March 28, 2014

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.

February 19, 2014

Columbia Says No To A TIF

There was very big news out of Columbia, Mo., Monday night. The Columbia City Council shot down a large Tax Increment Financing (TIF) proposal in a 5-2 vote. The list of TIF rejections in Missouri is, unfortunately, short. Hopefully, this is the start of a trend, not just in Columbia but around the state.

The Columbia city manager and mayor had proposed an enormous TIF district covering large areas of downtown. The idea was that the TIF on several new, very large student housing developments would pay for infrastructure improvements that most people seem to agree downtown Columbia needs. In general terms, this TIF proposal may have been better than most, but that is like saying Mao was better than Stalin. Just because this money would have — at least in the proposal — gone toward infrastructure does not justify passing a TIF that would have enormously changed the tax make-up of downtown Columbia for up to 23 years and put the other taxing districts at a severe disadvantage.

Sometimes it takes political leadership to argue for tax and fee increases. In following this debate, it seemed as if just giving the new developments a subsidy and then using that subsidy for infrastructure was the easy way out. That is how warped we have become in Missouri. Subsidies such as TIF, Enhanced Enterprise Zones (EEZ), etc. are so common that they have become the rule, not the exception. Let there be no doubt about it: If this TIF proposal had passed, then subsidies like it would have become standard for everything in Columbia. And heavy use of TIF and other subsidies would be very bad in the long run for Columbia, just like it has been for the Saint Louis and Kansas City areas.

If there are infrastructure needs in downtown Columbia, they can fund improvements the same way they were funded for a century: bond issues and fee increases, with any new developments paying the full share of tapping into the system. Better yet, privatize the water and electric utilities and use that money to fund necessary improvements. Whatever you do, don’t count on subsidies to do the work that leadership should do.

February 12, 2014

Privatization: Airport Possibilities

The Show-Me Institute recently released a case study called “Government Privatization in Missouri: Successes, Risks, and Opportunities,” by David Stokes. The report discusses many aspects of local government that could benefit from partial or full privatization. One such area the case study addresses is the privatization of commercial airports.

In the United States, due to significant financing advantages given to publicly owned airports and onerous federal regulations, all but one of the 502 commercial service airports in the United States are publicly owned, most by local municipalities. That one private airport is Branson Airport in southern Missouri. As the case study points out:

The success of Branson Airport may be uncertain, but one of the features of private enterprise is that individuals and companies risk their own capital, not of that of their fellow citizens, in hopes of a larger return.

The other six commercial service airports in Missouri are all publicly owned, the largest of which are Lambert-St. Louis International Airport (STL) and Kansas City International Airport (MCI). However, they also can benefit from partial or full privatization. The most basic level of privatization, contracting airport services, already is in place at both Lambert and Kansas City. These contracts allow the airports to attain services through competitive bidding from the private sector. MCI is one of the few airports to privatize its security screening through TSA’s Screening Partnership Program (SPP).

However, airports in Missouri can go much further in privatizing operations. This includes privatizing the management of airports or even leasing the airports to private entities through the Airport Privatization Pilot Program (APPP). Kansas City considered this option for MCI once before. This program is actually the only way a municipality can use proceeds from its airports on other public goods. However, the program requires a complex negotiation between the local municipality, the FAA, airport workers, and the airlines. As the case study states:

Should Kansas City pursue the APPP route of privatization, the city could expect significant proceeds from the sale. However, it would require complex and lengthy negotiations with the potential buyers, airlines, and the FAA in order to participate in a program with no record of long-term success.

The full or partial privatization of airports can have many benefits for air service in the state, whether it is simply reduced costs or financial gain from an airport sale. The case study “Government Privatization in Missouri: Successes, Risks, and Opportunities” outlines some of the possibilities that might allow Missouri to create an example of airport privatization for the rest of the nation.

December 10, 2013

Southwest’s Decision To End Service Could Doom Branson Airport

Southwest Airlines announced on Dec. 5 that it will halt service to Branson Airport next year. Branson Airport is the only privately built commercial service airport in the United States, and there were high hopes that it would serve as a model for private airport operations across the county. The Show-Me Institute has been interested in this project since the early days as an example of private sector possibilities for U.S. airports.

Unfortunately, the airport has had trouble from the start. Timing didn’t help, as the airport opened in 2009, just months after the onset of the largest post-war recession in American history. Falling demand for air service and “capacity discipline” from air carriers meant actual passengers at Branson fell far short of meeting both expectations and operating expenses. In 2011, Branson Airport LLC went into debt forbearance. On top of these financial woes, the airport’s runway has had structural problems that led the airport to sue the construction contractor.

Southwest’s decision in early 2013 to begin service to Branson Airport looked promising to help save the venture from financial demise. Passenger levels increased, but not enough to satisfy Southwest’s bottom line. So on Dec. 5, the airline announced it would end service to Branson as well as two other small airports.

While no one wants to see Branson Airport fail, the overall story is one that shows the benefit of using the market to build transportation infrastructure. Private developers saw an opportunity and took a risk. As it turned out, actual demand is falling short of projections. A private company sought to make a profit and now they, not local taxpayers, may pay the cost.

October 18, 2013

Why Should County Taxpayers Fund Private Medical Research?

Jackson County’s ballot proposal for a medical research tax to raise $800 million over 20 years has had a controversial reception. The proposed tax is intended to fund research on “translational medicine,” which turns existing scientific research into marketable drugs, medical devices, and diagnostic tools. The Pitch recently wrote an excellent summation of different viewpoints on the tax, including those of Show-Me Institute Chairman Crosby Kemper III.

Supporters of the tax leave a few questions unanswered: Why a county-level tax? Supporters cite lack of federal research funds as an impetus to look for more local funds, but sales taxes typically fund public assets such as parks or public safety projects. The half-cent tax would make Kansas City’s already high sales tax rate one of the highest in the country. Do other local governments fund this type of research with specific taxes?

I could only find two comparable taxes: one in Johnson County, Kan., and one in Rochester, Minn. (If anyone knows of other like taxes, please share them in the comments.) Even these two taxes have very important differences, however, from the Jackson County proposal.

Voters in Johnson County passed a one-eighth-cent sales tax in 2008 to fund the Johnson County Education Research Triangle. The money went toward building facilities at Kansas University and Kansas State, as well as to some researcher salaries. Jackson County’s proposal, however, would divert more than half of the revenue to private medical institutions: $20 million to Children’s Mercy and $8 million to St. Luke’s Hospital.

In 2012, voters in Rochester extended a half-cent sales tax that devotes $20 million in bonds (approximately one-seventh of the revenues) to the “Destination Medical Center” (DMC). The Destination Medical Center is the Mayo Clinic’s 20-year, $5 billion project to upgrade its own facilities and the surrounding area’s infrastructure and amenities.

Importantly, the Mayo Clinic initiative uses mostly private funds for the venture — more than $5 billion in Mayo Clinic’s own funds and those of private investors. The $500 million that the state, city, and county pledged over 27 years are primarily for infrastructure and transit improvements, which are the sorts of things public tax dollars typically fund. Additionally, state funds are contingent upon private investment occurring first. Mayo Clinic President and CEO John Noseworthy said in an interview:

We are not asking for a handout. We’re asking for nothing upfront. We’re not asking the state to fund the medical facilities, the science facilities and so on as other states are doing for our competitors, by the way. We’re simply asking for, once we have grown and proven that growth, to have some of that tax revenue infused into the public infrastructure.

Jackson County voters, unlike those in Rochester, are facing a different request. The translational medical research tax is a unique proposal that taxes citizens to fund buildings and salaries for researchers at primarily private institutions, in a field that private investment traditionally funds.

Being on the cutting edge of implementing new and higher taxes is not the right kind of innovation for Kansas City.

September 25, 2013

Emerald Automotive Still Seeking The Green

It’s been a couple years since we first discussed hybrid car start-up Emerald Automotive. When we last left it, Emerald was debating whether it would pursue the (doomed) Aerotropolis tax credits of 2011 — in context, a very creative avenue of funding for a car company. Since then, updates on the very-much earthbound car manufacturer have been infrequent. The last article I’ve been able to find from a major Saint Louis daily was last January, and things weren’t looking good for the project.

The original timetable called for the Hazelwood plant to be producing vans by 2014, but that has been pushed back because the company is still searching for funding — about $160 million — to build the facility, Marble said.

In addition to some private capital, Emerald has received a $3 million loan from Hazelwood and $2 million from the Missouri Technology Corp., plus a $5 million grant from the British government’s Technology Strategy Board.

The company had hoped to snag a $100 million-plus loan from the U.S. Department of Energy’s Advanced Technology Vehicle Manufacturing Program, but withdrew that application last summer to pursue private investment options after federal energy loans stalled in the wake of the Solyndra controversy. Solyndra, a solar-panel manufacturer, went bankrupt after getting a $535 million DOE loan.

It’s never a good sign when your project, rightfully or wrongfully, gets lumped in with publicly financed boondoggles like Solyndra. The online publication reported in July that Emerald says it will open its doors in 2015, with 600 jobs waiting in the wings. But as this process drags on, it begs the question: Is the Emerald project actually happening?  I left a message with the Missouri Technology Corporation (MTC) to find out; I haven’t received a return call.

Fortunately, Hazelwood’s office of economic development was more helpful. Hazelwood indicated that after abandoning the Department of Energy’s loan program, Emerald indeed turned its sights to finding investments from the private market and had been giving demonstrations of their product to potential investors. Although Hazelwood did not have a figure for how close Emerald had gotten to its original $160 million goal, it was pretty clear that Emerald wasn’t exactly getting close — at least not yet. Hazelwood and the MTC could take possession of some of Emerald’s patents if the company goes out of business, but as the Mamtek situation reaffirmed, there’s no telling whether the patents are worth anything close to the public loans that supported the company. That should leave us all a little unsettled.

On the positive side, I was happy to hear that the company is turning its attention to getting investments from the private market. That’s how it should have been from the beginning, and how it should be going forward. Every itemized dollar of investment noted in the St. Louis Beacon article was related in some way to government funding. That’s not how capitalism is supposed to work.

Will Emerald find the green? Time — and hopefully, the market — will tell. We’ll keep you posted.

August 7, 2013

More Like This. . .Please?

The Carter Carburetor building has sat dilapidated for numerous years and is a blight for the city of Saint Louis. Just a few decades ago, the Carter Carburetor Corporation was a major employer in the Saint Louis area. Today, the 4-story main building sits empty after Carter Building Inc. (CBI) donated the property to the Saint Louis Land Reutilization Authority (LRA). The LRA’s job is to return property to private use. Unfortunately, the agency has not always accomplished that.

Given the building’s current state, it is exciting that the LRA has found a positive future for the property. The owners of CBI donated the property to the LRA with the understanding that once the current environmental clean-up is complete, the land will be given to the Herbert Hoover Boys and Girls Club.

boys and girls club

The LRA is not responsible for the site’s clean-up, but it is responsible for what happens to the property after that. While the president of the Boys and Girls Club, Flint Fowler, said he looks forward to the Club’s expansion, some locals are wary of the property’s future. Loletta Zasaretii, a resident of the neighborhood, said she would rather see jobs created on the property instead of  “just another ball field.” Although many share Zasaretti’s desire for more jobs in North Saint Louis, the LRA is making the right decision because it is not holding onto the property.

The LRA may not be solving all of the neighborhood’s problems by handing the property over to the Herbert Hoover Boys and Girls Club, a non-profit, tax–exempt organization. But it is definitely moving in the right direction toward improving Saint Louis. Along with making the property more attractive and safer, the Boys and Girls Club — rather than the city — would be responsible for the land’s upkeep. Most importantly, the LRA deserves credit for getting the property off the city’s balance sheet and back into private ownership and productive use. Why can’t the LRA do this same thing with the thousands of other properties it owns?

May 9, 2013

No Need To Throw Taxpayer Money Down The Well

Last year, at the height of the drought in Missouri, I wrote about Missouri Gov. Jay Nixon’s Executive Order authorizing government assistance for water sharing and distribution to farmers affected by the drought. I argued that the government should not be spending public money to assist those who already have (publicly subsidized) crop insurance.

Fast forward to today. One might think that due to the drought, farm incomes would be seriously hurt. However, that is not what happened. According to a recent survey (hat tip: St. Louis Post-Dispatch) that the St. Louis Federal Reserve released, farm income for the last quarter of 2012 was either on pace to match that of the previous year or even increase. A Kansas City Federal Reserve report had similar findings. The reason incomes did not fall: “Many bankers cited the effect of crop insurance in alleviating the expected negative impact of the drought.”

So, these farmers did not really need all that extra help last year. Their insurance was enough to cover their losses. I am glad that was the case. However, if many farmers are making more money after the drought than before it hit, couldn’t they afford to pay a bit more for their insurance premiums? Currently, taxpayers heavily subsidize crop insurance premiums.

I am not advocating eliminating crop insurance. However, cutting back on public support for crop insurance is a good idea. According to one Government Accountability Office report, a 10 percent reduction in government subsidies would have saved the taxpayers $1.2 billion in 2011. Buying insurance is meant to help prevent catastrophic losses, it is not meant to make you money. The government should reduce its commitment to paying for insurance subsidies; it seems the farmers can afford it.

April 5, 2013

We May Still Have Mail Delivery On Saturday

A few weeks ago, I wrote about the United States Postal Service’s (USPS) intention to cut Saturday delivery. I argued that this proposed cutback is consistent with the Postal Service’s status as a government-sanctioned monopoly: Instead of finding innovative ways to cut costs without sacrificing customer service, the USPS simply opted to strengthen its bottom line at the expense of the latter. By law, no other entity can deliver first-class mail, so why worry about keeping your customer base happy?

It now seems the proposal will not materialize. Congress passed legislation last month, which President Barack Obama signed, that obligates the USPS to maintain six-day delivery. The USPS may still alter the kind of mail it delivers on Saturday, with plans to eliminate first-class mail delivery and pick-up service while continuing delivery of packages and pharmaceutical drugs on Saturdays.

Officials with the USPS have warned that a $47 billion bailout, which taxpayers would fund, may soon be necessary if it is not given more freedom to change course. Everybody knows that the Postal Service needs to cut costs (or increase revenue), but Congress is standing in the way. This is all part of a broader pattern: It is precisely this inability and/or unwillingness to confront economic reality that made the sequester necessary.

One of two scenarios seems likely: Service will be cut to avoid bailing out the USPS or Saturday service will continue at the price of funding a bailout. This is a false alternative, one that the free market would not present. The proper course of action — privatizing and abolishing the monopoly status of the USPS — would yield a twofold benefit. Companies would compete with one another to not only keep their costs sustainable, but to continually improve their services. Moreover, if one such company failed to maintain financial solvency, it would simply go out of business. In short, these forces would function to keep customers satisfied without putting their property at risk (through taxpayer-financed bailouts).

The dilemma about the USPS is totally unnecessary and such situations can be solved if we keep the government out of business and out of our pockets.

March 28, 2013

North Kansas City Hospital Getting Very Interesting Very Fast

Things seem to be moving very quickly in the debate about the future of the North Kansas City hospital. Lawsuits, amendments to bills, new trustees, late-night rule changes . . . the only thing missing is the Turk trying to finish off Don Corleone. This is unfortunate, because the discussion about the potential future sale, transfer, or privatization of the hospital is extremely important.

Needless to say, rushed changes to the board rules and amendments added to bills after public hearings are completed does not make for good public policy. A judge upheld the right of the city to add new members to the hospital board, but I have heard that the current board members changed the board rules to require a super-majority vote on certain actions before the new members could be appointed. That might be clever, but it is hardly admirable.

Legislation taking the hospital away from the entity that has owned it for decades would be a very dangerous  precedent, terrible policy, and wrong, all combined. Maybe it is just me, but I think taking away ownership of the hospital from the city is, you know, a bad idea. The city owns the hospital. It has always owned the hospital. The city should be able to do what it wants with the hospital, be that sale, privatization, closure, expansion, whatever. (Let’s be clear, however: under every legitimate scenario, the hospital is going to continue operating.)

I am no lawyer, but I have to imagine the courts will continue to side with the city here. That makes legislative changes the best option for hospital activists opposed to any structural changes. It would be extremely unfortunate if a pro-free- market legislature made an exception in this case and blocked the city from even considering something such as privatization, which most members of the legislature would usually support.

February 25, 2013

Transforming Vacant Land

Usually, food on trains is nothing to brag about. A quick Google search showed that Amtrak actually has a chicken menu item called “Choo-choo Chewies.” They say it tastes like chicken. I hope they are correct.

Eating inside a cargo container sounds even less appealing than Choo-choo Chewies. (Unless it means I get to hang out with the Boxcar Children.)

As difficult as it may be to believe, there is a new project in Saint Louis that could make dining in cargo trendy and charming. Washington University in St. Louis and the City of Saint Louis named Bistro Box, “a small business incubator that transforms surplus cargo containers into a compact restaurant and culinary destination,” as one of the finalists in Washington University’s Sustainable Land Lab competition.

The Sustainable Land Lab competition invites teams to design innovative projects that transform vacant lots into assets. The City of Saint Louis owns more than 8,000 vacant lots that are just sitting there, deteriorating and underutilized. Show-Me Institute policy analysts have offered suggestions in the past about how the city can work to get more of those lots back into productive use. The Sustainable Land Lab competition is a great method to put these vacant parcels in the spotlight, and proves that innovators and entrepreneurs have exciting ideas to utilize this vacant land.

This is the first year of the competition. I hope that it will be successful in transforming vacant land and will shift the way Saint Louis treats that land. The best outcome of this project is that it would not only help improve blighted areas of the city, but encourage others to take on similar projects. Revitalization lies in the hands of eager residents who care about the community. In the past, the Saint Louis Land Reutilization Authority (LRA) has not been willing to allow development to occur organically, preferring to hold land for development that the agency chooses. But the government cannot predict what will be the best use of the land (remember Pruitt-Igoe?), nor will it come up with the most creative solutions.

Anything — including eating train-track chicken in an abandoned cargo container — is preferable to the city holding the land for decades.

February 19, 2013

One Day Down, Five To Go!

The United States Postal Service (USPS) recently announced that it will cut Saturday delivery in August. The post office has been in the financial doldrums over the last few years, not least because of onerous pension obligations and a reliance on an increasingly obsolete service. The USPS is a government-sanctioned monopoly, largely insulated from competition. Its decision is consistent with this privileged status; in the face of financial difficulties, it simply reduces the quality of its service.

There is nothing wrong with a business manipulating its prices and practices when it is confronted with a budgetary dilemma. But there is something wrong when it fails to adequately serve customers while the state prohibits competition. In the private sector, businesses compete to provide the best for the least. In the case of the USPS, however, customer satisfaction can simply be sacrificed for financial health. After all, why worry about quality customer service when a competitor cannot put you out of business?

The least weak argument in favor of public mail delivery is that private enterprise could not profitably serve rural areas. For example, my grandfather often patronizes the post office in Centertown, Mo., a small town in Cole County. He prefers it to the one in Jefferson City, as there is never a wait. My guess is that the privatization of the USPS would spell the end of the Centertown branch, as well as countless other small town post offices across the state. Or perhaps they would remain, but mail delivery to and from such remote locations would be significantly more expensive.

Public support is likely necessary if many rural areas are to maintain their post offices, but this is not a justification for such support. Many things are relatively expensive for rural dwellers (e.g., Internet, gas to get to the grocery store); others are comparatively cheap (e.g., land).  The reverse is true for urbanites. What sense does it make to subsidize something simply because it is comparatively expensive in a given area?  The bottom line is that living in a particular locale comes with its unique set of costs. The most sensible route to take is to stop artificially reducing the cost of mail service in rural areas; let those who remain in these areas face the commensurate costs.

Privatizing the USPS, in short, makes both practical and moral sense.

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