April 18, 2015

No, Post-Dispatch, the Rams Don’t Pay Their Way

StadiumEarlier this week, the St. Louis Post-Dispatch published an editorial discussing whether the tax revenue brought in by the Rams is enough to cover the costs associated with building the Edward Jones Dome. Their answer: probably yes. My colleague Joe Miller and I have looked at this issue, and our answer: probably no.

Why the discrepancy? Well, let’s look at the Post-Dispatch‘s “back-of-the-envelope” calculations:

  • They assume roughly $1 million a year from taxes on the Rams’ profits. We have no problem with that.
  • The Post-Dispatch counts the total $151 million of player payroll as taxable, when it isn’t. Rams players play half of their games in other states/cities, so they pay income taxes to those states. This is double counting, since they also count visiting teams’ income taxes too. Taking this into account, Joe and I estimated the income taxes generated by players’ salaries—along with those generated by the coaches, staff, and other employees of the Rams—comes to roughly $11 million.
  • Taxes from sales of merchandise and food and beverages have to be balanced against what would have been received from local businesses had the Rams been absent. The Post-Dispatch gave no indication that they took this into account. According to our calculations, the net sales tax revenue along with ticket tax revenue amounts to roughly $3 million.
  • Add in the Rams’ rent, and you get another $250,000 in revenue.
  • Like the Post-Dispatch, we found it difficult to determine how much the city, county, and state would receive in additional hotel tax revenue.
  • Overall, we estimate the Rams generate between $15-16 million in tax revenue ($10-11 million for the state, $3-4 million to the city, and the remainder to the county). That’s a far cry from the $24 million the city, state, and county put in to finance the dome. Plus, the Post-Dispatch makes no mention of the annual maintenance costs of the dome, which totaled $7 million last year and are projected to run between $5-9 million going forward.

I like football and want the Rams to stay in Saint Louis, but the only way I want to pay for them is by buying a ticket on game day. Giving further subsidies to the Rams will not be a boon to the local economy (which the editorial board, to its credit, recognizes), and it probably will end up being a net loss for taxpayers.

April 14, 2015

Alcohol Tax Rates Are Low . . . and They Should Stay That Way

I think we can all agree that drinking in excess is not good for you. Not only is it bad for your health, but if you’re not smart, such a habit could end up destroying the lives of others as well. That’s why I applaud the intentions behind Christopher Ingraham’s recent op-ed, if not his prescription.

wineIn his article, Ingraham calls for raising alcohol taxes, stating: “Higher taxes make alcohol more expensive. More expensive alcohol makes people drink less of it. And when people are drinking less, they’re less likely to suffer costly health problems or do stupid things like drive drunk.”

If Ingraham’s ultimate objective is to make people drink less alcohol, why not just ban it? Wouldn’t prohibition really reduce the health problems associated with alcohol consumption? However, we’ve already tried Prohibition, and it didn’t work out too well. So Ingraham’s alternative is to raise taxes to cut down on consumption. Except, there are problems with that approach as well. Increase taxes too much and people will resort to smuggling. It’s happening in New York with cigarettes. What’s to say it wouldn’t happen with alcohol?

Both Ingraham and I want to cut down on drunk driving. Thankfully, drunk driving is already on the decline. Since 1986, alcohol-related fatalities have seen a 54 percent decline! Why solve a problem that is already fixing itself?

There are negative side effects to raising alcohol taxes as well. Because of our low taxes on alcohol, cigarettes, and gasoline, commuters from out of state make it a point to purchase these products in Missouri. If we raise taxes on alcohol we are removing an incentive for people to shop in Missouri. If less people shop here, Missouri businesses will suffer and the state will see less tax revenue. How will that help anybody?

I can sympathize with Ingraham’s efforts to curb the more negative effects of heavy alcohol consumption, but the biggest problem, drunk driving, is becoming less of one over time. Coupled with the fact that increased alcohol taxes can hurt Missouri businesses, we should leave tax rates alone and focus on other ways to improve public health and safety.

April 3, 2015

Paying for the Privilege . . . to Stay in Bridgeton

After staying overnight in Jefferson City last week, I awoke to find my hotel bill laying on the floor in front of the door. For those who travel frequently, this is not an unusual sight. It also isn’t unusual to spot a line item that tells you how much you have to pay because of the city or county’s hotel tax. Sometimes that amount is relatively miniscule, other times it can be quite large. If the Bridgeton City Council gets its way, for guests of Bridgeton, it will be the latter.

Hotel ExteriorHotel taxes are not an uncommon occurrence in Missouri. In fact, the Show-Me Institute’s Sales Tax Fast Facts pamphlet has 17 entries for cities/counties with a hotel/occupancy tax, and that list is by no means exhaustive. As you can see, hotel tax rates can range from 3 percent in Hermann to 12.25 percent in Hazelwood. In most cases, visitors to Saint Louis County pay the same hotel tax rate (7.25 percent) because of the countywide pool which, among other things, goes to pay off construction costs for the Edward Jones Dome.

The Bridgeton City Council, however, wants more hotel taxes to go directly to them. The council placed a proposal on the April ballot that will raise its hotel tax from 85 cents a night to three dollars a night. I can see why this would be an attractive option. Many people who stay in hotels are not residents of the city/county where the tax is imposed. For politicians and residents alike, getting others to pay for city services sounds like a good idea. However, just because a city can extract revenue from visitors, doesn’t mean it should.

Hotels already pay commercial property taxes and the Saint Louis County property tax surcharge (the highest in the state). They have to pay business licensing fees, and guests already have to pay the city and county sales tax. Why does Bridgeton need to levy even more taxes? Is it because it keeps relying on TIFs? Maybe Bridgeton should stop giving away special handouts and broaden their tax base instead of shrinking it and relying on higher rates to make up for lost revenue.

I highly doubt I will ever stay in a Bridgeton hotel, so when I wake up in the morning, the effects of this proposal won’t be staring me in the face. However, city residents should ask themselves whether they want to approve a tax increase, no matter who it may hurt.

April 1, 2015

The 411 on a CID in the B70

Some business leaders in Columbia want more attention for their slice of town. To do that they are getting together to create a new community improvement district (CID) for the Business 70 Loop. This sounds innocent enough. However, CIDs are just another example of the alphabet-soup taxing districts that increase tax rates to fund new services for a questionable public purpose.

CIDs are independent taxing districts created to collect sales and property taxes and spend money to improve an area in a variety of ways, including beautification and infrastructure. There are two primary problems with CIDs. The first problem is transparency. The auditor’s office has consistently found deficiencies in reporting and documentation for these districts.

The other issue with CIDs is their lack of a cap on property taxes. Under the current proposal, the CID would levy an additional 47 cents per $100 of assessed value of property taxes on top of what people/businesses already pay. However, there is no statutory language preventing the CID from increasing property taxes further. An extreme example is when a CID in the Lake of the Ozarks levied an additional $4 per $100 of assessed value. I’m not saying this proposed CID will have taxes go up that high, but there is nothing stopping such an increase from happening except the restraint of the CID board.

Given these problems, what is the compelling reason for establishing a CID, especially since the area is already seeing redevelopment? As the Columbia Tribune states:

He also cited Miller’s 2012 purchase of the old Commerce Bank building at 500 Business Loop 70 W., Head Motor Company’s recent upgrades and his own redevelopment of the Parkade Center as examples of the type of redevelopment he would like to see along the corridor. Further east, Business Loop 70 boasts a newly remodeled Burger King and renovated McDonald’s.

“We’re starting to see redevelopment occur, and we want to make sure we have pro-redevelopment policies in place,” Burnam said.

If this article tells us anything, it appears that legal restrictions on renovating existing lots are the problem. Maybe proponents should work on fixing the regulatory environment instead of raising taxes.

CIDs have serious issues and should only be undertaken without serious safeguards in place, if at all. The Business Loop in Columbia might not be a paradise, but is it so blighted that the only thing left to do is establish a CID? Color me skeptical.

March 31, 2015

Show-Me Institute Presents: Pension Reform in Missouri

Hawley

It’s not news that Missouri’s pensions are underfunded. In fact, they’re an economic ticking time bomb that could leave taxpayers on the hook for billions. Unless we want taxpayers to get stuck with the bill, these pensions need to be reformed. However, there are legal barriers that might stand in the way of any reform effort. These barriers have been difficult to determine . . . until now.

Yesterday, the Show-Me Institute released a new policy study titled, “Pension Reform in Missouri.” The study’s author, Erin Morrow Hawley, sets out the legal framework that will govern pension reform in Missouri. In analyzing the statutory provisions related to Missouri’s public pensions, questions arise:

  • What interests are protected?
  • May the general assembly modify pension benefits retroactively? Prospectively?
  • What about contribution increases or decreases?

This study analyzes the statutory provisions related to these inquiries and sets forth a variety of pension reform measures that may be possible under Missouri law.

With the need to reform pensions becoming more acute every year, it is vital that any reform effort be able to successfully address the legal issues that might arise. With this new study, doing so has become much easier.

March 30, 2015

Sending Out Subsidies Until the Cows Come Home

Missouri has a long history of spending on items of dubious merit. That’s why my stomach shouldn’t curdle when the legislature approves spending on something that seems udderly ridiculous. Yet still it does.

milkingLast week, the legislature approved the Missouri Dairy Revitalization Act, which, among other things, would provide up to 70 percent reimbursement  to dairy farmers who pay their federal Margin Protection Program insurance premiums. The total estimated cost to Missouri taxpayers is between $2 million and $5 million a year. That’s a lot of moolah.

Now, I have nothing against dairy products or dairy farmers, but I am wary awarding state subsidies to agriculture, even if it’s for insurance premiums. Why can’t the private sector provide insurance for dairy farmers? Why is the state supplementing this federal program? Are the premiums too high? If so, shouldn’t that be a warning sign that there is something wrong with the federal program itself? I am genuinely curious, but if we end up getting cheesy answers from proponents of this legislation, then it shouldn’t be enacted. Legislators have better things to do than cowtowing to agricultural special interests. Unfortunately, this bill already has passed the legislature, and by overwhelming margins. Currently, it’s awaiting the governor’s signature, so there is a decent chance this bill will soon become law.

I want Missouri to have a thriving dairy industry, but surely there are butter ways to spend taxpayer money. I know this might sound tired, but a whey better option would be across-the-board tax cuts for businesses. If everybody, including dairy farmers, were allowed to keep more of their money, things like dairy insurance would be more affordable and the government wouldn’t be giving special handouts to favored industries.

March 25, 2015

Are Things Looking Up in Kansas?

Ulysses_grant_001There is an old story from the Civil War that takes place after the first day of the Battle of Shiloh. The Union Army of the Tennessee under General Ulysses S. Grant had been surprised by Confederate forces and had been pushed back to the Tennessee River. That evening, Brigadier General William Tecumseh Sherman remarked to General Grant, “Well Grant, we’ve had the devil’s own day, haven’t we?” Grant replied, “Yes. Lick ’em tomorrow though.” With the assistance of Union reinforcements that evening, that’s exactly what they did.

Now, the economic border war is not nearly as serious as actual combat between two opposing armies, but like Confederate General P.G.T. Beauregard, opponents of the tax cuts in Kansas are eager to declare a complete victory. The truth is that it appears Kansas just received some reinforcements, this time from the Bureau of Labor Statistics (BLS).

1024px-Pgt_beauregardAccording to the BLS, Kansas private-sector job growth in 2014 surpassed that of Missouri (1.87 percent vs. 1.16 percent). Also, earnings in Kansas have grown nearly five times the rate that they have in Missouri (2.98 percent vs .59 percent). Does this mean we, as tax cut proponents, should declare victory? No. The next couple of months’ job or wage figures could change how the two states stack up. Overall, I think we just need more time to determine the tax cut’s effects. I definitely wouldn’t go as far as to say that these tax cuts are leading Kansas toward a disaster of biblical proportions.

As I’ve said many times, tax cuts are not everything. There are many factors that influence how an economy performs. However, with that being said, taxes do matter and income taxes in particular are harmful to economic performance. I hope these latest figures can give opponents a moment of pause before writing Kansas’ tax cut obituary.

March 24, 2015

Still Coughing Up More for Education

In an era where we shield more and more people from being offended, never mind hurt, it appears that it is still okay to pick on smokers. So it’s no surprise that some policymakers want to use them to fund goodies for the rest of us.

The latest anti-smoker proposal aims to raise the cigarette taxes to around 90 cents a pack (cigarette taxes in Missouri currently are 17 cents a pack) in order to fund scholarships for students. On the surface, this proposal sounds appealing, but raising excise taxes in order to fund education is not good policy. There are a couple reasons why this is the case: First, cigarette taxes are regressive. Poor people smoke more than higher-income individuals, and smoking takes up a higher percentage of their income.

Second, an increase in cigarette taxes can harm Missouri businesses. More people commute into Missouri than out of it. Our low excise taxes serve as an inducement for out-of-state visitors to purchase alcohol, gasoline, and cigarettes in Missouri instead of Kansas and Illinois. The chart below from  showmedata.org shows just how low Missouri’s taxes are in comparison to Kansas and Illinois (Missouri is in yellow).

3862

If this proposal becomes law, Missouri’s cigarette tax rate will be higher than in Kansas. It isn’t hard to imagine commuters on State Line Road choosing a Kansas convenience store over a Missouri one if products are cheaper.

Now, some might argue that raising cigarette taxes is good in and of itself because doing so will reduce cigarette usage and improve public health. That’s partially true, but the effect is small. If the increased tax revenue would be spent on treating smoking-related illnesses, then the conversation would be worth having. However, even if we agreed that a tax hike should go to increased health spending, if taxes go up too much, people would simply resort to smuggling.

Personally, I’m not a fan of smoking. My grandfather suffered from emphysema due to his smoking. However, just because I don’t like an activity doesn’t mean I believe the government should treat it as a piggy bank for more spending. Let’s find ways to cut spending, not increase it.

March 16, 2015

New Study on City Spending Confirms What We Already Know

800px-Union_Staion_Kansas_City_6169

Photo: Union Station in Kansas City by Dual Freq

Visitors to Show-Me Daily have probably come across the numerous ways that Kansas City has wasted money. Now, it’s possible that these were isolated incidents. However, WalletHub published  a new study that points to Kansas City having a larger, systemic problem with how it spends taxpayer dollars.

According to this study, Kansas City ranks 61st out of 65 cities in regards to spending efficiency. I won’t bore you with all of the gritty details on how WalletHub came up with their figures. The Reader’s Digest version is that this study divides a city’s total park acreage, test scores, and crime rate by it’s per person spending on parks, education, and police. The city with the highest quotient is the “most efficient”.

Besides pointing out the ways that Kansas City has wasted money, the Show-Me Institute has also shown that Kansas City spends a lot of money overall. In a 2013 case study, I examined St. Louis and Kansas City’s per person expenditures compared to six other other cities. Kansas City spent the 3rd most, just barely behind Denver. The case study didn’t say whether Kansas City was being efficient or not with taxpayer money, but with such high spending, the chance for inefficiencies increased. The WalletHub Study lends further credence to the notion that Kansas City taxpayers aren’t getting the best bang for their bucks.

The WalletHub study isn’t the definitive work on city spending, but it should serve notice to policymakers that maybe Kansas City should take a good look at how to improve the way it runs things.

March 4, 2015

Schools and Libraries Should Get a Piece of the Action

Localities engaged in a tax subsidy bender shouldn’t be surprised if they wake up with a nasty hangover in the form of increased property taxes. When cities decide to binge on Tax Increment Financing (TIF), the cities themselves may not feel the pain, but other taxing districts like schools and libraries are impacted. This has caught the attention of some in the legislature. While it appears that forcing localities to sober up is off the table, they are at least working on giving taxpayers an aspirin.

The pain relief comes in the form of Senate Bill 114 (SB 114), which aims to redirect 50 percent of incremented property tax revenues (i.e., the additional property taxes that would be generated by the increases in assessed value of new developments in a TIF district) back to the school and library districts. Currently, these other taxing districts do not receive additional property tax revenue from any increases in assessed value for redeveloped property in a TIF district. Since TIFs can last up to 23 years, the amount of property tax revenue schools and libraries can forgo is quite considerable.

This is especially troubling for school and library districts, since they both rely heavily on property tax revenue. That is why there has been a long history of these taxing districts opposing TIF projects. School district opposition to TIF projects stretches back at least into the 1990s. They understand that as operating costs grow over time (due to inflation, added population, and so forth), they will have to find additional revenue. Forgoing property tax revenue through TIFs means they will have to resort to tax increases on the people and businesses not located in the TIF district. If SB 114 is enacted, hopefully these rate increases can be forestalled or even avoided altogether.

No matter the context, I’m generally not a fan of overindulging. When local governments overindulge on TIFs, I am particularly appalled. Considering the fact that TIFs don’t work in stimulating net economic development, I’d rather localities avoid their use altogether. Barring that, at least some legislators are trying to mitigate some of TIF’s more damaging side effects.

February 26, 2015

The Great L.A. Gambit

chargers+raiders+stadium+rendering+9

The battle for the L.A. market is joined! According to NBCSanDiego, the Chargers are working with the Oakland Raiders. Their goal: a new stadium in the L.A. area (Carson, California, to be precise). Of course, their home cities can talk them out of it, for the right price.

It’s not shocking that teams other than the Rams might want to move to Los Angeles. L.A. is the country’s second largest media market, and with that comes a lot of TV money. However, still color me skeptical about the whole thing. I think (and I’m not alone) this is more of a ruse for the Chargers and the Raiders to extract sweetheart stadium deals from their home cities. The Chargers have been trying to get a workable proposal from San Diego for the past 14 years. They’ve even recently published some remarks to the San Diego stadium task force regarding what it wants in any new proposal. Needless to say, it’s quite a lot.

I think the Rams’ L.A. proposal is more serious. Why? Because of Stan Kroenke’s silence regarding the Rams’ latest proposal, or anything for that matter on what exactly he wants in order to stay in Saint Louis. The Chargers are giving San Diego an idea of what it is they’re looking for in a new stadium, Mr. Kroenke isn’t.

No matter the likelihood of the Chargers’ or the Rams’ proposals succeeding, I think that neither team should receive public subsidies. If billionaires want new stadiums, they should pay for them themselves. I don’t think taxpayers should get the bill, especially since there won’t be any economic return to them for doing so.

L.A. seems to be the place to go to for teams that can’t get a new stadium. Will policymakers be scared into throwing more money at teams in an attempt to prevent them from leaving? Maybe, but that doesn’t make it a good idea.

 

February 13, 2015

An Imminent Eminent Domain Case

When most Saint Louisans think about eminent domain abuses, they tend to conjure up thoughts of Maplewood razing neighborhoods in order to build a Walmart or Clayton trying to seize land to hand over to Centene. But what of eminent domain in the case of government agencies? Can that justify taking families’ homes?

If you are a Saint Louis City alderman who wants to keep the National Geospatial-Intelligence Agency (NGA) from moving to Fenton or Mehlville or even possibly Scott Air Force Base, there is a good chance that you’d say yes. That’s why plans to use eminent domain to seize property as part of the plan to keep the NGA in Saint Louis are moving forward. Yet despite this “progress,” that doesn’t mean the aldermen are correct. For the people of North Saint Louis, the abuse of eminent domain is imminent.

Eminent domain has a legitimate purpose. Sometimes it is necessary to seize property to use for the public good, such as highways or sewers. Yet, there is no reason in this case to think that using eminent domain would serve as a public good. Unlike highways, which must go more-or-less in a straight line, the new NGA headquarters is flexible in how it is laid out and where it can locate. Even if the NGA moves to the county or to Scott Air Force Base, NGA employees living in the city are unlikely to move. Why violate somebody’s private property rights when it is not necessary?

The truth is that the city stands to lose millions in earnings taxes if the NGA moves out. It’s understandable, especially when budgets are tight, that the city would want to try anything to avoid losing even more revenue. However, people’s homes matter more than extra tax revenue. Being hard up for money doesn’t give the city a valid reason to take people’s homes.

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