On Sunday, Jessica Bock of the Post-Dispatch reported that the superintendent of the Ferguson-Florissant school district was awarded health insurance for life as an incentive to get him to stay at the district for an extra year. This is incredibly rare, if not unprecedented. In my study of Missouri superintendent pay, I did not see any other Missouri school district award its superintendent perpetual health insurance.

According to his contract, the superintendent, Jeffery Spiegel, will begin to receive free health coverage for both himself and his dependents after June 30, 2011, until the end of Spiegel’s life. The superintendent and his dependents will not have to pay any premiums for this coverage after June 30.

This is pricey. According to Bock’s article, district officials estimates the cost of the lifelong health insurance to be more than $200,000.

A more typical health insurance benefit for superintendents at larger school districts is to provide health insurance to a superintendent and his or her family while the superintendent works at the district. (The Pleasant Hill superintendent’s contract is a good example).

If the Ferguson-Florrisant school board members were having a difficult time persuading Spiegel to stay at the district, they could have awarded him an increase in salary for that year, or an increased annuity payment — something that other school districts occasionally do. The health insurance that Spiegel was awarded is an unknown expense. It is impossible to know how long he and his dependents will use the benefit. Estimates, such as the $218,398 figure calculated by district officials, are only estimates.

Really, why would the Ferguson-Florissant school board, which oversees the district’s budget, prefer to award a benefit with an unknown cost to one that can easily be budgeted for? If board members thought Spiegel was worth an additional $218,398, the board members could have increased his salary by that amount. That approach would result in Spiegel’s salary increasing to $430,051. Of course, if the school board had taken that approach, the additional compensation would have been awarded in a much more transparent manner.

School districts report their superintendent’s salary each year to the Department of Elementary and Secondary Education. But districts do not report the non-salary benefits, such as annuity payments, car allowances, or, in this case, health insurance for life. So, Spiegel’s additional compensation cannot be found by looking at state data. Additionally, if an education reporter or interested district resident were to request Spiegel’s employment contract, which is where you can find information about non-salary benefits, they would only see that he was awarded health insurance for life — not the monetary value of that benefit. It took diligent reporting to suss out the $218,398 figure.

It is impossible to tell whether school board members thought that they could obscure the enormous sum of money awarded Spiegel by providing lifelong health insurance to its superintendent and his dependents. But, regardless of the intention, that is the end result. I’m glad the Post-Dispatch caught it.

Incidentally, the next Ferguson-Florissant school board meets next on Sept. 8.

For advocates of free markets, St. Louis city presents a disturbing environment for the conduct of business. Indeed, the fact that so few construction projects occur here in the absence of subsidy necessarily makes the rare market-based development a news item in its own right. But what about projects that do not make the news?

Pictured above in August 2010 is the 1818 Washington Ave. Building in downtown St. Louis. Paired main entry doors punctuate the center of the building’s primary facade, while four ground-level storefront bays are at right. A pizza restaurant occupies this retail space, displaying a bright red-on-white background ”Now Open” sign, in addition to handsome neon signs for Bud Light and Bud Light Lime.

Two blocks to the southwest, at 2001 Olive St., a one-story building features plywood boards over the entirety of its glazed area. Permanent signage for the pizza place remains atop this building, while a banner reading “We Will be Relocating to 1818 Washington Ave. July 1st, 2010,” with red lettering on a white background, hangs from a ground-level storefront bay at left.

In a truly competitive free market, the story would end here: A business moved from one building to another. So what?

As this business relocation occurred in St. Louis city, however, legislated market distortion and an administrative exercise in symbolic violence likely contributed to the outcome pictured above.

On the legislative front:

Ordinances 67319, 67462 and 67463 designated 1818 Washington Ave. as a redevelopment area, executed a redevelopment agreement between the developer and the city of St. Louis, and authorized “$2,380,000 Plus Issuance Costs” in Tax Increment Financing (TIF) notes for the construction of 1818 Washington and another nearby project.

On the administrative front:

In addition to TIF, the 1818 Washington project stands to utilize “Federal and State Historic Tax Credit programs.” Combined, they could yield up to 45 percent of the project’s costs in tax credits for the developer — 20 percent for the federal credit; 25 percent for the state credit. (The building is a contributing resource in the “Lucas Avenue Industrial Historic District (Boundary Increase),” after all.)

In a free market, favorable lease terms or a street address on the vaunted Washington Avenue could prove enticements enough for a business to relocate. In St. Louis city, we are instead left to ask what role public monies are playing in a business location decision, and whether associated municipally approved TIF legislation is actually legal.

Missouri TIF law states the following in §92.805(4), RSM0:

For redevelopment projects or redevelopment plans approved after December 23, 1997, if a retail establishment relocates within one year from one facility to another facility within the same county and the governing body of the municipality finds that the relocation is a direct beneficiary of tax increment financing, then for purposes of this definition, the economic activity taxes generated by the retail establishment shall equal the total additional revenues from economic activity taxes which are imposed by a municipality or other taxing district over the amount of economic activity taxes generated by the retail establishment in the calendar year prior to its relocation to the redevelopment area;

If the pizza restaurant succeeds at growing its revenues dramatically at its new location, the rehabilitated building’s developer will prosper as government loses funds that it would receive were the restaurant not in a TIF district. Had the rehabilitated building attracted a business truly new to St. Louis city, government would receive a greater share of the TIF project’s associated revenues.

Subsidizing projects that displace economic activities from one site to another is a losing proposition for cities and their residents. In St. Louis city, the elimination of TIF would allow our community to awake from its current nightmare of ever-increasing taxes and instead move us toward broadly shared prosperity, courtesy of the free market.

In The Economist, Will Wilkinson, a Missourian by birth, recently argued that the financial crisis was caused by the government’s attempt to reduce wealth inequality through homeownership (bolded emphasis mine):

If you ask me, the ultimate culprit in the financial crisis was the American cult of homeownership. There are many ways to help poorer Americans accumulate wealth, such as channeling payroll taxes into personal retirement accounts. But we don’t do that. Instead, because we consider it a humiliating indignity not to have a room or ten of our own, we subsidise home-buying six ways to Sunday and tell banks they won’t have to suffer the downside of loans offered to bad credit risks. I think it’s safe to say that this hasn’t turned out to be the best scheme for helping poorer Americans into the ownership class.

This commentary is consistent with my previous discussion of the negative policy implications of encouraging homeownership in Missouri, such as promoting inflated housing prices.

Unfortunately, the emphasis on homeownership persists in Missouri public policy. There have been recent calls from politicians in Missouri to make the federal homeowner tax credit permanent. From the Think Progress blog (hat tip to Audrey Spalding):

[T]he home buyer’s tax credit was enacted as part of the stimulus and then extended a couple of times, and by all accounts it was a complete and total boondoggle, costing taxpayers billions to subsidize activity that was going to happen anyway. Even the credit’s staunchest supporters have said that its “sunsetting is an incentive to drive people to the marketplace” and poo-pooed the notion of extending it forever, which clearly turns it into a permanent subsidy to the real estate industry.

Additionally, just as the government shouldn’t favor certain businesses and industries over others, the role of government should not be to favor or subsidize one lifestyle over another — like homeownership over renting, or rural lifestyles over urban ones. Despite its infinite wisdom, the government does not know the mix of goods and services that an individual or family should consume in order to maximize their level of utility. Missourians would be better off if the government stayed out of the housing market entirely.

Today the Saint Louis Business Journal published a letter to the editor by John Payne and me (link added):

Editor:

The editorial board recently oversimplified our views on rural broadband access (“It’s a wired world, after all,” Aug. 20 issue). We do not oppose the proliferation of broadband into rural areas, merely the government subsidization of such expansion. Greater broadband penetration in rural areas indeed provides social benefits, but we remain skeptical that those benefits will outweigh cost of millions in taxpayer dollars.

Solutions for extending broadband exist in the private sector. I-Land Internet Services, for example, is expanding broadband into rural western Missouri at no cost to taxpayers. Fifty percent of people living in rural areas already have home broadband Internet service, according to a Pew Internet study released earlier this month. Furthermore, of the people who do not have high-speed Internet, only 6 percent cited a lack of access as the primary reason for not subscribing, compared with 48 percent who find the Internet irrelevant and 18 percent who have usability issues. Eighty million dollars is a very high cost to benefit such a small subset of people.

Christine Harbin, research analyst, Show-Me Institute
John Payne, research assistant, Show-Me Institute

Of additional note, contributors to Show-Me Daily have discussed this issue before.

A friend emailed me this story from the Sun-Times about the City of Chicago continuing its privatization efforts. According to the article, officials are considering privatizing the famous Taste of Chicago, which I have attended a couple of times. My friend’s response was, “Why wasn’t it fully private in the first place?”, which I completely agree it should have been (no surprise there).

So, I started thinking about St. Louis’ own premier restaurant festival — the Taste of Clayton. I quickly learned two things about Taste of Clayton: I assumed it was private, but it has actually been run by the city; and, it isn’t happening at all in 2010. The Taste of Clayton was always run as a nonprofit event. The restaurants donated their time and effort, the city made all its expenses back so that taxpayers didn’t foot the bill, and the rest went to charity. (See pages 38 and 43 of the Clayton budget if you want the financial data.)

So, if the city really is considering new ideas for 2011, here is a simple one: Allow a private organization or entrepreneur to operate it as a for-profit enterprise! Charge them for the costs of street and police services at the event, and allow them to make money off of it.

But back to Chicago. Mayor Richard Daley says some terrific things in this story (ellipses in original):

But, Daley said he’s determined to hold the line on property taxes and all other taxes and fees and there are precious few alternatives.

“People don’t want to see government growing. They don’t want to see their taxes growing. … People are suffering,” he said.

“What can you do if it costs you more and more money? … You have to look at government differently. If you don’t look at government differently, you live in the past.”

I would dispute the line about precious few alternatives. Chicago could choose to fire the thousands of its city employees that essentially do nothing, including the infamous “Boiler Watchers” who do nothing but monitor public building boilers that have had internal alarm sensors for decades now. But that would mean taking machine party hacks dedicated public employees off of the public payroll.

Nonetheless, the proposal (and other similar privatization ideas) is getting the predictable response from the public employees’ union:

Phillips has said he’s “totally against” farming out recycling because it’s “less jobs for us” at a time when his members are taking unpaid furlough days and comp time instead of cash overtime.

I appreciate the honesty there. Government work is not about providing services; it’s about jobs for their union members. It’s almost refreshing to hear it said.

I commend Mayor Daley for these ideas (not that he cares what I think), and hope that our big city mayors in Missouri can learn from them. Although, to be fair, the Chicago system gives the mayor much more power there than is the case in St. Louis or Kansas City.

Many problems in public policy are government-created, and the best solution is not more government. Unfortunately and predictably, solutions involving more government will be supported by groups that are short-sighted and will benefit directly from them.

As the latest illustration of this, biodiesel producers in Missouri are calling for extending the $1-per-gallon biodiesel blender’s federal tax credit. In its Friday issue, the St. Louis Business Journal published two articles that profile a struggling biodiesel plant as it waits for extended handouts from the government.

Meanwhile, there exists a lack of demand for biodiesel in the market, and the government has responded by setting a mandate to create an artificial level of demand. From one article:

Environmental mandates that require oil companies to blend petroleum-based diesel with minimum levels of biodiesel [...] have increased demand, and therefore prices, for biodiesel and helped offset the loss of the expired tax credit.

The problem with mandates and production subsidies like those for biodiesel is that the government is encouraging energy producers to invest in an infrastructure that is neither efficient nor cost effective. Residents of Missouri and other states could achieve higher levels of utility if government stayed out of the market and allowed the profit-and-loss system to allocate resources. As another positive consequence of eliminating handouts to biodiesel producers, fewer resources would be distracted from the development of other alternative energies that are perhaps more viable.

According to the Saint Louis Business Journal, the Illinois state government pledged a $2.3 million business investment package to help Boeing open a manufacturing plant at MidAmerica Airport in Mascoutah, Ill.

Additionally, the article reports that “Boeing is Missouri’s largest manufacturer.”

I worry that this fact will mean that the Missouri state government will offer retaliatory tax incentives to Boeing in order “to keep these jobs in Missouri.” Economic development is not a zero sum game, and states should hesitate to view each others’ economic growth with antagonism. Both Missouri and Illinois will be better off if they specialized and engaged in mutually-beneficial trade instead of spending taxpayer money to compete over the same activities. Government intervention in interstate trade hurts business and discourages economic growth, defeating its ostensible intended purposes.

I also want to point out that Illinois is spending $2.3 million for 75 jobs, which is an expenditure of nearly $31,000 per job. This means that the project is already in the hole by this amount, plus deadweight loss.

Furthermore, Boeing and the state government may say that these 75 jobs are new. However, even if they are created as a consequence of the subsidy, they are not really new. This is because they represent the jobs that were destroyed by the $2.3 million that was taken from the taxpayers of Illinois.

As the end of the year draws nearer, the expiration of tax cuts passed in 2001 and 2003 also begins to creep over the horizon. As this happens, our federal government continues to spend what seems to be an infinite line of credit. Recent financial and health care reforms bring with them cost estimates that undoubtedly understate true costs. The same can be said about unemployment extensions.

The egregious amount of deficit spending is leaving taxpayers with a sizable bill. The federal government would like the “rich” (those that make more than $200,000 in pre-tax income) to pay a higher proportion of that bill, making them the lucky recipients of a tax rate increase. The politics of the tax cuts have already begun. It seems like an impossible task for Washington to divorce the economics from the politics. At this point in history I’m betting that that those individuals and families in the highest tax brackets will certainly see a tax increase come January.

The president recently said, “There will be no more taxpayer-funded bailouts. Period.” But, as Dan Henninger of the Wall Street Journal points out, “Raising taxes to cut the deficit is a bailout for the spenders.”

I’m beginning to think that an effective training regimen for politicians would include an undergraduate degree in linguistics.

Maybe I am missing something. Maybe classical microeconomics has become outdated and doesn’t adequately reflect decisions in the real world anymore. Maybe the nuance of their arguments is too much for me. Or maybe they’re wrong.

Economists have been developing mathematical equations since the days of Adam Smith, attempting to ascribe reality to a system of variables that can be changed and tweaked to more accurately reflect what economists empirically see. The problem with these equations is that they are not reality. That being the case, it is best to avoid needless complication.

Someone best illustrated this to me using the game of billiards as an analogy. Hitting the cue ball into the eight ball in an effort to send the eight ball into a corner-pocket requires skill and accuracy. Ricocheting the cue ball off the rail into the three ball which then will kiss the nine ball on its way into the two ball which will subsequently fall into the pocket is an entirely different problem. The more complex the system gets, the more accuracy is required, and initial mistakes are magnified further down the line.

Intertemporal decision making can be a complex problem to study, but most of the world makes such decisions intuitively — we are all practicing economists. The amount available for future consumption is future income plus savings plus the amount of interest earned on savings. If savings are negative, the person is borrowing and must pay back the amount borrowed plus the interest in the second period. This has the effect of reducing future consumption.

Future Consumption: P₂C₂ = M₂ – M₂t + S + iS

This means that today’s purchases change tomorrow’s parameters.

Current Consumption: P₁C₁ = M₁ – M₁t – S

Reality is an integration of these two equations. We do it constantly, and instantaneously most of the time. Income (M₁ & M₂) is a function of spent spent in leisure and work, and wages. People often decide how much they will work based on how much they plan to consume and how long it will take them to achieve the desired amount of income for that consumption (this also allows income to implicitly represent labor decisions in these micro equations).

Enter government, with a budget constraint that looks very similar. What is different is that the government doesn’t have to make labor decisions; it makes taxing decisions, and consumes through expenditures.

Government Expenditures: p₁E₁ = M_G + S

Government Revenue: M_G = M₁t (this form represents an income tax)

Taking from the income produced by others is the government’s only real source of revenue. This has two very obvious implications: 1) Taxation has an obvious impact on private consumption decisions, because it subtracts from real income (this also affects savings and consumption patterns, both now and later); and, 2) tax rates and government expenditure choices signal to the public the likely outcome of future taxation and expenditure decisions. This model of the aggregate economy suggests that eliminating the tax cuts will have deleterious effects on output and employment.

For some reason, Keynesian economists believe they have the power to affect the M₁ variable in this equation on a massive scale. The government is just adding pool balls to the equation. When the government decides to increase expenditures, it also has to increase revenue, by increasing the tax rate (t) now or in the future (after borrowing). This will have a negative effect on personal income, which translates to a decrease in personal consumption. The government has also decided to implement a progressive income tax structure. This means that, as M₁ increases, so does t. Because people tend to make decisions based on marginal welfare at their original consumption pattern, the last unit of consumption is roughly equal to the leisure that a person gives up to work that extra little bit so they can afford that last bit of consumption. With a progressive income tax, or an increase in the tax rate on any person, production is decreased at a marginal rate. When this happens to 300 million people at the same time, we begin to see problems.

The opponents of tax cuts often ask: What is the difference between swelling the public sector and cutting taxes, in terms of the federal government’s deficit? The answer is that they have different compensation structures and lead to different production decisions. Public money doesn’t force firms (whether they are public firms, or private firms contracted by the government) to make marginal decisions that maximize efficiency. Unfortunately, this means that public money is attached to inefficiency margins for anyone accepting it. Raising taxes therefore has a double whammy effect: Private production slows based on marginal decisions, and when it is converted to public money, it integrates inefficiency into each dollar.

Does this sound like a good prescription for an ailing economy?

While representing the Show-Me Institute at the Missouri State Fair, I took some time to wander around the Missouri Department of Transportation’s Highway Gardens. En route, I unexpectedly encountered Barrel Bob, an anthropomorphic structure of orange construction barrels that is used to incite drivers to reduce their speed in construction zones.

I like Barrel Bob. I am amused to learn that Barrel Bob has been assassinated and kidnapped, and that he has a girlfriend named Barrel Betty. I would not be surprised if Barrel Bob were more effective than distribution of pamphlets or public service announcements at promoting highway safety.

However, I have questions relating to the Highway Gardens. Why does the Department of Transportation own and operate them year-round? Is this an effective method of promoting highway safety with taxpayer funds? Could the money used to maintain the Highway Gardens be put to better alternative uses, such as fixing roads in Missouri?

Missouri’s Department of Health and Human Services  has estimated that more than one in five Missourians is obese, and that the more than $1.6 billion is spent in Missouri annually on obesity-related expenditures. According to the department, “Obesity is one of the most serious health issues facing society today.”

For people, I guess. For cows, Missouri’s policy is to encourage the bigger-is-better mentality.

The state has a tax credit for Missouri beef producers who raise Missouri-born cows that weigh at least 200 pounds more than the average weight of cows sold during the past three years. Beef producers are awarded $0.10 per pound of the extra weight, up to $3,000.

Regardless of the reason that the Missouri legislature created this tax credit, it is encouraging larger and larger cows by design. If growing larger cows were a more efficient means of beef production, then no tax credit would be needed. But if it’s more difficult to grow cows that weigh at least 200 pounds more than average, why on earth are are we subsidizing this wasteful activity?

I’m sure the cows would appreciate losing the extra baggage.

In the short run, government has three ways to react to a budget deficit: raise taxes, borrow money, or reduce expenditures. In the long run, the government has to increase taxes in order to pay back the loan plus interest, so government has only two ways to react: raise taxes or reduce expenditures.

According to a recent article in Governing, Minnesota and Wisconsin, my two home states, are choosing the second strategy. Their state governments are starting to share services as a means to cut expenditures. From the article (link via the Wall Street Journal’s Real Time Economics blog):

The Gopher and Badger states are looking to find efficiencies and save money on everything from sharing amusement ride inspectors to buying ammunition and tires. The task has not been easy, but in the year and a half since the report’s release, Minnesota and Wisconsin have shared resources, consolidated services, bartered and even joined forces on contracts for package delivery, software and institutional food.

The Show-Me State would be wise to follow the example of the Badger and Gopher states. Missouri borders eight states, so certainly there exist many opportunities to consolidate services in the style of Minnesota and Wisconsin. Raising additional tax revenue may be a simpler strategy to implement, but it doesn’t result in the same long-term savings and efficiency gains as sharing programs across state borders.

At around 5:05 this afternoon, I will be on the Mike Ferguson show on 93.9 FM The Eagle in Columbia, talking about government-subsidized broadband Internet access for rural areas. If you are not in Columbia, but would still like to listen to the show, you can listen online — provided you have a fast enough Internet connection. The invitation was extended to me based on this post I wrote a couple of weeks ago.

(Headline reference here, which is meant both to celebrate the Rush concert in Saint Louis this Sunday, and to annoy my colleague David Stokes.)

Hiking tax rates on cigarettes and alcohol would negatively affect businesses in Missouri, so the fact that the editorial board at the St. Louis Business Journal is promoting this paternalist policy is perplexing.

Raising the tax rates on “sin” products would be particularly harmful to convenience and grocery stores close to the state border, because they would lose business to states that assess lower tax rates relative to Missouri. As a similar consequence of this policy, fewer people and businesses would locate to Missouri because the costs of living and doing business would be higher here. By keeping its tax rate low relative to other states, Missouri can help ensure that its residents will shop within the state, and it can incite individuals located near the border to shop here, as well. As a consequence, Missouri can generate a higher amount of revenue.

Missouri residents and businesses would be better off if the state government pursued alternative strategies to address the budget deficit than increasing selective sales taxes on cigarettes and alcoholic beverages (or on fatty foods, soda, and tanning). If it created a low-tax environment instead, Missouri would attract more businesses and individuals to the state, and they would contribute additional tax revenue. Alternatively, if the state government stopped carving out large sections of the tax base and subsidizing the favored few, it would have fewer expenditures to cover.

A trolley line serving the Kansas City Strip recently opened and is slowly building a clientele in the area by providing easy transportation to bar patrons on weekend nights. The Kansas City Star reports:

While ridership has fluctuated wildly depending on the weather, it has ticked up most weekends since June (except for the slow July 4 weekend), reaching more than 800 people on July 30 and 31.

That’s not yet close to the system’s capacity of 1,200 per night.

“You don’t change people’s patterns immediately,” [chief executive of the Kansas City Transportation Group Bill] George said. “Let’s face it, this is not a mass transit town.”

But he said ridership is where he hoped it would be at this point.

Most remarkable of all is that this trolley line receives very little government funding:

KC Strip received $100,000 in tourism tax dollars through the Neighborhood Tourist Development Fund.

The City Council also approved $295,000 in convention/tourism taxes. Of that, $95,000 was a grant and the rest a secured loan, to be paid back over four years.

These are tiny subsidies compared to the $25 million in federal funding that the Loop Trolley in Saint Louis is set to receive. The KC Strip trolley service should prove to be a fairly good market test for trolleys in Missouri’s cities. If it prospers, it will show that such mass transit options do not require lavish public subsidies to survive. However, if it fails to make money, it’s a good indication that people are not terribly interested in riding a trolley system, so we should save our public dollars for more pressing needs.

According to the St. Louis Post-Dispatch, home prices in the St. Louis region rose 20.4 percent in the last three months — much higher than the nationwide increase of 7.9 percent. From the article (link added):

The quick growth, according to real estate data firm Clear Capital, was driven largely by sales that involved the $8,000 tax credit for first-time homebuyers. Many of the places where sale prices grew most are less-expensive Midwestern markets where $8,000 has a bigger impact.

This stimulus is artificial, and it will end as soon as the state and federal governments stop propping up housing prices with programs like this one.

Owning a home is suitable for those who can afford the investment commitment and associated risks. Nudging people into homes that they can’t afford has overwhelmingly negative consequences and could prolong the housing crisis or provoke another one.

Because this tax credit keeps housing prices artificially high, it defeats its ostensible intended purpose of nudging people into owning homes. As I have discussed previously, the rate of homeownership tends to remain constant over time in Saint Louis and elsewhere, despite the government’s nudging. Although this tax credit gives an individual the ability to make a larger down payment on a house, he or she will incur tens of thousands of dollars in additional debt by purchasing a house that is overpriced.

Furthermore, this tax credit program largely shifts transactions from the future to the present, instead of inciting new transactions to occur. Many of these beneficiaries would have purchased a home independent of the tax credit. This program is similar to sales tax holidays and last year’s cash for clunkers program in this regard.

Given that encouraging homeownership is such bad policy, why does government extend and introduce new programs? In an article in The Atlantic, Megan McArdle provides an answer (link via Audrey Spalding):

[P]oliticians want to help poor people with capital formation, and homeownership is the way that the American middle class has traditionally gone about capital formation.

Too bad that real estate is not a good investment!

Medicaid is one of the largest expenses in Missouri’s budget. In fiscal year 2008, Medicaid spending in Missouri totaled more than $7.09 billion. The federal government pays for the lion’s share of that, but Missouri taxpayers were still on the hook for $2.66 billion, or just over 12.5 percent of the state’s total $21.2 billion budget. As Peter Suderman points out in a new article for Reason, Medicaid has gone from an initial inflation-adjusted price tag of $9 billion in 1965 to more than half a trillion dollars just 45 years later. Moreover, those costs are only likely to rise during the coming years:

Just yesterday, the Senate voted to put $16 billion toward extending a temporary boost in Medicaid funding contained in the stimulus; the House is expected to follow sometime next week. Meanwhile, the Obama administration’s signature achievement—the new health care law—relies on an expansion of Medicaid for fully half of its projected increase in insurance coverage. According to the Congressional Budget Office, thanks to the Patient Protection and Affordable Care Act (PPACA), 16 million new individuals are projected to enroll in Medicaid by the end of the decade, and many experts believe that those estimates are low.

To add injury to insult, the health care that people get through Medicaid appears to be pretty bad:

Numerous studies show that, on an array of specific maladies, Medicaid’s health outcomes are dismal—and in some cases worse or no better than the outcomes for individuals who lack health insurance entirely. A University of Pennsylvania study, for example, reported that colon cancer patients in Medicaid have a 2.8 percent mortality rate, compared with 2.2 percent for the uninsured. A study of Florida’s Medicaid patients found they were more likely to have late-stages of prostate cancer, breast cancer, and melanoma at diagnosis than the uninsured.

It’s also worth noting that poor Americans received medical care before the advent of Medicaid. In his history of 1960s liberalism, The Unraveling of America, Rice University historian Allen J. Matusow wrote that poor patients were typically treated by charitable doctors for free. Matusow concluded that “[a]side from middle-class old persons protected from the financial ravages of long illness, the clearest beneficiaries of Medicare-Medicaid were doctors, who, according to one estimate, enjoyed an average income gain of $3,900 in 1968 as a result of these programs.” I don’t know how the medical treatment that poor patients received before the passage of Medicaid compared to that received by the middle class, but it’s historically inaccurate to argue that the poor would not have health care absent a government program.

Still, given that Medicaid is unlikely to be repealed anytime soon, what is the best solution to its spiraling costs and poor service? Suderman argues that it should become a temporary safety net instead of a permanent entitlement. Unfortunately, most politicians seem determined to keep expanding the program. If continued indefinitely, that will lead to both low-quality health care for all and fiscal catastrophe.

On July 31, the Post-Dispatch ran the following letter I had written to the editor:

Society makes a promise to children that no matter their race, ethnicity, or socioeconomic status, every child should have the education necessary to realize his potential. For many children in Saint Louis, however, that promise has been broken.

Saint Louis Public Schools maintains a handful of excellent institutions, but for three years now, the state has deemed the district as a whole to be unworthy of accreditation. State law requires that if a school district fails to maintain accreditation, the students living in that district must be given the opportunity to escape their troubled schools and attend accredited public schools in nearby districts. Just as SLPS was about to lose accreditation in May 2007, however, the elected school board formally urged county school districts to deny admission to any students seeking transfer under this law — and the county districts complied. For three years, many students from Saint Louis have been denied the educational lifeline provided by state law, trapped in failing schools for years they won’t get back.

Thanks to the Missouri Supreme Court, that now seems likely to change. With a 4-3 decision in Turner v. School District of Clayton, the judges ruled that the school districts in Saint Louis County cannot turn away Saint Louis residents seeking admission to their schools.

It also ruled that SLPS must bear the expense of their students’ education and provide transportation.

The court said that when a Missouri school district has clearly failed its students, that district is required to provide access to alternatives.

Many in the county will worry about the potential challenges of integrating kids from Saint Louis into their classrooms. Elected leaders and school officials in the city will complain about the expense of sending students to other school districts. SLPS will argue that without the money those students represent, the district cannot be expected to make the changes necessary to regain accreditation, and that this decision represents the death of public education in Saint Louis.

These arguments overlook what the law and the Missouri Supreme Court did not: Public schools exist to serve the children, not the other way around. Children in Saint Louis have already had their educational progress delayed for too long. Access to better schools cannot wait until the adults straighten out the mess they created. The welcome impact of the Turner decision is that after years of hollow promises that someday all of the students in Saint Louis would enjoy access to high-quality educational opportunities, someday has finally arrived.

Today, another letter to the Post-Dispatch (predictably) responded that the real problem with SLPS is a lack of funding — which the writer attributes to Missouri school districts’ failed attempts to persuade the courts that taxpayers should be spending billions more in school funding. There are, of course, two massive failures of logic in this letter. The first is the notion that students’ academic performance is linked to the amount of money spent by their school district, a point debunked not only by the research of Dr. Michael Podgursky (who happens to be a Show-Me Institute board member), but also by the fact that SLPS maintains some of the very best schools in the state with the same per-student funding it provides to some of the very worst schools in the state.

The second failure is linked to the first. The letter complains about school funding at the state level, but the question at issue is the failing of Saint Louis city’s unaccredited school district. Last year, SLPS spent more than $15,600 per student — far, far above the state average, and on par with the best-performing districts in Saint Louis County. SLPS also maintains a student-to-classroom-teacher ratio of 18 to 1. This means that SLPS has roughly $281,000 to spend for every active classroom in the district. That’s $281,000 per classroom! Even if, say, 40 percent of that money (more than $110,000 per classroom) went to administrative costs, that would leave nearly $170,000 to pay a teacher’s salary (let’s say $60,000) and to properly equip and maintain just that one classroom.

SLPS suffers from a number of ills, but lack of funding is not one of them.

The federal government will spend almost $82 million in Missouri to expand high-speed Internet access in rural areas. This is no doubt a boon to rural residents who want faster Internet access, but is this really a necessary function of the government? Most people in rural areas can already get high-speed Internet access through satellite connections — although they carry the same limitations as satellite television.

More to the point, if these people deeply desire faster Internet service, they have the option of moving into a decent-sized town and getting a cable or DSL connection. The fact that they don’t indicates that, for the vast majority of these people, living in a rural area is more important than having extremely fast Internet service. Choices involve trade-offs, and if a person chooses to live in a rural area, he should either be willing to forgo high-speed Internet access or pay the market rate for the service. Because I live in Saint Louis, it is easier for me to attend large, public events like Cardinals games and the upcoming Rush concert than it is for someone from Shannon County, but that does not mean the government should subsidize trips to Saint Louis for people from Shannon County. At the same time, I cannot enjoy Missouri’s outdoors as easily as someone from Shannon County, but the government shouldn’t pay for my float trips on Current River.

A person should be free to live where and however he pleases provided he does not interfere with the equal right of others to do the same. It is not the government’s role to subsidize one way of life over another.

Link via John Combest.

On Tuesday, Saint Louis city residents voted overwhelmingly to pass a $155 million bond for Saint Louis Public Schools (SLPS). According to the city’s Board of Election Commissioners, nearly 76 percent of the city residents who showed up at the polls voted for the bond.

One of the primary strategies with which proponents of a school bond promote such measures is to say that the bond will not result in an increase in taxes. This is misleading at best, and disingenuous at worst.

There are two main ways that school districts ask residents for more money. The first is by asking voters to approve a tax levy increase, which, if approved, results in a direct increase in the property tax rate. The second is by requesting that voters approve a bond. A bond is an issuance of debt. It does not directly raise your property tax rate, but the debt must be paid off in the future. And school districts pay off the bond issued today with property taxes tomorrow, plus interest.

According to St. Louis Public Schools’ 2009 Comprehensive Annual Financial Report (CAFR), district residents paid $3.8 per $100 of assessed property valuation. Of the school property tax rate, $0.6211 was used to pay off debt and debt-related costs. That means that more than 16 percent of the property taxes that district residents pay for SLPS are used to pay for the district’s debt. Tax dollars will be used to pay for the just-approved $155 million bond. Those millions will not appear out of thin air.

Reading the coverage leading up to the election, one statement stood out as particularly bad. As St. Louis Post-Dispatch reporter Elisa Crouch put it, “The bond measure would not result in a tax increase, [h]owever, taxpayers would pay the levy longer if the bond is approved. The district would retire its bonds in 2025, rather than 2018.”

Read that quotation again. It’s kind of ridiculous. Rationalizing school debt by saying that it won’t increase the tax rate, only the duration of payments, is akin to justifying taking on more credit card debt because it won’t increase your monthly payment — you’ll just have to spend a few more years making the minimum payment. If I applied this logic to my own finances, I’d have many wonderful impulse purchases (ooh!), but it would take me years of austerity to climb out of debt in the future.

I wonder when SLPS will get around to paying off all of this debt it has accumulated. Going back to the 2009 CAFR, you can see on page 105 that since 1999, SLPS has never managed to reduce the rate of taxes it charges residents for debt purposes. The rate has only increased, from $0.55 to $0.6211. In 2009, SLPS had accumulated a total of more than $245 million in bonds and notes payable, according to the CAFR. Furthermore, SLPS paid down $14.3 million of its debt last year, while paying an additional $8.95 million in interest charges. In fact, according to the CAFR, only $1 of every $2 that SLPS spent in 2009 on debt service went to paying down its debt. The rest was eaten up by interest, payments to an escrow agent, and bond issuance costs.

Debt is expensive. I’m sure SLPS — and Nicolas Cage — would agree.

Over at Cafe Hayek, Donald Boudreaux writes a letter to the editor that impugns an editorial in the Wall Street Journal for ignoring the unseen costs of the auto bailout. He argues (emphasis mine):

[T]he heart of the case against the bailout is that it saps the life-blood of entrepreneurial capitalism. The bailout reinforces the debilitating precedent of protecting firms deemed ‘too big to fail.’ Capital and other resources are thus kept glued by politics to familiar lines of production, thus impeding entrepreneurial initiative that would have otherwise redeployed these resources into newer, more-dynamic, and more productive industries.

The ‘success’ of the bailout is all too easy to engineer and to see. The cost of the bailout – the industries, the jobs, and the outputs that are never created – is impossible to see, but nevertheless real.

This is particularly relevant to Missouri, because the $150,000 tax credit package that Missouri decided to give to Ford is Missouri’s version of the auto bailout, and is also associated with unseen costs. Although it is easy to see the benefits of the policy, it is impossible to see the economic activity that would have otherwise occurred (Merci, Frédéric Bastiat!). When the state government provides financial assistance to specific companies or industries, it crowds out private investment and entrepreneurial initiative. In addition to many other negative consequences, it incites the producers to invest their resources in an activity for which the state does not have a competitive advantage, at the expense of investing in activities that are “newer, more-dynamic, and more productive.”

U.S. Sens. Tom Coburn and John McCain just released “Summertime Blues,” a report chronicling 100 wasteful uses of stimulus dollars. Let’s leave aside the question of whether the entire thing has been a waste, and tacitly agree that some types of stimulus spending can be relatively better than others. Spending $1 million for a highway that people need and use is better than spending $1 million for a highway that people don’t need and don’t use. But on to the waste and pork!

The report includes two examples in Missouri. Really, though, one should have been counted for Illinois rather than Missouri, which leaves us with only one citation for the Show-Me State. The expenditure that I dispute should be classified for Missouri — but without any dispute over its uselessness and absurdity — is the $430,000 given to the Army Corps of Engineers to enhance a museum about the Army Corps of Engineers. It’s no. 27 on p. 24 of the report. The museum, which I sheepishly admit I had never heard of (I go to the East Side Metro East for one thing and one thing only), is dedicated to the Mississippi River and the Army Corps of Engineers, and is in East Alton, Ill. So, that’s $430,00 more in spending so that the Army Corp of Engineers can tell the public what a good job they do.

This is not to say that the Army Corps of Engineers doesn’t do a good job. Rather, they should just do a good job without feeling the need to tell us about it. If I lived in Louisiana in 1927 or 2005, though, I might feel differently.

The Missouri example is $180,000 for scientists at the University of Missouri to deal with the pressing problem of why rat sperm becomes less useful when it is thawed after freezing. (This is example no. 95 on p. 45.) Apparently, this is exactly the type of project for which the stimulus was designed.

All in all, it could have been worse for Missouri. Many of the projects in other states cost millions of dollars more, and most closely resemble a project akin to: dig hole; fill in hole; repeat. Example no. 10 is one of my favorites: $100,000 for “Town replaces new sidewalks with newer sidewalks that lead to ditch.”

No matter where this spending occurs, though, we all pay taxes for projects like this, and elected officials all (or almost all — there are a few exceptions) fight for local spending and spoils.

An editorial in the Kansas City Star argues that Missouri should stop training companies to expect subsidies. It describes the phenomenon as a “subsidies-for-development disease [that] has become dangerously pervasive” in Missouri. This is something that contributors to Show-Me Daily have been arguing all along, and I am glad that others are beginning to assess tax credit programs critically.

Here’s one of the editorial’s major points:

It’s understandable that lawmakers would want to do something to protect the Claycomo jobs in the face of competing offers from other states that are equally shameless. Yet the whole process, despite the studied silence of Ford, had the feel of extortion. Ford never had to say a thing, but everyone knew the company was expecting something.

Ford expects handouts from other states too, despite the fact that it’s a profitable, private company. Ford is playing a game, and it is one that a state like Missouri can’t win. Unfortunately for taxpayers, Ford is not the only company playing — many other companies in other industries also pit states against each other in search of the biggest handout.

Additionally, from the editorial (emphasis mine):

“[Offering incentives] always has an unsavory feel,” said economist Chris Kuehl of Kansas City-based Armada Corporate Intelligence. “It’s not unlike the sports guy, dangling six different teams.” Kuehl said he actually heard someone compare the Ford deal to the bidding war over NBA star LeBron James.

Is Kuehl a Show-Me Daily reader? Perhaps the someone he refers to was Joseph Steelman, who made that exact comparison in a recent blog post. Or perhaps that person was myself, because I also previously discussed how the bidding war over James is an example of how taxes can incite people and businesses to change their behavior.

Eminem released a new CD in June. There is a track on the album titled “Talkin’ 2 Myself.” Sometimes I feel the exact same way:

Can anybody hear me yeah, I guess I keep talking to myself
Feels like I’m going insane, am I the one who’s crazy?

The president recently signed the Improper Payments Elimination and Recovery Act. I might favor this type of reform if the fraudulent payments it intends to target were recovered in a cost-effective manner. But is this law even needed?

Here’s a quote from the White House Blog:

Last year, improper payments by the Federal Government added up to $110 billion.

If a publicly owned corporation misplaced $110 billion dollars, it would be more than reprimanded — it would be bankrupt and out of business.

This legislation shows in unadulterated clarity the inherent flaws of government. The federal agencies responsible for this irresponsible behavior will be fined and face “penalties and other repercussions,” but I wonder who exactly the federal government thinks pays for penalties levied on federal agencies.

And people wonder why consumer confidence is low.

Missouri’s Department of Economic Development recently released a list of the members of the statewide Steering Committee for 2010 Strategic Initiative for Economic Growth (hat tip: Missouri Watchdog).

Because it has more business leaders than bureaucrats, hopefully this committee will propose solutions that are more market-driven than government-driven. Unfortunately, I can’t say the same for the new Tax Credit Review Commission.

Additionally, I am pleasantly surprised to see that only a small minority of the committee members work for companies that have been issued state tax credits since 2000. Of the 40 individuals listed, I could only find four that received any. According to the “Show-Me: Tax Credits” application:

• Wells Fargo Advisors has received $2.5 million in tax credits for development.
• Global Velocity has received $150,000 in tax credits through the Rebuilding Communities program.
• Walsworth Publishing received $2.292 million in tax credits through the EZ – Enterprise Zone program in 2001 and $15,068 through the Youth Opportunity Program between 2001 and 2002.
• Washington University received $2 million in tax credits New Enterprise program between 2002 and 2005.

Hopefully, this means that they will be more willing to reduce or eliminate expensive targeted tax credit programs in Missouri.

I bristle when public policy advocates contend that persons who oppose a favored policy simply lack an understanding of “how well the program works.” Instead of wasting breath on patronizing dismissals of those who offer alternative perspectives, perhaps a policy advocate’s time would be best spent providing the public with valuable, unbiased information with which we can form our own opinions.

It is in this spirit that I present one of my works in progress from my summer here at the Show-Me Institute.

Backers of the 25-percent Missouri Historic Preservation Tax Credit often cite the statistic that our state is “first in the nation” for “federal historic rehab tax credit projects,” so I thought that it could prove valuable to see exactly where said federal projects occurred.

Click here to view a draft map of Missouri rehabilitation projects that received the 20-percent Federal Historic Preservation Tax Credit. Data comes from a June 2010 information request to the National Park Service, and includes projects dating from 1996 to mid-June 2010.

I see no need to editorialize about the map at this stage in my research, but I think that those who proudly support historic tax credit programs would do well by the public to explain why spending millions on certain construction activities is an appropriate use of public funds.

However, given that “historic preservation” is a catchall for education, place-making, job creation, and aesthetics, defining the precise function of public expenditures made in the name of preservation is an impossible task. Our positions as taxpayers, historians, developers, contractors, homeowners, tenants, policymakers, and tourists necessarily inform our differing and potentially divergent perceptions of these policies and expenditures. Our propensity toward repeated engagement in the same argument about the relative worth of a tax dollar spent on historic preservation as opposed to one spent on public education, while refusing to acknowledge some basic facts about the program in question, often leaves us blowing hot air.

At present in Missouri, recipients of historic preservation tax credits need not acknowledge the receipt of public funds in any format on the project site. In fact, recipients of historic preservation tax credits need not even acknowledge the historic significance of their taxpayer-supported property on site, such as in the form of a plaque. If we are to have a truly informed debate about the worth of the historic preservation tax credit, I would hope that we can all agree that disclosure is a good place to start.

Without good information, our state will never make good policy.

In my mind, the verdict is still out on whether the historic preservation tax credit really does what its backers aver.

It may be time for a career change for me. Although I enjoy working at the Show-Me Institute very much, I am beginning to think that I would be better off if I became CEO of a mega-corporation and tilted the playing field to my favor with the help of my friends in Jefferson City. I will attempt to have more benefits concentrated on me, and more costs diffused away from me.

As the first part of my strategy, I would hire a team of lobbyists in order to enact rules and regulations that discriminate against products from other states that compete with mine. If I could keep firms from other states from entering Missouri, I would not have to work as hard to compete with them. I would try to get the state government to impose strict licensing requirements in order to keep others from entering the industry and trying to compete with me. In doing so, I could charge a higher price to consumers living within the state because this protectionist policy would reduce supply, thereby raising my profits.

Protectionist policies may have high cost to society, but as a self-interested CEO, the profitability of my firm is my only concern. Of all business activities, lobbying has one of the highest rates of return. The Washington Post reported in April 2009 on a study finding that a single tax break in 2004 earned companies $220 for every $1 that they spent on the issue. That is a 22,000-percent rate of return!

I could invest a lot of money in research and development in an attempt to improve my product, only to have my efficiency copied and replicated by my competitors. On the other hand, I could contract with a lobbying firm to convince the Missouri state government to give me financial incentives, and then enjoy an artificial competitive advantage for a long period of time. I wouldn’t have to worry about competing with smaller companies that do not have my lobbying power. As an added benefit, by keeping these firms out of the market, Missouri workers can ensure the security of their jobs. Consumers will have the satisfaction that they are consuming products that were made by a worker in Missouri, not in another state — even if they have to pay more for their products in order to subsidize those jobs.

If this strategy doesn’t work, I could use a different one: pitting states against each other to see which will give me the most money. I’ll tell each state government that other states are offering me huge incentives to invest there, and that they must meet or exceed these offers in order for me to stay. Ford is an expert at this, and I’d definitely follow its example.

All of the large companies in Missouri engage in lobbying activities, so my firm would be at a disadvantage if I didn’t. It doesn’t matter how big or profitable the company is — they’re all doing this! Just in my recent memory, Scottrade secured $2.6 million, Ford secured $150 million, IBM secured $31 million, Mamtek got $17 million, and other, large, private developers secured TIF and tax credits.

Now that the $150 million incentive package for Ford has passed, it’s apparently time to reverse positions and talk tough on tax credits again. On Wednesday, the governor created a commission that is supposed to evaluate the effectiveness and return on investment for each of Missouri’s tax credit programs.

Unsurprisingly, rent seekers tax credit supporters are critical of the new committee. According to an article in the St. Louis Post-Dispatch (emphasis added):

While the commission does include several prominent tax credit advocates, [...] it lacks any representatives from small town Main Street groups, community development organizations or historic preservation groups, “all of whom have firsthand experience in how well the program works for the average citizen,” the [Coalition for Historic Preservation and Economic Development's] press release reads.

Judging from the list of people on the committee, I don’t foresee many calls for scaling back these programs. Not only does the committee include bureaucrats and politicians, who have an incentive to grow the size of government, it includes businessmen whose companies have been issued tax credits. The committee includes a member from Hallmark, in Kansas City, which has received $8,657,730 in tax credits from the state government since 2000, according to the “Show-Me: Tax Credits” application. There is also a member from Commerce Bank in Saint Louis, which received $5,401,975 in historic tax credits in 2002. Legacy group investments received $183,586 in historic preservation credits in 2003. In addition, many other members come from the real estate industry, which would likely benefit from increased construction activity.

As I communicated to the Missouri Watchdog, I applaud the effort to review these programs, but I am skeptical that this commission will accomplish anything, given that the governor continues to dole out tax credits to his favored few (e.g., Ford, IBM, sugar substitute producers, data centers, filmmakers, etc.).

We live in a world of second-best options, and a review process is more desirable than nothing. The optimal solution would be to cut these incentive programs altogether, because they distort the playing field.

If the governor were serious about stimulating productive economic growth in Missouri, he would eliminate the programs entirely and return the money to taxpayers to spend on their own. People tend to spend their own money better than they do other people’s money, after all.

From an editorial on Missourinet (link via John Combest):

So if Ford develops an all-new vehicle, it’s investing about $3 billion before it even builds the production line and hires and trains the workers to put the vehicle together.

Woe is Ford! It has a high cost of production! Boo hoo!

I have no sympathy for the company and its high cost of production, given that it made $2.6 billion in profit in the second quarter alone and forecasts even more growth in the immediate future. (By comparison, the $150 million in tax credits that the Missouri legislature decided to give Ford is just a drop in the bucket!) Cars and trucks may be costly to produce, but they are also associated with high marginal revenues that cover this cost.

The debate on subsidizing Ford could benefit from a refresher on the theory of the firm.

This $3 billion investment for a new vehicle is a one-time upfront cost, and because Ford produces vehicles in very large quantities, that cost is diffused. Ford is making billions of dollars in profit, so we know that the marginal cost of producing a car is lower than the marginal revenue. Ford is a firm that operates in (what is supposed to be) a competitive industry; the perfect competition ideal is illustrated in the following graph:

Ford in the Short Run

If, perhaps, Ford finds that the marginal cost of producing a vehicle is lower than the price it can charge, it will lose money and will eventually choose to leave the market. Other firms that are able to produce the good at a lower average cost will enter the market instead because they can realize profit. This is how the competitive environment is supposed to work.

It would be beneficial if, instead of providing subsidies to profitable companies like Ford, the Missouri state government took a laissez-faire approach. Consumers would benefit, because they would be able to purchase goods at a lower cost instead of subsidizing private firms with their tax dollars. Producers in other industries would also benefit, because they would not be forced to compete at an artificial competitive disadvantage.

An article in the Post-Dispatch reports that the National Park Service is considering converting the St. Louis treasure that is Grant’s Farm into a national park. One of the great things about Grant’s Farm is that it is run privately by Anheuser-Busch, Inc., and the Busch family, at no cost to taxpayers. The park has been run for 55 years without charging an entrance fee, all while losing $3.5 to $4 million annually.

It is not clear who approached whom with the proposition to make Grant’s Farm a national park, but one can only hope it was not the National Park Service. The budget for our national parks is already strapped, and the lack of funds is evidenced by deteriorating infrastructure. The last thing needed is to add one more park to be maintained with public funds. Furthermore, the growing national debt makes it unlikely that the NPS will be receiving a significant increase in funding in the near future.

I believe Grant’s Farm has the potential to become sustainable if it were to charge an entrance fee. The 273-acre animal preserve is visited by 550,000 people a year, more than enough demand to allow the parks owners to cover costs — or even turn a profit, if management operates the park efficiently.

I hope the Busch family and Anheuser-Busch continue to run Grant’s Farm, even if that means charging an entrance fee. Grant’s Farm provides a unique experience that will be lost if it falls under government control.

Earlier this week, the Kansas City Star published a fantastic editorial that illustrates the math behind low-income housing tax credits (emphasis mine):

Here’s how it works. Assume that you are a developer. You plan to build a low-income housing project with a total cost of $11 million. Of that, assume $10 million is eligible for the credits (land costs are excluded). The credits are limited to 90 percent of that figure, so assume that you get $9 million in credits.

The credits then are sold to investors. Assume that the investors, after discounting the net present value of the credits over 10 years, buy them for 60 percent of their face value — or about $5.4 million. Assume also that you get a regular mortgage loan equal to 70 percent of the $11 million total cost of the project — about $7.7 million. These are conservative estimates.

So the developer now has funding of approximately $13 million ($5.4 million plus $7.7 million) for a project that costs $11 million. The developer will receive a $2 million check at the closing, less any escrows.

Later in the editorial, the author demonstrates how these programs can be further manipulated to benefit the developer above all others. Then, he concludes:

At a time when government at every level is becoming insolvent, all of these programs should be subjected to a top-to-bottom review.

If tax credits programs in Missouri were continuously scrutinized, Missourians would be better off. This is particularly important because the Missouri state government doles out a tremendous amount of money through this program, which is a tab that taxpayers have to pick up. Using the “Show-Me: Tax Credits” application at Show-Me Living, I isolated the trend of tax credits issued under the Low-Income Housing program. Since 2000, there have been 437 credits issued in Missouri for a total amount of $1,360,900,251. The average amount awarded to a single recipient is $3,114,188. The smallest amount awarded to a single recipient is $14,230, and the largest awarded is $13,320,000.

The only positive thing that I can say about the following graph is that it illustrates a downward trend after 2006. However, I wonder if the decrease in the amount of credits issued and redeemed is simply indicative of a general decrease in construction projects because of the recession. It may be that fewer people build or renovate during periods of recession, regardless of state tax incentives.

Trend of Total Low-Income Housing Tax Credits Issued in Missouri