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.

February 11, 2015

The Big Bad Bet

People of goodwill can debate some of the proper functions of government, but I think most of us can agree that gambling with taxpayer money is not one of them. Yet that’s what is happening with this Rams stadium situation. Public officials are betting that a new stadium will be a winner for the region and for taxpayers.

Yesterday, Gov. Nixon announced that Ameren and Terminal Railroad have agreed to make adjustments to their assets (moving power lines and rail lines) so that the proposed new stadium on the riverfront can be built. I guess he thinks that’s good news, and it would be if it was the only thing standing in the way of a private developer wanting to build a new stadium on the riverfront, but that’s not the only thing.

The key ingredient to this project moving forward is that we are going to have to cough up more of our money ($405 million to be exact) to help finance this thing. Now it’s possible that such an investment could be worth the price tag if it will lead to redevelopment of the surrounding area. That’s what the governor believes. What’s the evidence that there will be redevelopment? It didn’t happen when we financed construction of the Edward Jones Dome. Why is this time different?

Gov. Nixon also stressed that if we did nothing, the city and state would lose out on millions in income tax revenue. It’s true, players do pay earnings taxes, but how much more money will we have to spend in order to make sure we still get those income taxes? Overall, will taxpayers see more in added tax revenue than the amount they had to pay in subsidies? It’s possible, but it’s also equally (if not more) likely that taxpayers would lose money. That’s why this whole thing feels like gambling, but at least at the casino you know the odds before you play. That’s not the case here. How much will players’ salaries grow (which influence income tax revenue)? How many people from out of state will visit the region to watch the Rams (this affects how much new sales taxes we get)? These questions and many more will affect the amount of added revenue the region will receive. It’s an awfully big risk to be taking with public money, and honestly we shouldn’t be giving a billionaire (Rams owner Stan Kroenke) taxpayer money on the hope that we MIGHT see a positive return.

Yesterday’s press conference was supposed to be an encouraging sign for those who want to keep the Rams here in Saint Louis. For me, it looked like someone was putting down a big marker on the roulette table with our money on the line. No matter if the project lands in the red or the black, in the end Stan Kroenke is going to be getting green.

February 10, 2015

Show-Me Study Featured in New Book

Tax subsidies for economic development were designed to go to poor areas that actually needed development. But that is not how they are used in Kansas City, Missouri. My colleague Patrick Tuohey and I showed that, in regards to Tax Increment Financing (TIF) in Kansas City, the vast majority of TIFs and other economic development subsidies went to wealthier areas such as Country Club Plaza and the Power & Light District.

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The folks of the Urban League of Greater Kansas City have included our essay in their new book, Picture of Health: 2015 State of Black Kansas City. They are having a book release party at the Kansas City Public Library-Downtown Central on February 12 at 5:30 p.m. The event promises guest speakers and authors discussing topics such as racial equality. If you’re in the area, consider going. If not, I encourage you to get a copy of the book.

January 23, 2015

Thoughts on Gov. Nixon’s State of the State Address

The president’s State of the Union address is always filled with lots of pomp and formality. It’s the closest thing we have to a monarch addressing Parliament. On Wednesday evening, we had the mini version of that same spectacle when Gov. Nixon gave his State of the State address at the Missouri Capitol. In it, he outlined his priorities for the upcoming year. You can watch the speech here or read a transcript here.

There were some appealing aspects to his speech, like his thoughts on how to address our transportation infrastructure. Gov. Nixon stated:

One option is a toll road on Interstate 70. The Highway Commission’s recent report showed that this approach could make I-70 better and safer … and free up tens of millions of dollars for other roads around the state. Trucks and out-of-state vehicles that do the most damage to I-70 would have to pay their fair share. That deserves serious consideration. Here’s another option: the gas tax. Missouri’s gas tax hasn’t gone up a penny in nearly 20 years. It’s the fifth-lowest in the nation.  With gas prices as low as they are now, this is worth a very close look.

Kudos to Gov. Nixon for at least considering user fees as a way to finance transportation in the state. My colleague Joe Miller has written extensively about the benefits of tolling and how gas taxes are a better way to fund roads than the sales tax. Tolling is a fair way of financing improvements to Interstate 70 because it can be done in such a way as to get much, or even most, of its revenues from commercial vehicles, which cause the most damage to our roads and highways.

However, not everything in Gov. Nixon’s address was good policy. The governor still insists on expanding Medicaid.

Now I’d like to talk about another challenge … but an even greater opportunity: Strengthening and reforming Medicaid. Let me remind you, a lot has changed since last year. Since I stood here last year, Missouri taxpayers have sent $2 billion to Washington. Those dollars are being used right now, in other states, to reform and improve their Medicaid systems. That’s 2 billion Missouri taxpayer dollars.  And this year, there’s another $2 billion at stake. If we keep standing still, that’s $4 billion Missourians will have lost to other states by the end of this year. Across the country, people are moving past the politics.

To help you decipher politico speak, when the governor talks about reforming Medicaid, he really means expanding Medicaid. Show-Me Institute Senior Analyst Patrick Ishmael has done a tremendous job explaining why expanding Medicaid is a bad idea. Not only would it strain future Missouri budgets by adding billions in new spending (Medicaid already takes up 22 percent of Missouri General Revenue expenditures, up from 17.5 percent just 10 years ago), but the program doesn’t work. The poor should get decent health care; Medicaid fails on that front.

Gov. Nixon raises the point about Missouri taxpayers sending money to Washington, and by failing to expand Medicaid, other states get to spend our money. This is also false. Patrick lays out why this claim is wrong in his most recent Forbes piece. First, Missouri is a net recipient of federal tax dollars. This means that Missouri gets more in federal aid than it sends out in tax dollars. Also, the money for Medicaid expansion is not like some large pie that gets distributed to the states that participate in the expansion. Each state has its own allotment of money to help pay for expansion. If the state doesn’t expand Medicaid, the money isn’t reallocated. That’s why you are seeing the overall cost of Medicaid dropping. Fewer states are signing up for expansion, and thus the actual cost growth of Medicaid is falling below what was projected. If the money was being redistributed, actual cost growth would be closer to projections.

Gov. Nixon’s speech was a mixed bag. The legislature should feel free to ignore the bad ideas. I hope, though, that the good parts mentioned above do more than just receive serious attention. There are serious issues in this state that need addressing, and we need pro-market solutions.

January 21, 2015

A Bad Idea That Sounds So Good

I love my dog Wiley. She is sweet and loyal and kind. I adopted her nine years ago, and I can’t imagine my life without her. That’s why I can’t begrudge someone who wants to encourage others to adopt pets. Senator Maria Chappelle-Nadal wants to do just that with her bill that would offer a $300 tax credit for adopting pets from licensed shelters.

In all the areas of government overreach and wasteful spending, this doesn’t come close to taking the cake. Honestly, it’s an appealing prospect. I mean, look at the picture below. Who would be against this puppy getting adopted? It shouldn’t take a tax credit for someone to support adopting puppies.

GoldenRetrieverPuppyDaisyParkerBut this proposed bill wants to do just that, subsidize pet adoption, and the subsidy is the bad idea.

I want dogs to be adopted. I have a soft spot for dogs, and whenever a dog dies in a movie, I turn into Niagara Falls (don’t judge me—a lot of guys cry at the movies). However, the government shouldn’t be in the business of helping people pay for pet adoption. It should be in the business of providing basic goods and services necessary for a functioning society (police, firefighters, and prisons jump immediately to mind). Pet adoption is the purview of individuals and private organizations. If the government kept its spending down to the bare essentials, taxes would be low enough so that taxpayers would have more money to spend on a variety of admirable things: adopting puppies, saving the spotted owl, and preserving the rain forest.

Missouri has issued tax credits to things that frankly don’t need them, like country clubs and movie stars. Adopting pets isn’t nearly an egregious waste of taxpayer dollars as the former two, but it still shouldn’t occur. I hope it will never get the chance.

January 9, 2015

Thoughts on the Latest Rams Press Conference

With the recent news that Rams owner Stan Kroenke is planning to build a new football stadium, the chances of the Rams leaving Saint Louis have increased substantially. Late last year, Gov. Nixon appointed a two-person team whose mission was to investigate options for keeping the NFL in Saint Louis. The team, which consists of former Anheuser-Busch executive Dave Peacock and Clayton area attorney Bob Blitz, presented their report on Friday. Below are key points raised in that report:

  • Plans are for a new stadium located on the riverfront, north of Lumiere Casino and northeast of the Edward Jones Dome.

Stadium2.0

  • The stadium also would be available for professional soccer.
  • It would be a public asset owned by a public entity and leased to the team. Also, the new stadium would come with a new lease, 30 years or more.
  • Cost estimate: $860-$985 million, at least half of which would be privately financed (minimum $200 million from Stan Kroenke and another $200 million from the NFL).
  • No new tax burden, although there would be public money involved.
  • Estimated completion date: 2020.

After listening to the press conference and going over some of the points raised here, I have my misgivings about this project. First, I would like to know specifically where the money is coming from to pay for this new stadium. During the press conference, Peacock said that the sources of public financing would not be ascertained until there was a commitment from the NFL and from the Rams on moving forward with this project. Second, the $860-$985 million price tag would only be for the new stadium. Additional money (it wasn’t said how much) would be needed to upgrade the current Dome so it will be a full-time convention center. How are we going to pay for that as well?

My biggest misgiving is the fact that we will be publicly subsidizing this thing at all. Kroenke’s proposal in Los Angeles would be completely privately financed. Why should the public put up money when Kroenke can afford to pay for the costs himself? The most recent trend in stadium construction is toward private investment. That’s what happened in San Francisco and New York, so why should Saint Louis be different?

I know it is easy to be wowed by beautiful pictures of sparkling developments like the one above. Yet, nice pictures aside, these kinds of plans do not produce the economic benefits that would make these developments worthwhile. I want Saint Louis to remain an NFL town, but I don’t want to spend taxpayer dollars to do it.

January 6, 2015

Rams L.A. Bound?

Edward_Jones_Dome_endzone_view

According to the L.A. Times, Rams owner Stan Kroenke plans to build a new football stadium in Inglewood, California. If the plan is approved by local voters, it would clear one major hurdle for moving the Rams to Los Angeles. The mayor’s office in Saint Louis maintains that it will not get into a bidding war with Los Angeles over the Rams (the proposed stadium in Los Angeles would be built without tax dollars).

The sentiment coming from the mayor’s office is encouraging. Cities should not be spending public money in order to keep/lure professional sports teams. Now don’t get me wrong, I don’t want the Rams to move. However, Mr. Kroenke obviously feels that Los Angeles is a better venue for his team than Saint Louis. Considering that new stadiums tend to cost more than a billion dollars, the amount of public subsidies needed in order to change Mr. Kroenke’s mind probably would be astronomical. If subsidies were provided, what would taxpayers get in return, an economic adrenaline shot? Not really. Would keeping the Rams here do wonders for the city’s brand, as some have argued? I doubt it. Even when Mayor Slay brags about Saint Louis to the rest of the country, I don’t see the Rams mentioned anywhere (the Cardinals are a different story).

Sports often binds people, families, and communities together. There is no more popular sport in the United States than football, and I enjoy looking back to the time when I was a kid and I went with my father to watch Rams games (believe it or not, there was a time when the Rams were worth watching). Unfortunately, it appears that Saint Louis could end up losing yet another pro football sports franchise. That’s not an appealing prospect, but if public officials hold the line and refuse to grant any more taxpayer support to the Rams, then they should be commended and we should be thankful for their discipline.

 

December 18, 2014

More On the Minimum Wage

To a lot of people, increasing the minimum wage makes sense. Honestly, who doesn’t want low-income workers to make more money? Yet, if you actually take a look at minimum wage laws, you’ll notice that they don’t really help people as much as advertised. In fact, these laws actually can hurt the people they are meant to help. A new study (H/T The Corner) by Jeffrey Clemens and Michael Wither further reinforces these points.

In their study, Clemens and Wither examined the impact of the federal minimum wage increases during the Great Recession (2007-2009). They found that not only would low-skilled workers be less likely to have jobs after the minimum wage hikes went into effect (a finding also supported by the CBO), but the hikes also would lead to an overall decline in these workers’ incomes even after accounting for the increased wages of those workers still employed.

This leads to another problem with increasing the minimum wage: decreased economic mobility. The study’s authors found that increasing the minimum wage reduced the chances of low-skilled workers eventually reaching salaries of $1,500 a month (they determined that $1,500 a month was the threshold for lower-middle-class salaries). Clemens and Wither believe that this reduction in mobility occurs because an increased minimum wage results in fewer jobs being available for poorer workers. According to the authors, this lack of job opportunities means that there are fewer chances for these people to accumulate the skills and experience necessary in order to earn higher wages in the future. This is conjecture on the authors’ part, but it makes sense if one thinks about it.

At a cursory glance, the minimum wage is a good thing. Unfortunately, there are two sides to the minimum wage, and when you take the other side into account you see that it hurts more than it helps. This study’s review of the academic literature finds that increasing the Earned Income Tax Credit (EITC) would be a better alternative for low-income families than raising the minimum wage, something that we have been saying for a while now.

 

November 21, 2014

This Sounds Familiar

Cassandra was a Trojan princess who had the gift of prophecy. She foresaw that the abduction of Helen would bring about the destruction of Troy. Her curse was that nobody believed her. At the Show-Me Institute, we weren’t blessed with Cassandra’s ability, but when we look at the future of Missouri’s public pensions, we see potential disaster ahead.

Last year, the Show-Me Institute released a report by Dr. Andrew Biggs of the American Enterprise Institute. The report showed how Missouri public pension plans are underestimating the total amount of unfunded liabilities (total pension obligations that exceed the amount of assets the pension plan has) that they have. In fact, using more realistic assumptions, five of the state’s largest pensions have unfunded liabilities FIVE TIMES larger than what is reported ($54 billion actual vs $11 billion reported). That is a serious amount of money, and if these pensions do not have the assets to cover their obligations, then the taxpayer (you and me) will be left footing the bill.

State Budget Solutions, to my knowledge, does not have the gift of prophecy either. Yet they see what we see when they look at the status of state public pensions. Their new report discusses the unfunded liabilities of every state’s pension system. The content of the report sounds familiar because, like Dr. Biggs, they find that using more realistic assumptions about plan returns, state public pensions are significantly underfunded. According to State Budget Solutions, Missouri’s pensions aren’t among the worst nationally. That doesn’t mean things are good and the state’s pensions don’t need reform. If I’m stuck holding a stick of dynamite, while my neighbor is holding an atomic bomb, it doesn’t mean I’m going to be okay when the dynamite goes off.

Unfortunately, there has been little progress into actually achieving pension reform in Missouri. At the very least, the state needs to work to stop additional liabilities from being added to the already enormous amount the state already owes. Shifting to a defined contribution plan or a cash balance plan would be a good place to start. Then, policymakers can work on addressing the gap between pension assets and the monies these plans owe.

Cassandra warned of danger, and she was not believed. That was her curse. Hopefully, Missouri can avoid Troy’s fate.

November 6, 2014

Proposed Property Tax Increase Fails in Columbia

Since the proposed property tax increase failed in Columbia, it seems the city is heading for a disaster of biblical proportions. I mean Old Testament, real wrath of God type stuff. Fire and brimstone coming down from the skies! Rivers and seas boiling! Forty years of darkness! Earthquakes, volcanoes . . . the dead rising from the grave! Human sacrifice, dogs and cats living together . . . mass hysteria! Okay, not really. In fact, if you read my commentary on the ballot measure, you’d know that crime, especially violent crime, and the total number of fires are actually declining in Columbia. This is a good thing.

However, what if you’re among the more than 10,000 residents who feel that Columbia needs a bit more in the way of police and fire protection? I’d say don’t despair. There are other means by which the city can increase revenues without resorting to a property tax increase.

For instance, the city could look at the fire expense reimbursement that it receives for services that it performs for the three colleges located in town. According to the Columbia budget, these reimbursements are declining and have been for the past couple of years. Columbia can renegotiate with these colleges in order to get higher reimbursements.

Columbia also could look into privatizing its water and electric utilities. The sale of these types of utilities can bring in an immediate infusion of cash to cities’ bank accounts. For example, the city of Florissant, Missouri, privatized its water utility in 2002 and received $14.5 million from the sale. More recently, the residents of Arnold approved the sale of their sewer system, which brought the city $13.2 million. Not only can the sale of the utilities themselves bring in more money to the city, but privatization can also expand the city’s property tax base, which would generate more revenue in the future.

The instances of crime and fire have declined in Columbia, yet for those who believe that public safety is underfunded, there are other ways to raise revenue besides a tax increase. Maybe it’s time they explore them.

 

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