May 15, 2014

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.

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. (NextRailKC removed the original list, but we’ve saved it here.) 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?)

Light Rail Icon

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.

Pay,_Park_&_Pay

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.

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