January 21, 2015

A Bad Idea That Sounds So Good

I love my dog Wiley. She is sweet and loyal and kind. I adopted her nine years ago, and I can’t imagine my life without her. That’s why I can’t begrudge someone who wants to encourage others to adopt pets. Senator Maria Chappelle-Nadal wants to do just that with her bill that would offer a $300 tax credit for adopting pets from licensed shelters.

In all the areas of government overreach and wasteful spending, this doesn’t come close to taking the cake. Honestly, it’s an appealing prospect. I mean, look at the picture below. Who would be against this puppy getting adopted? It shouldn’t take a tax credit for someone to support adopting puppies.

GoldenRetrieverPuppyDaisyParkerBut this proposed bill wants to do just that, subsidize pet adoption, and the subsidy is the bad idea.

I want dogs to be adopted. I have a soft spot for dogs, and whenever a dog dies in a movie, I turn into Niagara Falls (don’t judge me—a lot of guys cry at the movies). However, the government shouldn’t be in the business of helping people pay for pet adoption. It should be in the business of providing basic goods and services necessary for a functioning society (police, firefighters, and prisons jump immediately to mind). Pet adoption is the purview of individuals and private organizations. If the government kept its spending down to the bare essentials, taxes would be low enough so that taxpayers would have more money to spend on a variety of admirable things: adopting puppies, saving the spotted owl, and preserving the rain forest.

Missouri has issued tax credits to things that frankly don’t need them, like country clubs and movie stars. Adopting pets isn’t nearly an egregious waste of taxpayer dollars as the former two, but it still shouldn’t occur. I hope it will never get the chance.

January 9, 2015

Thoughts on the Latest Rams Press Conference

With the recent news that Rams owner Stan Kroenke is planning to build a new football stadium, the chances of the Rams leaving Saint Louis have increased substantially. Late last year, Gov. Nixon appointed a two-person team whose mission was to investigate options for keeping the NFL in Saint Louis. The team, which consists of former Anheuser-Busch executive Dave Peacock and Clayton area attorney Bob Blitz, presented their report on Friday. Below are key points raised in that report:

  • Plans are for a new stadium located on the riverfront, north of Lumiere Casino and northeast of the Edward Jones Dome.

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  • The stadium also would be available for professional soccer.
  • It would be a public asset owned by a public entity and leased to the team. Also, the new stadium would come with a new lease, 30 years or more.
  • Cost estimate: $860-$985 million, at least half of which would be privately financed (minimum $200 million from Stan Kroenke and another $200 million from the NFL).
  • No new tax burden, although there would be public money involved.
  • Estimated completion date: 2020.

After listening to the press conference and going over some of the points raised here, I have my misgivings about this project. First, I would like to know specifically where the money is coming from to pay for this new stadium. During the press conference, Peacock said that the sources of public financing would not be ascertained until there was a commitment from the NFL and from the Rams on moving forward with this project. Second, the $860-$985 million price tag would only be for the new stadium. Additional money (it wasn’t said how much) would be needed to upgrade the current Dome so it will be a full-time convention center. How are we going to pay for that as well?

My biggest misgiving is the fact that we will be publicly subsidizing this thing at all. Kroenke’s proposal in Los Angeles would be completely privately financed. Why should the public put up money when Kroenke can afford to pay for the costs himself? The most recent trend in stadium construction is toward private investment. That’s what happened in San Francisco and New York, so why should Saint Louis be different?

I know it is easy to be wowed by beautiful pictures of sparkling developments like the one above. Yet, nice pictures aside, these kinds of plans do not produce the economic benefits that would make these developments worthwhile. I want Saint Louis to remain an NFL town, but I don’t want to spend taxpayer dollars to do it.

January 8, 2015

Equal Opportunity Scholarships—Giving Students Options

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If you could expand educational opportunities for students in failing schools by leveraging greater private investment in education, would you do it? Of course you would! This is exactly the idea behind the Equal Opportunity Scholarship idea (otherwise known as a tax credit scholarship).

The way it works is pretty simple. Taxpayers donate money to a scholarship organization. In exchange for their donation, they get a credit toward their taxes. Let’s say the credit is 75 percent. That would mean a donation of $1,000 to a scholarship organization would net a credit toward tax liabilities of $750. While the total taxes collected drops by $750, the total amount contributed goes up. The end result is greater private investment in education.

With the funds, the scholarship organizations provide tuition assistance for students who wish to attend high-quality private schools. More than a dozen states have similar programs. They are a proven method of increasing options for students. And they have the added benefit of saving taxpayers money. The Show-Me Institute has highlighted successful examples in Arizona, New Hampshire, and Pennsylvania.

Over the next few months, Missouri lawmakers will bandy about ideas to “solve” the problem of unaccredited schools. Thus far, Equal Opportunity Scholarships are the only proactive idea that will expand options for Missouri students.

January 6, 2015

Rams L.A. Bound?

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According to the L.A. Times, Rams owner Stan Kroenke plans to build a new football stadium in Inglewood, California. If the plan is approved by local voters, it would clear one major hurdle for moving the Rams to Los Angeles. The mayor’s office in Saint Louis maintains that it will not get into a bidding war with Los Angeles over the Rams (the proposed stadium in Los Angeles would be built without tax dollars).

The sentiment coming from the mayor’s office is encouraging. Cities should not be spending public money in order to keep/lure professional sports teams. Now don’t get me wrong, I don’t want the Rams to move. However, Mr. Kroenke obviously feels that Los Angeles is a better venue for his team than Saint Louis. Considering that new stadiums tend to cost more than a billion dollars, the amount of public subsidies needed in order to change Mr. Kroenke’s mind probably would be astronomical. If subsidies were provided, what would taxpayers get in return, an economic adrenaline shot? Not really. Would keeping the Rams here do wonders for the city’s brand, as some have argued? I doubt it. Even when Mayor Slay brags about Saint Louis to the rest of the country, I don’t see the Rams mentioned anywhere (the Cardinals are a different story).

Sports often binds people, families, and communities together. There is no more popular sport in the United States than football, and I enjoy looking back to the time when I was a kid and I went with my father to watch Rams games (believe it or not, there was a time when the Rams were worth watching). Unfortunately, it appears that Saint Louis could end up losing yet another pro football sports franchise. That’s not an appealing prospect, but if public officials hold the line and refuse to grant any more taxpayer support to the Rams, then they should be commended and we should be thankful for their discipline.

 

January 2, 2015

Map Series: VIII. The Kansas City Streetcar and Tax Abatements

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The map above shows the route of the Kansas City Streetcar (under construction), as well as tax abatements enacted by Kansas City from 2011 to 2013. As the map demonstrates, this area of downtown, and particularly the area around the proposed streetcar, has seen the ample use of these tax breaks. Although city leaders and news outlets claim the streetcar creates development, these tax abatements and a combination of other planning factors that favor this small section of downtown may be diverting development. Read more from the Show-Me Institute on the Kansas Streetcar and tax abatements here.

 

December 22, 2014

Urban Neglect: Kansas City and TIF

My colleague Michael Rathbone and I authored an essay titled “Urban Neglect, Kansas City’s Misuse of Tax Increment Financing.”

In the essay we examined Tax Increment Financing (TIF) project data provided by Jackson County and census data on household income. We found that in Kansas City the majority of taxpayer subsidies go to parts of town that are relatively wealthy and economically vibrant, rather than to the poor and economically depressed areas for which TIF was ostensibly designed.

Mike Mahoney of KMBC filed a story on our report. In it he interviewed Councilwoman Cindy Circo, who offered:

But it is the private development that drives the actual project itself. The city doesn’t go through the TIF process itself and be the developer.

This is an odd statement because Burns & McDonnell, and every other company that seeks a TIF subsidy, argues that the project could not go forward without public investment. So while Circo may be correct that the city does not choose the individual projects that apply for TIF, the TIF Commission and the city have demonstrated time and again that they aren’t really vetting applications, which has created an “anything goes” environment. One need only study the Citadel project to know that this is true.

If the city’s appointees on the TIF Commission were better at approving only legitimately blighted properties—those that truly require public investment—public subsidies might more often be used in the parts of town that really needed it. Instead, the subsidies flow to well-connected business leaders and their development lawyers, and public dollars unnecessarily go to projects such as Country Club Plaza and River Market.

November 7, 2014

Gone Girl, Gone Jobs

Gone Girl brought a frenzy of excitement to the Cape Girardeau area and the state of Missouri, but was the $2.36 million tax credit worth the 15 minutes of fame? Stating that “the production hired 116 Missourians, including more than 20 off-duty law enforcement officials,” proponents of the film tax-credit program tout its success in creating jobs for Missourians.

These figures, however, fail to acknowledge that the jobs are temporary and part-time. Even more troubling, most of the higher-paying jobs used in the production of Gone Girl went to nonresidents who were brought in from LA. Now that the production of the film has finished, these so-called “created” jobs are gone.

Despite the reality of failed promises of job creation, many legislators and supporters are calling for the reinstatement of the film tax credit (which expired in November 2013) to entice movie producers to film in Missouri. The tax credit, which reduces the production companies’ tax liability, is intended to generate substantial economic activity and jobs as a result of the productions.

There is little evidence to support the notion that these tax credits are successful. A 2010 study by the Tax Foundation, however, shows that film tax credits don’t create long-term jobs, nor do they create sustainable economic growth for the state.

Most film production jobs are filled by out-of-state residents specializing in particular areas of audio or visual production. Additionally, producing a film is a relatively short-term venture in comparison to other investment projects. Since most of these positions are not permanent, “workers are left unemployed” after the production ends unless a steady stream of films is present.

The ugly truth of film tax credits is that they bring an industry into a state that doesn’t have the proper infrastructure to support said industry, and thus they do not produce long-term, well-paying jobs. Missourians deserve more than a brief moment on the silver screen. Instead, Missouri policymakers need to invest in ventures that will bring long-term economic growth to the state.

September 24, 2014

On a Scale of 1-10, It’s 15

Dollars an hour, that is. There is a continuing push in Saint Louis and other cities throughout the country to improve the pay of low-wage workers. That is a noble sentiment and I, for one, hope that wages do go up. In fact, I want wages to go up for everybody. However, increasing the minimum wage is the wrong way to go about it.

If proponents are successful in raising the minimum wage to $15 an hour, there will be a lot of pain. First, such an increase will cause job losses. A Congressional Budget Office (CBO) report estimated that if the minimum wage went up to $9 an hour, 100,000 jobs would be lost. If the wage went up to $10.10 an hour, the number of jobs lost would increase to 500,000. If the CBO is correct about job losses, one shudders to think about how many jobs would be lost if the minimum wage went up to $15.

Is the loss of so many jobs worth the increase in wages for those workers who manage to keep their jobs? That’s a question for proponents to consider. They also should consider the fact that many people who work for minimum wage are not poor. Why mandate raises for them while risking job losses for the same people wage-hike proponents are trying to help?

There is a better way to help poor families. Both the CBO report and Professor David Neumark’s 2012 study on the minimum wage find that the Earned Income Tax Credit (EITC) is a better alternative for helping poor families than increasing the minimum wage.

The EITC is a refundable tax credit that provides direct cash assistance to low-income families. The tax credit is more effective at helping poor families because it is specifically targeted toward them. The minimum wage is not. For example, a teenager working a minimum-wage job whose father is a corporate attorney and whose mother is a surgeon would receive the same monetary benefit as a single mother of two working at McDonalds. That would not be the case with the EITC. If Missouri and other states really wanted to help poor families, expanding the EITC would be a more effective tool than increasing the minimum wage.

September 12, 2014

Luxury-Oriented Development in Clayton

This week, Clayton proposed granting a 50 percent property tax abatement for 20 years to a $72 million luxury apartment development—The Crossing—in the heart of downtown Clayton, an area which the city council absurdly declared “blighted.” The city argues that the development will bring more economic activity and act as transit-oriented development.

We have written many times before that using tax incentives to lure development either generally diverts development from other areas or, worse, provides tax breaks to development that would have occurred anyway. These abatements put the pressure of funding local services on businesses or areas of the city that are not so favored by the city council. This type of central planning by tax policy creates an uneven playing field that is unfair and ultimately economically damaging. Allowing a luxury property developer and future residents to pay lower property tax rates, when rates were just increased for the rest of Clayton, is questionable policy.

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The Crossing

The argument that this development will boost transit ridership is also flawed. While changing zoning restrictions to allow less parking for a downtown building is not objectionable, using possible transit ridership to justify tax favoritism is bad policy. The relative affluence of Clayton has meant that local MetroLink ridership is far below what planners hoped for before the station opened in 2006. Original projections would have had the Clayton station serve 3,000 riders each weekday shortly after opening. Today, total ridership is 880 per weekday, and only 213 Clayton residents use the MetroLink to get to work. Four times that number walk.

The idea that luxury apartment dwellers will greatly boost this ridership is unlikely, because the affluent typically own vehicles and are much less likely to use transit than those with lower income. Even if all the residents of The Crossing did use public transportation, is it not enough that city, county, and federal government spent hundreds of millions building a light rail line to Clayton, and they continue to provide subsidized tickets that cover less than a third of that rail’s operating costs? Do we need to subsidize their luxury apartments next to the station as well?

Chances are some of the new residents will use transit, more will walk, and most will drive to their destinations. As for the local economy, the effects of diverting development and rearranging tax burdens will go unseen. But the good news is (for those with the means), new luxury apartments are coming on the market! And just wait until you see the location …

June 30, 2014

Vetoes, Vetoes, And More Vetoes

There has been a lot of consternation in the Missouri Legislature about Gov. Jay Nixon’s vetoes and withholds (withholds differ from vetoes in that withheld money can be released if state revenues are available later in the year, while vetoed funds are just not spent) from the fiscal year 2015 budget. Many legislators are upset with the governor for claiming that their budget is out of balance while his own executive budget was larger than the one the legislature passed. To be fair, a lot of the difference is due to the governor’s budget including funds for expanding Medicaid, but the governor’s budget also was relying on revenue growth that was higher than even the legislature was expecting.

All that said, there actually is a lot to like in these vetoes. For example, the governor vetoed more than $7 million in funds for biodiesel incentives. The state should be eliminating these types of incentives and it is a good thing that Gov. Nixon is cutting back on them. The governor also is vetoing $2 million in funding for the Rolling Stock Tax Credit. The Show-Me Institute has published numerous writings about the desirability on cutting back on these types of tax credits. It is good to see Gov. Nixon trying to do so.

Gov. Nixon’s vetoes could go further. For example, he withheld $5 million from efforts trying to lure the Republican National Convention to Kansas City. There has been a lot said about using government money to try to lure big events, but in this case, the money isn’t necessary because the Republican National Committee has already narrowed its search down to Cleveland and Dallas. Gov. Nixon should have simply vetoed this specific appropriation.

There was a lot to like in the governor’s vetoes. If the legislature was more disciplined, many of the vetoes would not have been necessary. Hopefully, state spending can be controlled going forward.

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?

April 17, 2014

Pennsylvania’s Tax Credit Scholarship Program…Winning!

This week, the Show-Me Institute released our third and final case study about tax credit scholarship programs in other states: “Pennsylvania’s Education Improvement Tax Credit Program: A Winning Educational Partnership.”

The study’s author, Andrew LeFevre, is well acquainted with Pennsylvania’s tax credit scholarship program, having served as the executive director of the REACH Alliance and the REACH Foundation, statewide school choice organizations. He wrote:

In 2001, Pennsylvania became the first state in the nation to enact a highly innovative public-private partnership in the form of an education tax credit aimed at corporations. Since then, the popular Educational Improvement Tax Credit (EITC) Program has provided more than 430,000 scholarships to students from low- and middle-class families . . .

In 2012-13 alone, the program provided more than 68,000 K-12 and pre-K scholarships. “The EITC Program has accomplished what many have been advocating for years: a way for the business community to be involved in children’s education and provide more schooling options,” LeFevre said.

I encourage you to check out this new case study along with our studies about tax credit scholarship programs in New Hampshire and Arizona. I also invite you to learn more about tax credit scholarships by attending our event on April 25, “Expanded Opportunities: A Discussion About Tax Credit Scholarships.”

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