June 26, 2014

Tell Taxpayers Where Their Money Went

The Republican Party has eliminated Kansas City as a potential host city for the 2016 convention, and with it went any reason for keeping the details of the bid a secret. In April we wrote:

The mayor of Kansas City, Mo., disclosed that the city is ponying up another $65,000 to woo the 2016 Republican convention. Jackson Co., Mo., Wyandotte Co./Kansas City, Kan., and Johnson Co., Kan., also are chipping in an additional $65,000 each. This $260,000 total is in addition to the $100,000 that Kansas City, Mo., already spent. We participated in a KSHB TV story about the spending and asserted that taxpayers ought to be told what is being promised in their name.

At the time, the mayor and the convention committee refused to tell taxpayers how much money the city was spending, where it was going, or how much more was promised. According to the Kansas City Star:

The Star filed a Sunshine Law request with the city and the Kansas City Convention Visitors Association asking for information from the proposal on the potential public cost of the convention.

Both declined, citing state law — and a concern about revealing details of the bid to competing communities.

“We will not be addressing specific questions related to the Finance section of our response,” said an email from Julie Sally, a spokeswoman for the Kansas City convention task force.

City spokesman Chris Hernandez also declined to provide the requested information, as did Mike Burke, the attorney for the KCCVA.

Now that there is no risk of compromising the bid, the city and the KCCVA should reveal what commitments they made, where the money went, and to whom. Their economic impact projections for the convention were pretty wild, too. We would like to see who generated those, and how.

June 6, 2014

Lake Of The Ozarks To Waste Sales Tax Monies On Passenger Rail

As Missourians consider whether or not to vote for a transportation sales tax, localities and regions are writing up their wish lists for how the new money will be spent in their areas. The Lake of the Ozarks is no exception. Some of the projects that area counties have proposed have merit, including reasonable road and sidewalk improvements. Others do not, such as what is at the top of Camden County’s list: passenger rail from Jefferson City to Camden County.

While a detailed plan has yet to surface, it is certain that any passenger rail extension from Jefferson City to Camden County would be incredibly expensive. How expensive? The distance from Jefferson City to Camden County is more than 50 miles, and new rail construction can cost up to $25 million per mile, more if they need to acquire right-of-way or build new bridges. Even simple rehabilitation of existing track can be very expensive, as the Missouri Department of Transportation’s (MoDOT) recent $48 million expenditure to improve 10 miles of track demonstrates.

Railway Point

What would be the demand for this line? The Missouri River runner, which connects major Missouri population centers along the Missouri River, has had difficulty gaining passengers and runs a significant operating deficit ($8 million to $9 million per year). If a link between Saint Louis, Jefferson City, and Kansas City has insufficient demand to cover costs, what are the chances for a rail line that simply connects Jefferson City to Camden County?

To get a sense of the ridiculousness of the project, consider how one might go about using this rail line. If one were planning to go from Saint Louis to the Lake of the Ozarks via this route, there would be two options. First would be to drive to Jefferson City, get out of the car, and take the rail the last 50 miles. The second option would be to go to the St. Louis Civic Center, catch one of the two daily River Runner trains to Jefferson City, and then transfer to the rail line. With both options, given the spread out nature of the Lake of the Ozarks, it is likely that anyone taking the train would have to rent a car upon arrival. It is immediately obvious that no one would consider this a reasonable transportation solution; the only market would be rail enthusiasts.

This rail project demonstrates the folly of using a sales tax to pay for transportation in Missouri. When users of highways are the ones paying for highways, the amount available to spend on new construction and maintenance is controlled by underlying demand for those assets. When everyone pays a sales tax for anything that can be called transportation, the money gets spent on politically popular projects, regardless of feasibility or demand. So it goes that if the sales tax passes, shoppers in Saint Louis will fund an empty train to Camden County.

June 4, 2014

Sweetness And Power & Light

I want to follow up briefly on the pieces recently published in The American Spectator and here on the blog about entertainment district subsidies in the Show-Me State. Michael Rathbone’s review of Saint Louis’ Ballpark Village is worth your time if you haven’t read it yet. But I want to highlight again Kansas City’s own tax incentive sinkhole, the Power & Light District. The Wall Street Journal video below is an oldie but goodie that captures how expensive the city’s entertainment district gamble has been — and how expensive it will continue to be in the years ahead.

The cost of the city’s plan has actually gotten worse since the Journal published this video in 2012. Just a few months ago, the Kansas City Council actually voted to refinance the district’s debt to help pay for pensions, extending the term of the repayment period and adding tens of millions of dollars to the district’s cost.

The refinancing calls for adding seven years to the Power & Light entertainment district’s debt payments, from 2033 to 2040. It lowers the payments from 2015 through 2019 and frees up cash to help pay for pension reform, especially in the 2014-15 budget. But it bumps up the debt payments between 2020 and 2040, a net increase in overall debt of $36 million.

Who’s going to pay for all of these costs? Kansas Citians, of course, most likely through higher taxes, lower services, or a combination of the two. Businesses that have to compete with the newly subsidized competitors will also be paying for it not only in tax dollars but in customers, too, as their clientele are diverted to new taxpayer-funded developments. If these massive projects were going to work, they should be able to make it on their own, and as the Spectator observed:

The forbidding economics of these projects should be evident from the start, since their need for subsidies shows that they have inadequate market demand. Yet they continue to open, representing the fallout that occurs when officials speculate with public money.

That chronic speculatory impulse of Missouri’s public officials must stop. If our local and state governments can afford to massively cut taxes for some, they can afford to cut taxes for all. That’s the direction in which tax policy in this state must continue to move.

June 2, 2014

Kansas City’s War On The Future

With all the political rhetoric floating around Kansas City, one would think the city is embracing high technology and forward-looking, well, everything. A closer examination reveals just the opposite. The city is using 19th-century politics and policymaking, and hoping for 21st-century results. It is as anachronistic as those future-looking movies of the past.

width= What old-timey look at the past would be complete without a monorail light trail streetcar? Kansas City politicians are determined to employ 19th-century fixed rail transit, thinking wrongly that it will solve our problems. We’ve written extensively about why rail is bad for Kansas City. You can read about it here.

The most jaw-droppingly insipid claim is that such policies will draw the creative class. Never mind that there is no research to back up this claim — Kansas City already is rapidly becoming a fact-free city. In fact, a vocal proponent of streetcars who claimed to speak for millennials just announced that he is leaving Kansas City for the East Coast to seek greater opportunities. This supports the writings of my Show-Me Institute colleague: the so-called creative class goes where the jobs are, not to streetcars or airports.

Meanwhile, city officials view actual future-looking technologies such as those that Lyft and Uber provide with hostility because officials are mired in 19th-century protectionist cronyism. How are Kansas City officials going to react to the inevitable arrival of driver-less Google cars? Demand that cars undergo a background check? Require that each one contain a detailed street map? This is not forward-thinking; in fact, it’s not thinking.

Speaking of Google, Kansas City Mayor Sly James and others love to extol Google Fiber, as if Kansas City, Mo., won that national bidding war to bring them here a few years ago. We didn’t. We lost to Kansas City, Kan. We were just lucky enough to be next door. Kansas City, Kan., won because they demonstrated small and efficient government, not heavy-handed regulation and federal money.

In looking to create density downtown, city officials are falling over themselves to offer up any sort of taxpayer subsidy, handout, or corporate welfare package to bring density — sometimes just to move jobs two blocks. Yet they are unable or unwilling to deliver basic services to the rest of the city. This is not forward-thinking, it is urban cannibalism.

If Kansas City officials are serious about building a brighter future, they need to shed the city’s knee-jerk tax-and-regulate policies and start doing the few things a city can do well: maintain the streets and parks, fight crime, provide quality education, and do so while keeping taxes low. Then the city won’t need to pick winners — because the winners will come to the city on their own.

May 28, 2014

Burns and Mac Does Not Ask For Moon: NASA Calls Them ‘Responsible Corporate Citizen’

One theme being bandied about regarding Burns and McDonnell’s request for tax subsidies is that company officials did not ask for as much as they could have and, furthermore, the company somehow deserves credit for this. From The Pitch:

To its credit, Burns & McDonnell isn’t seeking every tax break under the sun. “Greg’s first instruction to us was to find out what we needed to get the rents to be equal [to the company's current headquarters] and stop there,” [Burns & McDonnell Director of Government Affairs Mike] Talboy says.

Or, as KSHB Channel 41 quoted Burns and Mac:

We are not requesting all the incentives that were available to us. Our goal throughout this process was to achieve a package that will allow us to pay fair market value.

Talk about adding insult to injury, after asking for millions of dollars in public subsidies, Burns & Mac wants to be lauded for not taking even more. This is modern crony capitalism: demand hard-earned taxpayer dollars and then expect us to act like you’re Andrew Carnegie.

Let’s be clear. Burns and McDonnell is asking for an enormous amount of subsidies, a.k.a., other people’s money, to build its expansion. The company is seeking a substantial Tax Increment Financing (TIF) package, a real estate tax abatement, a construction sales tax abatement, and probably more that I am missing.

Yael Abouhalkah writes in defense of Burns and Mac (in an overall well-balanced article):

One more thing: Kansas City politicians have approved far more expensive public subsidies — guaranteed by the city and gobbling up 100 percent of TIF revenues. Burns & McDonnell’s project is not city-backed, and it’s a 50 percent TIF.

TIFs are not intended to have the backing of local governments. The ones that are are exceptions, and damaging exceptions at that. So, no credit to Burns and Mac on that one.

The 50 percent claim is more disturbing. One hundred percent of subsidies for TIF are reserved for property taxes. State law limits sales and earnings taxes in TIF to 50 percent. But if you combine earnings and property taxes in the TIF, the company would have to either ask for a TIF far larger in percentage terms than the city normally approves, or it would have to hit its approximately $40 million TIF goal much quicker than 23 years.

Is there a solution that gives the company and the politicians the best of all worlds? Of course there is. Break aside the property taxes as part of a real estate abatement separate from the TIF, only use earnings (and the much smaller utility) taxes in the TIF, and then tell everyone you are making a sacrifice. Even though your subsidies will now last for two years more than they otherwise would have.

From the Kansas City Star (Chapter 100 bonds are the real estate tax abatement vehicle):

The plan includes $41.9 million in tax increment financing assistance over 23 years and a Chapter 100 bond that will save the company $41.8 million in property taxes over 25 years.

Read more here: http://www.kansascity.com/2014/05/14/5024360/burns-mcdonnell-headquarters-expansion.html#storylink=cpy

Real estate abatements are not generally given alongside TIFs, so let’s toss aside any notion that Burns and Mac is doing the city a favor by asking only for the “50 percent” earnings tax subsidy. This is $84 million in tax dollars the company will not have to pay. That means higher taxes for everyone else to pay for the services people need and want. (I admit that I don’t always agree with the “wants.”)

All this from a company that is proud to pay the earnings tax and gladly supported the effort to keep it in place. I can only imagine how much they would have asked for if they didn’t love paying the earnings tax so much.

The Show-Me Institute and others are not going to take our high school civics lessons and go home as long as modern-day corporate courtiers are abusing government authority to subsidize themselves at the expense of the taxpayers. Burns and Mac certainly has a Ph.D. in backroom cronyism.

Read more here: http://www.kansascity.com/2014/04/30/4993322/low-points-high-points-of-the.html#storylink=cpy

May 15, 2014

Great Idea Will Be Hard Sell In Olivette

I think the proposal by BWB Sports to build a privately operated athletic center on leased public land in Olivette, Mo., is terrific. At the same time, I understand the qualms many Olivette residents may have about the proposal. This looks like a great idea that is too much, too fast; a terrific proposal coming at the wrong time, like Galileo under house arrest or Jason Bateman in “It’s Your Move.”

The proposal is for BWB Sports to lease the land that now holds the Olivette Community Center and athletic fields around it. (My kids have played many team sports on those fields.) The company wants to build ice rinks, lacrosse fields, and more, and operate it as a private entity. BWB officials do not appear to be asking for a subsidy (I’ll amend this post if they are), which is one of the reasons I support this. However, the fact that they are going to lease this land will likely limit the expansion of the tax base, as the city will still own the land. (There likely will be some tax base expansion from business equipment taxes, concession sales taxes, etc.) Not to mention the fact that the company will pay Olivette to lease the land.

So, basically, you have some residents of Olivette telling me that the park and community center really are not in very good shape and desperately need an upgrade. While others – the ones showing up at the meetings attacking the proposal – are demanding that the park be protected and the land preserved.

There is no doubt about one thing – this is not a half-measure. This is a major change to the property that I think would significantly upgrade the facilities and use of the land. The only thing the proposal is missing is an outright sale of the property, which is politically impossible and legally complicated. So they are just leasing it, but I doubt that means much to the opponents.

I hope that Olivette officials can see the long-term benefits in this proposal. But, unlike other NIMBY situations, I see some merit in the residents’ concerns. This is not like recent disputes in Brentwood, Maryland Heights, or South County. I understand why some neighbors are objecting. As I said in my study about privatization in Missouri, park privatization proposals are very contentious for good reason. Outsourcing the management of existing park facilities is not that controversial, but wholesale changes to parks themselves are.

This is the latter. I hope it passes. I think the long-term benefits are significant for Olivette and Saint Louis County. This plan would increase use of the property, grow the tax base (somewhat), inject private money into Olivette recreation instead of counting on tax dollars, and more. But I am not going to attack the opponents as NIMBY-based obstructionists, even the Keynesians among them.

Corporate Welfare Defense: ‘We Could Have Taken More’

Burns & McDonnell, a successful top-20 engineering firm based in Kansas City, is poor. So poor, that in order to build on a site adjacent to its headquarters, the company has to come groveling to the City Council for what amounts to corporate welfare. We had the opportunity to speak to KSHB on this matter as a council committee was considering the request.

Under the best circumstances, Burns & Mac officials claim they will create up to 2,000 jobs for only $40,000,000 in public taxpayer money. That is a cost of $20,000 for each job. That’s not bad by government standards; a study in Saint Louis found that Tax Increment Financing (TIF) created retail jobs at a cost of $370,000 each. Let”s hope the TIF is as successful as Burns & Mac claims, but experience suggests otherwise.

Soon we will write up an analysis of what Burns & Mac is asking for, and it isn’t as small a subsidy as they would like you to believe.

While the Show-Me Institute understands that businesses must seek the best deal they can, including public assistance if offered, we fault municipalities for being too eager to give away the shop. Burns & Mac is well connected. CEO Greg Graves is a former president of the Chamber of Commerce. Kansas City Mayor Sly James said the city was going to help the project months before Burns & Mac (publicly) asked for help. Those are the benefits of being a political crony.

But what’s worse about this whole ordeal is not Burns & Mac’s shameless rent-seeking, or promoting a public policy that has been proven unsuccessful, or that the earnings tax — which Graves said he is proud to pay — is being diverted to political cronies. No, the worst part is the response from Burns & Mac: “We are not requesting all the incentives that were available to us.”

In other words, “we could have taken more.” And certainly the City Council would have given more. Is that comforting to anyone?

May 13, 2014

Op-ed: Excessive Regulation, Not Lyft, Needs To Stop Operating in Kansas City

Last Friday, my op-ed about Lyft and Kansas City’s absurd taxicab ordinances appeared in the Kansas City Business Journal. For many years, Kansas City’s livery and cab industry has been needlessly regulated for the benefit of large taxi companies at the expense of residents and entrepreneurs. As the op-ed pointed out:

City ordinances set fares, require potential cab owners to start with a fleet of 10 cabs, limit cabs to less than 600 city-wide, and require cab companies to provide 24-hour service.

Market controls such as these and others are not justified and Kansas City should lift these ordinances so that new business models can thrive in the city. Read the entire op-ed here.

May 8, 2014

Streetcar Supporters’ Tortured Logic On Display In North Kansas City Extension Option

It seems the downtown streetcar line and the proposed 7.8-mile extension plan have not slacked some Kansas City residents’ thirst for more rail. As the Kansas City Star reported today, the Mid-America Regional Council (MARC) is still pushing for a streetcar extension to North Kansas City. According to the most recent report, the proposed line would not get its own bridge because it is too expensive. Instead, the streetcar would run across the congested Heart of America Bridge before heading north to 18th Ave. As we wrote when the plan was first proposed last year:

All streetcar lines are expensive and redundant, but the proposed northern extension is especially wasteful. Opponents and friends of the streetcar alike should be able to agree that this is not the best use of city resources.

Well, it seems like we can agree, with some rail supporters arguing against this extension plan. The price tag is an obvious point of criticism, but some streetcar supporters undercut their previous argument for streetcars by claiming that North Kansas City does not have the economic density to warrant a rail line. As Kansas City Councilman Russ Johnson put it, “it’s hard to have rail where there isn’t economic density.”

But wait a second. Haven’t we all been told that streetcars create economic density? Even Johnson has “insisted that the streetcar will help economic development near the rail lines and could help build urban population density.” He is not alone. Supporters of the streetcars have claimed that development follows the rail and that the un-built line in Kansas City has already driven development. If that is truly the case, a streetcar line makes more sense in North Kansas City than elsewhere, because its economic density could use a boost.

Johnson’s statements betray the truth about streetcars: they do not necessarily drive development, but they benefit greatly from existing development. The massive expense of streetcars usually requires densely developed areas that can act as a supportive tax base. Downtown Kansas City has businesses and property owners who can be taxed to pay for the streetcar, North Kansas City does not. Sales and property taxes, like those proposed for the downtown streetcar, would not be sufficient to support a streetcar extension to North Kansas City.

May 7, 2014

Going Too Far To Limit Voter Input

There are at least two efforts in the Missouri General Assembly to prevent the ability of local voters to restrict tax incentives within their community. I think these limitations are a very bad idea, to say the least. Both Senate Bill 672 and SB 693 have had the following amendment attached to them:

2. No political subdivision of this state shall by ballot measure impose any restriction on any public financial incentive authorized by statute.

This proposal is almost certainly in response to the attempt to limit tax incentives for Peabody and other energy companies within the City of Saint Louis. A judge’s order turned away that ballot initiative. While I certainly agreed with the attempt to limit tax subsidies, I was never comfortable with the way the initiative targeted one industry. So, you didn’t hear me objecting to the judge’s ruling. Furthermore, I have, in the past, supported legislative preemption of initiative petitions in certain cases, so I am not saying a referendum should always trump local officials.

However, a blanket prohibition against any local votes against the use of tax incentives such as Tax Increment Financing (TIF), etc., goes way too far. This is terrible public policy and improperly restricts local voter rights. If a city or county has an allowance for initiative petitions under their charter, they should be allowed to use it. If local voters want to reduce or eliminate the use of TIF, Transportation Development Districts (TDDs), Community Improvement Districts (CIDs), Enhanced Enterprise Zones (EEZs), abatements, etc., via their local tax dollars, they should be able to do so.

Attempts to use initiative petitions after the fact against approved TIFs have failed for several legal reasons. However, there should be no legal problem with preemptively prohibiting corporate welfare in a community, as long as the prohibition is even and not targeted at select industries. (Feel free to tell me how I am wrong there, lawyers, but the mere existence of these amendments tells me that is correct.)

These amendments are trying to create a legal roadblock against citizen involvement and input into how people’s own tax dollars are spent, and that would be unfortunate for Missouri.

May 2, 2014

Diverting City Tax Dollars To Subsidize The Loop Trolley

Earlier this week, a U.S. District Court dismissed a lawsuit against the Loop Trolley Transportation Development District (TDD), clearing the way for trolley construction in Saint Louis. Like all streetcars, the Loop Trolley will have high capital costs: $43 million for a 2.2-mile route.

While the federal government is expected to pay for more than half the project through an Urban Circulator grant and New Markets Tax Credits, local residents still will have to shoulder a hefty portion. One way Saint Louis residents will pay to build the trolley is through Tax Increment Financing (TIF).

According to Loop Trolley planning documents, $3.5 million of the Loop Trolley’s capital costs will come from TIF raised from the Delmar East Loop Redevelopment area. For those unfamiliar with TIF, the government allows a developer to use the additional taxes a development might generate as a revenue stream to finance bonds to get the development started. In order to receive TIF, the government usually has to declare a property “blighted,” meaning it damages the welfare of the area due to its condition.

But how can TIF, designed to subsidize new developments, be used to fund a transportation device?

First, the city previously passed an ordinance that allows TIF money to be spent on anything that can be seen as an improvement to an area, not just subsidizing new development. Second, the city entered into a redevelopment agreement with a non-profit corporation (Loop TIF Inc.), which would receive and distribute any TIF revenue instead of granting it to an actual property development.

Of course this still leaves a major problem: who in the area is going to generate the TIF revenue in the first place? If the city designated truly depressed areas as blighted, and the future TIF revenue goes to Loop TIF Inc., there would be no upfront TIF subsidies to lure development into the blighted area.

In other words, if a TIF is genuinely needed to subsidize development that will pay for the TIF bonds by increased tax revenues, how can it possibly work if the “development” is a non-profit streetcar that won’t generate any revenue that the TIF can use?

The solution? Include areas in the TIF that were going to be developed anyway. The largest part of the TIF area includes Washington University in St. Louis’ north campus, built on land the university acquired for that purpose two years before it was included in the TIF district. That project will generate plenty of employee earnings taxes that the TIF can capture. The TIF also includes parcels that contain the Pageant theatre and commercial property that houses restaurants such as Pie Pizza. Plenty of sales taxes already are available there. Blight must truly be within the eye of the beholder.

EDL TIF

TIF supporters claim TIF is necessary to spur economic development in areas where it would not occur otherwise. This TIF clearly does not do that, as the city purposely chose to use TIF for areas already being developed. Instead, it is, in fact, a bookkeeping tactic through which taxes that would have gone to the city are diverted to an unelected corporation to spend as it desires. And what it desires is a streetcar.

April 28, 2014

‘Tis Time For TIF Reform

That title would make a pretty good protest chant, if you ask me. Although the use of “‘Tis” to help with the alliteration would require the protest be held in Britain. But I digress.

If you follow the work of the Show-Me Institute, you are aware (assuming you agree with us) how badly our state needs Tax Increment Financing (TIF) reform. TIF is severely damaging our state. It weakens the tax base, empowers government planners, encourages crony capitalism, encourages eminent domain abuse,  favors certain types of businesses over others, damages governments that depend on property taxes and have limited say in the decision (i.e., school districts), and all this for something that, in the end, does not succeed in growing the economy. But other than all that, TIF is great.

There are some important pieces of TIF reform legislation in Jefferson City right now. One of the better pieces is Missouri Senate Bill 774. The bill has passed out of the Senate and is now before the House. The most important thing the bill would do is further restrict how TIF dollars are spent in cases where local municipalities in Saint Louis, Saint Charles, and Jefferson counties override a county TIF commission’s decision against a TIF proposal. According to current law, the three above counties have county TIF commissions that make the choice on TIF, but cities have the ability to easily override the county TIF commission’s rejection. Small cities overriding the county TIF commission happens frequently in Saint Louis and Saint Charles counties (not so much yet in Jefferson County). The counties have tried to exercise discipline on TIF use, but small cities keep overriding their choice (Ellisville [initially], Shrewsbury, Saint Charles, etc.) and harming the larger community. Those new limits that SB 774 would enact are needed and would greatly benefit those counties.

The other good thing in the bill is that it adds Boone County to the list of the prior three where these tighter TIF rules would apply. There are great groups fighting corporate welfare in Boone County, and adding Boone to this list of counties is terrific.

Missouri needs TIF reform for all the reasons listed above and several more. Here’s hoping that the legislature will make this extremely important policy change for our state.

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