May 7, 2012

Taxes And TIF In The Liberty School District

Soon, Tax Increment Financing (TIF) may claim another win. And when that happens, taxpayers can claim a loss. Kansas City officials are considering a TIF in the Liberty School District, less than a year after district residents voted down a 43-cent property tax increase. As I have pointed out, the Liberty superintendent claimed that previous TIF projects amplified the school’s need for a tax increase. It is safe to conclude that if the new TIF is approved, it will magnify the school district’s desire for a tax increase.

TIF allows developers to freeze taxes and invest any increase in property tax value that otherwise would go toward taxes into property development instead. Essentially, TIF costs taxing districts property tax revenue. For entities that do not rely heavily on property taxes, such as cities, TIF is not a big deal. But for taxing entities that rely heavily on property taxes, such as schools, TIF can be quite detrimental. If the TIF project in Kansas City moves forward, it could drive another vote for a property tax increase, and next time, the tax increase might not be rejected.

April 13, 2012

More Than A Third Of Missouri Is Blighted

More than a third of the state of Missouri — 24,870 square miles — is in enhanced enterprise zones (EEZ), areas that must be declared blighted in order to be created. The enhanced enterprise zones cover an area the size of West Virginia. These zones are appealing to local governments because businesses in the area become eligible for certain state and local tax incentives. But regardless of the desirability of enhanced enterprise zones, the notion of blight has lost substantial meaning when it characterizes a third of the state.

Blight is not benign. It can lead to eminent domain abuse. As long as it is this easy to blight a property, no home or business is safe. This is the fear of CiViC, the citizen group that has arisen in Columbia, Mo., to resist the EEZ being considered there. The group fears the city’s blight declaration will lead to eminent domain abuse.

EEZs are in red (map as of 2011)

EEZs are in red (zone boundaries as of 2011)

Consider: the definition of blight for the purpose of establishing an EEZ is exactly the same as the definition of blight for statutes explicitly granting eminent domain privileges. The implication is it can be just as easy to declare blight for eminent domain as it has been to declare enhanced enterprise zones in more than a third of the state.

Clearly, it is time to reform the definition of blight and separate it from the use of eminent domain. This separation has been granted to farmland, and it should be extended to all types of property.

April 9, 2012

Short-Term Lending Regulations Can Do More Harm Than Good

Last week, Cole County Circuit Judge Dan Green cast out a ballot initiative’s wording for a proposal that would cap interest rates at 36 percent. Apparently the wording on the petition sheets could deceive voters. This ruling will almost certainly prevent the initiative from being placed on the November ballot.

The issue is not going away forever. The supporters are continuing their effort to cap interest rates. I admire the desire to protect borrowers from abusive lending, but there is a better way than capping interest rates.

Interest rate caps at this rate will not only prevent high interest rates; they will eliminate payday loan shops in the state. Consequently, payday borrowers will probably not be able to acquire credit.  A better way to help borrowers is to make cheaper credit available. Do something similar to what this group is doing, and donate money to banks to offset losses from high-risk, short-term loans — thereby bringing down the interest rate.

For an excellent, succinct analysis of payday loan shops and regulations, click here. For more detailed commentary on the topic, see here and here.

March 30, 2012

We Need Historic Tax Cuts, Not Tax Credits

Saint Louis, the destination of more than $1 billion in state tax credits since 2000, may soon be home to a few more. The St. Louis Post-Dispatch reports that the city is about to conduct a search for all of its historic buildings. It is likely that the uncovered structures will become eligible for Historic Preservation tax credits.

This program sounds great for property developers, but what about everyone else? Shouldn’t Saint Louis concern itself with rejuvenating the entire city, not just a few old properties? Here is an idea: eliminate the earnings tax. It would be like a tax credit for everyone. It might even attract more businesses to the city, bringing economic growth.

For Show-Me Institute material on eliminating the earnings tax, click here and here.

March 23, 2012

Does Missouri Really Need Another Tax Credit Program?

Missouri is one step closer to having another tax credit program, the angel investment incentive tax credit. This tax credit program has some rather concerning features. For instance, certain industries are automatically excluded from consideration (business consultants and insurance companies, to name two). And for those businesses not excluded from the tax credit, the government must still find that they have “a reasonable chance of success.” Since when is the government good at determining what will be successful?

But wait, there is more. This tax credit has the potential for $6 million in new tax credits each year, which means that Missouri revenue could fall by as much. An amount of $6 million might sound insignificant, but this year, Missouri’s 60-plus tax credit programs are expected to dig an $835 million hole in state revenue. That $6 million figure is just less than half the average redemptions per tax credit program. Combined, these programs add up. Could this tax credit be the proverbial straw that breaks the Missouri budget?

March 16, 2012

What Cannot Be Blighted?

Last month, half of Columbia was declared blighted. This produced concerns of impeding eminent domain, even leading to the creation of a citizen group, CiViC, composed of residents who rightly fear casual use of blight. Their fears are not without reason: we  have seen blighted properties seized before. Here are some great photos of ordinary homes from around the state declared blighted and taken.

Last week, the Columbia City Council attempted to assuage fears of eminent domain. An advisory board:

recommended an ordinance that would safeguard against the use of eminent domain as part of the program by preventing the EEZ-related blight designation from being used to meet blight requirements for other laws.

Unfortunately, the recommendation does not provide full protection for Columbia residents. Other definitions of blight are exactly the same as the one the board used to blight half the city. What is to stop the city from blighting areas using statutes that expressly permit eminent domain?

The real problem Columbia residents face is the unconstrained use of blight. As long as the definitions of blight remain so broad, any property can be blighted and seized (except farmland). No residential or commercial property is safe. The definition of blight must be reformed.

March 8, 2012

Don’t Mistake Taking For Giving

This editorial in the Springfield News-Leader argues that the Missouri Legislature should follow the lead of certain charitable foundations and private donors in spending more money on higher education in the state. The piece is titled: “Passion for education now: Hopefully, state officials will learn from those who give.”

However, if the state is going to spend more on higher education, then it is going to have to take it from taxpayers. Taking is the opposite of giving. The state is not learning anything from charitable donors if it uses tax revenue, its primary source of funding, to increase spending on higher education. Spending other people’s money is not charity.

Let’s give credit where it is due; the editorial nicely honors those who have donated money toward the cause of helping others. For instance, it praises the generosity of folks like the late Lorene Thompson Brooks, who donated $4 million toward the “need-based scholarship program Corps of Opportunity and two athletic scholarships.” And it (rightfully) lauds the donors who gave $14.4 million in donations towards a university’s capital campaign – $4.4 million more than the hoped-for $10 million. I cannot help but wonder if these individuals would have been able to be so charitable if the state had taken more of their money.

The argument that the state should mimic the example of private donors, taken to its logical conclusion, undermines real charity. When the state spends more, taxpayers have less money to donate.

Let’s hope the state remains an environment of less taking and more giving.

February 9, 2012

Clutching the Sewers: The Foul Smell of a Missed Opportunity

Last week, the Arnold City Council decided against selling its sewers to Missouri American Water. It appears that the elected city officials did not care for the terms of the sale. From the Arnold Patch:

“It was clear that not enough assurances could be provided to ensure the protection of the City’s residents or the City employees who were proposed to join American Water,” [Arnold Mayor Ron] Counts said in a news release on Friday afternoon.

Any city should consider the costs of a decision, and I am glad that Arnold took the time to analyze those costs before making a decision. However, I believe there are benefits which may outweigh the costs. Should the city ever again be presented with the opportunity to sell its sewers, I hope city officials will fully consider the advantages of privatization. Here are a few examples from an op-ed that I wrote on the topic, untimely published five days after the decision not to sell (untimely due to bad luck, not a lack of effort):

  1. Arnold’s sewers are in dire straits. The city would face less of a financial difficulty if it relied on private capital to fund renovations and repairs.
  2. Private ownership leads to more efficient uses of labor and capital. Privatization can produce savings relative to bureaucratic management.
  3. The city of Arnold would obtain monetary benefits from the sale. When Florissant sold its water utility in 2002, it was able to establish a $10 million reserve fund. Arnold could use the revenue to establish its own reserve fund, pay down debt, or lower taxes.

For more Show-Me Institute commentary on privatization, click here.

January 25, 2012

Can The Market Provide Cheaper Short-Term Loans?

This article in the Kansas City Star is a must-read for anyone interested in payday lending. Here are some of the details (emphasis mine):

Central Bank has agreed to make old-fashioned signature loans (that means no collateral from the borrower) of $300 to $2,500. That’s also what payday and installment lenders do. Except Fair Community Credit will lend money for slightly longer durations and at a double-digit interest rate, not a triple-digit one. That way borrowers will have a better shot at paying off their loans, rather than defaulting.

What makes that possible is Fair Community Credit’s promise to cover any loan losses from a $200,000-plus loan guarantee pool donated by foundations and individual donors.

The market is creating relatively cheap short-term credit alternatives to payday loan shops. It is incredible to watch society tackle perceived problems through voluntary interaction without the forceful hand of the state. It will be intriguing to see the results of this venture.

A hat tip to John Combest for the link.

January 21, 2012

Promote Kindness, Not Taxes

An unpopular item in Missouri Gov. Jay Nixon’s budget proposal is the 12.5 percent funding cut to higher education. Considering there are more frivolous, untouched state expenses like tax credits for wine or beef production, I can understand why. What I cannot understand is why one of the first things individuals consider is more taxes. Grover Cleveland offers a lesson for such thinking:

The friendliness and charity of our countrymen can always be relied upon to relieve their fellow citizens in misfortune. . . . Federal aid in such cases encourages the expectation of paternal care on the part of the government and weakens the sturdiness of our national character, while it prevents the indulgence among our people of that kindly sentiment and conduct which strengthens the bonds of a common brotherhood.

Although Cleveland was talking about federal aid during a drought, the lesson is applicable to our current situation: Charity should be preferred over taxes. After all, taxes do not lend themselves to a “kindly sentiment.” And is charity such a radical option? Don’t universities already receive such donations? It seems that if the state believes citizens want to support universities, the government should let the people voluntarily display their support.

But suppose charity falls short – what then? Tuition increases should be considered. After all, let’s not forget that students are the ones choosing to attend college. When the price of education goes up, there is nothing wrong with charging a higher fee. And for those who cannot afford the higher fee, there are alternatives: scholarships and student loans. If both those options do not work, there is the alternative of a less costly education at a community college. Finally, if all else fails, college can be deferred. I have known several individuals who have put off college in order to accumulate savings for it. All options should be exhausted before reaching into the public purse.

January 10, 2012

Musings On Payday Loans And Pawn Shops In Jackson County

Jackson County is considering forcing new pawnbrokers and short-term loan shops in unincorporated areas to locate at least 2,500 feet from each other. That is almost half a mile, and is rather considerable. Just imagine if gas stations were forced to locate half a mile from each other. Can anyone say “higher prices at the pump”? Who knows what will happen to these businesses and their customers if the legislation passes.

And why 2,500 feet? Who came up with that number? This article sites the possibility of crime and lower property values around clusters of these businesses, but half a mile seems a little excessive. I would hardly call it a cluster if the businesses located just one block from each other, but even one block is an arbitrary number.

As you may recall from the mantra “location, location, location,” the location of a business can drastically affect profitability. The proposed legislation may make it impossible for more than one loan shop to take advantage of a good location. Since when is that reasonable? Businesses locate in a particular area for a reason – and unfortunately for the affected businesses, the reason they locate to a particular area may be the county’s legislation dictating the available options.

Additionally, why is the government singling out pawnbrokers and short-term loan shops? What next? The proximity of ATMs? When will the regulations stop?

For more Show-Me Institute payday loan material, check out this and this, as well as this awesome video.

November 10, 2011

We Need TIF Reform, Not Higher Taxes

I am happy to report that voters on Tuesday defeated a proposed property tax increase in the Liberty School District. I blogged about the proposal before the vote — it’s important because it highlights the perils of Tax Increment Financing (TIF). TIF allows property taxes which should go to schools to be redirected toward property development, thereby restricting school revenue. Liberty is not an isolated case; it’s happening all across the state.

Tuesday’s vote is a wake-up call: reform TIF.

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