Today is my last day at the Show-Me Institute. Beginning next month, I will work at the Center for Fiscal Reform at the American Legislative Exchange Council (ALEC) in Washington, D.C. I am thrilled about my new role, but I will miss working at the Show-Me Institute.
Missouri public policy has its problems. Lawmakers have a terrible habit of trying to pick winners and losers in the market, even though they have such a bad track record of doing so. We’re relying on government to make the choices that individuals should be making for themselves in the private sector. Lawmakers are addicted to targeted tax credits and tax-increment financing (TIF) — even though these programs repeatedly fail to deliver on their promises.
Despite this state’s problems, Missourians have a lot to celebrate in public policy. Many great things are going on here. Missouri has fewer occupational license requirements than other states, which means that Missourians are more free to earn a living. Plus, Missouri has low state taxes on booze, cigarettes, and gasoline. It also has the Hancock Amendment, which limits state spending and requires that voters have the final say on tax hikes. (Wouldn’t it be great if the Hancock Amendment existed at the federal level?)
We’re taking many steps in the right direction toward limiting government and protecting individual liberty. For example, Missourians were among the first to oppose the federal takeover of their health care, and we haven’t given up. As another thing I find promising, the Saint Louis Land Reutilization Authority (LRA) is accepting more offers to buy vacant property (thanks largely to the efforts of my colleague Audrey Spalding).
I’m confident that Missouri, and other midwestern states, will be leaders in limiting government and getting the economy back on track. This change will be driven by individuals acting entrepreneurially in the private sector, however — not by the hand of government.
Supporters of the Aerotropolis proposal say that warehouses are necessary to expand Lambert’s cargo capacity, and that state subsidies are necessary to build the warehouses.
Audrey Spalding, Tom Duda, and I spent yesterday afternoon driving around the area north of Lambert airport. We spotted quite a high number of empty warehouses.
However, given the number of vacant warehouses and “Will build to suit” signs on empty lots, it seems to me that there is already a lot of capacity. I wonder: Where’s the demand for warehouses? If the ones that are currently near the airport are empty, why do legislators want us to spend $300 million on more of them?
It reminded me of downtown Saint Louis, actually — despite all of the “space available” signs on the office buildings, government officials still want to subsidize new construction downtown.
We’ll release a video soon about our trip, where we’ll talk more about this issue. We’ll try to get it edited and uploaded to the blog as soon as possible. Stay tuned to the Show-Me Institute!
What a long, strange three weeks it’s been. My colleague Audrey Spalding and I dropped nearly everything we were doing in order to focus on the “China Hub” proposal. The details keep changing as it moves through the legislature, but we’re staying on top of it. The one thing that doesn’t change is that it will do more harm than good for the Missouri economy. Here’s a roundup of all things “Aerotropolis” — in case you need to catch up.
Note the part where Sen. Ron Richard said, “I’ve got business people and friends of mine that live in Saint Louis that are begging for something new and creative. So we take a chance.” He has it completely backward. Tax credits aren’t new and creative. Neither is draining more money into Lambert. Aerotropolis is more about subsidizing business as usual than taking a chance.
Late last Monday night, lawmakers made many changes to the bill. The amount of tax credits dropped from $480 million to $360 million. We’re still talking about a lot of money, though. State lawmakers combined Aerotropolis with a bill that would otherwise limit tax credits. It’s schizophrenic public policy, and it doesn’t make sense. I’ve called for limiting tax credits for a long time, so I am disappointed that state lawmakers are negating the benefits of limiting tax credits by combining them with a policy that would expand them. It’s like the Dr. Jekyll and Mr. Hyde of tax credit legislation.
Yesterday morning, I was a guest on the Charlie Brennan Show on KMOX. I had a great time. I talked Aerotropolis with: Rhonda Hamm-Niebruegge, director of Lambert–St. Louis International Airport; Rodney Crim, director of the St. Louis Development Corporation (SLDC); and Steve Johnson, executive vice president of economic development for the St. Louis Regional Chamber and Growth Association (RCGA). An archive of the audio is available online. I argued that, if building cargo warehouses next to the airport is such a good idea, private entrepreneurs will pick up their shovels. They would have broken ground already — they wouldn’t be waiting around for tax credits.
Later that day, the Show-Me Institute’s executive director, Brenda Talent, released an open letter to Missouri Speaker of the House Steven Tilley. She encouraged him to remove the Aerotropolis bill from the current legislative agenda. I wonder: What’s the rush? Why are state legislators frantic to get Aerotropolis enacted in the final days of session? What’s the harm in studying the issue a bit longer?
This morning, I enjoyed talking with Steve Helms on “Morningline,” on KWTO AM 560 in Springfield. We discussed the fact that the Lambert airport is already drowning in debt — to the tune of more than $900 million. Much this is left over from the failed $1.1 billion runway expansion from not too long ago. I wonder: Is draining even more money into the airport the best use of taxpayer dollars? Couldn’t Steve’s listeners in Springfield spend their tax monies on things closer to home?
I wonder what next week will bring for Aerotropolis. Stay tuned to the Show-Me Institute team — we’ll continue to track the issue and provide up-to-date analysis on what it will mean for Missourians.
Tomorrow morning, I will be talking “Aerotropolis” tax credits with Steve Helms on “Morningline,” on KWTO AM 560 in Springfield. I’ll explain how the proposed “China Hub” will have a much greater impact —with little gain — on the state’s economy than lawmakers seem to think. Quite frankly, I’m surprised that folks who live outside the Saint Louis area aren’t outraged about this. I’ll explain why on the show.
I’ll be on just after 8:15 a.m. Tune your radio to KWTO AM 560, or listen live online.
Show-Me Institute Policy Analysts Audrey Spalding and Christine Harbin will be on the Mike Ferguson show on Columbia’s 93.9 FM “The Eagle” around 4:30 p.m. today. We will talk about the testimony that we delivered before the Missouri Senate Jobs, Economic Development and Local Government Committee on Wednesday, about the Aerotropolis proposal.
Lawmakers in Missouri are doing the same thing over and over again and expecting different results. Government officials tried to expand Lambert–St. Louis International Airport not too long ago, and it didn’t work. They spent $1.1 billion in taxpayer money to build another runway at Lambert. It was the largest public works project in the history of Saint Louis, so I’m surprised that nobody is talking about it. The Riverfront Times gave the project the “Best Boondoggle” award twice — once in 2003, and again in 2004.
Here’s the back story: Evidently, government officials decided that two runways weren’t enough for Lambert. Construction on the runway began in 1998, and it continued despite several setbacks. (As the Riverfront Times aptly put it, “Still, the bulldozers rolled on.”) Following the 9/11 terrorist attacks in 2001, Trans World Airlines went bankrupt and American Airlines bought it. In 2003, American Airlines cut its operations in half at Lambert, and revoked the airport’s hub status. In the meantime, people flew far less than projected.
Unfortunately for Missouri taxpayers, this story doesn’t have a happy ending. The new runway did not reduce delays. Plus, with each passing year, Lambert saw fewer takeoffs and landings. Just one year after the new runway was built, only 5 percent of flights used it. Several airlines asked to avoid using the new runway altogether. Because it was built so far away from the terminal, planes had to taxi as many as three miles to the terminal, burning more fuel.
Not only did the project fail to bring the traffic it promised, it tore apart the city of Bridgeton. Government officials used eminent domain to move seven major roads, kick 6,000 people out of their homes, and bulldoze six churches and four schools in order to make room for a third runway.
Government does not have a good track record in steering economic development — particularly in the Saint Louis area. Studies repeatedly show that they fail to produce the results that they promise. Most recently, the East-West Gateway Council of Governments concluded that the Saint Louis government has provided $5.8 billion in subsidies to private development in the city, but doesn’t have much to show for it.
Expanding the airport didn’t work then, and there’s no compelling reason to believe that it will work now. (Remember: No formal agreement has been signed, nor has any study been completed.) Lawmakers are in danger of repeating the same mistakes, so they should take a longer look at this.
We have a shared goal: an economy that is thriving and attractive to new businesses. Lawmakers are sticking the same old policies (tax credits!) — even though they have been shown to fail. If lawmakers in Missouri were serious about growing the economy, they would abandon the failed policies of the past and take a different strategy.
Steve Giegerich had a great article about tax credits on the front page of the Post Dispatch yesterday. I encourage our blog readers to check it out. The Liberty Mutual project that Giegerich highlighted is one of the many cases in which tax credits are allegedly used to stimulate business, but actually do the opposite.
Here’s the issue: Shortly after the announcement that Liberty Mutual would receive tax credits for creating new jobs, the company gave pink slips to 45 employees. The company told the affected employees that they could apply to lower-paying and lower-level positions.
Despite the layoffs, Liberty Mutual is on track to receive $1.6 million in tax credits through the Missouri Quality Jobs Program, because it can show — at least on paper — that 100 “new” jobs exist at its Safeco service center in Fenton.
Is this the kind of economic development that we want in Missouri?
It is important to note that Quality Jobs is the worst-performing tax credit program in Missouri, yet lawmakers continue to expand it. According an April 2010 report from the state auditor, lawmakers underestimated the cost of the Quality Jobs program by more than $100 million over four years. This didn’t stop them from raising the annual cap from $12 million to $80 million in 2009. That’s an increase of 567 percent!
The Tax Credit Review Commission and the Missouri state auditor have looked at tax credit programs in the Missouri, and they both have called on lawmakers to limit them. However, lawmakers have not taken this advice. Policymakers like to talk tough on tax credits, but their actions and words don’t match up. This is bad news for taxpayers, who have to foot the bill.
Missouri has serious budget problems. If lawmakers were serious about fixing Missouri’s fiscal health, they would implement measures that limit tax credits, like stricter caps and sunset requirements.
I recently hit the streets of the Central West End in Saint Louis to find out what folks think about food trucks and about local efforts to restrict them. As regular readers of will know, this is a topic thatI’vefollowedcloselyhere on Show-Me Daily.
As promised, we got the video edited and uploaded — check it out!
Big thanks to our communications director, Rick Edlund, and videographer extraordinaire Josh Smith for helping me produce this video. Thanks also to Sarah’s Cake Stop and Cha Cha Chow for letting me interview them about their experiences in facing these local restrictions.
We’ll have another installment soon. Stay tuned to the Show-Me Institute!
Did any of our readers see last week’s “30 Rock” episode? They talked about state film tax credits! As regular readers would expect, I was thrilled, because film tax credits are my favorite topic to discuss on this blog.
You can watch the full episode here:
In the episode, Jenna stars in a horror film that’s shot in Connecticut. It turns out that Connecticut will only give tax credits to films that promote tourism. So, instead of shutting down the film, the producers change it to be very pro-Connecticut. They decorate the killer’s dungeon with Yale pennants and posters that say, “Visit Connecticut.” They also write www.IheartConnecticut.com in blood on the wall, and they dress up one of the victims in a UConn Huskies shirt.
They even change the dialogue:
SLAUGHTERFACE: “No one is going to save you. Because we’re deep inside one of Connecticut’s 30 beautiful state forests. Thirty!”
JENNA: “Oh, please don’t kill me! I still haven’t tried the famous seafood pizza at Sally’s in New Haven.”
It’s hilarious. This shows how filmmakers will change the message of their films in order to get film tax credits from a state. This is something that I have discussed before on the blog.
It’s no secret that government officials sometimes deny tax credits to films that don’t send a positive message about the state. It may be possible that this happens in Missouri, too. Consider Up In the Air, which received $4.1 million in tax credits to shoot in Missouri in 2009. One scene sounds like a commercial for Lambert Airport. At one point, George Clooney’s character says:
Are you kidding — Lambert Field? The Wright brothers flew through there. That domed main terminal is the first of its kind; it’s a precursor of everything from JFK to de Gaulle.
This wasn’t the first time that “30 Rock” highlighted the ludicrousness of film tax credit programs — It was also a plot point in an episode last season, in which Jenna starred in a movie about werewolfs that shot in Iceland. They shot the film there because the Icelandic government gave them tax credits, but they could only shoot during the one minute of darkness each day.
In economist-speak, we would say that Iceland does not have a comparative advantage in werewolf films, relative to other locations. (Similarly, Missouri doesn’t have a comparative advantage in filmmaking. We’re better at making other things!)
Supporters of tax credit programs argue that they won’t cost taxpayers a dime, but this is far from the truth. Tax credits are real money, and they do not appear of thin air — they come from the pockets of taxpayers. Even though the recipients of tax credits will pay less in taxes, everybody else will have to pay higher taxes.
Think of it this way: When the state gives a company tax credits, that company won’t be paying those taxes. This means that less revenues will flow to the state Treasury. The government therefore has fewer dollars to pay for schools, fix roads, and build bridges. Unless every tax credit is offset by real spending cuts of the same amount, every dollar that the government spends on tax credits has to be raised through higher taxes or debt. It means that everybody other than the tax credit recipient is getting less and paying more.
I’ve said it before, and I will say it again: There is no such thing as a free lunch. It’s a basic economic principle that’s too often overlooked. Nothing is ever free. Somebody has to pay it. And, in tax credit programs, that somebody is taxpayers.
One way in which Missouri would pay for this program is through lost activity in the private sector. This is a concept that economists refer to as crowding out. If the China Hub proposal passes, then the average Missourian would pay $80 more in taxes, which means that he has $80 less to spend on himself. On average, a family of four in Missouri would pay $320 (that’s a car payment!). If Missourians were able to keep more of their earnings, they would eat at more restaurants, spend more nights in hotels, buy a newer car, make upgrades to their home, etc. When their taxes increase, they inevitably scale back their spending and this economic activity is lost.
If tax credits generate economic activity, they do so only at the expense of other forms of economic activity.
Tune into the McGraw Milhaven radio show on The Big 550, KTRS, tomorrow at 9 a.m. to hear Audrey Spalding and me discuss the proposed China Hub. We will talk about how this project will do more harm than good for the Missouri economy. This is a topicwe’vehighlightedrecently on the blog.
Tax credit programs like the proposed China hub are a form of wealth redistribution: Only the favored few benefit, and everybody else bears the cost. Because the China hub project will be located in Saint Louis, Saint Louis residents will receive more of the benefits of the policy than Missourians that live elsewhere. Even though the majority of Missourians (64.8 percent) do not live in the Saint Louis region, they will still have to shoulder the costs of this program through their tax monies. It’s yet another example of concentrated benefits and diffused costs — an important concept that lawmakers too often overlook.
Consider that, according to the 2010 U.S. Census, 3,879,695 Missourians currently live outside of Saint Louis. Consider further that, as my colleague Audrey Spalding recently calculated, the proposal would cost at least $80 for each person living in Missouri. This means that Missourians living outside of Saint Louis will be forced to spend $310.4 million on the project. In other words, this policy would remove $310.4 million from the economy in the rest of the state, and funnel it into Saint Louis.
The editorial board at the St. Louis Business Journal certainly seems to get it:
That this is essentially a St. Louis-only measure is an insult to the rest of the state, making us look like the greedy urban jerks the outstate legislators love to hate. Not to mention our colleagues in Kansas City.
Speaking of our friends in Kansas City, they in particular will see more costs than benefits. Kansas City residents will collectively pay $36.8 million for this policy. However, they are unlikely to receive direct benefits from the policy because they live 235 miles away from Lambert Airport. Is sending $36.8 million to Saint Louis the best use for their money? Could it perhaps be better spent on projects in Kansas City (e.g., education, transportation), or returned to Kansas City residents to spend, save, and invest in the private sector?
Supporters of large publicly funded projects tend to argue that they generate lots of economic activity that resonate across the economy. These, however, are mere conjectures; I am aware of no study that proves it. On the contrary, the evidence suggests that few, if any, spillovers or multipliers arise from targeted tax credit programs. I will elaborate on this point in a future post. (Stay tuned to the blog!)
The money that is spent in this program could otherwise benefit Missourians through a tax reduction or another form of state spending. If the China hub project doesn’t happen, taxpayers will be able to keep a greater percentage of their earnings, which they can then spend on additional goods and services. Much of this economic activity (e.g., hotel stays, restaurant meals) would be generated by individuals in the private sector. However, if the government takes half a billion dollars out of the economy, Missourians won’t be able to spend and invest it themselves, and this economic activity will be lost.
The views expressed by each contributor to this blog are those of that contributor alone, and do not necessarily represent the views of the Show-Me Institute.
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