Last week, I highlighted one good-intentioned but misconceived proposal that a Missouri legislator suggested to get the state’s economy moving. This week, there is a proposal that may have a kernel of a good idea in it, though the implementation leaves something to be desired.

State Sen. John Lamping, R-Ladue, has followed through with his plan to file a bill that eliminates state income taxes on the first $2,000 in individual income and replaces the money by hiking the state’s cigarette tax — now among the nation’s lowest.

Lamping says the bill is revenue neutral.

Under his proposal, SB 638, no Missourian would pay taxes on the first $2,000 of earned income. Now, state income tax is levied on all income, no matter how small. That cut would cost the state $128 million a year.

As David Stokes noted Thursday, non-smokers and infrequent smokers would be net beneficiaries if the legislation is implemented. The problem is, who would not be a net beneficiary? Smokers tend to be poorer than non-smokers, and any hike in the cigarette tax will tend to hit those living in poverty fairly hard. In 2009, the CDC found that “[t]he prevalence of current smoking was higher among adults living below the federal poverty level (31.1%) than among those at or above this level (19.4%).” Will there be a deterrent effect if there is a marginal increase of 26 cents in the cigarette tax? Possibly, but it also is fairly likely that what the poor gain from the income tax reduction could get eviscerated by the cigarette tax hike. If income taxes were exempted at a higher level, a “worse off” scenario for poor smokers would be less likely.

But there is an alternative to a straight cigarette tax hike if legislators really want to exempt income from the individual income tax. I wrote last week that major reductions to the corporate income tax could be made with the elimination of millions of dollars in failing tax credits. There also is ample room for a deeper cut to the individual income tax that would increase the likelihood that the poor would be net beneficiaries in a tax system rebalancing. Aside from the drastic hikes in the cigarette tax that have been proposed elsewhere, which would exacerbate the problem for the poor, a reduction in tax credits could account for much of the revenue required to make major cuts to the individual income tax.

Put more succinctly, to reduce income taxes, other taxes do not necessarily have to go up if state tax credits go down to a more manageable and appropriate level. Instead of picking winners and losers, let everyone benefit. It would make for a better Missouri and a better-balanced tax system.

Another session of the Missouri General Assembly has begun and lawmakers in Jefferson City, by law, must close the projected shortfall in the state’s budget. The actual amount of the shortfall is difficult to determine. One source estimates it is $500 million, another says the shortfall ranges between $400 million and $600 million. Needless to say, the number is not insubstantial.

The question arises about what to cut. However, what if appropriators flipped this picture upside-down? What if the legislators asked what should be funded first, instead of what should be cut?

It turns out that the authors of the Missouri Constitution gave this some thought.  The state Constitution provides a list of the order in which money is to be appropriated. It seems the authors of the state Constitution tried to tell us the state’s spending priorities. Those funding priorities are (in order):

1. For payment of sinking fund and interest on outstanding obligations of the state.
2. For the purpose of public education.
3. For the payment of the cost of assessing and collecting the revenue.
4. For the payment of the civil lists (in this case, state employees).
5. For the support of eleemosynary (charity) and other state institutions.
6. For public health and public welfare.
7. For all other state purposes.
8. For the expense of the general assembly.

Now, I am not saying cuts in say, education spending, are completely off limits. If there is waste, get rid of it, no matter where it is. However, the legislature should prioritize spending based on the guidelines of what is emphasized in the Constitution, and if spending cuts are needed, they should be in lower priority items. One example of something that might not qualify as “high priority” is the Missouri Wine and Grape Board. Another example is state ethanol subsidies. Between these programs and K-12 education, which is a higher priority to you?

After a 2011 chock full of tax credit disaster stories, one would think the last thing Missouri politicians would suggest is the creation of a brand new state tax credit for economic development. And yet, here we are.

Meet the new ideas, same as the old ideas.

The Minority Leader in the Missouri House of Representatives says rather than focus only on ideas that have already been vetted, the legislature needs to consider some fresh ideas.

Mike Talboy (D-Kansas City) points to the states neighboring Missouri, all of which he says have angel investment opportunities. Those could be tax credit programs or funds that are typically smaller than some of the economic development programs already in Missouri.

He says putting programs like that into effect can provide “good bang for your buck in the beginning. But then also as the budget years get better and as we have more revenue in the state and as we see the returns on those types of programs, then you can look at expanding them if you need to or be able to expand them into different parts of the state.” Talboy says there is nothing like what he is talking about currently offered by DED.

“Angel investments“ typically give the investor an ownership or convertible debt stake in a company, which oftentimes is a startup. They usually are differentiated from “venture capital investments” as investments measured in hundreds of thousands of dollars rather than millions of dollars. Angel investments — like so many investments — are inherently risky because success for a startup company is not certain, but such a high risk also has the potential for a high return. According to Jake Halliday, CEO of the Missouri Innovation Center, entrepreneurs oftentimes must give up “a 25 percent to 30 percent ownership stake in his or her startup for a $300,000 angel investment.” If the company grows, so does the angel investor’s money.

So if taxpayers underwrite these investments, will they also get a cut of the capital? I asked a similar question last year when it was revealed that half of the building Stifel Nicolaus was buying in Saint Louis — that is, the building it already occupied — was being subsidized with public monies. Taxpayers did not get to own half of the building it was paying for back then, and they almost certainly will not get a cut of the upside that could be realized from startups under an angel investor tax credit program. In short, we now are being told that Missourians should help defray the risk of high risk/high return investments that rational investors may not have undertaken. Sounds an awful lot like a bubble in the making.

If state officials really want to help businesses in Missouri, they need to stop treating the state’s economic development plan like they are throwing tax credit flapjacks against a wall to see what sticks, and instead cut taxes for everybody. Missouri’s tax credit problem has gotten so bad that Missouri officials could eliminate the corporate income tax entirely, and the state still would have millions of dollars in tax credits remaining. Even if elimination of the corporate income tax is not immediately feasible, officials easily could make deep cuts. They could eliminate millions of dollars of waste that regularly causes the state to lose all but a fraction of the money it expends in those tax credits.

Isn’t there a better way than the conventional wisdom in Jefferson City? Are more tax credits really the answer to our tax credit-fueled economic development problems?

Missouri Gov. Jay Nixon is asking some state universities for a loan. To be more specific, Gov. Nixon is asking the University of Missouri-Columbia, the University of Central Missouri, Truman State University, Missouri State University, and Southeast Missouri State for a total of $107 million to help fund the Missouri Department of Higher Education (DHE) due to the state’s expected budget shortfall next year. The exact size of the budget gap is not yet known. There are differing reports on its size, with some articles stating it will fall between $400 million-$600 million while the St. Louis Post Dispatch reports that the shortfall is $750 million. Regardless, the amount is not insubstantial.

However, the plan for obtaining a $107 million loan from state universities to help fund a department that gives a lot of money to . . . well, state universities, seems odd. If the state is facing a shortfall, it needs to make the tough decisions to balance the budget (i.e., cut spending and NOT raise taxes). What happens if the state faces a similar situation in fiscal year 2014? Will Nixon ask for ANOTHER loan?

There are other places in the budget that can be cut (granted, these cuts alone will not make up the amount of money needed, but they are a start) before even thinking about cutting money from the DHE, never mind resorting to this loan plan. However, that is not to say that cuts cannot be made in DHE. The DHE budget is not sacrosanct.

For example, in fiscal year 2012, the DHE gave more than $400 million ($366,765,401 from general revenue) to the University of Missouri system. If Gov. Nixon wants a $63 million loan from the University of Missouri-Columbia, why doesn’t he ask the legislature to cut $63 million from the University of Missouri system. Lawmakers can always appropriate more money in future fiscal years (not that they necessarily SHOULD). Why ask for a loan?

Prudence is a virtue for a reason. Before engaging in plans meant to avoid the task at hand, wouldn’t it be better if the state actually finds out what it is paying for and truly decide what it NEEDS to pay for, and what people can do without?

I want to keep our loyal readers informed on the latest developments regarding the Saint Louis County park budget issue. David Stokes, a Show-Me Institute policy analyst, gave a great rundown about Saint Louis County officials considering closing some county parks because of budget problems. Apparently, Missouri Gov. Jay Nixon is offering assistance to the county in managing some parks:

Nixon said that he had offered assistance to [Saint Louis County Executive Charlie] Dooley. In particular, the governor mentioned Lone Elk Park, which is adjacent to Castlewood State Park. Nixon said such a state-county operation there would save money.

Lone Elk Park is adjacent to Castlewood State Park and a previous article states that the county was considering transferring Lone Elk Park to the Missouri Department of Conservation. The governor claims that a shared management operation would save money. I haven’t seen any data to support this claim, but IF it is true, then the idea can be viewed as having some merit.

However, it seems odd that in this article, the topic of privatization was barely mentioned, except in this brief statement:

[Saint Louis County Chief Operating Officer Garry] Earls initially said that some of the parks, including Lone Elk, could be sold. However, Dooley dismissed that possibility at a special budget meeting Tuesday night.

Prudence would suggest that the county not dismiss privatization (or ANY potential solution) out of hand. Shouldn’t the county consider privatization as a possible course of action before sharing park management with the state? If there ARE obstacles to privatization, what are they? The only obstacle I could find is in this piece of information from the Southeast Missourian:

Officials said deed restrictions and covenants would prohibit the sale of most of the parks to private individuals.

However, Lone Elk Park does NOT have a deed restriction on its sale so the above restriction would not be applicable. Are there any other reasons the county would not consider privatization of Lone Elk Park?

As David mentioned in his post, the Reason Foundation has done a good analysis of park privatization, and the conservancy model of non-profit, public-private partnerships operating a park has been tried successfully in Tower Grove Park. County officials have not given a reason why following the Tower Grove example would be a bad idea, and unless there is a deterioration of Tower Grove’s situation, shouldn’t Saint Louis County investigate privatization of Lone Elk Park if a private operator can be found to manage it?

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.

I miss October. The weather was nice, the sky was clear, and the St. Louis Cardinals baseball team was on its way to an 11th World Series title. Also during October, many people congregated in various parts of Missouri to celebrate Oktoberfest, a fun and lively event where people enjoyed cultural activities along with certain viticultural products.

I want to make it clear that I do not want to outlaw wine in Missouri. However, it troubles me that taxpayer money is subsidizing the wine industry. Specifically, the Missouri Department of Agriculture spends $1,828,859 (click on HB 6-Agriculture and scroll down to page 133) on something called the Missouri Wine and Grape Board.

According to the Department of Agriculture’s 2012 Budget Request Form (click on HB-6-Agriculture and scroll down to page 134), “The Wine and Grape Board stimulates growth of the grape and wine industry for the economic and social benefit of the citizens of Missouri.” Aspects of the board’s functions include using funds to “develop programs for growing, selling, and marketing of grapes and grape products grown in Missouri.” Indeed, the Missouri Wine and Grape Board does have marketing products, including brochures, videos, and radio advertisements. The Wine and Grape Board also funds the University of Missouri Institute for Continental Climate Viticulture & Enology in order to fund grape research programs.

So, in essence, the board serves somewhat like a chamber of commerce for the Missouri wine and grape industry. However, unlike a chamber of commerce, participation in this program is mandatory, with a charge of a 12-cent excise tax on every gallon of wine sold in the state. Also, in all my searches through the state budget, I have yet to encounter an official appropriation for a private chamber of commerce.

I have to ask, why can’t Stone Hill or Hermannhof promote themselves with their own money? Why can’t there be a private chamber of commerce that promotes the wine industry, or all the wineries of the state? I have no problem with private groups promoting wineries, but do I think the state should be promoting them? No.

Also, there is no evidence that this expenditure actually DOES have a positive impact on the state’s wine industry. In my search, I haven’t seen anything to suggest that the Missouri Wine and Grape Board has a discernible impact on the Missouri wine industry. Even the economic development report on the Missouri Wine and Grape Board website doesn’t really show the spending cause and effect; it just shows that in recent years, Missouri wineries are doing well. However, it doesn’t link the activities of the board to the wine industry’s success.

The key issue here is funding priorities. Why is the state funding this board, at least at its current level, when there are other places in the budget that may require that money? If the choice for appropriators is between potentially laying off teachers, firing firemen, or withholding funds from vital social services, shouldn’t every area of the state budget come under review for potential savings? Just my 2 cents.

I can say with some certainty that this is our last post about the small Saint Louis County municipality of St. George, because in a few days it will no longer exist. Last night, voters in the city of St. George voted to disincorporate. I think they made the right decision.

The city long survived on speeding ticket revenues. After a few scandals resulted in the disbanding of the St. George Police Department, the Saint Louis County Police Department took over. That was perfectly fine for the residents’ safety, but the County has no interest in writing speeding tickets solely for the purpose of city revenues. So the city lost its major source of revenue, the streets started to crumble, and there was no money for repairs. Thankfully, smart thinking prevailed and the city will no longer be with us once the votes are certified.

I am not a knee-jerk supporter of fewer municipalities in Saint Louis County. There are benefits (as well as costs) to having a number of small cities. The lack of centralized urban planning is the main benefit. However, in some instances, the tiny municipalities in the county border on the ludicrous, and St. George was Exhibit A.

I think some of the other 91 90 cities in the County should consider doing the same. Some should disincorporate, some should merge, and some others should follow Jennings’ lead and remain as they are while making key changes. I have no idea what would be the ”best” number of cities in the County. Nobody else does either. For the sake of this post, I would say that about 70 cities would allow for the benefits of many cities while getting rid of the most obvious cost inefficiencies and poor policies (like cities that have a primary funding source of speeding tickets).

Whatever the choice, it should be up to local citizens. I think the local citizens of the newly-unincorporated community formerly known as St. George made the right decision and have shown us the way.

Last week, Show-Me Institute Policy Analyst David Stokes wrote at length about the Saint Louis County proposal to close its parks; the County would shut down operation of 23 of its 50 parks to help close what the county executive says will be a $10 million budget shortfall in 2012. If you’re unfamiliar with the story, David’s post is a must-read.

Given the continued furor surrounding the park-closure idea, it is probably worthwhile for Saint Louis County residents to see the proposed budget for themselves. I have embedded it below for review. The 300-plus-page document is searchable, and I’ve queued it to the budget summary (listed as page 10 in the County document).

(We’ve also added the County’s recommended budget to our Show-Me Sunshine library of documents.)

If County residents don’t like the idea of cutting parks, there’s always the option of simply cutting other expenditures. Which budget items would you trim?

It appears the state of Missouri might be running into some revenue problems (net general revenue collections were down in October compared to October 2010). I previously identified some low-hanging fruit that can be cut without too much damage, but if the state still faces a shortfall next year, which is very possible, then officials might have to make some difficult choices.

Many politicians are justifiably concerned when the topic of education budget cuts is raised. It is easy to imagine why. Nobody welcomes the prospect of facing a 30-second advertisement detailing the many reasons he/she doesn’t care about children because he/she proposed cuts in education spending. However, out of a Missouri Department of Elementary and Secondary Education (DESE) budget of more than $5 billion, it is definitely possible to find some savings. For example, one school district paid lifetime health care insurance just to retain its superintendent another year. Isn’t that a worthwhile issue to examine regarding budget cuts?

I can hear the concern of those who think budget cuts to DESE would cause great harm, but would some cuts really be so horrible? Not really, at least according to figures from the National Center for Education Statistics. Compared to 2003, the test scores for Missouri students ROSE for both fourth and eighth graders in math (for fourth graders, the average score in 2003 was 235; the average in 2011 was 240) and scores remained the same for eighth graders in reading (see page 51). Only fourth-grade reading scores dropped (222 in 2003 compared to 220 in 2011) over that period.

I’m not saying that cutting the state education budget will necessarily lead to BETTER test scores. All I’m saying is that cutting the education budget MIGHT not be as much of a disaster as some may fear. We have been trying the opposite approach for a while now and it’s not producing significant results. It is difficult to argue that there is NO room for savings in the DESE budget. In regards to balancing the budget next year, everything should be on the table.

Remember the school district in Kansas City that is asking for a tax increase because of lost tax revenue? Show-Me Institute’s Bruce Stahl wrote last week that Tax Increment Financing (TIF) is the culprit.

Supporters of TIF often say that it is harmless. The rationale behind TIF subsidy is that a development’s taxes are “frozen” at current levels for a number of years. If a developer improves the property during that time, he won’t pay additional property taxes on the improvement.

However, TIF amounts to tax redirection without representation. Tax dollars intended for a school district (which come from property taxes) can be used to pay for costs associated with the subsidized development. Unlike school district officials, city officials tend to be enthusiastic about TIF because they can reap the benefits from increased sales taxes (which generally increase when TIF is used to subsidize box store development) without bearing much of the cost of lost property tax revenue.

Many voters get no say in the matter when they live in a school district impacted by TIF but outside of the city that is imposing the TIF. Some readers may think this is fine. After all, these are local subsidies — residents in Joplin certainly won’t pay for a proposed TIF in Columbia. Aren’t the cities of Brentwood and Saint Louis free to use TIF as much as they want?

Well, thanks to the intricacies of Missouri’s tax system, we all pay for TIF, even if we live in cities that do not award such subsidies.

School districts primarily receive funding from three sources: local property taxes, state aid, and federal aid. State officials use the local property tax base as part of the equation to calculate the funding it sends to school districts.

So, when TIF carves out a portion of the property tax base from a school district, the state can end up sending more funding to that district.

According to a 2003  study by the Brookings Institution’s Center on Urban and Metropolitan Policy, TIF can increase state aid by up to 7 percent in Kansas City-area districts, and up to 5 percent in Saint Louis-area districts. The author, Thomas Luce, estimated that up to 21 percent of the state aid going to the Fort Zumwalt School District in St. Charles County was attributable to TIF revenue losses.

Not only does TIF result in dollars intended for schools to be redirected to development, we all end up paying for it through state income and sales taxes. And yet, it is unlikely that a taxpayer in Cape Girardeau will ever benefit from a Kansas City TIF development that he helped subsidize.

If TIF is truly as transformative as supporters believe, then it should stand on its own. The state funding formula should not reimburse school districts for property tax revenues lost to local governments’ development bets.

When I was a kid, I often visited the Kansas City Zoo with my family; after all, we were members of the Friends of the Zoo program, the private booster organization that now runs the park. Thus, participation in zoo-related activities wasn’t uncommon, and even after seeing the more robustly-funded Saint Louis and Omaha zoos in my youth, I never really felt like I was being short-changed with my hometown facility.

No doubt, the Kansas City Zoo’s funding pales in comparison to some other parks. For example, in 2006, the Saint Louis Zoo’s budget topped $46 million, with nearly half of its funding coming from the Metropolitan Zoological Park and Museum District (ZMD), which Saint Louis City and County property tax dollars fund. For perspective, the Kansas City Zoo’s budget last year was roughly a quarter that size, at $11.6 million — $3.4 million of which came directly from the city.

Is there a funding disparity here? Has Kansas City, to date, placed a different priority on its zoological park compared to other metropolitan needs? Sure, on both counts. But according to a report in the Kansas City Star that may be changing, and soon:

The zoo on Nov. 8 will ask voters in Jackson and Clay counties to create a new zoo district by approving a 1/8-cent sales tax. It would give the animal park an assured stream of money safe from the uncertainties of the Kansas City municipal budget.

Supporters say it would vault Kansas City into the ranks of the truly great regional and national zoos.

“We’re looking at this as one chance in a lifetime,” said Randy Wisthoff, the zoo’s director. “It could be the most important thing to happen at the zoo in its 100-year history, or in the next 100-year history.”

When every big government project is marketed as a “one chance in a lifetime” opportunity to taxpayers, I have to say, the buzz of the suggestion wears off pretty quickly for me. Phraseology like this, of course, is intended to engender urgency for a cause, but while that’s a fine marketing strategy, it can facilitate really bad, and oftentimes silly, public policy decisions.

How much would a fully-implemented Kansas City zoo tax generate? Quite a bit, actually.

If approved in both counties — it must at least pass in Jackson to take effect — the zoo district could generate $14.2 million a year. That is more than the zoo’s entire budget now and would allow it to accelerate a master plan that calls for a $15 million penguin exhibit, an orangutan jungle and a new display for big cats. Plans also include a water play area for kids and a giraffe feeding station.

Another Kansas City Star report notes that “zoo officials say they need a regional tax base to compete with better-funded zoos,” but, is the market for zoos so lucrative that Kansas City really needs to raise its zoo game with a special tax? As someone who had the opportunity to appreciate and enjoy the zoo as a child two decades ago, I would love to see Kansas City expand its zoo, but I’m not convinced that (1) it’s needed, (2) the taxpayers need to pay for it, or (3) that the economic effect of the zoo justifies special taxpayer attention.

It’s the prerogative of Kansas City area residents to determine their tax burdens, so if they see a benefit from the tax, it shall be. But as someone from a family of zoo supporters, I’m not convinced it’s necessary.

Note: Platte County and Cass County, both of which contain parts of Kansas City, will not vote on the zoo tax next week. Residents in those counties might vote on the issue sometime in 2012.