May 8, 2015

Millennials Prefer Suburbs . . . and Cars

If you live in Kansas City, you’ve doubtlessly heard breathless paeans to millennials from city leaders and how we must spend public money to attract them. From entertainment districts to apartment buildings, airports to convention hotels, restaurants to streetcars, everything has been sold on the premise that we must cater to the creative class.

Nevermind.

Millenials-in-AdulthoodResearch featured in Business Insider tells us that millennials aren’t much different from their parents’ generation.

“They still want good restaurants, but now it’s also about space, affordability and being able to send their kids to a good public school,” said Paternite, 45, who added that about 70% of her business now comes from young families who are making the move from Brooklyn or Manhattan.

Millennials, typically defined as those born between 1981 and 1997, may be turning into their parents after all. A generation that’s been stereotyped as urban, single, and aghast at the idea of a car-based life in the suburbs is starting to age, prompting fund managers to bet on companies that should benefit if the US birth rate reverses a six-year slump.

Oh, and their supposed desire to get away from cars? Also false:

The generation once seen as shunning cars accounted for 27% of new auto sales in the US last year, up 9 percentage points from 2010, according to a recent study by JD Power and Associates.

The stereotype was probably never true, yet it has driven so much of the policymaking, rhetoric, and spending from City Hall. Readers of this blog see nothing new here. We’ve been debunking the millennial myth here and here and here.

In the meantime, the rest of the city—where people are actually living—has been neglected and left to dry up. Rather than chase mythical populations of the future, we need to fix the real problems that impact the quality of life for millennials—and everyone. This means streets, sewers, schools, crime, and we need to do so efficiently while keeping taxes low.

April 30, 2015

Promise Zone Just the Latest of Many Development Zones for Saint Louis

This week, the Obama Administration announced that parts of Saint Louis City and North Saint Louis County would become the latest federal “Promise Zones,” a designation that will put these areas in the front of the line when it comes to getting federal poverty aid and Department of Housing and Urban Development (HUD) funding. While there is hope that the zone can be a catalyst for change in Saint Louis, this is hardly the first time the Saint Louis region has become part of a federal zone or the target of HUD aid.

Creating special zones to channel development is not a new concept in Saint Louis. Much of the city is part of a federal “Empowerment Zone,” which gives distressed areas tax incentives and federal grants. East Saint Louis is already part of an Empowerment Zone and an “Enterprise Community.” Saint Charles became a federal “Renewal Community” following flooding in the 1993. In addition, areas of North County have Foreign Trade Zone (FTZ) status (the entirety of the city and county are FTZ eligible), which qualify some businesses for customs-free imports. Much of the city and parts of the county are in “HUBZones,” which are designed to give federal procurement preference to small businesses in distressed areas.

EmpII
HUbII
Even at the state level, the Saint Louis area has special development zones. Much of Saint Louis City is an “Enhanced Enterprise Zone,” which provides state tax credits to certain types of businesses setting up in certain areas. Nearly 100 census tracts in the Saint Louis area are designated as distressed communities, making businesses eligible for large tax credits through the state’s Rebuilding Communities program.

Aside from special zones, the Saint Louis area has been the recipient of just about every type of development aid that HUD has available. In the 1990s, the state received $15 million in Section 108 grants to spend on housing. In the late 1990s, the city received $20 million in Community Development loans and $2 million in Community Development grants. The city spent that money on the Renaissance Center hotel, which turned out to be a financial disaster. More recently, HUD gave a grant for the planning of the Lemay Community Center. The only major HUD programs the Saint Louis region has not benefited from are those targeted at rural areas and arson/terrorism.

When we consider that Saint Louis City, North Saint Louis County, and East Saint Louis have, since the early 1990s, benefited from exactly the kind of federal attention the “Promise Zone” would bring, it is difficult to conclude that adding yet another zone is part of the answer. Given the continued “disinvestment” in these targeted areas over the last 20 years and the growing evidence that such zones do not generate progress, it may be time to consider other policy solutions to combat economic decline.

April 24, 2015

Of Stadiums and Economic Spillovers

Recently, we wrote a letter to the Post-Dispatch that criticized the idea that new tax revenue from a riverfront stadium would “pay” for $405 million in public subsidies. In response, one Saint Louis County resident claimed that: 1. spending on the Rams is not diverted from other areas; and 2. he trusts the governor and his numbers, not the Show-Me Institute’s.

First, we’ll address the substitution effect, or the idea that money spent on the Rams does not necessarily mean new economic activity. Our critic claims that if the Rams leave, he and many others would not be spending their dollars downtown. The problem with that reasoning is that it conceptualizes the Saint Louis region as municipally balkanized, and not as part of a regional or state economy, which in fact they are. Thus, if he and other county residents stay in the county on Sunday and spend money there, the regional and state economy is unaffected, along with the regional and state tax base.

Addressing the second point, if our critic does not believe Show-Me Institute’s numbers, why not the Brookings Institution, which wrote:

A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. . . . No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus . . . most tax collections inside a stadium are substitutes: as other entertainment businesses decline, tax collections from them fall.

Or our critic could also read a review of the economic literature, which finds:

Because sports facilities are not expected to generate additional net output in a metropolitan area and no systematic empirical analysis ever finds evidence that they do, sports facilities cannot be counted on to augment tax collections.

Put simply, the evidence on whether sports stadiums generate economic growth or sufficient tax revenue to justify large subsidies is overwhelmingly in the negative. Our findings accord with these prior results, the governor’s and Post-Dispatch’s do not. I’ll leave it to the reader to decide whose heart is leading whose head.

April 18, 2015

No, Post-Dispatch, the Rams Don’t Pay Their Way

StadiumEarlier this week, the St. Louis Post-Dispatch published an editorial discussing whether the tax revenue brought in by the Rams is enough to cover the costs associated with building the Edward Jones Dome. Their answer: probably yes. My colleague Joe Miller and I have looked at this issue, and our answer: probably no.

Why the discrepancy? Well, let’s look at the Post-Dispatch‘s “back-of-the-envelope” calculations:

  • They assume roughly $1 million a year from taxes on the Rams’ profits. We have no problem with that.
  • The Post-Dispatch counts the total $151 million of player payroll as taxable, when it isn’t. Rams players play half of their games in other states/cities, so they pay income taxes to those states. This is double counting, since they also count visiting teams’ income taxes too. Taking this into account, Joe and I estimated the income taxes generated by players’ salaries—along with those generated by the coaches, staff, and other employees of the Rams—comes to roughly $11 million.
  • Taxes from sales of merchandise and food and beverages have to be balanced against what would have been received from local businesses had the Rams been absent. The Post-Dispatch gave no indication that they took this into account. According to our calculations, the net sales tax revenue along with ticket tax revenue amounts to roughly $3 million.
  • Add in the Rams’ rent, and you get another $250,000 in revenue.
  • Like the Post-Dispatch, we found it difficult to determine how much the city, county, and state would receive in additional hotel tax revenue.
  • Overall, we estimate the Rams generate between $15-16 million in tax revenue ($10-11 million for the state, $3-4 million to the city, and the remainder to the county). That’s a far cry from the $24 million the city, state, and county put in to finance the dome. Plus, the Post-Dispatch makes no mention of the annual maintenance costs of the dome, which totaled $7 million last year and are projected to run between $5-9 million going forward.

I like football and want the Rams to stay in Saint Louis, but the only way I want to pay for them is by buying a ticket on game day. Giving further subsidies to the Rams will not be a boon to the local economy (which the editorial board, to its credit, recognizes), and it probably will end up being a net loss for taxpayers.

April 16, 2015

Kansas City Builds by Digging Itself into Holes

We’ve written extensively about the money that Kansas City has been handing out to downtown developers. Every dollar they give away is one less for infrastructure and basic services. Proponents claim that this is all worth it because of the revitalization of downtown. (Other observers, such as the Kansas City Business Journal, seem more cautious.) If the handouts of the past have been so successful, we should be able to sit back and watch all the private economic development dollars roll in. Yet despite claims of success, Kansas City is still giving away money.

  • Cordish, the company that brought us the Power & Light District then sued to lower their county property taxes, says that the downtown investment has been a success! But apparently the success wasn’t great enough to forgo further subsidies for two more residential buildings.
  • The Port Authority in Kansas City recently announced that they will be using public dollars to subsidize the construction of luxury residential condominiums along Kansas City’s riverfront. There is great demand they say, but apparently not enough to avoid the use of public underwriting.
  • A Crossroads hotel has received TIF subsidies, and an apartment building in the same area is receiving a property tax abatement and a $1 million exemption in sales taxes.

When will the public subsidies end? How do we know when we’re done? Is there any incentive for developers to say they do not need public subsidies? (The answer to that last question is no.) This is important because every subsidy means less money for city and county services; every abatement means less money for schools, less money for libraries. Right now, at least $93 million of city revenue is redirected each year to these developers. That doesn’t include the new projects for Cordish, Burns & McDonnell, and Cerner. Developers shouldn’t be encouraged to build skyscrapers while digging taxpayers into a hole.

April 15, 2015

Stadium Planners Move to Block City Vote

Last week, the Regional Convention and Sports Complex Authority (RSA) brought suit against Saint Louis City over an ordinance that requires a vote on city dollars going to a new stadium. The lawsuit’s proponents argue that the city’s ordinance is broad and vague, prevents the city from participating in planning and site preparation, and contradicts state statutes. In fact, the ordinance is doing precisely what it is designed to do: prevent the city from using every trick in the book to fund a new stadium without a vote.

The ordinance in question is Chapter 3.91 of the Revised Code of the City, which requires a vote on any public assistance for a professional sports stadium. Assistance is defined as:

. . . any City assistance of value, direct or indirect, whether or not channeled through an intermediary entity, including, but not limited to, tax reduction, exemption, credit, or guarantee against or deferral of increase; dedication of tax or other revenues; tax increment financing; issuance, authorization, or guarantee of bonds; purchase or procurement of land or site preparation; loans or loan guarantees; sale or donation or loan of any City resource or service; deferral, payment, assumption or guarantee of obligations, and all other forms of assistance of value.

Banning both direct and indirect assistance may seem broad, but cities too often spend large amounts of public dollars planning, and then publicizing, controversial projects. For example, Kansas City spent almost $2 million planning a streetcar expansion that was ultimately defeated at the ballot box.

Far from being vague and overly cautious, the ordinance’s language seems prescient, as the RSA plans to use just about everything the ordinance describes as assistance, including:

  1. Extension of the $6 million annual bonds that currently fund the Edward Jones Dome. How the dome, which is in need of expensive rehab regardless of what happens with the Rams, will be funded is anyone’s guess.
  2. Providing land, which presumably would be bought with public dollars. This would include the Bottle District, which is currently owned by Paul McKee’s Northside Redevelopment Project, to be redeveloped as a parking lot.
  3. Transportation Development Districts and Community Improvement Districts. These districts, of indeterminate size, would levy additional sales or property taxes. The larger the size of the district, the greater the revenue.
  4. Tax Increment Financing. Sales taxes, earnings taxes, and utility taxes that would otherwise have gone back to the city to fund regular services would instead pay for the new stadium.

It seems obvious the situation here is not that of a badly written ordinance restricting reasonable city planning, but rather an ordinance that blocks, and was designed to block, exactly what the RSA is trying to do: get city dollars for a stadium, no matter the source, without a public vote.

Streetcars Still Don’t Create Economic Development

Yesterday, we detailed the ever-shifting claims of streetcar proponents about the economic benefit of streetcars. Numbers have ranged from $750 million to $1.2 billion.

Light-Rail-IconStreetcar supporters cannot agree on the impact because, most likely, the streetcar had no impact on the economic development of downtown Kansas City. The evidence presented in support of the streetcar’s impact is often merely anecdotal and fails to account for the diverted development. In February 2014, we provided a list of studies demonstrating that economic development is not a result of fixed rail. We encouraged streetcar supporters to provide contrary evidence that stands up to scrutiny.

It has been more than a year since we solicited that information, and no streetcar supporters have met the challenge. One attempt was particularly sloppy. Even the Kansas City Business Journal was dismissive of the study, titling their piece, “Streetcar Study: Take It With a Grain of Salt.”

Proponents still make the argument. The developer of the 1914 Main Street development recently added his own take on Twitter, writing, “Have said it before, will say it again: Would not be doing our 1914 Main development if not for streetcar.” But that neglects to mention the fact that the 1914 Main project also received taxpayer subsidies in the form of a property tax abatement.

So we are back to where we started: The streetcar alone cannot be said to have created any economic impact. Quite the contrary, when you look into the claims put forth by streetcar supporters—whether it is regarding the GSACentric, or 1914 Main Street—you find that there are always other more compelling explanations for development.

If this development is occurring because the city is handing out tens of millions in subsidies, why are we also spending tens of millions on a streetcar?

April 14, 2015

Kansas City’s Shifting Development Claims

How much has downtown Kansas City grown? And why? It’s not so easy to know. Here are some claims from the past year.

In January 2014, streetcar boosters floated downtown economic growth figures of $879 million. By March of that year, they reduced it to $791 million. That dropped further to $750 million in May. According to KCTV at the time [emphasis added]:

The mayor also said businesses are already investing $750 million in downtown, like with the new Marriott Hotel that’s set to be built just feet from the construction site. The mayor said it’s all thanks to the new streetcar.

KC_skylineA few months later, the number shot up to $900 million again, albeit with a caveat. Amy Hawley at KSHB reported:

The city has long said streetcars drive business. It attributes $900 million of new downtown business to the new streetcar line.

“We have about $900 million in projects in the downtown area right now since the starter line was first approved by the voters,” Chris Hernandez, the KCMO Director of Communications, said.

Those are very different standards. On the one hand the city wants to say the development happened because of the streetcar, on the other the city says the development happened after the streetcar. This is a classic logical fallacy: post hoc ergo propter hoc or “after therefore because of.” The city wants to claim everything that happened after the streetcar vote as happening because of the streetcar vote. We have pointed out that basic flaw for over a year here and here and here.

As of January 2015, the number is $1.24 billion, according to the Downtown Council. They put the number at $1.24 billion according to their “research.” But they seem to commit the same logical fallacy as the city [emphasis added]:

The past two years marked the beginning of an exciting new chapter in the renaissance of Downtown Kansas City as more than $1 billion dollars of new investment was announced or started construction since voters approved the new streetcar line.

If the economic development benefit of streetcars is so concrete, why can’t boosters agree on a number? The answer, of course, is that the numbers aren’t concrete. In fact, they’re often baseless.

April 13, 2015

On Kit Bond Bridge, Give Credit Where Credit Is Due

kitbondbridge

In this week’s episode of Ruckus, which covers local policy issues in Kansas City, one of the panelists defended using other people’s money to plan luxury apartments near the Missouri River. When the Show-Me Institute’s Patrick Tuohey expressed concern over that plan, the other panelist demanded to know whether Tuohey was also against the new Kit Bond Bridge (see video at 12:30). The implication was that the city had built a great new bridge for people to drive on; why not spend money developing the riverfront?

Of course, this reasoning is flawed. First, basic infrastructure usually is considered a reasonable recipient of government investments. A bridge that carries tens of thousands of vehicles a day fits that definition; luxury apartments and bar districts do not. Second, let’s be clear here: The Missouri Department of Transportation (MoDOT), not the Kansas City government, led the planning and oversaw the construction of the bridge. As those who follow this blog will know, MoDOT does not usually fund projects with general tax dollars, a fact that Kansas City would do well to recognize and emulate.

In fact, the $245 million KcICON project, which included the Kit Bond Bridge, was funded with proceeds from Amendment 3 (which is tied to motor vehicle sales taxes) and federal dollars (mostly derived from federal road user fees) set aside to pay improvements to the national highway system. The city didn’t kick in at all for the bridge; the city only put forward $10 million to guarantee a specific type of interchange at Front Street. That’s less than Kansas City plans to spend to subsidize just one new luxury apartment building.

Bottom line: The Kit Bond Bridge was built by the state transportation department for a legitimate government purpose, with funding based from state and federal vehicle fees. That’s nothing like subsidizing a luxury apartment with taxpayer dollars; to act otherwise is to misunderstand what good public policy looks like.

April 10, 2015

Report on Parking in Saint Louis Finds Employees Take Best Spots, Don’t Pay

Last year, Saint Louis City began a long-awaited overhaul of the city’s parking meters. After a pilot period where different forms of modern meters were tested in the Central West End, city officials chose new meters that take credit cards and electronic payment through Parkmobile.

Adding new payment options and modernizing parking fee collection is a step forward for the city. Even better, the city commissioned a study to find where demand was highest and where meters were making so little money they could be removed. However, in addition to identifying where and when parking meters should be replaced, the report also scrutinized the city’s existing parking policies. Specifically, the city is allowing government employees to improperly obtain free parking.

According to the report, the city allows any individual employed by the city or county, regardless of their position, to park for free at any metered spot. They only need to display an approved parking permit, and they can park long-term. While some jobs require the ability to quickly access a vehicle (such as police officers), most do not. When city employees take some of the most demanded spots in the city, they hurt local businesses, make it more difficult for residents to park, and reduce the city’s income.

To make matters worse, the city apparently has had no policy for issuing parking permits, nor does it even know how many permits exist. As the report puts it:

In St. Louis, the problem of employees parking in the most convenient on-street parking spaces and not paying is exacerbated by the fact that there is no comprehensive list of authorized and outstanding City issued permits, or a specific set of rules governing which departments are permitted parking permits and why they qualify. This makes it nearly impossible to determine which vehicles displaying permits are parked for legitimate City business and which are not.

The obvious solution is for the city to come up with guidelines that decide which positions require parking permits and only issue permits necessary for these employees. The city should also track who has permits and for what reason. These common-sense fixes will improve parking downtown, to the benefit of Saint Louisans and the city’s bottom line.

March 16, 2015

New Study on City Spending Confirms What We Already Know

800px-Union_Staion_Kansas_City_6169

Photo: Union Station in Kansas City by Dual Freq

Visitors to Show-Me Daily have probably come across the numerous ways that Kansas City has wasted money. Now, it’s possible that these were isolated incidents. However, WalletHub published  a new study that points to Kansas City having a larger, systemic problem with how it spends taxpayer dollars.

According to this study, Kansas City ranks 61st out of 65 cities in regards to spending efficiency. I won’t bore you with all of the gritty details on how WalletHub came up with their figures. The Reader’s Digest version is that this study divides a city’s total park acreage, test scores, and crime rate by it’s per person spending on parks, education, and police. The city with the highest quotient is the “most efficient”.

Besides pointing out the ways that Kansas City has wasted money, the Show-Me Institute has also shown that Kansas City spends a lot of money overall. In a 2013 case study, I examined St. Louis and Kansas City’s per person expenditures compared to six other other cities. Kansas City spent the 3rd most, just barely behind Denver. The case study didn’t say whether Kansas City was being efficient or not with taxpayer money, but with such high spending, the chance for inefficiencies increased. The WalletHub Study lends further credence to the notion that Kansas City taxpayers aren’t getting the best bang for their bucks.

The WalletHub study isn’t the definitive work on city spending, but it should serve notice to policymakers that maybe Kansas City should take a good look at how to improve the way it runs things.

March 5, 2015

Domes, Development, and Downtown Saint Louis

A couple weeks ago, I filmed a video in the Bottle District, just north of the Edward Jones Dome, in which I talked about how unlikely it is that a new football stadium will spark urban regeneration. The area north of the existing dome illustrates the fact that being near a football stadium is certainly no guarantee of development. The economic literature supports this observation.

Some, however, have criticized this characterization and claim that Washington Avenue developments (and downtown growth in general) are examples of regeneration that can be tied to a football stadium cum convention center.

The idea that the Edward Jones Dome has led to a rebirth of Saint Louis is mistaken for a number of reasons. First, the success of downtown can be overstated, and should be taken in context. Consider the changes in population density in Saint Louis City as a whole from 2000 to 2013:

stl-2000-2013v2

 

As the census data above illustrate, the city’s population density has been falling in general, as the city shrinks to a few core neighborhoods. While the areas within one mile of the Edward Jones Dome did add population from 2000 to 2013, the total magnitude of the increase is small (4,475 residents) and represents growth from a very small base. In 2010, Saint Louis had the 18th largest metro area population, but it had only the 88th greatest population within one mile of city hall.

Even if one sees the modest growth (in an abnormally under-populated downtown) as major progress, it is a stretch to attribute that growth to the Edward Jones Dome. While it was an expensive project ($280 million in 1992 dollars), development has not radiated from the Dome, as the empty Bottle District can attest. Most of the growth in population is further west along Washington Avenue, likely due to the extensive use of tax subsidies in the area, not the Dome. Incentives from 1999 to 2011 within one mile of the Dome are shown along with population density changes from 2000 to 2013 below:

ejd

As we have written before, pushing development downtown via subsidies and lopsided public investment has been the consistent strategy of city hall. All told, from 1999 to 2011, more than $472 million in tax credits have been awarded within a mile of the Edward Jones Dome. With a total population growth just under 4,500 residents, that’s more than $100,000 in tax credits per resident gained.

One would think that if a football stadium drew in residents, such subsidies would be unnecessary. There would be plenty of development north, south, east, and west of the stadium. Unfortunately, that’s not the case. And it’s not likely to be the case with a new riverfront stadium either, unless you consider a sea of parking to be development.

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