A Kansas City citizens’ commission that the mayor appointed recently released a draft report on changes to the city’s municipal revenue structure. Not surprisingly, for a commission stacked with former city and county employees, the report avoids anything substantive or radical. When you load up a finance commission with lawyers — and do not put one economist on it — this is what you are going to get. Here are some brief comments on the good and bad ideas in the report.

Kansas City’s business and occupational license system is very complicated (p. 41-42). The Citizens’ Commission on Municipal Revenue (CCMR) has decided to continue its work with a singular focus on simplifying and improving the license system. It has identified the problem, and seems serious about a solution. Kansas City would greatly benefit from these changes that would treat businesses equally and require less work to administer.

Dedicated taxes with sunset provisions are good things. However, it is possible to go too far with dedicated taxes, and Kansas City has probably done so. For example, Kansas City previously, and unnecessarily, chose to dedicate its entire 1 percent baseline sales tax to capital improvements (p. 29-30). The committee is right to suggest that Kansas City loosen the requirements for that tax so that it can be used for more general purposes.

One of the major disappointments in the report is the refusal to take on Tax Increment Financing (TIF) (p. 18). It is difficult to see how a commission tasked with reviewing municipal revenues could overlook TIF beyond a meekly-worded warning that Kansas City carefully evaluate future TIF projects.

One of the most audacious suggestions was, to be fair, not included in the final recommendations.  The commission considered suggestions to end earnings tax refunds to non-residents for work out of the city (p. 26). Put another way, the city wants to tax the income of people who do not live in Kansas City for work they did not do in Kansas City.  The fact that the commission even considered ways to keep tax money it does not have a moral or legal right to is disturbing.

One tax idea that has widespread agreement among economists is the benefits of land taxation to fund local governments. Land taxation is fair, consistent, has very limited economic distortion, encourages investment, and is easy to collect. Kansas City is the only local government authorized to collect a land tax in Missouri. So, what does the CCMR want to do with the single-best tax that Kansas City enacts? Get rid of it, of course, and replace it with higher sales taxes (p. 36-37).

Kansas City has a tax that other cities in Missouri should envy and economists would almost universally encourage. And this is what the CCMR wants to eliminate.

The mayor wishes to enact the changes suggested in this report by putting it on the ballot later this year. I hope the city council thinks twice before replacing less harmful taxes like the land tax with broader, higher, and more damaging substitutes.

In my personal opinion, the single most important thing the Missouri General Assembly needs to do this year is pass Tax Increment Financing reform. SB 721 is a great way to accomplish that for the Saint Louis area, at least. The bill has passed the senate and a house committee. All it needs now is to pass out of the full House of Representatives. Passing this bill would be a great policy change for Missouri as it would greatly reduce the tax giveaways that are killing our local property tax base and encouraging the worst types of local economic planning and eminent domain abuse.

SB 721 would limit the ability of cities to override the county TIF commissions. It would greatly reduce the absurd spectacles of city councils representing a few thousand people imposing their will over the objections of county TIF commissions representing a few hundred thousand people.

Yes, I would like to see these reforms moved to other parts of the state as well, especially the Kansas City area. But for now, limiting TIF in Saint Louis would be a great start. Passage of TIF reform and SB 721 would be an outstanding policy change for Missouri.

Monday night, the Chesterfield City Council gave preliminary approval to a new outlet mall development that plans to impose a Community Improvement District (CID) sales tax of 1 percent to help finance the project. This CID is a tax subsidy and a tax giveaway, just like any TIF (Tax Increment Financing), EEZ (Enhanced Enterprise Zones), or other route of central economic planning.

I will admit that CIDs are a little less noxious than TIFs. But, no matter what grading scale, tax subsidies are not needed in Chesterfield. The market for retail shopping is plenty strong that the city does not need to turn over the taxing authority to private developers. The real issue, however, is that with projects like this, we must acknowledge that we long ago passed the tipping point where basically every major development in Saint Louis and Kansas City is subsidized by the taxpayers. When you are going forward with subsidies for things like outlet malls in one of the nicest parts of the region, the idea of a free market is basically defeated. Once you subsidize outlet malls in wealthy areas, at what possible good or service do you draw the line?

The obvious answer is that there is no line and the use of tax dollars for subsidized, politically-connected developers is just a fact of life now in much of Missouri. That is repulsive.

Quick, try to think of a community that needs tax subsidies even less than Ellisville (not that Ellisville needed subsidies)? How about Chesterfield, Ellisville’s northern neighbor. (They do not actually touch, so they are neighbors like Denmark and Sweden, or Lesotho and Swaziland.)

Two different groups want to build outlet malls (or something close to it) in Chesterfield. Both want a tax subsidy; one in the form of a Community Improvement District (CID) and one in the form of a Transportation Development District (TDD). Both allow the developer to install an additional sales tax with the shopping area. Whatever the initials, the subsidies are not necessary.

Chesterfield should act like the girl being courted instead of the wallflower. I am not one for recommending that city councils reject projects – I question whether city councils should have a right to do that in the first place. But as long as the two entities are asking for tax subsidies, and as long as the Chesterfield City Council needs to consider these projects in the first place (for zoning reasons, etc.), Chesterfield’s elected officials should refuse both of them until they agree to move forward without a CID or TDD.

The subsidies are a total joke. If there is a market for more shopping in West County, taxpayers do not need to support it. The Chesterfield City Council should hold off until one, or both, of these proposals moves forward without taxpayer assistance.

The vote of the five members of the Ellisville City Council in favor of Tax Increment Financing (TIF) is just atrocious. You had to be there to feel how passionately opposed to the TIF the strong majority of people were during the public forum. Later, you could sense how angry they were after the vote. I was there, and I certainly felt it. The residents had every right to be livid.

I do not recall ever seeing such a brazen example of an elected body ignoring the will of the people. Combined with the terrible economic policy they are now instituting, the choice of the Ellisville City Council to enact this TIF is one of the worst decisions I have ever seen a government make.

Now more than ever, we need the state legislature to pass major TIF reform for Saint Louis County and all of Missouri. The ability of cities to override a county TIF commission must be removed. Furthermore, TIF districts should be required to make other taxing districts whole through alternate tax dollar arrangements. In other words, cities should share the sales tax dollars placed into the PILOT (Payments In Lieu Of Taxes) fund.

We still have many more TIFs to fight in Shrewsbury, Saint Ann, and Richmond Heights; and that is just Saint Louis County. Add in the Enhanced Enterprise Zone (EEZ) in Columbia, the Transportation Development District (TDD)/Community Improvement District (CID)  in Chesterfield, the incessant use of subsidies for every project in Kansas City and Saint Louis, and I can assure you we will be very busy. When it comes to pointing out the economic flaws in the terrible arguments for local development subsidies, the Show-Me Institute has only just begun to fight.

Now I am going to get some lunch. (Go to the 2:04 mark.)

So, what is it going to be, Ellisville? TIF or no TIF?

Tonight is the scheduled final vote on the use of Tax Increment Financing (TIF) for a proposed development at Manchester and Clarkson Roads in Ellisville. We know why Show-Me Institute thinks this is a bad idea for Ellisville. If this TIF can be defeated, as far as I know, it would mark the first rejection of such a proposal by a point-of-sale city. Combined with Florissant’s rejection of a TIF recently, we would be making real progress toward stopping the constant use of subsidies around Saint Louis.

Stay tuned, and follow me on twitter (@DavidCStokes) for results of tonight’s vote.

I can admit there was a problem with valet parking in the city of Saint Louis. Steve Patterson has covered the issue well over at Urban Review. I agree with all of his comments. Too many new restaurants, etc., were operating valet parking like they owned the street. But, in typical government fashion, the city has taken a jackhammer to a fly. Instead of enforcing a process by which certain areas can be dedicated for valet parking at certain times, and then writing tickets for people or companies who violate it (such as a new restaurant who just decides to install valet parking in front of their restaurant and removes parking to do so), the city has taken the opportunity to just regulate the entire industry. Absolute garbage.

The new law will require that every part-time high school kid who parks cars in the summer to give the city $100 (assuming the fee is set at the maximum legal limit) for the right to do so. Even worse is the option for the city to declare an entire part of the city (such as downtown) a “special valet zone” and then only allow one valet company (of the city’s choosing, wink, wink) to operate within that zone. So the city is going to limit competition within the industry, which always works out great. That is why economists use valet parking as the standard example of a natural monopoly in all the textbooks, because parking is a public good that does not operate under the law of supply and demand. (Sarcasm note: parking is not a public good.)

Licensing the people who park cars as valets is a bad idea that will limit youth employment. Regulating the entire industry is a terrible idea. Limiting competition within the industry is the worst idea of all.

Apparently, you get a TIF (Tax Increment Financing) anyway. The Ellisville City Council appears to be going forward with a TIF plan despite the overwhelming opposition to it within the city. How can I say “overwhelming opposition”? Well, earlier this month, the two anti-TIF candidates for mayor received more than 70 percent of the total vote. Seems like strong evidence to me that the people of Ellisville do not want this tax giveaway. But city officials nevertheless are going forward with it. Last night, the TIF received preliminary approval, and it is set for final passage in another two weeks. If this passes, it would be one of the most appalling decisions by an elected body I have ever seen. “Let’s enact terrible economic policy AND ignore the will of the voters at the same time!”

The vote last night was 5-2, with the newly victorious anti-TIF mayor and one city councilmember (who also ran for mayor opposing the TIF) voting against it.

I predict the Ellisville charter rules on referendum and recall will quickly become very important in Ellisville if the TIF passes — along with Missouri TIF-related case law involving referendums from this lawsuit.

Tonight is the big night in Ellisville. The just-announced closure of the Best Buy in town should make the choice easier for the city to just join the county sales tax pool, as the difference between what Ellisville would get as an “A” (point-of-sale) city and a “B” (pool) city is now much closer.  It should not be used as an excuse to enter into the proposed Tax Increment Financing (TIF). Cities do not have to play this game. They have a way out – the sales tax pool.

A new Walmart is opening in Jefferson County. Yes, it got a TIF. The property taxes will now be frozen for all the other taxing districts. So, someone please explain to me how the school district is going to pay for educating the kids in the 180 new homes that are part of the project, when those homes will not be paying the necessary marginal taxes for the schools. Oh yeah, the school district will seek to raise taxes on everyone else . . .

Meanwhile, in more positive news, Florissant officials are set to vote next week on approving a development for a Walmart that is being built without a TIF. The Florissant City Council rejected a TIF last year, but the project is going forward because this particular plan makes economic sense. I commend Florissant officials for their discipline, and hope this serves as an example to cities throughout Missouri. This is a good opportunity to remind people that I have nothing against Walmart – just the subsidies that usually accompany it.

Finally, here is the Show-Me Institute’s latest study on the basic structure of TIF.

Ellisville officials made the right decision last night. They decided to delay a vote on the much-discussed Tax Increment Financing (TIF) proposal involving a proposed new WalMart at the corner of Manchester and Clarkson Roads. We have already discussed why we think the TIF would be bad policy.

It would have compounded the mistake if the Ellisville City Council had voted for it one day after a new mayor and city council were elected.  Mayor-elect Adam Paul and the new city council will be sworn in April 18.  Properly, the ball is now in their court.

The current Ellisville City Council is scheduled to vote on the Tax Increment Financing (TIF) proposal tonight. Last night’s election results – where a solidly anti-TIF candidate won the mayor’s race – will not go into effect for another couple of weeks. So, the question is, should the current city council, which appears to be pro-TIF (I would love to be wrong on that), make decisions during this brief “lame-duck” session that go against the pretty clear opinions of the voters? Obviously, I hope they listen to the voters and allow the new mayor and city council to make the decision.

They might not, though. In which case, Ellisville’s city charter thankfully allows for a referendum on ordinances. Here is the link (section 9 on page 24). Ellisville has about 6,700 registered voters, so if the city council passes the TIF ordinance tonight, opponents would have to file a petition within 10 days. After that filing, opponents would have a month to gather about 670 signatures to force a referendum. That referendum would allow the ordinance to either go to a vote of the people or require another vote of the city council, which would be the new city council that was elected yesterday. Because just about that number of people (667) voted for the anti-TIF, victorious mayoral candidate, I would think getting the signatures is certainly doable.

There are several other key questions here, but it could be a very interesting couple of weeks in Ellisville.

A proposal for a substantial tax increase is on the ballot in the Ladue School District next week. Substantial is not a loaded term – 49 cents added to a current tax of $2.75 is a large percentage and a substantial increase, no matter what this drivel says. This works out to $279 per year for a $300,000 home, and many of the homes in the district are worth much more than that.

The tax increase is needed, according to supporters, in order to (among other things) pay for the operations of a new building the district purchased in 2010. The school district says their projections on revenue were off, but it is not their fault:

“It was so unprecedented. At that point and time, it was hard to imagine that kind of downturn,” said Susan Dielmann, district spokeswoman.

That statement is referring to a choice made in late 2009/early 2010, and it is just crazy. By that time, it was apparent to many people that we were in for a long and difficult economic recovery, and the idea “everybody just assumed the economy would be terrific by 2011″ is preposterous. From USA Today in late 2008 (emphasis added):

Others are gloomier. They expect continued job losses and depressed consumer and business spending throughout the year because of tight credit conditions. The resulting damage to the consumer and business psyche will change the very nature of the economy for years to come.

Many families within the Ladue School District send their children to private schools. So, it should hardly surprise people that many taxpayers within the district who do not, will not, or never did use the public schools are opposed to a dramatic tax increase to pay for something the district probably should not have bought in the first place.

On the other hand, someone once did a study demonstrating that high MAP scores have a positive effect on property values within the Ladue School District, so there is no denying that if the tax increase is necessary to maintain the quality of the schools that the taxpayers will recover a portion of those taxes via property values and sale value. However, it is hardly obvious that the new tax dollars are required to maintain the high district rankings and educational quality. Supporters of the proposal obviously think it is, and opponents think it is not. I do not live in the Ladue School District so I cannot say, but the relationship between per-pupil expenditures and school achievement is far from exact. (Clayton and Ladue certainly spend a very high amount per student and are terrific schools, but there are plenty of counter-examples.) 

Even if the tax increase maintains or improves the school quality, some of that property value increase will be offset by lower values due to the higher taxes. That study also demonstrated the positive effects that low taxes can have on property values. I do not pretend to know how the exact relationship (MAP scores vs. tax rates) would work out going forward. The gains from education quality (if the higher taxes lead to that, which is far from certain) may outweigh the loss from higher taxes. But I do predict that, if this passes, more residents in the Ladue School District will appeal their property tax assessments to try to capture some of the real estate decline and offset the higher tax rate. That will limit the effectiveness of the tax increase.

Election day next week is going to be very interesting in the Ladue School District. I fail to see how a tax increase this substantial is going to benefit the people of the district. The 49 cents per $100 of assessed valuation comes out to an average property tax increase of $766 within the city of Ladue itself. (Hat tip to here for that number, though the rest of the piece is awful.) This is a lot of money to correct a mistake.