I recently discovered that the American Planning Association (APA) has listed 15 blocks of Washington Avenue in St. Louis as a Great American Street. It appears the APA made a good call — it is a popular street. But after determining how much in public funds has been spent on the street, I wonder if it was worth the cost.

Did you know that since the year 2000, more than $167 million in economic development tax credits have been issued to those 15 blocks? Or that $17 million in state and federal funds have been spent there? Ignoring any other incentives that may have been awarded, it seems that nearly $185 million in public funds have been spent developing 15 city blocks. Was it all really worth that much?

The APA credits the Historic Rehabilitation tax credit, authorized in 1998, for giving Washington Avenue new life — but my colleague, Show-Me Institute Policy Analyst David Stokes, says the street was awesome before then. He should know; he lived there.

For $185 million, whatever urban planners have accomplished, they have accomplished at a very high cost to Missouri taxpayers — most of whom will never visit Washington Avenue. Perhaps urban planners should stop spending taxpayer money and let private businesses do the planning. After all, there are plenty of great, popular streets that the government never planned nor sponsored.

For more Show-Me Daily posts on Great Streets in America, click here and here.

From last night’s Andrew Puzder event on how jobs are created. The payroll comments are clipped in the first video. The full talk begins around the 8:20 mark in the second video

Click below for live video of the Show-Me Institute’s Speaker Series on Economic Policy, which will begin at 6:00 p.m. CDT. Tonight’s speaker at this Saint Louis University event is Andrew Puzder, the CEO of Hardee’s. Puzder’s speech, “Job Creation: How It Works and Why the Government Doesn’t Understand It,” will focus on how to achieve genuine economic growth and wealth creation.

Video clips at Ustream

No mas. No more. Boxing fans will remember that famous line that a thoroughly frustrated and perplexed Roberto Duran uttered as he quit in his fight with Sugar Ray Leonard. The legendary pugilist with self-proclaimed “hands of stone” realized that it was time to pack it in. Duran wasn’t out of time, but he was out of hope.

So it is now with the Missouri Legislature. Lawmakers have struggled in vain since Sept. 6 to accomplish much in their special session. But the House can’t agree with the Senate on hardly anything, especially sunset provisions for key tax credits. As the finger-pointing of blame escalates, it’s time for legislators to admit that, just like Duran, they’re out of hope. They need to officially call a halt to the special session.

The bad news is that they haven’t fixed the state’s sizeable tax credits problem. The good news is that it appears they won’t pass Aerotropolis, the so-called China Hub proposal that was a bad deal for taxpayers from the get-go. Good because it means Missouri taxpayers apparently won’t be stuck with hundreds of millions of dollars in new tax credits. And to those lawmakers (and public officials) who continue to say “We’ve got to do something” to prime the economic pump in Missouri: There is a better way. Stop handing out tax credits and start lowering the tax burden for all companies and individuals. 

Something to think about for the next legislative session.

It’s my pleasure to announce that the Show-Me Institute now has an Android App! Click here or the screenshots below to download it. Now you can stay up-to-date on Missouri free-market issues wherever you are: Just click the icon, and away you go. Feature requests are very much welcome.

It’s no secret that the cost of public education has ballooned, with little to show for it. During the past four decades, education spending has more than doubled, even after accounting for inflation. And yet, student achievement has not improved.

Obviously, no single solution can fix the large problem of education in the United States. But, a general strategy that we can use to improve education is to allow more innovation in the classroom so that we can find better ways to help students learn.

This summer, we released Caitlin Hartsell’s paper on virtual forms of education that are available to public school students, one type of classroom innovation. Digital learning can describe a variety of learning environments, including a student taking a class remotely, or a student working through exercises on a computer with assistance from the classroom teacher.

Hartsell pointed out that digital learning in Missouri is not rare — as a state, we’ve had some forms of digital learning for more than a decade. Rural schools, for example, share courses via interactive television as a way to offer courses (like foreign language and upper level math courses)  they otherwise might not be able to offer students.

But there’s much more that could be improved. According to Digital Learning Now’s report card for Missouri, state law does not stipulate that student achievement data be used to evaluate the quality of individual online courses, nor does state law require that failing individual course providers be closed.

If you have been following calls to close failing charter schools here in St. Louis, the lack of such requirements certainly seems troubling.

Somehow, it seems appropriate that the announcement of Digital Learning Day, a national campaign to highlight innovative and successful uses of digital technology in public education, came during the same week that the new iPhone update was announced. We are increasingly using technology to improve our lives. It makes sense that we should extend the use of technology to the classroom.

Digital Learning Day is Feb. 1, 2012. Read more about that effort here. And, of course, stay tuned to the blog. We will continue to update you with more news about education policy.

Andrew Puzder pulled the famous fast-food chain back from the brink of bankruptcy, so he knows something about creating jobs in a tough economic environment. Puzder, the CEO of CKE, will join the Show-Me Institute, the Saint Louis University John Cook School of Business, and the Sinquefield Charitable Foundation  on Tuesday night at the John Cook School of Business to talk about his new book, “Job Creation: How It Really Works and Why the Government Doesn’t Understand It.”

You’ll want to hear what he has to say. Reservations are required, so be sure to RSVP for the St. Louis event here.

Over the last few months, we have worked hard to make the following point crystal clear: Tax credits that are narrowly tailored to benefit a powerful elite or fail to produce the return promised to taxpayers should be opposed when proposed, and mitigated or eliminated if enacted. The Aerotropolis tax credit was initially introduced as a nearly half-billion dollar behemoth. Today, the proposed tax credit program stands at $60 million, with the most problematic portion — the real estate credits — removed. The remaining $60 million poses concerns, as well, and legislators should take a hard look at whether the credit is going to be taxpayer money well-spent.

But there are other parts of the bill that includes Aerotropolis that deserve attention. Although the legislation is peppered with a grab-bag of new incentive programs of questionable value to the state, there is a fair chance that two enormous tax credits — the Low Income Housing Tax Credit (LIHTC) and Historic Tax Credit (HTC) — may be phased out if the so-called “jobs bill” is going make it to the governor’s desk (emphasis mine).

Gov. Jay Nixon called the Legislature into special session on Sept. 6 to overhaul the state’s tax credits, which cost the general revenue fund more than $540 million a year. Nixon wanted legislators to scale back some programs while adding a few new ones, such as a tax break to spur development of a hub in St. Louis for freight flown between the Midwest and China.

But an agreement forged last summer by House and Senate Republican leaders fell apart, leaving the two chambers split over how much to cut and whether to set expiration dates or ’sunsets” for programs that fund historic preservation and low-income housing development.

Senators remain committed to passage of seven-year sunset clauses, Mayer said Tuesday. An alternative review process proposed by Rep. Ryan Silvey, R-Kansas City, would not corral the programs’ growing costs, Mayer said.

The proposed “alternative review process” is underwhelming to say the least, and as a solitary legislative move, would force no substantive action on Missouri’s burgeoning tax credit system until at least 2016, if ever. The heart of the problem is that while the presumption in the House is that the tax credit system should exist largely (and for all intents and purposes, indefinitely) in its current form, in fact, many tax credits need to be extinguished, most sooner rather than later, and all need to be seriously investigated as to whether they’re achieving their objectives.

This is where the sunsets play a role. Sunset provisions like the one proposed turn the old tax credit presumption on its head, phasing out programs like LIHTC and HTC — which, in the state’s own analysis, do not even remotely pay for themselves — but nonetheless giving the legislature an opportunity to reduce and reform the programs in the interim. On an ideological spectrum, that is the conservative position: responsibly reducing the size and scope of government.

LIHTC and HTC combined have carved out billions of dollars from the state budget over the last decade, with disappointing economic results. If Missouri’s legislature can’t responsibly reform these two programs within a seven-year window, there’s no reason to believe the legislature will ever reform the programs.

I had no idea that there were so many witches in Romania. Or that European politicians (including French President Nicolas Sarkozy) often go to witches to seek advice.

This is exactly why I listen to the Freakonomics podcast, which highlights the ways that economics can provide insight to seemingly inexplicable situations. Recently, Freakonomics discussed efforts in Romania to fine witches if their predictions fail to come true. The jail-time punishment being proposed for multiple false predictions could result in six months to up to three years in jail.

I suppose that if you acted on a false prediction, you would want to punish the person who led you astray. But think of all of the people and organizations who make predictions that affect the way our economy runs. We don’t penalize, say, politicians, economic development officials, or coalition groups when the promises they make fail to materialize.

As Steven Dubner, host of the Freakonomics podcast put it, “I don’t care if you’re anti-witch or pro-witch or witch-agnostic. Why should witches be the only people held accountable for bad predictions?”

In Missouri, it isn’t very hard to find evidence of bad economic development predictions. The recent Mamtek scandal is one. The 2006 prediction that the Ballpark Village development in downtown Saint Louis would result in more than $700 million in economic impact looks unlikely, to put it kindly. And, for a recent example, we have the ever-changing job estimates associated with a proposal to dedicate $300 million in state tax credits to construct warehouses and facilities.

Consider also a state audit report that found, among many other problems, that Missouri’s Low Income Housing Tax Credit is much more costly than initially predicted. How about the overly rosy economic growth assumptions used to sell Tax Increment Financing (TIF) projects? An East-West Gateway Council of Government study found that “broad measures of regional economic outcomes strongly suggest that massive tax expenditures to promote development have not resulted in real growth” (emphasis mine).

Of course, I’m not advocating that we throw politicians and economic development officials in jail for making the wrong promises. But I would suggest, for the health of Missouri’s economy, that we start holding these people responsible for their predictions.

As Freakonomics co-host Steve Levitt points out in the podcast, people have every incentive to make absurd predictions:

So, most predictions we remember are ones which were fabulously, wildly, unexpected and then came true. Now, the person who makes that prediction has a strong incentive to remind everyone that they made that crazy prediction which came true. …But if you’re wrong, there’s no person on the other side of the transaction who draws any real benefit from embarrassing you by bringing up the bad prediction over and over.

Levitt’s point reminds me of the St. Louis Regional Chamber and Growth Association’s outlandish predictions. The RCGA frequently issues press releases touting incredible job and investment numbers. Sometimes, the message of one RCGA study (say, that the region needs to build millions more in warehouse space) conflicts with another RCGA press release (that the region has an abundance of cheap warehouse space). The agency clearly isn’t worried about making an unlikely prediction, either.

I also wonder about the Missouri Department of Economic Development, and the state legislature’s propensity to create tax credit programs in the hopes of attracting jobs to the state. Audit reports have shown that these tax credits are more expensive than anticipated, and that the state gets little in return. And yet, in the face of  bad earlier predictions (and even blatant overstatements), state legislators continue to fail to pass substantive tax credit reform.

A solution that Freakonomics proposes is a little unexpected, but elegant. We all are familiar with baseball players’ batting averages. Let’s apply those to people who make economic development predictions.

Consulting organizations should report their track record of success (and failure). What if every estimate of job and investment creation the RCGA publishes had to be accompanied with a percentage showing the accuracy of previous estimates the agency predicted? What if, when contemplating creating new tax credit programs, we considered whether existing programs delivered on the promises used to create them?

If we are considering whether hundreds of millions of taxpayer dollars should be allocated to a particular project, it is not enough to take proponents’ claims for fact, especially if those organizations have a track record of poor prediction. We need to know how frequently those predictions actually become reality.

We wouldn’t throw anyone in jail. We might find that some organizations are really good at making predictions. And, like Romanians burned by a bad prediction from a witch, we could stop relying on organizations and individuals that provide wildly unreliable predictions.

News on the proposed China Hub tax credits has been pretty sparse the past few weeks. Just before the Missouri Senate went out of session for all practical (albeit, not technical) purposes on Sept. 23, it kicked its economic development bill containing Aerotropolis over to the House for that chamber’s consideration. Yesterday, the House passed its version of the tax credit package, which, like the Senate version, left out the China Hub’s $300 million warehouse provision, but it also left out the sunsets — that is, the statutory phaseouts — that the Senate placed elsewhere in the bill on some of the state’s most expensive existing tax credit programs.

The Missouri house has pushed through the China hub bill after putting in nine amendments and leaving out tax credit sunsets.

Senate leadership says a tax bill with no sunsets doesn’t stand a chance, but the House passed China hub anyway. Speaker of the House Steve Tilley says he hopes the Senate is willing to compromise.

[...]

The bill passed the House by a vote of 98 to 48 and heads back to the Senate Tuesday.  The Senate will take the issue up when they resume Tuesday.

As a reference point, the original House tax credit bill passed with a 142-14 vote during the regular session in April. Big change.

Setting aside the political considerations in play — considerations that, granted, are nearly indispensable to understanding the day-to-day dynamic in the chamber — it is mystifying to me that budget hawks in the House aren’t demanding sunsets on most tax credit programs. When an amendment was introduced yesterday that would have phased out the Low Income Housing and Historic Tax Credits, it was resoundingly defeated with a 131-17 vote.

That’s unfortunate. Taken together over the last decade, the LIHTC and HTC have carved out a multi-billion dollar hole in Missouri budgets for a highly questionable return. An 11-cent return for every tax dollar spent on the former? A 23-cent return for every tax dollar spent on the latter? Whether or not you’re inclined to believe those findings, it’s worth keeping in mind how economic development tax credits have been distributed, and in what amounts. If tax credits are the spur to economic growth that proponents in the House say they are, I’d like to know what evidence precisely has brought them to that conclusion.

It would be apropos, however, that a House which initially envisioned an enormous half-billion dollar Aerotropolis tax credit would effectively reduce the program to $0 because it chose not to sunset — and therefore require legislative reauthorization — for a host of tax credits that have had ample time to prove their value to the state, but failed to compellingly do so. Barring a breakthrough between the House and Senate before the constitutionally-required close of the session in early November, that’s precisely where the House will find itself: without a bill passed into law, and therefore, without an Aerotropolis tax credit of any amount. We’ll know more next week.

Collecting fiscal boondoggles is not a credible economic strategy, and setting Missouri’s fiscal ship on a new course does not simply mean stopping bad policy from becoming law; it also means reforming existing law. Until Missouri’s legislators get serious about reforming or ending economic programs that are failing and, simultaneously, reducing the tax burden for all rather than a select few, Missouri will continue to drift into troubling budgetary waters.

The Kansas City Star published an editorial last weekend regarding agricultural budget cuts. The article details a shocking amount of waste that would drive any taxpayer nuts.

The state of Missouri, like most states in the Union, is faced with the difficult task of balancing the budget. The article gives some examples of reforms on the federal level, where the savings to taxpayers wouldn’t be “poultry.” However, I will focus on one particular reform mentioned in the article because it has relevance to state spending. The reform in question is to shuck subsidies for ethanol.

The state also has a long list of its own ethanol incentives and the budget impact of these ethanol incentives is not insubstantial. In fact, ethanol subsidies account for 37% (click on HB 6-Department of Agriculture, page 81) of the fiscal year 2011 Missouri Department of Agriculture budget. In the not-too-distant past (FY 2010), it has amounted to 58% (pages 43 and 55) of the Department of Agriculture budget. Considering the dollar amounts involved and the percentage of the Department of Agriculture’s budget that state ethanol subsidies take up, it would be prudent to ask whether the state is serving the taxpayers well by investing in ethanol subsidies.

The Show-Me Institute has researched the effects of ethanol on Missouri and I would encourage everybody to give the case study a gander. Considering the other negative consequences the Show-Me Institute mentioned in its case study, it would seem that ethanol subsidies should be a ripe target for the budget cutter’s scythe. Before making the really difficult decisions on where to cut the budget (like deciding between laying off teachers or closing down mental health centers), wouldn’t it be great if the state could go after the low-hanging fruit? Just some food for thought.

The Kansas City area made big news, but not in a good way. According to the latest data, the Kansas City area lost more than 12,000 jobs during the past year. That’s the second-largest job loss in any metropolitan area in the entire country. Only Atlanta lost more jobs.

There has been a lot of talk from legislators and others about how tax subsidies are an important policy tool that states can use to keep jobs within their boundaries. In recent weeks, both AMC Theaters and Jack Stack Barbeque made news because the companies moved from Kansas City, Mo., to nearby locations in the state of Kansas.

Previously, Missouri’s Department of Economic Development (DED) used the promise of more than $12.5 million in tax credits to lure the corporate headquarters of Applebee’s across state lines into Missouri.

But to what end? Jobs in the region are down, and the loss is nearly the worst in the country.

I was curious to see how the Missouri and Kansas bidding war fit within the job loss news. So, I looked at the Kansas City core metropolitan statistical area (the area that lost more than 12,000 jobs). I then checked the three companies that made news when they moved across state lines to see from where they moved and where they relocated. These three companies’ relocations resulted in elected officials calling for the use of tax incentives to lure companies from one state to another.

Jack Stack Barbeque: The company is located in downtown Kansas City, Mo., and announced plans to move just across the state line to Overland Park, Kan. It is not clear whether tax incentives will be awarded to the company. Both locations are in the Kansas City metro area.

AMC Theaters: The company announced that it was moving from downtown Kansas City, Mo., to Leawood, Kan., also just a short few miles. The state of Kansas reportedly offered about $47 million in tax incentives, or more than $100,000 for each job. Both locations are in the Kansas City metro area.

Applebee’s: The company moved its headquarters from Lenexa, Kan., to Kansas City, Mo., just across state lines. The state of Missouri offered about $12.5 million in tax incentives, or about $35,000 per job. Both locations are in the Kansas City metro area.

In the grand scheme of things, all of the taxpayer money used to lure one company or another a few miles doesn’t really matter when it comes to the health of the region. The Kansas City metro area still lost more than 12,000 jobs, including those jobs that moved across state lines. Moving companies a short distance merely rearranges the deck chairs, it doesn’t accomplish anything productive.

In fact, given the administrative costs of running tax incentive programs, the Kansas City metropolitan area actually loses when the states attempt to lure companies away. We take tax dollars from the private sector to give to bureaucrats in the public sector whose job it is to figure out (i.e., use discredited economic modeling to guess at) which companies to attempt to lure across state lines. The money certainly could be put to better use, especially in light of some of the DED’s recent failures.

It’s time to stop playing petty economic development games and work instead on implementing public policies that have been shown to encourage economic growth, rather than shuffle it around.

I know it’s September, but a good place for us to start would be the list of New Year’s Resolutions for Missouri Public Policy that Policy Analyst Christine Harbin put together last year. Maybe there’s still some time to get started.