April 23, 2014

Kansas City Streetcar Economic Development Claims Don’t Add Up . . . Literally

Perhaps in reaction to the Show-Me Institute’s assertion that there are no studies supporting the claim that streetcars alone cause economic development, NextRailKC hurriedly compiled a list claiming to prove the opposite. We say hurriedly because not only does the information provide no detail on how it was collected, but the table attached isn’t even properly tabulated. Simple arithmetic (we used a calculator) indicates that their table yields $791 million in development and 1,984 housing units. (The summary they provide is $879 million and 1,997, respectively. They even mis-tabulate the numbers provided in their legend. What did Kansas City pay for this?)

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One of the development projects that indicated the streetcar was a “key reason” for their development was the Centric Projects Headquarters, and the project is listed at $2 million. According to Centric’s website, it is a general contracting firm. Kansas City Mayor Sly James appointed the founder, Richard Wetzel, to the streetcar advisory group to consider the Country Club Right of Way. In a blog post on the Centric website, Wetzel wrote, “For years, I have been an advocate of fixed-rail transit in Kansas City.” Wetzel is not a disinterested party; he is a self-described advocate for the streetcar.

As for the so-called economic development that Centric and Wetzel provided Kansas City, for which the streetcar was a “key reason,” it’s not so impressive. The Kansas City Business Journal reported on May 22, 2013, that:

Centric Projects LLC is moving its offices two blocks up Main Street to accommodate rapid growth at the Kansas City commercial general contractor.

The 3-year-old firm is moving from its current 3,000 square feet of space at 2024 Main St. to a new 5,500-square-foot space at 1814 Main St. by the end of July.

The building was previously occupied by Western Blue, which left Kansas City for Kansas City, Kan., in 2010, and is undergoing $1.5 million worth of renovations ahead of the relocation.

So there you have it. Centric’s $2 million economic impact supposedly due to the streetcar is a $1.5 million remodel to a space that likely would have required remodeling regardless who, or why, it was occupied. The company moved two blocks up Main, meaning that they didn’t even move to the streetcar line from somewhere outside the Transportation Development District (TDD). They simply moved to a different point on it. Kansas City officials want you to think this is all due solely to the uncompleted downtown streetcar.

It gets better. That same Business Journal piece goes on to state that Centric is receiving tax incentives for staying in Kansas City, Mo.:

Centric also is receiving tax credits from Missouri for keeping jobs in the state. Kounkel did not say how the tax credits are oriented but said the credits are tied to the number of employees the firm hires and will help “offset expenses.”

Representatives of the Missouri Department of Economic Development, which typically handles the state’s tax credit programs, were not immediately available for comment.

Whatever the amount, the money was wasted, as Centric’s founder said they never considered a move out of state:

“We never considered a move to another state or municipality,” Richard Wetzel, partner at the firm, said in a release. “While we do work all over the metropolitan area, Kansas City, Missouri — and specifically the Crossroads (Arts District) — is where we want to continue to hang our shingle.”

Centric’s example only serves to confirm the Show-Me Institute’s claim that there is no evidence that streetcars alone lead to economic development. Centric did not move from outside the streetcar taxing district so there is no net new development. The $2 million (actually $1.5 million) economic impact it claims would likely have been required of anyone who occupied the space, and Centric received other economic incentives to relocate within the TDD.

We learned all of this in the course of a few hours searching online. Is Kansas City really this inept at calculating economic development, or is this a concerted effort to mislead voters?

Pay And Park And Pay For The Streetcar

We have written about the immense cost of the $500 million streetcar expansion plan in Kansas City. Planners have designated a transportation development district (TDD) to pay for the streetcar, which will implement a 1 percent sales tax in most of downtown Kansas City and property assessments for properties situated close to the streetcar line.

Streetcar proponents argue that this is a valid way of funding the streetcar. Businesses will see more customers and property values will increase near the streetcar line, so the TDD simply solves a collective action problem through its taxing district. However, what is less defensible is a special new tax on pay parking spots in the streetcar’s TDD.

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According to exhibit 14 presented at the recent streetcar TDD hearing, the streetcar TDD will assess $54.75 per surface pay parking space. That new tax would affect up to 4,000 downtown parking spaces. With this tax, those who have chosen not to ride the streetcar get to pay extra precisely because they are not benefiting from it. Far from solving a collective action problem, this tax penalizes the lifestyle of some to pay for the lifestyle of others.

Furthermore, a tax of $54.75 per year on each parking space is likely to drive up the cost of parking and will be a disincentive for businesses to build more paid parking in the city. While that might be part of a long-term strategy for some rail supporters, purposely making it more difficult to park in order to increase public transportation usage might negatively impact residents and businesses.

Kansas City has already decided that those not residing in the TDD will pay for the streetcar through special assessments on city-owned property that the taxpayers must cover. Furthermore, all Kansas City residents will pay for the streetcar through the mass transit sales tax (a portion of which can be diverted to the streetcar) and capital improvement taxes used for streetcar planning. In addition, there still is a $30 million budget gap in the TDD’s funding plan that someone will have to cover.

Now, if residents make the decision to drive — and not ride the streetcar — downtown, they will have to pay for the privilege of not riding the streetcar.

April 20, 2014

But Tomorrow Will Rain, So I’ll License The Sun

Saint Louis County officials are considering licensing landlords who are within the county’s jurisdiction (Bill No. 73). You read that right. If you want to rent out apartments, duplexes, your own home, whatever, you’ll need a county license to do that within the unincorporated parts, which includes 320,000 residents. This is completely unnecessary. Why someone would try to further restrict the housing market anywhere in Saint Louis in 2014 is beyond me.

This will drive up rental unit costs within the county. Not because of the license fee itself, which is very low ($15), but because anything that limits supply will drive up prices. Now, some prospective landlords will not invest within the county because of this new fee and, more importantly, the accompanying regulations. Is that what the county wants? If landlords are allowing renters to do criminal activity within their homes, the county police simply should use existing law to hold people responsible. A general new license on every landlord in the county will do nothing but increase government interference with property rights and decrease the overall supply of housing.

Landlords are to modern politicians what Christians were to Roman Emperors; a quick and easy group to place blame on and abuse whenever they wanted. A study of a very similar proposal in Milwaukee found no evidence for benefits from these programs. You know why? Because there aren’t any. This is another terrible licensing idea from Saint Louis County.

April 15, 2014

Hazelwood Tax Increases And Places To Cut Spending

City officials in Hazelwood, a suburb of Saint Louis, are considering a proposal to implement a 6 percent utility tax in order to raise revenue to offset decreasing funds coming from sales taxes. The proposal is expected to raise $1.3 million in revenue. Now, I’m not opposed to raising revenue in all cases. However, I only favor revenue increases when it is absolutely necessary. If there are places in the budget to cut, do that first, before asking taxpayers for more money.

Case in point. In the course of my research regarding public pensions, I found that the city of Hazelwood maintains a pension for just its mayor and city council. It isn’t a very large pension. As of 2012, it had $96,000 in assets. But I question why such a pension exists in the first place. Is it really necessary for the council of a small municipality that meets only once or twice a month on average to have its own pension? No other municipality has a separate pension plan for its city council. Despite its size, the city still spends money on the plan. For fiscal year 2014, the city plans to spend $17,000 on the city council pension plan. That is $17,000 too much.

I’ll be the first to say that there is a large difference between $17,000 and $1.3 million. However, before asking for more taxpayer money, I would look at ways to trim the fat. As much as the law allows, I would phase out Hazelwood’s pension for the city council and save the city some money. It is not nearly enough to offset this proposed tax increase, but every little bit helps.

April 4, 2014

Show-Me Institute Research Discussed On Ruckus

On Thurs., April 3, the Show-Me Institute’s research about the Kansas City streetcar and the proposed $1.2 billion new terminal plan for Kansas City International Airport (MCI) was featured prominently on the program Ruckus. That program aired on public television station KCPT-TV in Kansas City. Show-Me Institute Board Chairman Crosby Kemper III argued that both the new airport terminal plan and the streetcar are wasteful projects, the result of Kansas City becoming a “fact-free city.”

On the video below, discussion of the future of MCI starts at 1:15 and goes to 7:00. The streetcar discussion, directly addressing our writings about the streetcar expansion’s cost-effectiveness and ridership estimates, starts at 12:24 and goes to 18:40.

March 28, 2014

The Overly Optimistic Estimates For The Kansas City Streetcar

The latest plan for the streetcar extension in Kansas City has 7.6 miles of routes at a cost of $472 million. We have written before that for the same cost, the Kansas City Area Transportation Authority (KCATA) could afford to massively expand its bus service. But we have not addressed the very optimistic ridership projections in the new Transportation Development District (TDD) proposal.

According to the NextRailKC website, the 7.6 miles of streetcar could achieve anywhere from 13,700 to 23,200 passengers per weekday, based on modeling they have performed. With 7.6 miles of track, that is between 1,800 and 3,000 weekday passengers per mile. While models can be useful, at some point, someone should have checked what streetcars achieve in other cities.

Simply put, these ridership estimates are unrealistic. The high-end estimate would make it the most successful streetcar line in America according to ridership. It would have more riders than Seattle, the busiest streetcar line in America, which is only a mile long and is right in the heart of downtown Seattle. Do they really think that is going to happen?

If Kansas City achieved its low estimate of 13,700 riders per day, it would be performing about as well as Portland’s streetcar.  Portland’s system is considered highly successful in terms of riders, but there are reasons to think that Kansas City will have difficulty reaching Portland’s ridership levels. Portland has offered streetcar users low fares (originally there were free zones and the price eventually increased to $1) and used significant subsidies for transit-oriented development.  In addition, rail lines in Portland run through much denser population centers than what is proposed in Kansas City.

Of course, other streetcars see much less ridership than Portland’s and Seattle’s. Streetcars in Memphis, Tenn., and Kenosha, Wis., each had ridership below 1,000 daily passengers per mile. Why do Kansas City planners see no possibility of their streetcar performing at that level?

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It is possible that the Kansas streetcar will be wildly successful, and garner 23,200 passengers on an average weekday. But that is not something that is fair to sell to the public as a likely occurrence. The lower estimate, 13,700, is a more realistic maximum estimate given the performance of existing streetcar operations in other cities.

Further Remonstrances On Clayton Tax Increases

Last week, I blogged about the Clayton economic development sales tax proposal. While that is a bad idea in and of itself, it is unfortunately part of a much larger package of tax hikes. There are four (four!) different proposed tax hikes for voters to consider on the April ballot. If you think that is a lot, well, . . . it is.

I want to focus here on the property tax aspect. The proposals call for two different bond issues, each requiring a separate tax increase. One is for neighborhood road improvements in Clayton, and one is for improvements to Shaw Park, mostly the ice rink. If they both pass, the property tax increase would be 24 cents per $100 of assessed valuation.

Supporters of this tax hike, and most tax hikes, like to make the numbers seem small. “Only 25 cents added to an average restaurant meal” or something similar. For this tax hike, I keep hearing it is less than $20 a month for an average Clayton home. Fair enough; that does not sound so bad. (Math is $500,ooo home x 24-cent tax increase per $100 of assessed valuation = $228 annually.)

However, Clayton residents benefit from the enormous business concentration there, and businesses don’t get a vote on the tax hike. (They can vote with their feet, metaphorically.) What is the tax hike here on a Clayton business?

Well, we don’t know it by business, but we can easily figure it out by building. Take one of Clayton’s nicest buildings: 7701 Forsyth. If these two property tax increases go through, it’s owners would pay $21,175 more each year. That is $21,000 more to support park and road improvements that will benefit the businesses far less than the residents. (The road bonds are all for neighborhoods, not the business areas.)

Take its sister building, 7733 Forsyth. That property would pay $32,000 more in property taxes under these proposals. This for a building whose owners already pay well over a million a year in property taxes. That means higher rents in Clayton. These higher rates would also apply to business property (factory equipment, copiers, computers) so there would be less capital investment in Clayton, though I admit that effect likely would be very small.

That is $53,000 per year from two buildings that already pay an extra downtown tax assessment that can be used for their central business district streets. (It usually isn’t, but it can be and likely has been in the past.) At some point, asking Clayton businesses to pay much higher property taxes that will primarily benefit the residents is a poor policy choice, in my opinion. At a minimum, the proposal to increase the property tax for park renovations should be shelved in favor of privatizing the rink’s operations (but not ownership) just like the Saint Louis City has done with Steinberg Ice Rink.

March 19, 2014

A Victory For Government Accountability In Kansas City

When the Missouri Legislature considered creating a land bank for Kansas City, the Show-Me Institute was opposed. We argued in testimony before the legislature that the existing Jackson County Land Trust was as effective as any similar agency across the country. We testified that:

There does not appear to be any evidence that the Jackson County Land Trust is doing a poor job of getting vacant property back into private, productive use.

Considering the Saint Louis example, any effort in Kansas City was likely to fall prey to Kansas City politicians who might direct the city to hold onto property on behalf of favored constituents or special interests. We are glad to report that the Kansas City Land Bank has addressed these concerns. On March 3, the Board of Commissioners adopted the following resolution:

The Land Bank supplements the Code of Ethics with the additional requirement, that any Commissioner that receives a contact from an elected official or staff lobbying for or against particular application for a property held by the Land Bank shall disclose such contact to the Land Bank staff within a reasonable time thereafter, and shall disclose that contact to the other Commissioners prior to voting upon the particular application for which such contact was made.

The board also will start listing the reasons for any application rejection in the minutes so that applicants and others can understand the commissioners’ decision-making process. This is a great win for transparency in government, and we congratulate the land bank board for taking this important step.

March 14, 2014

Bloodletting In Clayton

For centuries until approximately 200 years ago, bloodletting was a common treatment for illness. If you were sick, you would go get a nice bleeding. We finally learned what should have been obvious: with the exception of one or two illnesses, bleeding was a terrible idea that did more harm than good. The Missouri local tax equivalent to bloodletting is the economic development sales tax.

Government does a terrible job planning the economy, whether it is a Soviet five-year plan or retail TIFs (tax increment financing) in Saint Louis County. Municipal government can improve the local economy by doing the things it needs to do well: police, fire, local roads, etc. It does not need to “develop” our economy, especially because “economic development” in Missouri is synonymous with taxpayer subsidies and corporate welfare.

Clayton, the Saint Louis County seat and the region’s other downtown, is considering an economic development sales tax, along with three other tax increases, on the April ballot. Doing four tax increases at once (four!) is crazy, but the point of this post is just the economic development sales tax.

Clayton has been careful in its use of tax incentives and other economic development tools in comparison to other Saint Louis County municipalities, which admittedly is a very low bar. Clayton deserves credit for that. So I can’t understand why it would propose raising a tax to do more of something it should not do in the first place: government planning of the local economy.

Clayton officials likely would claim that the intention for the new tax funds is not more use of subsidies or more local planning, but a continued focus on business recruitment, retention, etc. I believe them, and in the short run, I am sure that would be true. But, in my opinion, the increased use of, and funding for, government economic development activities will almost certainly be followed by heavier use of various subsidies and tax incentives. Cities such as Clayton should be moving in the opposite direction with less or zero use of these types of programs, not increasing taxes to do things they should skip from the start.

More to come on these four tax increase proposals next week.

March 13, 2014

Mayor James’ Corporate Welfare Handouts

The Kansas City Star reported that Burns & McDonnell, the successful architectural and engineering firm headquartered in Kansas City, is considering the purchase of an available plot of land immediately adjacent to its main offices.

The company, which intends to request incentives for the project, plans to tear down the synagogue building and redevelop the property with a phased, 450,000-square-foot office development and 800-space garage.

No one can blame Burns & McDonnell for asking for taxpayer handouts such as tax abatements or Tax Increment Financing (TIF). After all, these businesses answer to their owners and/or shareholders who want to maximize profits. Companies almost always will ask, and they almost always will make the case that they need taxpayer subsidies. What is disappointing is that cities are so eager to give away the shop in these circumstances.

Kansas City is no exception when it comes to giving away unnecessary incentives just to be shortchanged on the back end. The same Star piece included this:

Kansas City Mayor Sly James described Burns & McDonnell as the “quintessential hometown entrepreneurial success story and a tremendous corporate citizen.”

“We welcome their expansion and the new jobs it will bring,” the mayor said in a statement.

City cooperation will be essential if the project is to move forward.

Essential? Really? That is doubtful.

Purchasing the land is likely very attractive to Burns & Mac, as it is known. The land is adjacent to office buildings it currently operates — so the company cannot credibly threaten to run to Kansas if it doesn’t get its way. Furthermore, Greg Graves, the chairman and CEO, has deep roots in Kansas City and has been active in local life — he isn’t moving to Kansas. Here is a perfect opportunity for Kansas City to hold its ground and hold on to taxpayer dollars.

When a city abates property taxes, it freezes the income of other jurisdictions such as the library and schools, which are funded through those taxes. Mayor James talks a lot about how he is concerned about education in Kansas City, but says his hands are tied. Yet here is an opportunity for him to support education funding and he seems to be ready to cave in before the company has even asked.

This should be no surprise. As the Star’s Yael Abouhalkah wrote in December:

Like most politicians, Kansas City Mayor Sly James has been willing to support corporate tax breaks that lower the tax rates for powerful companies but essentially increase the tax burden on others who can’t sweet-talk City Hall…

Indeed, as he and others know all too well, the city has passed numerous public subsidies in the past that have sucked money away from school districts, libraries, counties and other taxing jurisdictions.

Every business will claim poverty if they think they can benefit from it. It’s our hope that Mayor James and the city smarten up and stop making foolish deals that weaken the city’s — and others’ — funding base.

March 4, 2014

Kansas City Republicans’ Absurd Claims

Last Wednesday, FOX 4 News asked us our thoughts about Kansas City refusing to release details on the use of tax dollars to support the city’s bid for the 2016 Republican Convention. It mirrored a similar story that the Kansas City Star published earlier. In both, the Show-Me Institute advocated for transparency. In a city as cash-strapped as Kansas City, voters should be told where their tax dollars are being spent. One would think Republicans would agree.

FOX 4 reporter Macradee Aegerter also asked about the claims of economic development that come from such conventions. I said in the interview that such claims are speculative, the bid committee often employs the economists that make the claims, and that the real impact rarely lives up to the hype. (This segment aired in the 6 p.m. version of the story, which is not yet online.) In the segment, a member of the bid committee claimed that the convention would have an economic impact of $250,000,000. That’s a quarter-billion dollars.

We don’t believe it. (Or, perhaps more delicately, we want to verify those numbers before we believe it.)

Certainly, having such a convention in Kansas City is a good thing, and not just for the money it will bring to the area. As a matter of pride, I would love to see Kansas City host again on the 40th anniversary of our last convention. But the idea that having the convention here amounts to a net gain of $250 million is absurd, and it casts a light on how calculating the economic impact of other items is the economic equivalent of alchemy.

The host committee is likely assuming that without the convention, hotel occupancy would be zero. Spending downtown would be zero. Travel in and out of Kansas City would be zero. Then it still probably over-estimates what will be spent here because of the convention. In reality, a hotel that would have had 70 percent occupancy without the convention may have 95 percent occupancy because of the convention. One can claim the difference as “economic impact” but not all of it. But we won’t know how the committee reached the quarter-billion number until it reveals how it calculated a $250,000,000 impact. (If the committee releases the estimate and it proves to be legitimate economic analysis with a multiplier effect below two, we will gladly admit we are wrong.)

As written in the Daily Beast story about the recent Super Bowl in New Jersey:

So, there’s no economically sound way to predict a Super Bowl’s impact before the event and those that try have been proven wrong again and again. But don’t expect that to stop the cheering from the few with the most to gain. When asked for a more detailed analysis of Super Bowl XLVIII, the host committee demurred, but assured in a statement, “Super Bowl XLVIII is expected to be an economic boom [sic] for the region.”

We’re not asking the committee to reveal anything legitimately embargoed about its bid. We just want to know how the committee arrived at that estimate for the impact should the convention occur in Kansas City. Certainly, Republicans would agree that the sound economic policies they advocate require sound economic assumptions — otherwise, how are they supposed to be any more responsible with taxpayer money?

February 25, 2014

The Kansas City Streetcar Advisory Panel Is Just For Show

The panel appointed to advise Kansas City Mayor Sly James about the best route for the southern extension of the streetcar met on Saturday morning, and many were skeptical. Of course, Kansas City voters have rejected similar rail efforts for years so this is no surprise.

Whatever the advisory group decides, however, is moot. That is because the city’s petition for the creation of a special taxing district and the increased sales and property taxes therein has already been submitted to a judge for consideration. Nothing this advisory panel does will change it, nor is any decision they reach binding upon the city. As the Kansas City Star published:

Kansas City Councilman Russ Johnson told the group: “We’ll do everything we can to incorporate the preferred alternative.”

Kansas Citians are being asked to commit to very specific and enforceable sales and property tax increases in return for a vague notion of where those rails will be laid; the city is not willing to commit to a specific route. In the petition to the court, the city spends about seven of 15 pages (pages 6 through 13) detailing how the taxes are to be assessed and collected. As for the route, that receives less than one page (page 4) of vague statements such as (emphasis added):

The Expansion Routes will connect to the Starter Line, and are expected to run generally along (i) Independence Avenue, east from the Starter Line, (ii) Linwood Boulevard and/or 31 and (iii) Main Street and/or the public right of way commonly referred to as the Country Club Right of Way or public streets in the vicinity thereof, south from the Starter Line, all as generally depicted on Exhibit D…

The petition does not even include the consideration of public input as to the route, its ending, or the placement of stations. Those will be decided by “further design and engineering.”

The specific Expansion Routes, their respective termini (which may be closer to or farther from any such Expansion Routes’ connection to the Starter Line) and the specific location of embark/disembark points, remain subject to refinement or alteration following further design and engineering;

For the sake of transparency — and an informed electorate — the City Council should have undertaken “further design and engineering” before convening an advisory board and submitted the petition to a judge. But they didn’t, and so the effort to seek citizen input is a tale told by streetcar supporters: “full of sound and fury, signifying nothing.”

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