connect investment with return was not a bug; it was intentional. Plenty of organizations, academic and otherwise, have conducted research into this very relationship. In 2016, the St. Louis Development Corporation—the River City’s version of the Kansas City’s Economic Development Corporation—conducted exactly this sort of study and determined that the use of incentives could not be said to drive private investment or create jobs. Incidentally, the company that produced St. Louis’s study, The PFM Group, also submitted a lower bid on the Kansas City project than the vendor the city eventually chose.

A 2018 working paper published by the Upjohn Institute of Employment Research concluded in part, “For at least 75 percent of incented firms, the firm would have made a similar location/expansion/ retention decision without the incentive.” That is a devastating conclusion—and one that is largely supported by research elsewhere. Is Kansas City wasting three out of every four incentive dollars?

Unfortunately, city leaders don’t seem to want to know; the study they commissioned did not even attempt a but-for analysis. City Manager Troy Schulte heralded the study and encouraged developers to make more use of the program. Are we really to believe that every economic development incentive program in Kansas City is a wild success? Really?

The biggest disappointment of the study, as alluded to in the Business Journal’s editorial on the matter, is that the report cannot help policymakers sort good projects from bad. It cannot ensure that future decisions regarding incentives are data-driven. It simply took every bit of economic growth the city has seen and attributed it to the incentives that came before. That is not analysis that encourages better policy. It is political cheerleading, and it is unworthy of the people and policymakers of Kansas City.

The post Kansas City Incentive Study Misses Opportunity appeared first on Show-Me Institute.

For a development project to receive tax-increment financing (TIF), one of the most popular subsidies, two boxes must be checked: A property must be declared blighted, and the proposed project must pass the but-for test. (We’ve written much about the largely meaningless blight standard before.) The but-for test, in short, is proof that a project wouldn’t go ahead in the absence of public assistance. Developers often support this claim by showing that a project would not be profitable without the public assistance, or in many cases not profitable enough for their tastes.

Much of the research on TIF subsidies in Missouri and around the country focuses exactly on that but-for analysis. Studies consistently find that TIF-treated areas grow economically at the same pace as non–TIF-treated areas. This means that cities are subsidizing development that is just as likely to happen without the subsidy—regardless of what the applicant tells you. TIF applications sometimes rely solely on the applicant’s own claim that without subsidies they would not build.

A new working paper from the Upjohn Institute for Employment Research underscores this exact problem in Kansas City when it concludes in part, “Overall, the research literature on incentives’ ‘but for’ effects is not as rigorous as one might hope.” No kidding. The paper sums up its findings as follows:

Based on a review of 34 estimates of “but for” percentages, from 30 different studies, this paper concludes that typical incentives probably tip somewhere between 2 percent and 25 percent of incented firms toward making a decision favoring the location providing the incentive. In other words, for at least 75 percent of incented firms, the firm would have made a similar location/expansion/retention decision without the incentive. Many of the current incentive studies are positively biased toward overestimating the “but for” percentage. Better estimates of “but for” percentages depend on developing data that quantitatively measure diverse changes in incentive policies across comparable areas. [Emphasis mine.]

If the draft report being passed around between the CDFA and Kansas City is any indication, not only does it fail to seriously analyze “but for” claims—unlike a similar study conducted in St. Louis—it barely mentions but-for whatsoever. That means we are being asked to assume that developments that come after subsidies are granted come because subsidies are granted—a basic logical fallacy. Kansas City leaders had the time and resources to commission a more thorough analysis of city incentives, and they chose not to. What they got instead was a report that mimics the failures of their policies.

The post More Reason to be Skeptical of Economic Development Incentives appeared first on Show-Me Institute.

Kansas City issued a request for proposals with the deadline of June 12, 2016. Eight companies submitted bids to complete the work. The companies and their total bid prices are listed below. Note that CDFA, which was awarded the project, was the highest bidder. The final contract award was even higher: $350,000.

I have attached electronic copies of the RFP and all the bids at the bottom of this post. Feel free to dig through them and let us know what you find. Here are some things we found noteworthy:

• Collins Noteis & Associates (“a WBE-certified firm specializing in urban planning, community planning, economic development planning, and government affairs”) is listed as a subcontractor on at least two of the bids: EPS and EDR.
• EPS’ bid includes as a subcontractor Parsons & Associates, which is a Kansas City–based public relations firm whose work would account for just over 10 percent of the cost. Why is a PR firm contracting to provide economic analysis?
• CDFA’s winning bid included participation of the W. E. Upjohn Institute for Employment Research. This is promising because the Upjohn Institute recently published a study concluding that:

The existing research on incentives is that in some cases they can affect business location decisions, but that in many cases they are excessively costly and may not have the promised effects. The new research suggests that much of this consensus is justified.

• CDFA’s bid lists the Hardwick Law Firm LLC as a “team member.” Herb Hardwick, founder of that firm, still serves as counsel to the Kansas City TIF Commission—whose work CDFA will be assessing. This could be a significant conflict of interest.

The CDFA contract is operating under its fourth deadline extension, which ends in late July. We don’t know if a fifth extension will be sought or granted. But given the great cost, the delays, and questions raised by the choice of vendor, one wonders if anyone at City Hall is interested in a serious analysis of our incentive regime.

The post City Chooses Highest Bidder to Conduct Economic Development Analysis appeared first on Show-Me Institute.

The bill in question was SB 859, which was heard by the Senate Economic Development Committee on February 20. A copy of my own testimony is here. The bill is fairly straightforward; it would limit the circumstances under which TIF can be used and would require a third-party analysis of the need for a taxpayer subsidy.

Opponents of the bill included members of the Economic Development Corporation of Kansas City, whose budget is dependent upon fees generated by the TIF projects they oversee. In fact, EDC staff once received bonuses because the group received so much money from TIF fees. The two officials testifying for the EDC offered anecdotal evidence of TIF success, highlighting two or three projects. But there are at least as many projects in which TIF has been abused, including the world headquarters buildings of Burns & McDonnell and H&R Block, along with other failures such as the Power & Light District and the never-actually-built Citadel. In fact, I am confident that in a battle of anecdotes opponents of TIF would win handily.

Other opponents of reform at the hearing included representatives from a few businesses that have benefitted from these taxpayer subsidies. They urged legislators to “be careful” lest reform hinder Missouri’s ability to fight a subsidy border war with Kansas (a border war, incidentally, that is a “financial folly for taxpayers”). If only those same businesses urged local officials to be careful with the TIF subsidies they give out so easily.

But good public policy ought not be based on mere anecdotes. Even if you don’t care what the research indicates, good policymaking is dependent on good information. And the research on TIF is clear: It doesn’t work at spurring investment or creating jobs. If you don’t want to depend on Show-Me Institute research, you can look at a UNC-Chapel Hill study on Chicago, or to the Upjohn Institute for Employment Research for nationwide data analysis. You can even turn to a study conducted for the St. Louis Redevelopment Corporation on the TIF subsidies that the corporation itself recommends and administers! This is the testimony that should matter.

Legislators should be wary of testimony from people with a vested financial interest in a bill’s outcome, or of testimony that amounts to little more than cherry-picked anecdotes. They should seek out broad research from disinterested parties—which, in the case of TIF, tells us that these subsidies are a waste of taxpayer money.

The post What I Saw at the TIF Hearing appeared first on Show-Me Institute.

Add one more study to that list. This week the Show-Me Institute unveils its own study of TIF in Missouri, specifically in Saint Louis and Kansas City. Authored by T. William Lester and A. Rachid El- Khattabi of the Department of City and Regional Planning at the University of North Carolina–Chapel Hill, the study focused on the but-for analyses used in TIF findings; the argument that development would not happen at a particular site without taxpayer subsidies.  According to the authors,

Overall, the analysis conducted in this study finds no support for the claim that TIF generated tangible economic development benefits in either Kansas City or Saint Louis.

Specific to each city studied, the study offers that there is zero—or perhaps even a negative—relationship between TIF and economic development:

In Kansas City, the estimated impact of TIF designation across all categories is very close to zero with relatively small standard errors, which suggests that the TIF program in Kansas City has been ineffective in promoting business development. In Saint Louis, the results are slightly negative and, for the most part, statistically significant.

Policymakers, developers, and many in the media will likely continue to eschew research and point to new buildings as proof of the effectiveness of development subsidies. But the question that studies like this one this answers is not whether development occurs, but whether it would have happened without the subsidy. The roar of research on the matter is deafening—economic development subsidies do not deliver their promised economic benefits.

The full Policy Study, as well as a shorter Policy Brief, are available at the links below.

The post Does Tax-Increment Financing Pass the But-For Test in Missouri? appeared first on Show-Me Institute.

Using data from 47 cities in 33 states over the course of 26 years (1990 to 2015) the Upjohn study confirmed what Show-Me Institute analysts have been arguing for years: economic development incentives do not grow the economy, create jobs, or boost tax revenue. In his 2017 paper, Upjohn author Tim Bartik concludes (page 116),

The existing research on incentives is that in some cases they can affect business location decisions, but that in many cases they are excessively costly and may not have the promised effects. The new research suggests that much of this consensus is justified.

None of this will surprise frequent readers of this blog. Politicians may like attend ribbon-cuttings and crow about creating jobs, but little of this actually pans out. Instead, cities and states end up hollowing out their tax base, collecting ever less for important services such as public schools, libraries and mental health funds. Simply taxing money out of the economy and then turning around and spending it doesn’t grow the economic pie! The new study confirmed as much:

Incentives are still far too broadly provided to many firms that do not pay high wages, do not provide many jobs, and are unlikely to have research spinoffs. Too many incentives excessively sacrifice the long-term tax base of state and local economies. Too many incentives are refundable and without real budget limits.

The 33 states that Upjohn considered account for 92 percent of the U.S. gross domestic product, and the 45 industries it analyzed account for 91 percent of U.S. labor compensation. Kansas City has undertaken its own analysis, of sorts, of its economic development policies, but has hired a trade group of development financiers to do the work. Seriously.

Politicians and those aligned with wealthy developers may not like or care about the research—but it’s becoming increasingly difficult to wave it off and pretend it doesn’t exist.

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