April 23, 2014

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

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

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 18, 2014

Here We Go Again . . .

One of the biggest fights out of last year’s Missouri legislative session was about Missouri House Bill 253, which cut individual and business income taxes. Missouri Gov. Jay Nixon vetoed the bill and the legislature failed to override his veto. This failure didn’t stop the legislature from passing a new tax cut bill, Senate Bill 509. Below are some highlights of the bill:

  • The top tax rate is cut by .1 percent per year if state revenues increase by $150 million. Once fully phased in, the new top tax rate will be 5.5 percent.
  • Tax brackets are to be adjusted for inflation.
  • Business owners who pay their company’s taxes at the individual level will be able to deduct 5 percent of their business’s income. This deduction will increase by 5 percent every year until it reaches 25 percent.
  • Creates an additional $500 personal exemption for people with incomes less than $20,000.

Nixon already denounced the legislation and will likely veto the bill. He has trotted out the same talking points he used when he vetoed last year’s tax cut. “Once again, members of the legislature have chosen to ignore evidence that Missouri is already a low-tax state — sixth lowest in the nation,” Nixon said. I guess the governor felt that Missouri’s taxes weren’t low enough for Boeing when he signed a $150 million incentive package for the company to move manufacturing jobs here. Also, Missouri is not a low-tax state, particularly when it comes to income taxes.

You probably also will hear progressive groups complain that passing this bill will blow a hole in our budget and seriously harm state revenues. That’s what the Missouri Budget Project is doing. However, the group doesn’t show its arithmetic in its report. This is par for the course for the Missouri Budget Project and the “report” isn’t very useful for actually discussing the bill’s merits.

I’m glad the legislature is trying to cut taxes. I prefer more significant cuts (such as fully eliminating the individual and corporate income taxes). However, I’ll take any forward progress in cutting taxes. Hopefully, this time, the cuts will get enacted.

April 15, 2014

Sales Tax Is Wrong Way To Fix Roads

Last weekend, my commentary about a proposed 1 percent sales tax to fund transportation infrastructure, which recently passed the Missouri House of Representatives, ran in the Columbia Daily Tribune. I argued that this sales tax, which would mostly be used to pay for roads and bridges, is not good economic policy and unfair to those who choose to drive less. As the commentary stated:

Paying for highways based on how much people shop, and not how much they drive, creates a free-rider problem. It promotes congestion, road degradation, and sprawl. It also is fundamentally unfair to force occasional drivers to pay as much or more for new roads as daily commuters and interstate trucking companies.

The better way to fix road funding in Missouri is to implement tolling or to raise the gas tax. With the Missouri Senate now considering this sales tax, it is more important than ever that people are informed about the policy implications of using general taxes to pay for transportation infrastructure.

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 8, 2014

Gas Taxes vs. Transit Fares

In a post on NextSTL, the author points out that gas taxes in Missouri have not kept pace with inflation (the last time the tax went up was in 1996) while fares for transit have increased faster than inflation. The takeaway:

As you can see the value of the gas tax has been eroded by inflation while Metro fares have out-paced it. Of course this isn’t the whole picture. Property and local sales taxes and the Federal gas tax (hasn’t increased since 1993) and general revenues also fund streets, roads, and highways, and local sales taxes, Federal, and a minute amount of state money goes into Metro. But this puts into perspective just who is paying their “fare” share.

My position on the gas tax is pretty clear. I have written testimony arguing that Missouri should raise its gas tax, not general taxes, to pay for highways in Missouri. But the fact remains, indirect taxes on drivers mostly pay for roads while only a tiny sliver of the cost of transit in Saint Louis comes from fares.

First for the roads. In 2013, the Missouri Department of Transportation (MoDOT), which maintains federal and state highways in Missouri, took in $2.1 billion in revenue. Only 23 percent of that came from the state gas tax. But that’s not the end of the story. Forty-four percent of MoDOT funding came from the federal government, the vast majority of which the federal gas tax funds. MoDOT gets an additional 27 percent of funds from vehicle sales taxes and various forms of licensing fees. All told, approximately 80 percent of MoDOT’s revenue comes from taxes and fees on drivers. That’s too low, but adjusting the state and federal gas tax for inflation and controlling road spending would go a long way to making that number close to 100 percent. In addition, one should remember that the Missouri gas tax is split, with 4.5 cents of the 17.6 cents going to local governments, where it is a significant source for local road repairs.

The story is very different for transit. Taking the example of St. Louis Metro, from 1991 to 2012, fares covered only 14 percent of the costs of building and maintaining Metro. Just looking at 2012, fares covered only 16 percent of the system’s total costs. And while fare revenue has increased faster than inflation, the costs of operating Metro have increased even faster, as the chart below shows:

faregrowth

Essentially, fare revenue has covered less and less of Metro’s cost over time. The rest of the funding comes primarily from general local taxes and the federal government (much of which comes from the part of the federal gas tax that is designated to mass transit funding).

Has the government been irresponsible with the gas tax? Many would say yes. But that does not mean that people who use transit are paying more for transit than drivers pay for highways, because they are not.

April 4, 2014

The Myth Of The ‘No Tax Increase’ Bond Issue

“There’s no such thing as a free lunch,” is a common phrase in economics. It is a phrase that people must remember when considering “no tax increase” bond issues.

Bonds are one of the most common ways for school districts to fund construction of new buildings. They are essentially a loan and are a form of debt. To pay for this debt, school districts levy property taxes. Sometimes districts must levy new taxes to finance a bond and other times they are able to refinance an existing bond and hold the tax levy at the same rate. The latter often are labeled as “no tax increase” bond issues; but make no mistake, there is no such thing as “no tax increase” bond issue.

As I explain in this edition of “Show-Me Now,” a “no tax increase” bond issue is a lot like a home equity loan. Your mortgage company can refinance your loan to give you access to cash right now. Often, they are able to do this while holding your payment the same, but extending the length of your repayment. So instead of your payments ending in 10 years, they may be extended to 30 years. Whether you refinance or not, your monthly payment remains the same.

Bonds work in much the same way and school districts can “refinance” to extend the term of the bond. They market this to the public as a “no tax increase” bond issue and claim that your payment will not go down or up whether the issue passes or not. Your tax payment will not change, but you will be paying for a longer period of time.

There is no getting around it, paying the same rate for a longer period of time is a tax increase. Therefore, it is more appropriate to call these a “no tax levy increase” bond issue.

April 3, 2014

Metro Plans Unfair Fares?

In the past week, Saint Louis’ transit agency Metro has held meetings to discuss a proposed fare increase on Metrobus and Metrolink tickets. Some at those meetings cried foul, arguing that the increases are too much to bear. But not only are Metro fares heavily subsidized, the way Metro operates means that either fares or local taxes must increase to cover ever-rising costs, as the testimony I submitted to Metro details.

Metro has proposed increasing fares on selected ticket options by approximately 10 percent, with the purpose of raising an extra $2.2 million in revenue. Metro’s strategy is to regularly increase fares by small amounts, rather than imposing infrequent large increases. But even this smaller increase has its opponents. As reported in the St. Louis Post-Dispatch, many have spoken out against raising fares. One attendee at a Tuesday hearing stated, “I agree with a partial raise, but not such a big jump on everything.”

The fact is that fares cover an extremely small percentage of Metro’s costs. In the last 20 years, total Metro fares ($746 million) have accounted for only 14 percent of the total costs of building and operating transit in the Saint Louis area ($5.5 billion). Even if one treats the generous grants of the federal government as manna from heaven, local taxpayers pay far more to fund Metro than fares contribute. For example, in 2012, fares ($49 million) made up only 22 percent of local operating funds ($217 million). The other 78 percent principally comes from taxpayers in the Saint Louis region, only 4 percent of whom use the system to get to work. While it is true more use transit occasionally, most residents of Saint Louis City and County rarely use Metro, if ever. With the federal government and local taxpayers paying so much of Metro’s costs, it is hard to argue that Metro users are being charged too much for their tickets.

To make matters worse, the percentage of operating costs that fares cover has been on a steady downward trajectory over the last two decades. In 1991, fares ($23 million) covered about 28 percent of local operating costs ($83 million) while today they only cover 22 percent. Increasing ticket revenue is not keeping up with the rising costs of operating, much less improving, the Metro transit system, as the chart below demonstrates.

faregrowth

We have written before about how Metro spends an inordinate amount of funds supplying near empty buses to far-flung areas of Saint Louis County. We also have written about the high cost of building and expanding the Metrolink. However, Metro officials feel they have a mandate to improve and expand those services, waste notwithstanding, which means ever-increasing capital and operating costs. Given those constraints, if Metro does not regularly increase fares, a higher and higher share of operating that improved system will fall on those who do not use it.

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.

March 20, 2014

Kansas City’s Streetcar Continues To Undercut Busses

Last year we learned that the Kansas City Area Transit Authority (KCATA) was spending money on the streetcar that was meant for its bus system. At the time, KCUR reported:

Area Transportation Authority general manager Mark Huffer said diverting transit tax money for streets and streetcars is taking its toll.

“It’s going to be virtually impossible for us to sustain current service levels like things such as Max on Prospect or Max on North Oak that we hear a lot of people asking for – for the long run – if what is continuing to be allocated to ATA lessens every year,” says Huffer.

A year later and Kansas City has finally made that MAX bus line on Prospect a priority — but only if voters approve a huge sales tax and additional property assessment to support that same streetcar. KMBC reported on Tuesday that:

In August, voters must approve the new Prospect MAX bus line as part of the city’s second streetcar route proposal. The city grouped the two together as part of its strategy to expand its mass transit options.

The streetcar proposal continues to draw big crowds angry about its tax proposals. But the Kansas City Transit Authority admits the high price tag will be a hard sell.

This should bother people who are seriously interested in providing effective transit in Kansas City. The successful, well-run, and cost-effective MAX system is being unnecessarily linked to the streetcar.  That is just bad policy.

March 14, 2014

Bloodletting In Clayton

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

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

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

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

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

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

March 13, 2014

Mayor James’ Corporate Welfare Handouts

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

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

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

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

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

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

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

Essential? Really? That is doubtful.

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

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

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

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

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

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

Older Posts »
A project of the


Search Show-Me Sunshine docs @

Top Posts

Show-Me Data


Archives

Categories

Powered by Wordpress