For those who may be wondering what exactly “first-tier” means, the Edward Jones Dome must be in the top 25 percent of all NFL facilities regarding some established criteria, such as: Fan amenities (box suites, club seats, lounges, etc.), technical areas (scoreboards, lighting, sound, etc.), and revenue-generating facilities (shops and concession stands). Considering that stadiums qualifying as top-tier include the newly-built Cowboys Stadium (price tag: $1.2 billion, with the Dallas Cowboys football team paying $875 million) and MetLife Stadium (price tag: $1.6 billion), the Edward Jones Dome has a long way to go to qualify. In fact, according to Patrick Rishe of Webster University, the cost of upgrading the Dome to “first-tier” status would be, at a minimum, $200 million-300 million (the cost of construction for the Edward Jones Dome was $280,000,000 in 1992 dollars). That is significantly more than the estimated $124 million in the CVC’s proposal.

Thus, officials for Saint Louis City, Saint Louis County, and Missouri have a decision on whether to pay up or face the prospect of the Rams leaving Saint Louis. I would urge the city, county, and state to forgo the use of any public money for upgrades to the Dome for several reasons. The first reason is on principle; the Rams are privately-owned and yet want public money for one of their facilities. If the Rams want a first-tier stadium, they should make a first-tier investment (and put a first-rate team on the field).

Second, even if city, county, and state officials wanted to pay for the upgrades, where are they going to get the money? The state is not exactly awash in cash, and the situation in the county is not much better. Both Missouri Gov. Jay Nixon and the state legislature have ruled out tax increases to help close the budget gap and I highly doubt they will go back on that in order to keep the Rams in Saint Louis. The city, county, and state could issue bonds (the state, at least, has a great credit rating), but they are still paying off ($12 million for the state and $6 million each for the city and county every year until 2021) the bonds issued to build the Edward Jones Dome. Does it make sense for the city, county, and/or state to go further into debt to keep the Rams in Saint Louis for another 10 years? Besides, when Kansas City and Jackson County helped fund renovations to Arrowhead Stadium, Jackson County struggled to keep up with the debt payments. Why put Saint Louis City and/or Saint Louis County in that kind of risky position?

Finally, even if the city, state, and/or county had the money, the use of public funds for sports stadiums does not generate much economic activity. According to a St. Louis Federal Reserve publication, the weight of economic evidence shows that the taxpayers do not get much of a return on their investment. In fact, the Federal Reserve study referred to another study:

Baade found that of the 30 metro areas where the stadium or arena was built or refurbished in the previous 10 years, only three areas showed a significant relationship between the presence of a stadium and real per-capita personal income growth. And in all three cases—St. Louis, San Francisco/Oakland and Washington, D.C.—the relationship was negative.

Considering these reasons, what justification can officials for the city, county, and/or state give for further expenditures on behalf of the Edward Jones Dome?

But now former Missouri Supreme Court Justice Mike Wolff is lending some credence to the idea, writing in the Post-Dispatch that not only would the move be legal, it would be preferable to cutting other state programs:

If the governor or the Legislature declared a holiday on accepting tax-credit coupons in payment of taxes, the state would not be reneging on its promise to accept tax credit coupons to pay taxes. The state simply would be saying, “wait until next year.”

Should the state pay interest on tax credits that are on holiday for a year (or more, perhaps)? For example, when a taxpayer eventually is allowed to use its $10 million in tax-credit coupons, which the taxpayer bought for the discounted amount of about $9 million, perhaps the state should pay interest because the tax-credit owner has had to wait. Because these tax credit certificates are bought and sold through banks, perhaps the passbook savings account rate should apply. At the current generous rates, that might cost the state 1 percent or less per year.

But what if the taxpayer does not want to spend cash to pay its taxes because it needs the $10 million to rebuild its jet plane’s engines or to refurbish the yacht? Not a big problem, actually, because remember, the tax credits can be sold. But can these $10 million in tax credits be sold for the taxpayer’s original price of $9 million? Well, probably not, there could be a further discount; markets work, even markets for tax credits.

If Justice Wolff’s idea was implemented, it might help Missouri’s budget problem for a year, but it would not solve the underlying problem: tax credit issuances run amok. In fact, declining to redeem tax credits could actually compound budget problems in future years if other reforms are not implemented to reduce the state’s forthcoming and outstanding tax credit liabilities; tax credits that have been authorized or issued but not yet redeemed constitute a multi-billion dollar (that’s “billion” with a “b”) liability that the state will have to pay in coming years. Preventing budget cuts to favored programs — for Justice Wolff, education — does not seem to be a compelling reason to embark solely on his plan. It is almost like trying to get a hamburger today for $1 tomorrow . . . at some point, you have to pay for the hamburger. Tax credits are a recurring problem, the reduction of which could cure other recurring parts of the budget (for example, reducing taxes on all corporations with the savings, rather than picking and choosing winners and losers.)

Keeping all of that in mind, if done in concert with a moratorium on tax credit issuances (ideally including caps, sunsets, and other permanent changes), Justice Wolff’s idea might be workable as part of a larger reform program; over the long haul, such a multi-pronged approach may actually make a real dent in the state’s looming tax credit liabilities, and ultimately save the state money.

Missouri officials cannot just treat the symptoms of the state’s tax credit excesses and defer cuts for later; it must also treat the underlying disease. Trimming tax credits and reducing taxes is a better, forward-thinking solution, and would provide the foundation for a healthier economy and a more stable budget.

1. Teachers could be fired for doing a bad job.

Most of us live in a world where doing consistently bad work means you lose your job.

Not so for teachers.

Under the current laws, a tenured teacher can be fired only for egregious conduct, such as willful or persistent violations of the school laws, excessive or unreasonable absences, and felony convictions. Even then, a severely truant teacher would get generous procedural protections from termination: a majority of the school board must vote to fire the teacher, and the teacher can appeal the board’s decision through an administrative hearing.

If this bill passes, boards could not only fire convicted felons, but they could also dismiss teachers for unsatisfactory performance.

2. No more indefinite contracts for teachers.

Most of us also have to live with the reality of at-will employment.

Again, not so for teachers.

Under the current laws, a teacher who survives a five-year probationary period becomes “permanent personnel” with an indefinite contract to teach.

The proposed bill, on the other hand, gives school administrators more discretion to retain teachers they actually want teaching in their schools. Schools could contract directly with teachers for up to four years; and what’s more, the board would retain the power to terminate a multi-year contract if the teacher scored poorly on evaluations.

3. Teachers will get paid for what they do, not how long they have done it.

That is right, teachers do not live with the reality of performance-based pay either.

Under the current laws, school districts are prohibited from basing salaries on performance-related criteria. Instead, districts pay their teachers based on length of service and level of education. The proposed bill removes this prohibition and requires school boards to consider teacher evaluations when making decisions related to pay, retention, promotion, and dismissal.

Not surprisingly, the unions started speaking out against HB 1526 before it was even proposed. Missouri National Education Association President Chris Guinther told the St. Louis Post-Dispatch last week: “we’ve got to be given the protection that we need to give those kids the quality education that they need.” Wouldn’t our kids be getting a better education if school boards could dismiss failing teachers more easily, like this bill would allow? The problem with the union perspective is that it focuses on teachers, not on kids. Tenure is not about having due process, as Susan McClintic, president of the Columbia Missouri National Education Association, told the Columbia Missourian last week. On the contrary. Teachers do not have  a right to their jobs; it is the students who have a right to a public education, and they should have good teachers to boot.

We have the same objections as we had last year. If shipping cargo out of Lambert makes economic sense, why do taxpayers need to subsidize it? Why not just lower taxes for all businesses? As the Aerotropolis proposal has shed more of its baggage en route to this latest forwarder credit, it is fascinating that the argument for the project has turned from “we need all of it!” to “just a little will do.” We may have simply just reached the “bargaining stage,” or alternatively are seeing the last-ditch attempts of Aerotropolis supporters to get something, anything out of this mess.

If the freight forwarder credit resurrection affirms anything, it is that tax credits need reform. Indeed, there is ample room to clip the tax credit waste and cut taxes, and we have talked about this issue again and again. It makes no sense to be adding programs to a tax credit system that is already bursting at the seams and rife with tax credits of dubious value. Tax credit redemptions are expected to reach nearly $700 million in 2013 — ranking right up there with this year’s gargantuan budget deficit. And yet, state officials continue trying to pick winners and losers.

Missourians can judge for themselves whether Missouri’s economic development status quo has served them well. It seems the legislature is more than happy to serve up more of the same.

I mention our neighbor’s misfortune because it serves as an example of different approaches to handling financial difficulties. Last year, Illinois raised taxes on personal income and the corporate income. Yet, despite these increases, its financial situation continues to deteriorate. In Missouri, the tax rates have remained the same. Missouri Gov. Jay Nixon brags about not raising taxes and personally cutting $1.6 billion in government spending. While both states have a budget shortfall to close, which budget situation would you prefer?

Illinois officials’ reaction to the state’s financial difficulties also presents an opportunity. As I mentioned before, Illinois responded to its dire fiscal situation by raising its corporate income tax. This has already put pressure on the state’s own businesses, and other states (Wisconsin and Indiana) are trying to entice those businesses to relocate into their states. Missouri has had its own methods of trying to encourage companies to relocate to the state, but they tend to be costly. When the Missouri Department of Economic Development (DED) used tax credits to get Applebee’s to relocate to Missouri, the cost was about $35,000 per job.

Instead of handing out millions of dollars in economic development tax credits, why doesn’t Missouri eliminate the corporate income tax? Considering that Illinois just raised its corporate income tax, wouldn’t a corporate income tax cut (if not outright elimination of the tax) serve as a powerful incentive for Illinois companies to move to Missouri?

Missouri officials estimate receiving $352 million in corporate income tax revenue for fiscal year 2013. Missouri officials also estimate that the state will issue more than $450 million ($463,409,492, to be exact) in economic development tax credits for the upcoming fiscal year. A reduction in tax credits would enable the state to make up for any revenue shortfall it would encounter via the forgone corporate tax revenue and provide a more permanent, and more fair, incentive for businesses to relocate here.

Illinois is in an unenviable situation. Illinois officials’ handling of that situation serves as a reminder that tax increases are not a cure-all for a state’s budget woes. Missouri officials have an opportunity to head in the opposite direction from its neighbor; however, will Missouri legislators embrace a new direction (tax rate cuts), or continue with the status quo?

The people who have researched the idea said it wouldn’t bring in a ton of money, but many districts are in a position where every little bit helps.

Parents and school officials in the Lee’s Summit School District met and discussed the idea Thursday evening.

Parent Keith Asel said it could make about $500,000 for Lee’s Summit schools.

“With all the budget cuts we’ve had, if we can just incrementally move the needle through things like school bus advertising, we can get to a number that really makes a difference,” he said. “We’ve got to think outside the box. The traditional means, I mean, we’ve already put such a burden on taxpayers.”

As it turns out, 17 states already allow districts to implement such an advertising program. Parents at the meeting reportedly did not have a problem with the idea, either, so long as the advertisements are age-appropriate. Supporters said ads for “alcohol, tobacco and even sugary foods” would be “restricted,” which I assume means effectively or explicitly “banned.”

My take? It is a great idea. Until I saw this story I had not realized that such a bill was floating around the Capitol, but apparently the bill has support from both sides of the aisle. Like the parent in the report says, we have to “think outside the box” if we want to improve education and reduce tax burdens. This, to me, is a great proposal that seems like it would promote both objectives.

LoMonte writes:

But there can be no debate on how ending tenure will impact the teaching of journalism in public schools. It will effectively end it.

As a graduate of the University of Missouri’s journalism school, I cannot help but sympathize with LoMonte’s fear. But I am not sure that it is grounded in much reality.

Free speech is already limited in schools. LoMonte does not mention this, but high school newspapers are not forums for free speech. The U.S. Supreme Court (in a case that originated in Hazelwood, Mo., no less)  ruled in 1988 that school administrators could censor drafts of the high school newspaper if they can demonstrate that there is an educational purpose for the censorship. Currently, students cannot freely report on any topic they wish.

Administrators already can (and do) punish journalism teachers. LoMonte lists several ways that journalism teachers can be punished for encouraging students to question the operations of their schools. He writes that teachers can be fired, demoted, or transferred as punishment. But arguing that these options will become available if teacher tenure reform is passed is incorrect. Demotion and transferal are already available to school administrators if they want to punish teachers. Firing is as well, though it is very difficult.

The following cases that LoMonte recounts are deplorable:

Teachers like Darryl Adams, who was stripped of his journalism duties after his principal questioned his loyalty for refusing to censor an editorial critical of the school’s random student searches. Teachers like Teri Hu, who was reassigned — and whose students were threatened with discipline — after the newspaper accurately revealed that the school was out of compliance with district regulations on the use of teaching assistants.

But they are all possible under Missouri’s existing teacher tenure law.

Journalism teachers are a small fraction of the total teaching force in Missouri. Perhaps some marginal number of journalism teachers will be fired if teacher tenure reform passes. And, perhaps their firings will be due to encouraging students to pursue meaningful and contentious journalism. I agree that this is a disturbing possibility. But many of our smallest districts likely have no student paper. Elementary, middle, and high school math teachers, for example, certainly outnumber journalism teachers significantly.

In life, there are always difficult trade-offs. And we have to consider whether preserving the jobs of a few good journalism teachers is worth keeping teachers who have a track record of failing students in the classroom.  I would argue that illiterate students and students who cannot do simple arithmetic are problems that we need to address first.

Student speech exists outside of the classroom. Sadly, LoMonte ignores the possibility that students can exercise their right to free speech openly and outside of the classroom. When I was in high school, I was part of a group of students that started a monthly print newspaper during our free time — because we knew that the student paper could, thanks to that Supreme Court decision, be censored.

We wrote about high school dropouts, janitors who had been hired despite having a criminal record, and other topics that likely would have been tough to have printed in the official school newspaper. Given the rebellious nature of most teenagers, and the ease of online publishing, I trust that students will continue to express their right to free speech, even if they cannot do it within the pages of a district-financed paper.

Since January 2009, accidents increased at 11 of 17 monitored intersections, and fatal crashes increased at 13 of those locations. Kansas City is not the first to see this happen with its red light camera program. The Star interviewed University of Illinois at Chicago Assistant Professor Rajiv Shah, who studied a red light camera program in Chicago:

“I’d say [Kansas City’s results are] very consistent with what cities across America have found . . . There’s really not a hard connection between reducing accidents and red-light cameras.”

The results of this study should have red light camera proponents reevaluating their positions. As we have pointed out before, red light cameras have many problems: they invade privacy and create a constitutionally suspect presumption of guilt. They are also prone to mistake. Brenda Talent, executive director of the Show-Me Institute, was fined for a violation she did not commit in Kansas City last year, and 1,000 lucky drivers were falsely accused of running red lights in Arnold, Mo., just two weeks ago.

Not surprisingly, American Traffic Solutions, the company that runs the program, publicly criticized the police department’s findings. ATS identified weather patterns, impaired drivers, and cell phone usage as the cause for increased wrecks. In other words, ATS identified anything but the red light cameras, which the company receives $1.6 million a year to operate, as the culprit for the increased crashes.

Despite the police study, it is likely that camera proponents will not rest. The Star editorial focused on a study by city engineers that found a decrease in total violations at monitored intersections. The Star praised the decrease in violations and declared that “red light cameras are working in Kansas City.” Fewer people running red lights, maybe; but if more accidents are occurring at monitored intersections, it is a stretch to conclude that red light cameras improve safety just because total violations have dropped.

Much to the dismay of proponents like the Star, the police study just confirmed what we already knew. Red light cameras are not about public safety, they are about generating revenue through traffic enforcement. The program has been very lucrative in Kansas City. The police study reports that officers have written nearly 200,000 tickets at $100 per ticket — adding $20 million to the city coffers.

Lobbyist detente on tax credits is not a sustainable status quo, and continuing to carry old tax credits forward while instituting new ones is a failure of leadership. That state officials would try to re-brand a failed system and grow the development tax credit leviathan beyond its current confines is hugely disappointing. It is just more of the same, and Missourians deserve better than that.

My post last week discussed a lawsuit between the Kansas City Public Schools and five suburban school districts regarding the implementation of the Turner decision. In a nutshell, Turner requires surrounding districts to enroll students who live in unaccredited (failing) school districts (i.e., the Saint Louis and Kansas City public schools and the Riverview Gardens School District). In effect, this is a limited school choice option under Missouri law.

Practically speaking, one issue is, how can the suburban districts in Kansas City and Saint Louis handle the potential influx of urban students? A recent survey estimates that approximately 13,500 students may flee Saint Louis schools for Saint Louis County under the Turner law. That is close to one quarter of school-age children in Saint Louis city. Pressure to abandon the Saint Louis public schools is apparently growing.

While it is easy to get caught up in the apparent chaos, why don’t we disengage for a second and reflect on the deeper issues; specifically, the failure of urban education in the Saint Louis and Kansas City public schools. Perhaps the Turner decision is a blessing of sorts, compelling both the legislature and the courts to address head-on comprehensive school reform, not only for our urban districts, but for all districts in Missouri.

Teacher tenure reform, collective bargaining, charter school expansion, school closure, and expanded school choice are on the table. The legislative session is just beginning to heat up. Perhaps Turner was merely the first act in an unfolding multi-act drama. If so, the script should promote an increase in accountability for teachers and school districts, and an expansion of school choice, including choice of private and parochial schools for students in failing public schools.

Our research showed in 2011 that the LRA had a track record of frequently rejecting offers to buy city property, often for no discernible reason. The agency would cite “lack of aldermanic input” when rejecting offers, or plans for “future development” that would fail to materialize.

I have written here about improvements to the LRA’s practices that were made in the wake of the publication of our research and the resulting media attention.

This month’s meeting went pretty well – most offers to purchase property were accepted or countered (meaning the LRA asked for a higher purchase price or change in contingencies). However, I still cannot help but think that Saint Louis City aldermen still have outsize influence over whether the agency accepts or rejects offers to purchase property.

An offer from Transformation Christian Church and World Outreach Center to purchase four properties illustrates this well.  LRA staff members recommended that the church’s offer be rejected. However, former Alderwoman Irene Smith (ward 1) spoke on behalf of the church during the meeting and managed to sway the commission. It seemed that the decision of whether to sell the property hinged on whether the area alderman was supportive of the sale.

Smith, speaking to the commission, noted that the church had spoken with Alderman Sam Moore, saying that after “swapping” some property with him, he had agreed to provide a letter supporting the sale of LRA property to the church.

But LRA Chairman Mark Wells initially would not recommend moving to sell the property, saying that “Based on the information we got from Alderman Moore, I think more discussion is needed.”

Smith responded: “We’re taken aback by that. We sat down with Alderman Moore.”

Ultimately, the commission moved to counter the church’s offer instead of rejecting it. And I am glad — the church has a history of purchasing, maintaining, and rebuilding LRA property.

But, I wonder: If the church has a track record of being a strong community resource and has the funds to buy the vacant city property, why does it matter what the alderman thinks? The LRA does not have to consider the input of an area alderman. The agency’s authority was established under state law, and the LRA law does not suggest that the agency consider the input of any political officials. Saint Louis government has implemented this practice by choice.

You can download the LRA’s meeting agenda (with a few of my notes) here.

Central Bank has agreed to make old-fashioned signature loans (that means no collateral from the borrower) of $300 to $2,500. That’s also what payday and installment lenders do. Except Fair Community Credit will lend money for slightly longer durations and at a double-digit interest rate, not a triple-digit one. That way borrowers will have a better shot at paying off their loans, rather than defaulting.

What makes that possible is Fair Community Credit’s promise to cover any loan losses from a $200,000-plus loan guarantee pool donated by foundations and individual donors.

The market is creating relatively cheap short-term credit alternatives to payday loan shops. It is incredible to watch society tackle perceived problems through voluntary interaction without the forceful hand of the state. It will be intriguing to see the results of this venture.

A hat tip to John Combest for the link.

It might sound harsh, but this is exactly what is supposed to happen with charter schools: We should let the good ones flourish and try to replicate their success, and close schools that are not meeting students’ needs.

Just because a school is a charter school does not guarantee student academic success. It is important to close failing schools, whether they are traditional public schools or charter schools. Nobody benefits from keeping open a school that is failing its students.

For more on the Imagine closings, check out our latest Show-Me video below.

There also was good news for some teachers in Dieckhaus’ 2011 legislation. The proposal called for the best teachers to be paid at least twice as much as the poorest-performing teachers. While this may seem like common sense (why not pay the best teachers more, as a reward for their effort?), it runs contrary to the current system of paying Missouri public school teachers.

The 2011 legislation did not pass. However, Dieckhaus is considering submitting tenure reform legislation again this year. The bill is not yet available, but I have listed two areas of reform that are needed to help improve student academic achievement in Missouri. Our priority should be educating  children, not rewarding those who happen to have been teaching for the longest period of time.

Let’s pay good teachers more: In Missouri, teachers are paid under what is known as a “teacher salary schedule.” Broadly, teachers who have more years of experience and higher levels of education are paid more (here is an example). At many school districts, these are the only components of teacher pay — teachers who teach difficult subjects, at-risk students, and teachers who have the best track record of helping students learn do not get a pay boost.

Teachers who do a poor job of teaching students can actually earn more than the good teachers if the poor teachers have a higher education level and/or more years of teaching experience.

Dieckhaus told the St. Louis Post-Dispatch in 2011 that ”It’s time we move away from paying people based on how long they’ve been teaching and what piece of paper they have hanging on the wall.” I certainly agree.

Paired with the issue of teacher compensation is the question of how to deal with teachers who have a track record of failing to teach students. Right now, those teachers can stay at a district for years, if not indefinitely.

Let’s help school districts get rid of bad teachers: State law awards teachers “indefinite contracts” if they have taught at the same school district for at least five years. These “permanent teachers” can be terminated, but only through a lengthy process. If a school district terminates a teacher (after going through all of the notification requirements specified by state law), that teacher can appeal the termination, triggering a court case. If the teacher wins in court, the school district must pay that teacher all of the compensation he or she would have received had he or she stayed at the district during the period of appeal.

I suppose that if you are trying to discourage teacher termination, the above makes sense. But, as a state, our concern should not be to hire and keep on as many teachers as possible. We should instead be concerned with how to provide quality education to students. Allowing failing teachers to continue to teach students does nothing to help students, and may be hurting them.

It is an uncomfortable truth, but one we must acknowledge. As U.S. Secretary of Education Arne Duncan put it, “We can no longer pretend that all teachers or all principals are from Lake Woebegone where everyone is above average.” Many academic studies have shown that teacher quality matters. Eric Hanushek, an education economist at Stanford University, has shown that good teachers can teach students three times as much as bad teachers — in a single year. Improving student academic achievement can be achieved in part by attracting more good teachers to the profession, and encouraging the bad teachers to leave the field.

I hope that the 2012 teacher tenure reform legislation can help enable school districts to have more autonomy when it comes to rewarding good teachers and terminating the worst teachers. When the full text of the bill becomes available, I will post my take on it here.

Along with the Hancock Amendment, this amendment would restrict the power of the legislature. Therefore, the legislature should be commended for proposing this amendment. Constitutional amendments like this, along with a balanced budget requirement (which Missouri has), give legislators an easy way to say ”no” to special interests.

Now, this is not a full-throated endorsement of the proposed amendment. There are a couple of things that bother me. First, there was an amendment that passed setting the cap at fiscal year 2008, the so-called “high water mark” of state revenues. Considering that the general revenue is expected to increase 3.9 percent  from $7.3 billion this year and that net general revenue for fiscal year 2008 was slightly more than $8 billion ($8,004,309, to be exact), the cap probably will not matter for . . . a while. Second, the spending limits will expire in five years unless lawmakers extend the time limit. So even if the voters approve the amendment, there is a distinct possibility that the cap can expire before it ever has the chance to restrict spending. Finally, the cap only applies to general revenue, which is where lawmakers have the most leeway in regards to spending, but it is not hard to imagine lawmakers putting down in statute specific spending items they want preserved and directing specific monies to funding them.

Despite my issues with the proposed amendment, the legislature should be commended for trying to push spending restrictions. However, it is unfortunate that such restrictions would have to be so watered down before it can pass.

The friendliness and charity of our countrymen can always be relied upon to relieve their fellow citizens in misfortune. . . . Federal aid in such cases encourages the expectation of paternal care on the part of the government and weakens the sturdiness of our national character, while it prevents the indulgence among our people of that kindly sentiment and conduct which strengthens the bonds of a common brotherhood.

Although Cleveland was talking about federal aid during a drought, the lesson is applicable to our current situation: Charity should be preferred over taxes. After all, taxes do not lend themselves to a “kindly sentiment.” And is charity such a radical option? Don’t universities already receive such donations? It seems that if the state believes citizens want to support universities, the government should let the people voluntarily display their support.

But suppose charity falls short – what then? Tuition increases should be considered. After all, let’s not forget that students are the ones choosing to attend college. When the price of education goes up, there is nothing wrong with charging a higher fee. And for those who cannot afford the higher fee, there are alternatives: scholarships and student loans. If both those options do not work, there is the alternative of a less costly education at a community college. Finally, if all else fails, college can be deferred. I have known several individuals who have put off college in order to accumulate savings for it. All options should be exhausted before reaching into the public purse.

The good news? It seems the idea is picking up some steam with at least one Kansas City area legislator, who is considering a veritable tomahawk chop to some of the worst offending programs (via The Missouri Record):

[Sen. Will] Kraus’s bill would eliminate certain tax credits and apply the savings from the programs to lower the corporate income tax rate. Kraus said he hoped there would be enough additional revenue to get rid of the corporate income tax all together.

“This would make Missouri a much more business friendly place for businesses to come. It eliminates the picking of winners and losers by different tax credits,” Kraus said.

The measure would lower the low-income housing and historic preservation tax credits to 25 percent of their current value by 2016. The low-income housing credit costs the state $60 million a year, while the historic preservation costs $140 million.

The legislative session just began, so certainly a lot can change in the next few months that may temper my optimism. But in terms of policy, it is satisfying to see that the right, liberty, and free-market ideas are moving to the forefront of the state’s agenda. The state must realign its economic development program to reflect that in practically every circumstance, the best allocators of capital in the market are the participants in the market themselves.

As my colleague Michael Rathbone noted, there are only three states in the country that do not have a corporate income tax or a gross receipts tax, and none of them border Missouri. It would be a great way to get a leg up on our regional competition by telling businesses that Missouri is not only business-friendly, but that its tax laws are simple, predictable, and unencumbering. It also means that the unseen cost of the corporate income tax — higher consumer prices that compensate for the taxes that companies pay — would disappear, lowering costs of Missouri goods and making Missouri corporations more competitive.

It would be the right thing for Missouri, and I hope Missourians give the idea serious thought.

I look forward to seeing how this works out for the city and its residents. I am confident it is going to work out great. In our policy study on public-private partnerships for Missouri transportation, we discussed these options for transit at length (see Section VII, pages 32-36). There are many examples of successful transit privatization efforts in the United States, including Las Vegas and Denver. Here is a key finding from Wendell Cox, a local authority on transit and highways, as quoted in the policy study (note: competitive contracting is a common form of privatization):

Competitive contracting has produced positive results for transit agencies in the United States and abroad. The quality of competitively bid transit has been found to be equal to or better than that provided previously, and ridership has generally risen as cost savings allow for expanded service. According to Wendell Cox, direct savings from competitive contracting have ranged from 14 to 52 percent, with an average of 30 percent, over the former non-competitive service in cities that have competitively contracted out at least 10 percent of their service.

After this transit privatization works out to everyone’s benefit, I hope Independence can privatize a few more things. To their additional credit, at least the golf courses in the city are all privately operated.

So with this hope, skepticism. It remains to be seen whether the governor will risk much political capital for the agenda he has outlined, particularly if his ideas are greeted with opposition in the Missouri General Assembly. And the governor appeared to concede as much last night when he talked about tax credits.

While we’re talking about government efficiency, let me make a related point. For the past three years, I have called for comprehensive tax credit reform. Some of you in this room stood with me on this issue. Others did not.

The consequences of this inaction are clear. Over the past four years, more than $2 billion in state tax credits have been redeemed. Effective tax credits are used to create jobs and grow our economy. But tax credits that aren’t delivering for Missourians must be retooled and reformed. We all know that dollars spent on tax credits are dollars we cannot invest in other critical priorities.

Once again, I ask you to pass comprehensive tax credit reform to get this spending under control.

One hundred and twenty three — that is how many words of the governor’s 5,814-word speech were devoted to the state’s budgetary equivalent of a billion dollar bunker buster. It is good that the governor even talked about tax credits, but the subject constituted just 2 percent of a speech that often detailed how the state is tightening its belt. That such a tiny amount of time was spent on highlighting such a huge problem is baffling and disappointing. But more frustrating, the content of those 123 words revealed nothing new, nor did they suggest any greater commitment to “getting it done” when it comes to tax credit reform. Says the governor, just do it. Or, you know, not.

That is despite the fact that ideas are bursting out from across the ideological spectrum on how to combat the tax credit problem. But whether the idea is blocking tax credit issuances (that is, the distribution of tax credits) or even going as far as the desperate step of unilaterally blocking tax credit redemptions altogether — as the left-leaning St. Louis Post-Dispatch suggests — there is growing interest to get a tax credit system that has spun out of control back in line so that our constitutionally-mandated priorities remain in order.

It is concerning that in the same speech where the governor paid brief homage to tax credit reform, he simultaneously, and at length, talked about new industry-targeted incentives under his “Missouri Works” program. Unless an appetite for legitimate reform develops in Jefferson City, Missourians are looking at not only “same old, same old” in the Capitol, but much “more of the same,” as the tax credit fiefdoms that have developed in the last decade fight off legislative incursions and new duchies get created for the next “big idea(s),” Aerotropolis included. (Yes, legislators may try to resurrect it.)

If state officials cannot get serious about a budgetary problem measurable not only in millions, but in billions of dollars, I am not sure they can get serious about much of anything. Gov. Nixon struck the right optimistic tone, as is required of these events, but when it came to the substance, the speech last night was woefully lacking. The state of the state could be worse, but if the governor’s speech is any indicator, Missourians should not expect it to get much better anytime soon.

A couple recent videos:

• Are Missouri Public Schools Failing to Make the Grade? Saint Louis Public Schools Superintendent Kelvin Adams and University of Missouri Professor Michael Podgursky have the scoop.
• If You Play, You Pay I-70 in Missouri may be switching to a toll road, and Show-Me Institute Policy Analyst David Stokes thinks this sounds better than raising gas taxes for everyone.

Both videos are embedded below.

Tax credit reform is difficult. We saw that during the last legislative session, and during the Tax Credit Review Commission’s hearings (beneficiaries of state tax credits tend to fight hard to keep their credits). And those interested in benefiting from a new tax credit program seem to fight almost even harder to establish a new program.

Perhaps more difficult for politicians is the fact that tax credit reform does not cut cleanly along party lines. Some Republican legislators strongly support tax credit reform, while others oppose it — just as some Democrat legislators strongly support reform, while others oppose it (or even advocate for the creation of new programs).

I disagree with the Post’s rosy optimism that Nixon will act responsibly. Our governor has a history of waffling on tax credit reform, something my colleagues at the Show-Me Institute have documented repeatedly. He also seemingly likes to travel to announce the “creation” of jobs under questionable state tax incentive programs. Personally, I would pin tax credit reform hopes on legislators.

Did you know a single committee might have the power to vote to halt some tax credit programs this year?

According to state law, “…no new tax credits, except the senior citizens property tax credit…shall be issued or certified…unless the estimate of such credits have been reviewed and approved by a majority of the senate appropriations committee and house budget committee.”

If a majority of either the Missouri House or Senate committees referenced vote to not approve one or more of the more egregious tax credit program estimates (and there are several), then perhaps no money would be issued for those programs this year.  Under this scenario, the daunting challenge of convincing many legislators who may have constituents and contributors who benefit greatly from tax credit programs seems to be reduced.

It is time for legislators to put the needs of Missouri taxpayers ahead of their own political concerns. Concerns about party politics should not dictate the budget solutions pursued in 2012.

The state is facing a budget shortfall of hundreds of millions — perhaps approximately $500 million. Defunding a few of the more wasteful tax credit programs could certainly help address that. And it may be easier to do than some may think.

But let’s not get bogged down in the legal details here. Instead, notice how the law represents one giant step for students, yet one small step for Missouri school choice (my apologies to Neil Armstrong). Why is this so?

First, under the law, the unaccredited status of a school district triggers the right to school choice. While this is fine as far as it goes, what about students who suffer academically in failing schools in accredited districts? If the evil to be remedied is students victimized by failing schools, then the law should target all failing schools, not merely schools in unaccredited districts.

Second, the Missouri law limits transfers to other public schools in close proximity. Why not extend school choice to any public or private school in the state of Missouri? In this way, students will have greater choice, and increased opportunities, to reach their dreams and to receive a first-class education. Ask yourself: Why not?

State Sen. John Lamping, R-Ladue, has followed through with his plan to file a bill that eliminates state income taxes on the first $2,000 in individual income and replaces the money by hiking the state’s cigarette tax — now among the nation’s lowest.

Lamping says the bill is revenue neutral.

Under his proposal, SB 638, no Missourian would pay taxes on the first $2,000 of earned income. Now, state income tax is levied on all income, no matter how small. That cut would cost the state $128 million a year.

As David Stokes noted Thursday, non-smokers and infrequent smokers would be net beneficiaries if the legislation is implemented. The problem is, who would not be a net beneficiary? Smokers tend to be poorer than non-smokers, and any hike in the cigarette tax will tend to hit those living in poverty fairly hard. In 2009, the CDC found that “[t]he prevalence of current smoking was higher among adults living below the federal poverty level (31.1%) than among those at or above this level (19.4%).” Will there be a deterrent effect if there is a marginal increase of 26 cents in the cigarette tax? Possibly, but it also is fairly likely that what the poor gain from the income tax reduction could get eviscerated by the cigarette tax hike. If income taxes were exempted at a higher level, a “worse off” scenario for poor smokers would be less likely.

But there is an alternative to a straight cigarette tax hike if legislators really want to exempt income from the individual income tax. I wrote last week that major reductions to the corporate income tax could be made with the elimination of millions of dollars in failing tax credits. There also is ample room for a deeper cut to the individual income tax that would increase the likelihood that the poor would be net beneficiaries in a tax system rebalancing. Aside from the drastic hikes in the cigarette tax that have been proposed elsewhere, which would exacerbate the problem for the poor, a reduction in tax credits could account for much of the revenue required to make major cuts to the individual income tax.

Put more succinctly, to reduce income taxes, other taxes do not necessarily have to go up if state tax credits go down to a more manageable and appropriate level. Instead of picking winners and losers, let everyone benefit. It would make for a better Missouri and a better-balanced tax system.

Highlights of the Brownback Plan include:

• Lower the top individual income tax rate from 6.45 percent to 4.9 percent (Missouri’s is 6 percent).
• Double the standard deduction to $9,000 for head-of-household filers.
• Eliminate various tax breaks, including those for home mortgages and earned income.
• Eliminate individual income taxes on non-wage business income like limited liability companies.
• Preserve the 1-cent state sales tax.

Now, the plan is described as “close to revenue neutral” and the article quotes a legislator who states “the devil is in the details,” and I happen to agree. However, this proposal points Kansas in the right direction. Any attempt to lower tax rates and broaden the tax base (i.e., closing loopholes and ending tax breaks) should be commended. Is Missouri going to follow (Kansas is not alone in proposing tax reform; Nebraska also is looking at cutting taxes)? State officials in Jefferson City have the opportunity, with the new legislative session, to make some serious changes and set Missouri on the right path to compete economically.

At the Show-Me Institute, we have proposed various tweaks in the state’s tax code that could be beneficial and make the state more competitive. Is Missouri going to move down this road, or are state officials going to continue promoting economic development debacles like Mamtek (and other projects that should remain dead), which make for good photo-ops but have resulted in a failure to grow Missouri’s economy?

I think this is definitely an idea worth discussing. Everyone in the state would benefit from the tax cut (approximately $35 per worker, and part-time employees would benefit just as much as full-time – unless they are really part-time), and smokers would only pay more after they buy their 135th pack of smokes for the year. Basically, a pack-a-day smoker would pay an extra $60 per year in taxes under this plan, while more casual smokers would basically break even or come out ahead. (Is there anyone left alive who still smokes more than one pack a day? I mean, other than this kid, who doesn’t pay American tobacco taxes.)

The small size of the cigarette tax increase in this bill makes it immune from our criticisms that residents of other states would stop buying their cigarettes here, and thus cost Missouri that voluntary money. Of course, some marginal level of out-of-state purchases will be lost, but for the most part, Missouri’s tobacco tax would still be much lower than surrounding states. I think most of our commuters, visitors, etc., who enjoy a draw would still make a point to buy their smokes here.

I like the part of this proposal that all Missourians would benefit equally from the income tax cut. I like that casual smokers would roughly break even, and heavy smokers would only see a small tax increase. I like that out-of-state smokers would likely still continue to buy here when possible.

I do not necessarily like that a percent of the population (the smokers) are being targeted to fund a general benefit. However, we crossed that bridge a long time ago, and this proposal is far less drastic, and more equitable, than many similar proposals. I do not deny the political reality that tobacco taxes are going to be increased at some point. If that reality takes the form of a small cigarette tax hike that funds a tax cut for all Missouri workers (including the smokers), then Missouri could do a lot worse.

It is not just that the state could do worse, it is that we probably would do worse, such as some drastic cigarette tax hike that drives out-of-state buyers back home and uses the new tax money to fund a new tax credit only for films about ethanol-powered historic buildings near transit.

I think Sen. Lamping’s proposal has a lot of merit and deserves serious discussion.

The question arises about what to cut. However, what if appropriators flipped this picture upside-down? What if the legislators asked what should be funded first, instead of what should be cut?

It turns out that the authors of the Missouri Constitution gave this some thought.  The state Constitution provides a list of the order in which money is to be appropriated. It seems the authors of the state Constitution tried to tell us the state’s spending priorities. Those funding priorities are (in order):

1. For payment of sinking fund and interest on outstanding obligations of the state.
2. For the purpose of public education.
3. For the payment of the cost of assessing and collecting the revenue.
4. For the payment of the civil lists (in this case, state employees).
5. For the support of eleemosynary (charity) and other state institutions.
6. For public health and public welfare.
7. For all other state purposes.
8. For the expense of the general assembly.

Now, I am not saying cuts in say, education spending, are completely off limits. If there is waste, get rid of it, no matter where it is. However, the legislature should prioritize spending based on the guidelines of what is emphasized in the Constitution, and if spending cuts are needed, they should be in lower priority items. One example of something that might not qualify as “high priority” is the Missouri Wine and Grape Board. Another example is state ethanol subsidies. Between these programs and K-12 education, which is a higher priority to you?

Several members of the Dellwood Board of Aldermen have intentionally skipped board meetings over the last few months in order to deny a quorum. If the board had a quorum, it would almost certainly vote to disband the Dellwood Police Department and contract out police services to the St. Louis County Police Department. Smaller cities contracting with larger entities to perform certain services is one of the best examples I can give to improve efficiency while maintaining a large degree of municipal independence. I view it as a win-win situation for the people of Dellwood. Apparently, half of the board views it as a threat to speeding ticket revenues, so they are going to an extreme, undemocratic tactic to prevent a measure that will save money and improve public safety at the same time. The absent members of the Dellwood Board of Aldermen are harming their citizens, and behaving embarrassingly while they are at it.

Generally speaking, the county police provide better overall services than very small municipal departments. (But, yes, there are some dedicated, talented officers within small departments.) Just as important, it costs cities less to contract with the county than to operate their own department. If you want to read more about why contracts like this are a good idea, check out this op-ed I wrote when Jennings did it last year.

And why 2,500 feet? Who came up with that number? This article sites the possibility of crime and lower property values around clusters of these businesses, but half a mile seems a little excessive. I would hardly call it a cluster if the businesses located just one block from each other, but even one block is an arbitrary number.

As you may recall from the mantra “location, location, location,” the location of a business can drastically affect profitability. The proposed legislation may make it impossible for more than one loan shop to take advantage of a good location. Since when is that reasonable? Businesses locate in a particular area for a reason – and unfortunately for the affected businesses, the reason they locate to a particular area may be the county’s legislation dictating the available options.

Additionally, why is the government singling out pawnbrokers and short-term loan shops? What next? The proximity of ATMs? When will the regulations stop?

For more Show-Me Institute payday loan material, check out this and this, as well as this awesome video.

In its effort to change the business climate in Missouri, the Missouri Chamber of Commerce and Industry has identified three broad policy initiatives for the current legislative session. According to Chamber president Daniel Mehan:

“Among the list are issues left unresolved last legislative session that will be advocatied (sic) by Missouri’s top business associations and employers: workers’ compensation reform, employment law, and tort reform,” Mehan says.

Within the context of these broader policy initiatives, the following topics are among the most important issues the Chamber addressed. As briefly discussed below, each deserves careful consideration as a reform measure that can foster economic growth in Missouri.

1. Making Missouri employment discrimination law consistent with federal law. Businesses face confusing and parallel obligations under federal and state laws. Making Missouri law consistent with federal law reduces confusion and lowers compliance costs for businesses, which in turn lowers the cost of doing business in Missouri. Consumers and businesses then share the benefits of lower costs.
2. Capping damages in employment discrimination cases. Caps make future business costs more certain and predictable. Although the plaintiffs’ bar does not favor this idea, no one is closing the doors to the courthouse. Policymakers should carefully weigh the benefits and costs and make the decision that best advances business competitiveness and the administration of justice.
3. Exempting co-employees from liability for injuries sustained in workers’ compensation cases. Currently, employees injured by co-employees at work may sue the latter for damages outside the workers’ compensation system. This gives rise to costly disputes among employees, disruptions in the workplace, and an increase in employer costs (not always monetary). Also, multiple lawsuits for the same injury may occur as the injured employee sues both his employer in workers’ comp and his co-employee in circuit court. Time, money, and effort may be economized by requiring injured employees to maintain a single suit in a workers’ comp venue.

Again, these are but a sample of current issues impacting the business climate in Missouri. These issues are important in that each imposes additional costs on businesses in Missouri. As a result, consumers and households may suffer because they will face higher prices, fewer goods, and lower employment. Remember, we are all in this together, despite what some others may say or imply. Isn’t it possible that sometimes what is good for business is good for the people?

“The golf course fleet is better maintained than the sheriff’s department’s fleet,” Sheriff Richard Anderson said.

This brings to mind a very easy move for the county to make that will (1) bring new revenue into the county (the sale price); (2) reduce future expenditures; (3) expand the county property tax base (placing the property on the tax rolls); and (4) remove the county from doing things government is not intended to do. Privatize the golf course.

Golf courses make up one of the least important government programs. I say this as a golfer. I do not think governments should own golf courses, but at least some just own the land and contract out the operations of the course to private companies. Can someone say “comparative advantage”? But Platte County does not appear to even do that. The county appears to own and operate the entire course as a division of county government. (I base that on my reading of the 2011 budget, pages 221-224.) That is insane.

The Mackinac Center and the Reason Foundation both have conducted great work involving government golf courses.  This should be a fairly easy choice for Platte County. Shed the golf course to raise money to improve your sheriff’s fleet. Platte County should sell off its golf course to private operators, and if that is not possible (due to legal restrictions on selling parkland or some other such issue), contract out the management of it.  

And I now will resist the temptation to end this post with an overly cute golf reference, such as “Privatization would be a real Birdie for Platte County!”

Meet the new ideas, same as the old ideas.

The Minority Leader in the Missouri House of Representatives says rather than focus only on ideas that have already been vetted, the legislature needs to consider some fresh ideas.

Mike Talboy (D-Kansas City) points to the states neighboring Missouri, all of which he says have angel investment opportunities. Those could be tax credit programs or funds that are typically smaller than some of the economic development programs already in Missouri.

He says putting programs like that into effect can provide “good bang for your buck in the beginning. But then also as the budget years get better and as we have more revenue in the state and as we see the returns on those types of programs, then you can look at expanding them if you need to or be able to expand them into different parts of the state.” Talboy says there is nothing like what he is talking about currently offered by DED.

“Angel investments“ typically give the investor an ownership or convertible debt stake in a company, which oftentimes is a startup. They usually are differentiated from “venture capital investments” as investments measured in hundreds of thousands of dollars rather than millions of dollars. Angel investments — like so many investments — are inherently risky because success for a startup company is not certain, but such a high risk also has the potential for a high return. According to Jake Halliday, CEO of the Missouri Innovation Center, entrepreneurs oftentimes must give up “a 25 percent to 30 percent ownership stake in his or her startup for a $300,000 angel investment.” If the company grows, so does the angel investor’s money.

So if taxpayers underwrite these investments, will they also get a cut of the capital? I asked a similar question last year when it was revealed that half of the building Stifel Nicolaus was buying in Saint Louis — that is, the building it already occupied — was being subsidized with public monies. Taxpayers did not get to own half of the building it was paying for back then, and they almost certainly will not get a cut of the upside that could be realized from startups under an angel investor tax credit program. In short, we now are being told that Missourians should help defray the risk of high risk/high return investments that rational investors may not have undertaken. Sounds an awful lot like a bubble in the making.

If state officials really want to help businesses in Missouri, they need to stop treating the state’s economic development plan like they are throwing tax credit flapjacks against a wall to see what sticks, and instead cut taxes for everybody. Missouri’s tax credit problem has gotten so bad that Missouri officials could eliminate the corporate income tax entirely, and the state still would have millions of dollars in tax credits remaining. Even if elimination of the corporate income tax is not immediately feasible, officials easily could make deep cuts. They could eliminate millions of dollars of waste that regularly causes the state to lose all but a fraction of the money it expends in those tax credits.

Isn’t there a better way than the conventional wisdom in Jefferson City? Are more tax credits really the answer to our tax credit-fueled economic development problems?

This afternoon, I am pleased to appear on the Mark Reardon show on KMOX NewsRadio 1120 to discuss this issue. I will be on during the 3 p.m. time slot. Please listen in if you can.

I support turning I-70 into a toll road, for reasons discussed in the op-ed and in this blog post.

Like most people, NFL players have to pay taxes on their income. A team located where income tax rates are lower theoretically could offer contracts that are lower in nominal dollars but allow the players to receive higher take-home pay (for the purposes of this post, I am not taking into consideration deductions and tax loopholes, nor am I factoring in cost-of-living adjustments).  Which team’s players have the lowest income tax burden in the NFL? Well, there a couple of things to consider. First, what is the state and local income tax rate for where the players play their eight home games? Next, what is the state and local income tax rate for each of the team’s divisional foes (the players will travel for a road game against each of their divisional opponents)? The other games on a team’s schedule change from year to year, so the combined burden the players face will change somewhat from year to year.

So, for the 11 games (out of the 16 total) that a NFL team has on its schedule every year, is there a noticeable difference between the income tax burdens that the players on different teams face? From my calculations, there is (basic calculations —I only used the top marginal rate, so these numbers do not take into account the lower rates for the lower brackets and these numbers are slightly higher than they really would be). Take, for example, the Houston Texans. A team member who plays a game in Houston would pay no income taxes at either the state or local level. Therefore, for the eight games played in Houston, a Houston player will pay no income taxes. A Houston player will pay no income taxes for the road games in Jacksonville and Nashville, and $1,973.13 for the one game in Indianapolis. Therefore, the total income tax burden for a Houston Texans player making the median salary for these 11 games is $1,973.13. In contrast, a NFL player making the median salary would face a state and local income tax burden of close to $46,000 if he played for the Oakland Raiders (9.3 percent tax rate for eight games in Oakland and one game in San Diego plus the 4.63 percent and 7 percent rates for the games in Denver and Kansas City, respectively). Multiply that figure by 53 (the total number of players on the active roster) and the burden on a team’s players can increase substantially. If you used the mean salary ($1,900,000) instead of the median salary, the burden also increases.

Would this tax burden make much of a difference? I cannot say definitively (I am not an economist), but if one team had to pay a couple of million dollars, which counts against the cap, to just the income taxes, while another team only paid $100,000 or $200,000, I can tell you which team I would rather own.

The St. Louis Post-Dispatch recently reported the St. Louis Preservation Board’s denial of a demolition permit to Saint Louis University (SLU) to raze the vacant Pevely Dairy headquarters building at the corner of Chouteau Ave. and South Grand Blvd. (you probably recall the Pevely smokestack). SLU officials intend to build a surgical center at the site, but now claim that the historic building may scuttle their plans if the building is not leveled and removed.

Before moving on to more pressing matters, perhaps a brief review of the tax implications is in order. Saint Louis public records indicate that the two parcels in question (1001 South Grand Blvd. and 3626 Chouteau Ave.) generate approximately $93,000 in annual property tax revenues for the city. See here and here. The future tax status of the properties, however, is uncertain (I called SLU’s controller, Gregory Haney, but he declined to express his opinion or share his knowledge on the subject). If the properties fall under SLU’s non-profit status, then SLU may be tax-exempt (similar to SLU’s 200 North Grand property). On the other hand, if property ownership vests in a for-profit entity, similar to Tenet Health System’s ownership of property underlying Saint Louis University Hospital, then taxes will likely be assessed and collected.

In either case, the city still stands to gain revenues if the surgical center is developed. This would arise from earnings taxes on new jobs created at the facility (although we have advocated for the elimination of the earnings tax and for alternative payments in lieu of taxes from tax-exempt non-profits, this blog post deals with the facts and law as they currently exist). For the sake of example, at 1 percent on taxable earnings, 124 jobs at $75,000 annual salary generates $93,000 in revenues, which compensates for the loss of property tax revenues under the tax-exempt scenario, but provides additional incremental revenues to the city under the alternative scenario. In either case, both the economy and the tax base are increased, which is a good thing.

While the tax implications are interesting, perhaps the more fundamental question is why are preservationists so insistent on saving the aging Pevely headquarters building? The history of progress is replete with tear-downs and rebuilds. Progress necessarily implies creative destruction, replacing old with new. Sometimes you have to let go of the past if you are to embrace the future. The past is but a distant memory. Happiness, prosperity, and success are forward-looking concepts that reside, if at all, in the future. Saint Louis, embrace the future, not the past. The Preservation Board should reconsider its decision.

However, the plan for obtaining a $107 million loan from state universities to help fund a department that gives a lot of money to . . . well, state universities, seems odd. If the state is facing a shortfall, it needs to make the tough decisions to balance the budget (i.e., cut spending and NOT raise taxes). What happens if the state faces a similar situation in fiscal year 2014? Will Nixon ask for ANOTHER loan?

There are other places in the budget that can be cut (granted, these cuts alone will not make up the amount of money needed, but they are a start) before even thinking about cutting money from the DHE, never mind resorting to this loan plan. However, that is not to say that cuts cannot be made in DHE. The DHE budget is not sacrosanct.

For example, in fiscal year 2012, the DHE gave more than $400 million ($366,765,401 from general revenue) to the University of Missouri system. If Gov. Nixon wants a $63 million loan from the University of Missouri-Columbia, why doesn’t he ask the legislature to cut $63 million from the University of Missouri system. Lawmakers can always appropriate more money in future fiscal years (not that they necessarily SHOULD). Why ask for a loan?

Prudence is a virtue for a reason. Before engaging in plans meant to avoid the task at hand, wouldn’t it be better if the state actually finds out what it is paying for and truly decide what it NEEDS to pay for, and what people can do without?

This provides the perfect narrative for what some might consider to be very compelling and policy-minded journalism: A tragedy has occurred and a cell phone was involved. Shouldn’t there be a law against that?

Consider this line from the New York Times’ series of articles on the subject: “With virtually every American owning a cellphone, distracted driving has become a threat on the nation’s roads.” Indeed, in September 2009, the newspaper wrote that it was time to crack down, saying that “…texting at the wheel is a national hazard that calls for a firm federal response.”

This weekend, I heard an interview on National Public Radio with Matt Richtel, the author of several Times articles regarding the dangers of cell phone use while driving, discussing whether he considered himself to be an advocate. Richtel provided the standard journalist line, saying that he just thinks it is important to ask tough questions.

Well, here are two more.

1. Traffic fatalities, crashes, accidents, etc. have declined dramatically. If driving is safer than ever, why is there such concern?

The argument I hear again and again (most recently when I sat in on Donnybrook) is that banning cell phones while driving is about safety. However, Missourinet reports that this year, traffic fatalities are headed for a 62-year low. The same trend is seen on the national level. Fatality, injury, and crash rates have all declined substantially since 1990.

If fatalities, crashes, and injuries are down, then I hardly think that we are experiencing a “national hazard” that warrants an outright ban on cell phone use while driving. Of course, there have been accidents where cell phones were clearly the cause. However, with traffic accidents and fatalities down during the same time period that cell phones became popular, cell phone use is clearly not as dangerous as some fear.

And, even if an action comes with a small amount of risk, that does not mean we should pass a law to ban it. In fact, driving with children in the car may be more distracting than those pesky cell phones. Should we ban driving with children? Are we in the midst of a national driving-with-children epidemic?

2. How could this possibly be enforced? And, do we really want to create another vague reason to stop and question citizens?

How on earth could a ban on cell phone use be enforced? Would a police officer be able to pull you over if you look down briefly while driving? How could the officer discern whether you are talking on a hands-free phone or merely singing along to the radio?

The New York Times should know better than to advocate for additional vague ways for police to stop and question individuals. After all, the Times did an excellent study of a “stop, question, and frisk” policing policy. The newspaper found that after a drastic decline in violent crimes in New York City, the number of stops the police made increased dramatically.

Knowing that police officers can sometimes abuse their ability to stop, question, search, and detain individuals, why would anyone advocate for more vague reasons to stop and question people? Driving dangerously is already illegal. What more do cell phone ban advocates need?

Indeed, the last thing I want to see after the passage of federal legislation that allows for the indefinite detention of U.S. citizens on U.S. soil is another vague reason that police can use to stop and search citizens.

The solution is not to ban cell phones.

I do not condone texting while driving. I also am not a fan of eating while driving, or letting your adorable pet distract you while driving. Though it would make an excellent point and is legal, I do not recommend that you hold a banana to your ear and pretend to talk to it while driving.

I was in a nearly fatal car accident when my family first moved to Michigan. The culprit? Ice. Should driving in Michigan be banned from October through April? Obviously not. Instead, I support independent groups working to inform drivers about dangerous winter driving conditions. Similarly, efforts to educate drivers about the dangers of distracted driving may end up saving lives.

But an outright ban? It is an overreaction to a tragedy.

Dick Fleming, the group’s longtime head, is stepping down from the organization he has helmed since 1994, and his replacement will come from a city just a short drive east on I-64: Louisville, Ky., also known as the “Gateway to the South.” Joe Reagan moves to Saint Louis from Louisville’s equivalent of the RCGA, the Greater Louisville Inc., or GLI. Marketed during Reagan’s tenure as “Possibility City,” Louisville will have to find a new chamber head for the first time since 2005. Louisville is already writing the postscript to Reagan’s legacy.

But the fact of the matter is that no man, or government, or organization, or even coalition of organizations, can plan an economy, or at least plan it well. That is an incredibly important point to highlight and probably the fairest thing that can be said as Reagan joins the Saint Louis community; it also is probably one of the most damaging points one can raise about how the RCGA and organizations like it behave.

Our local chamber loves to get the pat on the back for positive economic news and to pump “public-private partnerships,” oftentimes fueled with tax credits, that fail to substantively move the economic needle in the region’s favor. Meddling in the economy, local or national, destroys wealth more often than it creates it, leaving taxpayers with the promise of prosperity but little else. And it is no secret that Saint Louis city has languished for decades under one failed economic plan after another, compounded by the exodus of residents into nearby counties and driven by the continued intransigence of the city’s political class to step away from its cronyistic tendencies. In short, the economic development status quo is not a blueprint for a prosperous future for this region, and has not been for some time.

Which is why I hope that Reagan’s arrival in Saint Louis is not just more of the same. More precisely, I hope that Saint Louis — and Kansas City, and the state of Missouri — at least return to some sense of regional economic normalcy, if not runaway growth in the coming year. That is a Christmas wish of sorts, I suppose, but a wish that the RCGA, GLI, or any similar organization has limited or no power to bring to fruition.

Maybe a New Year’s resolution for the state and the city is in order instead: To simply let the market work. It does not matter if it is Saint Louis’ chamber hawking Aerotropolis, or Moberly’s chamber hawking Mamtek, or a political class increasingly disconnected from the electorate hawking Solyndra. There are no easy, centralized solutions to our economic woes. Acting like there is in Saint Louis only prolongs the municipal pain. Like all taxpayers, Saint Louisans cannot depend on a small group of decision-makers to make their lives better.

Free markets make genuine and sustainable economic growth possible, and if there is going to be a “Possibility City” in this region, let it be more than just another marketing slogan with another cartridge of development silver bullets as its driving force. Reduce taxes and regulation, get out of the way, and let the free market flourish. May RCGA’s new administration regain its faith in that formulation.

Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole — with their common aim of legal plunder — constitute socialism.

Provocative enough for your tastes? Do you vehemently disagree? Is Bastiat a kook? Come join us for spirited discussion and snacks this Wednesday; Bastiat is our topic.

The Show-Me Institute’s Book Club meets the second Wednesday of each month at our headquarters, located at 4512 West Pine Blvd. in the Central West End. Meetings begin at 7 p.m. and typically last until 8:30 or so. See link for more information. 

Please bring a friend. Hope to see you there.

The latest proposal is to transfer the bottle district TIF (tax increment financing) from the original developers to the control of Mr. McKee and his entities. To be clear, McKee and his groups were not involved in the original TIF proposal, so we cannot pin all of this on him. However, unlike tax credits, the TIF law was not drafted with the intention of TIF being transferable. I do not think it is right for one stalled TIF proposal to just be assigned to someone else – and I do not care who that someone else is. (Note: I am not saying transfering the TIF is illegal, just improper.) At least some people in city government seem to be aware of this issue:

[Saint Louis Development Corporation Executive Director Rodney] Crim wouldn’t specify what, exactly, the city objects to. But he suggested officials have concerns about using TIF for one project to help fund another.

“My focus is on what can and cannot be done with the Bottle District TIF,” he said. “We just have some more talking to do.”

I think it is especially wrong to continue to subsidize property that at this very moment is being made more valuable because of major public improvements. Here is one description of the property:

Located just north of the Edward Jones Dome (home of the Rams) along Interstate-70, the site is one of the most desirable development locations left available Downtown. Once the new Mississippi Bridge is complete,  its location next to the bridge will make the site even more visible and accessible than it already is.

Former longtime New York Sen. George Washington Plunkitt would have fully understood developers seeing their opportunities and taking them, but even he would never have asked for the new land to be subsidized on top of it. If this land at the base of a major new bridge has to be subsidized, I guess we are at the point where we just admit everything gets a tax subsidy, unless, of course, you are just a small entrepreneur without political connections.

Just how rich does this make Albert? Well, one local sportscaster estimated today that if Albert bats five times each game next year for the Angels, he will be raking in a cool $30,000 each time he steps into the batter’s box. Not bad, huh?

But if it makes you feel any better, it may not be all win-win for our legendary No. 5. Consider income taxes. Missouri’s top personal income tax rate is 6 percent, which kicks in at $9,000 (he would have also paid an additional 1 percent earnings tax [click on policy study and scroll down to page 46] in Saint Louis). In comparison, California’s top rate is 10.3 percent for incomes above $1 million (of course it might not STAY that way). I am not the only one to notice the possible influence that income tax rates could have had on Albert’s decision (this was regarding the offer from the Miami Marlins).

However, at the margins, how much of a difference would these tax rates have made on Albert’s decision? First, consider that Albert will only have to pay this 10.3 percent top rate for games played in California. He will play a good chunk of his games in states with NO personal income taxes (Washington and Texas). Now, I am not an economist and there are other factors involved here, but just doing some back-of-the-envelope calculations for the home games, I found that Albert would pay slightly more than $4.6 million more in taxes over the life of his contract in Anaheim than Saint Louis. Considering the supposed $30 million to $40 million difference in value of the contracts, would the tax factor make that much of a difference? It is certainly possible (even though Albert did decide to leave). If the Angels had offered him the same amount as the Cardinals, the tax difference would cost Albert approximately $3.7 million.

Who is to say if the difference would matter, especially for a single individual who has to weigh many factors in his decision to move. However, if you are a business, that tax difference could influence a decision between paying taxes or hiring a couple of new employees. Just some things to ponder while Albert packs his bags.

Ehlmann gave an excellent talk at the TIF hearing last month. Here is his stated opposition to the TIF:

However, he said a city tax-increment financing subsidy would be “bad public policy” because it would channel into the project some of the new property tax revenue generated that would otherwise go to the St. Charles School District and other governments.

“If the city can do a TIF to make others pay for what is their responsibility, when are we going to start using city money for schools?” Ehlmann said.

Ehlmann and his predecessor, Joe Ortwerth, have been leaders in calling out the fact that these TIFs do not do anything for our economy. They inefficiently redirect activity based on who is giving out the most tax dollars. Saint Charles County has put its money where its mouth is regarding TIF, and actively fought prior TIFs in court, although the rulings have always favored the cities. It is great to see Ehlmann is still fighting that fight against these abuses.

Charlie Dooley has also been leading the fight against these TIFs in Saint Louis County. He has not made a statement directly on the Shrewsbury TIF, so I do not know exactly how he feels about it. But based on his opposition to the last Walmart TIF in Bridgeton, and the comments of the county reps on the current TIF commission, I think he likely is opposed to this one as well. (Someone should feel free to correct me if I am wrong.) Dooley made public comments about the Bridgeton TIF between the TIF commission process and the city council decision. I think that is perfectly appropriate, and I hope he leads the opposition should the Shrewsbury City Council attempt to override the decision of the county TIF commission.

One of the most important legislative changes we need in Missouri is eliminating the ability of cities to override TIF commissions. Cities can approve a TIF even if the commission defeats it. That is an atrocious law that empowers small groups to abuse the tax system at the expense of many other people and entities (such as school districts). Both county executives – Ehlmann and Dooley – deserve great credit for thinking about their whole county (and region) first, and opposing these types of tax abuses.

The mission of MASBDA is to make “capital available to Missouri farmers, particularly independent producers; agribusiness; and small business at competitive interest rates on a scale to make a major impact.” This raises a red flag for me. An entity that makes capital available to businesses at a “competitive” interest rate sounds an awful lot like a bank to me. In fact, a couple of the programs that the MASBDA administers include: Missouri Agribusiness Revolving Loan Fund, Alternative Loan Program, and Animal Waste Treatment Loan Program. The total state funds loaned to the Animal Waste Treatment Loan Program alone is close to $500,000 ($485,333.56 for fiscal year 2011, specifically).

Is anybody uncomfortable that a part of state government is acting like a bank? Why can’t the recipients of these loans get private financing? If they are great deals, why are private banks and/or financial institutions not jumping at the chance to invest in these projects? Farms already face lower property tax burdens compared to commercial businesses (farm property has an assessment ration of 12 percent compared to commercial at 32 percent and residential at 19 percent, and the soil quality grading system sets a very low appraised value already) so why do they need ADDITIONAL help with subsidized loans?

Also, how can a government and a private enterprise compete when it comes to financing? By issuing below market interest rates to different businesses, isn’t the state undercutting private financial institutions? Even if a state department/agency/program loses money, it can acquire new financing by compulsion with increased taxes. A private organization does not have that same power to tax (although with TDDs and CIDs, we are getting there). Thus, with the ability to achieve easier financing, what real incentive is there for the state to make wise spending decisions when it comes to these loans besides avoiding grief  from dedicated bloggers such as me? Isn’t it time for the state to get out of the business of lending with YOUR money and return to the basics? Just some food for thought.

Kerr’s testimony follows testimony from Moberly officials on Tuesday. A key point of Kerr’s testimony was that it would be a poor use of time and effort for the DED to double check the claims that every business makes when seeking incentives. Kerr said that if every business seeking incentives is treated as a criminal, fewer businesses will come to Missouri. I think that if a background check would deter a CEO with a history of passing bad checks from applying for tax credits, it might be appropriate.

There are two broad issues that legislators and the general public should consider in light of Mamtek. The first is that government officials (and others) mistakenly believe that with the right subsidy package and safeguards, they can eliminate all or nearly all of the risk associated with using public dollars to subsidize a private business. Any business can fail, due to its own negligence, or due to factors beyond its control. Public financing for a project cannot guarantee success, though it may prop up a business that otherwise would not be profitable without taxpayer money. Furthermore, as we may see in Moberly, no matter how many safeguards are used, the result may be that taxpayers are left holding the bag.

The second issue that may be at the heart of the Mamtek debacle is the fact that people and businesses will strive to get the largest benefit for the least amount of effort. That behavior has been seen in Missouri with gaming the requirements of the Missouri Quality Jobs tax credits and the general tendency of companies trying to access as many subsidy programs with a single project. It also has happened in China, where shoddy construction work on a high-speed train may have resulted in at least 39 deaths, along with corruption charges and the misuse of public funds.

As an outside observer, I don’t know whether any of those involved (Mamtek, the DED, current and former top state officials, etc.) deliberately misled anyone. There are ongoing criminal and civil investigations that may determine that.

However, the testimony that the House committee has heard so far sounds bleak, particularly the state’s investigation of the Mamtek company. The Columbia Daily Tribune posted the House committee information packet on Mamtek, and portions of it are riveting.

For example, one point of contention is whether Mamtek ever had an operating plant in China, as the company claimed in its project summary. The company wrote:

As of December 2009, Mamtek had moved from development into manufacturing and sales. We have completed both an 18-ton pilot production line and a full-scale, fully-functional [sic] 60 ton line (metric tons per annum). Each step and detail in the manufacturing and operational processes have been verified independently by the international patent firm Perkins Cole (page 27 of the House committee packet).

And then, Michael Wise, the patent attorney of Perkins Cole, a company closely affiliated with Mamtek, allegedly told the Moberly Economic Development Corporation that he had seen the plant himself, and that it had been operational for several years (page 43).

But yet, in April 2010, attorney Edward Li, a Chinese trade consultant for the Missouri Department of Agriculture, wrote to state officials to say that construction of a plant in China began in 2008, but was never completed (page 5).

Greg Havener, at the DED, wrote in an email with the subject “RE: BUILD PROJECT RUSH”  that he couldn’t find much information about Mamtek. “There is little on Google, oh well it will be a ’thin report,’ “ he wrote (page 41). That email was sent on June 3, 2010, days before state incentives for Mamtek were approved.

Oh well, indeed. It is my prediction that while the future of Mamtek is uncertain, and while the financial future of the city of Moberly and its 13,000 residents is uncertain, the future of the DED is not.

In the private sector, if a business makes a $40 million mistake, it suffers dire consequences. For many businesses, that kind of mistake can result in bankruptcy. If no substantive reform is implemented at the DED, its operations will continue as usual. In the past, that has meant tax credits awarded to voided projects, inflated job and investment numbers, and vast amounts of taxpayer dollars going to incredibly inefficient programs.

I hope this episode will lead to major changes at the DED. If a more thorough investigation on each development package leads to fewer development handouts, that is a good thing.

Nixon said that he had offered assistance to [Saint Louis County Executive Charlie] Dooley. In particular, the governor mentioned Lone Elk Park, which is adjacent to Castlewood State Park. Nixon said such a state-county operation there would save money.

Lone Elk Park is adjacent to Castlewood State Park and a previous article states that the county was considering transferring Lone Elk Park to the Missouri Department of Conservation. The governor claims that a shared management operation would save money. I haven’t seen any data to support this claim, but IF it is true, then the idea can be viewed as having some merit.

However, it seems odd that in this article, the topic of privatization was barely mentioned, except in this brief statement:

[Saint Louis County Chief Operating Officer Garry] Earls initially said that some of the parks, including Lone Elk, could be sold. However, Dooley dismissed that possibility at a special budget meeting Tuesday night.

Prudence would suggest that the county not dismiss privatization (or ANY potential solution) out of hand. Shouldn’t the county consider privatization as a possible course of action before sharing park management with the state? If there ARE obstacles to privatization, what are they? The only obstacle I could find is in this piece of information from the Southeast Missourian:

Officials said deed restrictions and covenants would prohibit the sale of most of the parks to private individuals.

However, Lone Elk Park does NOT have a deed restriction on its sale so the above restriction would not be applicable. Are there any other reasons the county would not consider privatization of Lone Elk Park?

As David mentioned in his post, the Reason Foundation has done a good analysis of park privatization, and the conservancy model of non-profit, public-private partnerships operating a park has been tried successfully in Tower Grove Park. County officials have not given a reason why following the Tower Grove example would be a bad idea, and unless there is a deterioration of Tower Grove’s situation, shouldn’t Saint Louis County investigate privatization of Lone Elk Park if a private operator can be found to manage it?

Look, we all know that tax credits have a bad track record of success. Quality Jobs tax credits are especially infamous in Saint Louis, because of Liberty Mutual. The company sent pink slips to many of its employees, and told those employees that they could apply for lower-paying jobs.  Surprisingly, the Missouri Department of Economic Development said that Liberty Mutual remained eligible for the tax credits.

Of course, Quality Jobs tax credits are supposed to go toward creating high-paying jobs.

But today, I’d like to commend the creative designer who created the Business Journal graphic below. At first, it may seem like an ordinary cereal box. But, instead of the usual commercial claims, this cereal box proclaims that it is “Packed with $20 million in industrial revenue bonds,” and “INSIDE: $3.8 million in tax credits.”

I only wish that the designer had incorporated some fine print. Perhaps: “Job creation numbers have not been verified. Up to $20 million in bonds may be used for the project, which may not be good for the city of Saint Louis’ financial health.”

Graphic by the St. Louis Business Journal.

The city has issued an average of $35.4 million in permits per month since the tornado. Before the tornado, the city averaged just over $2.1 million a month in building permits.

Despite this evidence of a robust private market, the Missouri Housing Development Commission has:

. . . committed about $100 million in tax credits and loans over the coming decade to spark the construction of low-to-moderate income rental units and single-family, owner-occupied homes in the Joplin area.

[A] Sept. 30 revision of the federal wage rules significantly increased those amounts. For example, the federal prevailing wage for a carpenter in the Joplin area rose from $7.98 an hour to $21.47 an hour plus $12.65 in benefits. The federal prevailing wage for a roofer in the Joplin area rose from $7.25 an hour, which matches the general federal minimum wage, to $21.30 an hour plus $8.08 in benefits.

MoDOT officials state that in order to pay to rebuild I-70 using gas taxes (and I have nothing against gas taxes; I just prefer tolls where feasible), they would have to impose a 15-cent per gallon state gas tax hike. I am going to do a follow-up post next week on costs after I have time to work through the numbers, but for now, realize that everyone in Missouri would pay that same extra 15 cents, including people who rarely use highways, particularly I-70. People in Kennett would pay the same as people in Kingdom City. People who drive primarily on local roads (paid for with local property and sales taxes as well as gas taxes) would pay the same as people who drive predominantly on highways (which gas taxes pay for almost entirely).

The Show-Me Institute released a terrific study on private financing of highways back in November 2008. The study was done by “distinguished urban economist” (Freakonomics’ words, not mine) Kenneth Small. It may be my favorite paper that we have released, and it has something important to say about this exchange in the hearing with MoDOT yesterday:

Committee chair, Sen. Bill Stouffer, R-Napton, said he was concerned that motorists may try to avoid I-70 if it became a toll road, pushing traffic onto smaller roads, such as Highway 36 and Highway 50.

Keith said the concern was valid, but it would be up to the toll road operator to make sure tolls aren’t excessive.

The concern about traffic being pushed onto other roads because of high tolls is legitimate. Prof. Small states on page 23 of the study: 

The best results occur when the objective for awarding the franchise takes into account a combination of all three forms of payment by users and taxpayers: their own costs of congestion, toll payments, and the subsidy required. This is a highly stylized model not suited for designing a franchise for a specific road, but it does highlight the importance of considering not only toll payments and subsidies but also congestion costs incurred by users of both roads. 

I have one minor critisicm of the proposal. I do not think this should be required:

After the project is complete, the contractors would operate the toll plazas for a period of years until the contractor’s investment has been repaid.

I say just toll it now and forever. After the investment is repaid, there will still be maintenance costs. It may be reasonable to require that the toll be lowered at that point in time (when the debt is gone and MoDOT faces just upkeep), but doing away with toll at that point is not necessary, in my opinion. However, that point is minor, and I think MoDOT deserves great credit for this proposal.

In its opinion leading to the supreme court hearing, the intermediate court of appeals noted the following:

. . . no Missouri court has expressly interpreted Article I, section 29 [of the Missouri Constitution] to contain a duty of good faith . . .

If the Court, in a fit of judicial activism, writes a “duty to bargain in good faith” standard into the state constitution, school districts, once vested with substantial discretion from the legislature to manage their affairs, will suffer tremendously. For example, rejections of union proposals will now spawn threats of lawsuits. Districts will hire attorneys to assess the liability risks of decisions once left to the discretion of the districts’ officials. Good faith, in this context, is an invitation to litigate. And litigation diverts scarce resources and money from the districts’ core mission: to educate our children.

Interestingly, the Missouri Legislature has rejected five attempts to statutorily adopt a good faith standard (see footnote 4 in court’s decision). Haven’t the people spoken through their elected representatives? The Court should heed this message and reject a duty to bargain in good faith standard for Missouri’s public school districts.

But the core of it is getting major cities within two or three hours of each other. So, St. Louis to Chicago within three hours — with completely new infrastructure the entire way, it’s possible you get it down under two.

But you know what? The entire project currently underway in Illinois is based on implementing a 4-hour trip each way (at best). We are spending billions to knock a little more than an hour off of the current Amtrak route, and supporters of it are intentionally downplaying that.

Later in the interview, Harnish gives a great little aside downplaying safety of cars and claiming, by insinuation, that trains are safer.

. . . if you believe that our strength and unique identity is tied to the ability to risk your life everyday in a car . . .

OK, so we risk our lives everyday in a car. Would we not risk them in a train? Now, I am not saying passenger trains are unsafe — they are indeed safe. But if you compare them to cars, there are more fatalities on passenger rail than in motor vehicles per passenger mile. According to the latest data, passenger cars have 0.9 fatalities and 83 injuries per 100 million passenger miles. Passenger rail has 2.9 fatalities and 1,226 injuries per 100 million passenger miles. So they are both safe, but let’s not pretend passenger rail is safer.

High-speed rail is to transportation policy what ethanol is to agriculture policy. They are both high-cost jokes designed to please limited constituent groups (corn farmers, unions, Keynesian economists) which would not exist if markets made these choices instead of politicians. (High-speed rail on the eastern seaboard may pass the market test, and thanks to John Combest for the link.)

Tuesday’s vote is a wake-up call: reform TIF.

I want to make it clear that I do not want to outlaw wine in Missouri. However, it troubles me that taxpayer money is subsidizing the wine industry. Specifically, the Missouri Department of Agriculture spends $1,828,859 (click on HB 6-Agriculture and scroll down to page 133) on something called the Missouri Wine and Grape Board.

According to the Department of Agriculture’s 2012 Budget Request Form (click on HB-6-Agriculture and scroll down to page 134), “The Wine and Grape Board stimulates growth of the grape and wine industry for the economic and social benefit of the citizens of Missouri.” Aspects of the board’s functions include using funds to “develop programs for growing, selling, and marketing of grapes and grape products grown in Missouri.” Indeed, the Missouri Wine and Grape Board does have marketing products, including brochures, videos, and radio advertisements. The Wine and Grape Board also funds the University of Missouri Institute for Continental Climate Viticulture & Enology in order to fund grape research programs.

So, in essence, the board serves somewhat like a chamber of commerce for the Missouri wine and grape industry. However, unlike a chamber of commerce, participation in this program is mandatory, with a charge of a 12-cent excise tax on every gallon of wine sold in the state. Also, in all my searches through the state budget, I have yet to encounter an official appropriation for a private chamber of commerce.

I have to ask, why can’t Stone Hill or Hermannhof promote themselves with their own money? Why can’t there be a private chamber of commerce that promotes the wine industry, or all the wineries of the state? I have no problem with private groups promoting wineries, but do I think the state should be promoting them? No.

Also, there is no evidence that this expenditure actually DOES have a positive impact on the state’s wine industry. In my search, I haven’t seen anything to suggest that the Missouri Wine and Grape Board has a discernible impact on the Missouri wine industry. Even the economic development report on the Missouri Wine and Grape Board website doesn’t really show the spending cause and effect; it just shows that in recent years, Missouri wineries are doing well. However, it doesn’t link the activities of the board to the wine industry’s success.

The key issue here is funding priorities. Why is the state funding this board, at least at its current level, when there are other places in the budget that may require that money? If the choice for appropriators is between potentially laying off teachers, firing firemen, or withholding funds from vital social services, shouldn’t every area of the state budget come under review for potential savings? Just my 2 cents.

The city long survived on speeding ticket revenues. After a few scandals resulted in the disbanding of the St. George Police Department, the Saint Louis County Police Department took over. That was perfectly fine for the residents’ safety, but the County has no interest in writing speeding tickets solely for the purpose of city revenues. So the city lost its major source of revenue, the streets started to crumble, and there was no money for repairs. Thankfully, smart thinking prevailed and the city will no longer be with us once the votes are certified.

I am not a knee-jerk supporter of fewer municipalities in Saint Louis County. There are benefits (as well as costs) to having a number of small cities. The lack of centralized urban planning is the main benefit. However, in some instances, the tiny municipalities in the county border on the ludicrous, and St. George was Exhibit A.

I think some of the other 91 90 cities in the County should consider doing the same. Some should disincorporate, some should merge, and some others should follow Jennings’ lead and remain as they are while making key changes. I have no idea what would be the ”best” number of cities in the County. Nobody else does either. For the sake of this post, I would say that about 70 cities would allow for the benefits of many cities while getting rid of the most obvious cost inefficiencies and poor policies (like cities that have a primary funding source of speeding tickets).

Whatever the choice, it should be up to local citizens. I think the local citizens of the newly-unincorporated community formerly known as St. George made the right decision and have shown us the way.

According to the Post-Dispatch, not only does the charter school company appear to have rushed to open a school without providing textbooks and other school supplies, and with some classes held in hallways, but the school hired a developer who pled guilty to fraud earlier this year (in an unrelated matter). That developer also received historic tax credits for redeveloping an Imagine Schools property, and charged the charter school company $150,000 for the service of acquiring nearly $480,000 in tax credit money from the state.

In her letter to the sponsor of the Imagine charter schools, Nicastro minced no words:

We do not view it as the intent of the Missouri General Assembly that the department engage in intrusive regulatory oversight of charter schools, or to perform the administrative responsibilities of the sponsor. However, it appears from your public statement that [you desire] our recommendations in this matter. Let me be specific:

1) Announce immediately that the Imagine charter schools will close at the end of the current school year.

Some may rush to use Imagine schools’ negligence as evidence that many, if not all, charter schools are inferior, and that the expansion of charter schools in Missouri is bad public policy. On the contrary, it is necessary that bad schools close in order to enable good schools to thrive. In any endeavor, whether it is business, art, or even education, there will always be some successes and some failures. It is important to encourage success and limit failure.

The esablishment of charter schools, which are outside the traditional school district framework, is one way to do this. The theory behind charter schools is that the good ones will thrive on their own merits, and the charter schools that do a poor job of educating students will lose students and funding.

Based on the Post-Dispatch coverage, along with the mayor’s and the education commissioner’s statements, the Imagine schools in Saint Louis City certainly appear to be failing. As such, students and funding should be shifted to schools that do a better job of educating students. If the sponsor of the schools has been negligent in monitoring whether they have been successful (an intricacy created by our convoluted education law), then calls from the  mayor and education commissioner to close schools are certainly warranted.

However, I think that this controversy can also be a learning experience. Yes, Imagine schools appear to be failing. But failing is not unique to charter schools. There are certainly many public schools that are failing their students — be it in providing safety, an adequate mathematics education, or curtailing dropout rates.

For example, Yeatman-Liddle Middle School in Saint Louis City has had increasingly fewer students score proficient or better on the state mathematics test. During the 2007 school year, 35.5 percent of students at the school scored “below basic” on the eighth-grade state math test. In 2010, 64.9 percent of students scored below basic, a proportion almost twice as high as the students scoring below basic just a few years ago. A much more thorough review would have to be conducted, but it appears Yeatman may be doing a poor job of teaching math to its students.

Letting a failing school continue does not help current students. During the past Missouri legislative session, I testified before the House Education Committee to discuss a proposal that would enable parents of students at a failing school to trigger reform, a proposal that I think might help address the problem of failing schools.

Rather than treating Imagine as an isolated incident, let’s recognize that schools can fail — regardless of structure — and consider ways to allow that failure while encouraging successful schools to grow.

There’s no doubt the governor grasps the notion that tax incentives can promote investment — but when will he realize that cutting taxes may have the same beneficial effects? Tax cuts may attract more investment to Missouri, promote job growth, and incentivize business expansions — three things for which Nixon already credits tax incentives. Tax cuts may even make business expansions easier; there won’t be all the red tape that goes along with obtaining government tax incentives.

It’s not as if tax incentives always work. Remember Mamtek? Hundreds of jobs were promised, but now all the state has to show for it are an SEC investigation and an unhappy legislature. Show-Me Institute Policy Analyst Audrey Spalding has already written on this and other tax incentive blunders. Because tax cuts won’t be tied to firm-specific investment and job creation, such government failures could become a thing of the past.

The governor needs to stop favoring focused tax incentives and start favoring broad tax cuts.

Given the continued furor surrounding the park-closure idea, it is probably worthwhile for Saint Louis County residents to see the proposed budget for themselves. I have embedded it below for review. The 300-plus-page document is searchable, and I’ve queued it to the budget summary (listed as page 10 in the County document).

(We’ve also added the County’s recommended budget to our Show-Me Sunshine library of documents.)

If County residents don’t like the idea of cutting parks, there’s always the option of simply cutting other expenditures. Which budget items would you trim?

Many politicians are justifiably concerned when the topic of education budget cuts is raised. It is easy to imagine why. Nobody welcomes the prospect of facing a 30-second advertisement detailing the many reasons he/she doesn’t care about children because he/she proposed cuts in education spending. However, out of a Missouri Department of Elementary and Secondary Education (DESE) budget of more than $5 billion, it is definitely possible to find some savings. For example, one school district paid lifetime health care insurance just to retain its superintendent another year. Isn’t that a worthwhile issue to examine regarding budget cuts?

I can hear the concern of those who think budget cuts to DESE would cause great harm, but would some cuts really be so horrible? Not really, at least according to figures from the National Center for Education Statistics. Compared to 2003, the test scores for Missouri students ROSE for both fourth and eighth graders in math (for fourth graders, the average score in 2003 was 235; the average in 2011 was 240) and scores remained the same for eighth graders in reading (see page 51). Only fourth-grade reading scores dropped (222 in 2003 compared to 220 in 2011) over that period.

I’m not saying that cutting the state education budget will necessarily lead to BETTER test scores. All I’m saying is that cutting the education budget MIGHT not be as much of a disaster as some may fear. We have been trying the opposite approach for a while now and it’s not producing significant results. It is difficult to argue that there is NO room for savings in the DESE budget. In regards to balancing the budget next year, everything should be on the table.

I think this proposal is poor public policy. It disproportionately benefits a very small number of people while taxing a huge number of people who visit downtown Columbia, in order to finance public spending for things that hardly pass the public goods test (event promotion, business marketing, free Wi-Fi). For more on why I think CIDs in general are a bad idea, please check out this testimony I gave in Nixa, Mo., earlier this year.

Supporters of TIF often say that it is harmless. The rationale behind TIF subsidy is that a development’s taxes are “frozen” at current levels for a number of years. If a developer improves the property during that time, he won’t pay additional property taxes on the improvement.

However, TIF amounts to tax redirection without representation. Tax dollars intended for a school district (which come from property taxes) can be used to pay for costs associated with the subsidized development. Unlike school district officials, city officials tend to be enthusiastic about TIF because they can reap the benefits from increased sales taxes (which generally increase when TIF is used to subsidize box store development) without bearing much of the cost of lost property tax revenue.

Many voters get no say in the matter when they live in a school district impacted by TIF but outside of the city that is imposing the TIF. Some readers may think this is fine. After all, these are local subsidies — residents in Joplin certainly won’t pay for a proposed TIF in Columbia. Aren’t the cities of Brentwood and Saint Louis free to use TIF as much as they want?

Well, thanks to the intricacies of Missouri’s tax system, we all pay for TIF, even if we live in cities that do not award such subsidies.

School districts primarily receive funding from three sources: local property taxes, state aid, and federal aid. State officials use the local property tax base as part of the equation to calculate the funding it sends to school districts.

So, when TIF carves out a portion of the property tax base from a school district, the state can end up sending more funding to that district.

According to a 2003  study by the Brookings Institution’s Center on Urban and Metropolitan Policy, TIF can increase state aid by up to 7 percent in Kansas City-area districts, and up to 5 percent in Saint Louis-area districts. The author, Thomas Luce, estimated that up to 21 percent of the state aid going to the Fort Zumwalt School District in St. Charles County was attributable to TIF revenue losses.

Not only does TIF result in dollars intended for schools to be redirected to development, we all end up paying for it through state income and sales taxes. And yet, it is unlikely that a taxpayer in Cape Girardeau will ever benefit from a Kansas City TIF development that he helped subsidize.

If TIF is truly as transformative as supporters believe, then it should stand on its own. The state funding formula should not reimburse school districts for property tax revenues lost to local governments’ development bets.

No doubt, the Kansas City Zoo’s funding pales in comparison to some other parks. For example, in 2006, the Saint Louis Zoo’s budget topped $46 million, with nearly half of its funding coming from the Metropolitan Zoological Park and Museum District (ZMD), which Saint Louis City and County property tax dollars fund. For perspective, the Kansas City Zoo’s budget last year was roughly a quarter that size, at $11.6 million — $3.4 million of which came directly from the city.

Is there a funding disparity here? Has Kansas City, to date, placed a different priority on its zoological park compared to other metropolitan needs? Sure, on both counts. But according to a report in the Kansas City Star that may be changing, and soon:

The zoo on Nov. 8 will ask voters in Jackson and Clay counties to create a new zoo district by approving a 1/8-cent sales tax. It would give the animal park an assured stream of money safe from the uncertainties of the Kansas City municipal budget.

Supporters say it would vault Kansas City into the ranks of the truly great regional and national zoos.

“We’re looking at this as one chance in a lifetime,” said Randy Wisthoff, the zoo’s director. “It could be the most important thing to happen at the zoo in its 100-year history, or in the next 100-year history.”

When every big government project is marketed as a “one chance in a lifetime” opportunity to taxpayers, I have to say, the buzz of the suggestion wears off pretty quickly for me. Phraseology like this, of course, is intended to engender urgency for a cause, but while that’s a fine marketing strategy, it can facilitate really bad, and oftentimes silly, public policy decisions.

How much would a fully-implemented Kansas City zoo tax generate? Quite a bit, actually.

If approved in both counties — it must at least pass in Jackson to take effect — the zoo district could generate $14.2 million a year. That is more than the zoo’s entire budget now and would allow it to accelerate a master plan that calls for a $15 million penguin exhibit, an orangutan jungle and a new display for big cats. Plans also include a water play area for kids and a giraffe feeding station.

Another Kansas City Star report notes that “zoo officials say they need a regional tax base to compete with better-funded zoos,” but, is the market for zoos so lucrative that Kansas City really needs to raise its zoo game with a special tax? As someone who had the opportunity to appreciate and enjoy the zoo as a child two decades ago, I would love to see Kansas City expand its zoo, but I’m not convinced that (1) it’s needed, (2) the taxpayers need to pay for it, or (3) that the economic effect of the zoo justifies special taxpayer attention.

It’s the prerogative of Kansas City area residents to determine their tax burdens, so if they see a benefit from the tax, it shall be. But as someone from a family of zoo supporters, I’m not convinced it’s necessary.

Note: Platte County and Cass County, both of which contain parts of Kansas City, will not vote on the zoo tax next week. Residents in those counties might vote on the issue sometime in 2012.

I hope that the job and investment numbers touted will hold up as promised. The St. Louis area could certainly use some more economic activity.

However, given the track record of similar job estimates, we should all be skeptical of such claims. It is very easy to issue a press release touting job estimates. Indeed, politicians do this all the time. It is a way to tell voters that something is being done to address the economic recession, even if no economic activity has actually occurred. It is much more difficult to follow a project through completion and track the actual number of jobs created and the actual amount invested.

Regarding the Wentzville plant, we should all watch carefully. A great deal of state and local taxpayer dollars will go to the project. The St. Louis Post-Dispatch reports that GM has been approved for $36.8 million in tax credits over a 10-year period, and that the company has applied for an unspecified amount of tax credits through the state’s Quality Jobs program.

GM will also get to keep 100 percent of employee withholding taxes for a 10-year period. Additionally, the city of Wentzville has approved the plant property for partial tax abatement, meaning that GM will get a nice break on its property taxes (which aren’t all that high).

And, of course, let’s not forget about all of the federal tax money GM  has received in recent years.

I wonder just how much the final bill to Missouri taxpayers will be.

Nixon and others claim that the state incentives have spurred the promised investment. But how do we know? Given the findings of academic studies of tax credit effectiveness, it is certainly possible that the plant would have located here without the incentives. It is also possible that the plant would have located somewhere else in the United States. In either case, the plant would have been built and cars would be made.

I also wonder what we aren’t seeing. When the state awards this much in tax incentives, it is a tacit acknowledgment that the tax rate everyone else pays is too high. How many small businesses are failing because of a burdensome tax rate? How many companies already located in Missouri are harmed when the state hands millions of dollars to their competitors?

I think one person who commented on a Show-Me Daily blog post hit on the tax incentive problem we face. He wrote: “The problem is that abandoning tax credit legislation means abandoning a lot of campaign donors — and legislators hate doing that.”

Tax dollars should be used responsibly, instead of helping elected officials gain political favors or favorable news coverage. It sounds like the state will be facing some tough budgetary problems next year. Shouldn’t we be focusing on encouraging authentic job creation and funding needed programs instead of pinning our hopes (and millions in taxpayer money) on promises?

• Internships are open to current undergraduate and graduate students, as well as recent graduates.
• Winter/spring internships will last approximately four months. The exact starting and ending dates are flexible, but we anticipate that each internship will run from January 4 through May 23.
• Winter/spring interns can work a part- or full-time schedule, 9 a.m.-5 p.m., with attendance strongly suggested at the institute’s book club once a month.
• Because the Show-Me Institute is a “small shop,” interns will be involved in virtually all aspects of the institute’s operations. Interns work closely with senior staff on a wide variety of projects. They can expect greater responsibility and personal attention than they would receive at larger organizations.
• Interns will assist staff members with a variety of tasks. These may include researching public policy topics, organizing events, and writing and editing op-eds, newsletters, studies, and other documents. Some administrative and clerical tasks also are required.
• A Show-Me Institute internship is an excellent opportunity to improve your research and writing skills. Each intern will produce an op-ed on a public policy topic of interest to him or her. Each intern will receive feedback and assistance from the institute’s staff members throughout the process.
• All internships will occur at the Show-Me Institute’s offices in the Central West End.
• Interns are paid on an hourly basis.

Those wishing to be considered for an internship should submit the internship application and the requested supporting materials (click on “2012 Winter/Spring Internship Application” at bottom of page).

The deadline for consideration is December 2, 2011. Applicants can expect a decision in mid- to late December.

Business Licenses

Per City Ordinance (Chapter 110), anyone doing business in the City of St. Charles must have a business license issued by the City of St. Charles. This includes:

• All businesses with a St. Charles address
• Residents working from their homes
• Out-of-city businesses such as contractors, sub-contractors, delivery businesses, etc.
• All professionals

There is just one problem with these statements; they aren’t accurate. First, there are several occupations commonly considered “professionals” that state law specifically excludes from local licensing requirements. Lawyers, CPAs, doctors, dentists, and several other professionals are exempt from local business license fee requirements.

Furthermore, there are other types of “out-of-city” businesses that are exempt from licensing fees unless they fit the first example and have a specific city address. While the examples detailed on the website (contractors, etc.) are correct, other businesses, such as insurance brokers and engineers, are exempt from local licensing unless they have an office in St. Charles.

I bet there are a lot of cities requiring the same thing, and attempt to collect business license fees from firms that don’t know they are exempt. Does the typical land surveyor know he or she is exempt from having a business license? Perhaps. I bet it is less that cities attempt to collect the license fee from exempt businesses as much as they allow people from firms that don’t know better to pay for the license without telling them otherwise.

Is it possible that city officials tell those who are exempt from local licenses that they are so exempt when they arrive to pay for the license? Sure, but that is putting a lot of faith in individual employees to correct the misstatements on the website.  

The city of Saint Louis does a good job of displaying a link to the exemptions on the website of the license collector. St. Charles, and probably many other cities, could stand to take a (web)page from that. I am a big fan of the new mayor of St. Charles. Hopefully, her new administation can correct this soon.

“I don’t think it’s up to those guys to make that decision,” said Walter Crawford, executive director of the World Bird Sanctuary, which borders Lone Elk Park. “That park belongs to you and me.”

If it is not up to county officials to determine how to raise and spend tax dollars, whose job is it? Not surprisingly, the hipster urbanists are all a-twitter:

Parks represent a community’s shared aspirations and values. Our St. Louis County Park system is a national treasure.

No, it isn’t. It is a wonderful local park system, but “national treasure” is a fair bit of hyperbole.

I think the real opportunity is for cities to take over some of the parks that are within their borders. Many of the parks in question were county parks before these cities, such as Wildwood, incorporated. County government officials are correct to propose changing that model now. Residents in the newly-formed cities gain the benefits of the local park without the marginal tax burden. The St. Louis Post-Dispatch explains further:

The possible transfers: Lone Elk Park to the Missouri Department of Conservation; Greensfelder to the city of Wildwood; George Winter to Fenton; and Bon Oak to Dellwood.

Officials said that they had not yet contacted the state or municipalities to discuss that prospect.

However, Wildwood Mayor Tim Woerther said on Tuesday that he would be open to the idea of taking over the 1,734-acre Greensfelder.

“We would certainly be receptive,” he said. “But obviously, the devil is in the details.”

I commend Mayor Woerther for his openness to the idea. I would add Tilles Park in Ladue to the list; perhaps the cities of Ladue, Brentwood, and Rock Hill could take over the park in a cost-sharing arrangement. (Tilles is in Ladue, but on the border of Brentwood and Rock Hill, and residents of all three cities use the park extensively.)

Another possibility for some of these parks is to deed them to neighboring subdivisions as common ground. This is an option for the smaller, neighborhood parks on the list, such as Mathilda-Welmering. Maybe they would be well-maintained in that situation and maybe they wouldn’t, but the choice, and cost, would be up to the local residents who use the park. 

And, not surprisingly to regular readers, I think privatization should be considered for some of these parks. The Reason Foundation has covered the issue of park privatization at length. The conservancy model of non-profit public-private partnerships operating a park has been used successfully in some Saint Louis city parks, such as Tower Grove Park. Private supporters also have played a role in the success of some destination parks in the area, including Forest Park and Faust Park. (Nextstl.com has good detail on this in its story.)

The privatization model will, in my opinion, work better for destination parks. But, I think Lone Elk is such a destination park, and because it is one of the parks without a deed restriction on its sale, I hope the county gives that option strong consideration if a private operator can be found to manage it.

I don’t agree with every idea that the county executive proposes here, but I don’t think he deserves the criticism from all sides that he is receiving. Some of these cuts are tough choices that have to be made. I believe that the government is too large and too costly at every level. So, my axiom to that rule is that I don’t criticize elected officials — of either party — when they propose budget cuts, especially in tough economic times. (I think the closest I came to breaking that principle was in defense of Parents As Teachers. But, I only argued against its elimination; I supported cutting its budget.)  

If cities can take control of some of these parks, if privatization (including non-profit control) can be applied to the facilities where it may be best suited, if the more obvious cuts and changes can be applied (like closing minimally-used pools and expensive community centers), then I believe these changes can be implemented and, in the end, most St. Louisans would barely notice.

Stay up-to-date on Missouri free-market issues wherever you are, and please contact us — from your phone or on this blog — with your questions and comments.

Today, the Show-Me Institute is releasing a new policy study on the effectiveness of tax credits: “Tax Credits as a Tool of State Economic Development Policy.” This study, by Howard J. Wall, director of the Institute for the Study of Economics and the Environment at Lindenwood University, reviews academic studies of tax credit programs in other states and discusses some of the broad arguments made in favor of tax credits.

One of the most striking findings in Wall’s study is the following: “State tax credits do not tend to lead to higher levels of employment for local residents, nor, by extension, do they lead to higher levels of employment for state residents.”

Consider the academic evidence:

• In a 2009 Michigan study, the authors found that tax credits were associated with a decline in employment.

• Some academics say that tax credits would be effective if used in distressed areas. However, an Ohio study found that tax credits generally are not awarded in distressed areas – a pattern that I suspect exists here in Missouri. Just look at The Chase Park Plaza, a luxury hotel and recipient of a great deal of tax credit money.

• In fact, tax credits may be awarded to companies that would have expanded anyway. A Georgia study found that 75 percent of tax credits were awarded to companies that would have hired more workers without receiving tax credits.

• There have been three prominent surveys of tax credit research in recent years. None of the surveys concluded that tax credits are an across-the-board, effective tool. In fact, one concluded that legislators should abandon tax credits altogether.

Most academic research on tax credit programs across the U.S. has shown that tax credits don’t work. Why do some legislators think that the situation in Missouri is any different?

If you visited the Cardinals’ official website today to buy tickets, you’ve probably seen this page:

Now for the good news: Tickets to the game are still available! The bad-ish news? It’s going to be expensive if you want into Busch Stadium tonight. The lowest price going on StubHub right now is $489, for standing room only.

The most expensive ticket for the game: more than $12,000. David Stokes, a Show-Me Institute policy analyst, wrote Wednesday about the effect of legalizing scalping on the cost of after-market ticket purchases. From the article he quotes:

The ante rises during the playoffs, when a box seat can fetch more than $1,000 and even the price of standing through a nine-inning ballgame can run as high as $300.

We are well beyond that point today. But simply put, secondary markets – whether on the street or online – usually do a fine job of reducing product inventories by matching willing sellers with willing buyers. Those that value a ticket literally as much as a house payment can buy one; those seeking to unload their ticket can sell it; and those making the market receive their own cut for the service they provide. Everybody wins.

(By the way, originally I was going to write that “thousands of tickets are still available,” but that’s rapidly becoming untrue. During the 20 or so minutes it took to write this post this afternoon, the available number of tickets dropped from approximately 2,100 to 1,800. Prices are high, but they’re obviously not too high.)

This all naturally flows into David’s other post on the World Series regarding parking prices. Websites like StubHub (which is, not surprisingly, owned by eBay) are great because the market is pretty clearly informing what sellers are charging. World Series tickets, while they may have some collectible value after the fact, are ultimately perishable: they’re used for a game, or they’re not. That’s why if you want to go to a regular-season game and don’t mind missing the first inning or two, you can get better deals, as scalpers try to avoid getting stuck with tickets when the music stops. That “wait and buy” opportunity will, for the most part, be non-existent tonight (I think) but the moral of the story is that people place different values on different products, services, and conveniences. Parking lots around the stadium wouldn’t raise their prices if they didn’t think those spaces were valuable to parking customers. World Series ticket prices are very similar in that regard.

In any case, enough economics. Here’s to you, Cards. May the rally squirrel be with you.

Why is cutting corporate taxes important?

First, everything else being equal, cutting corporate taxes will leave more money available for business owners to reinvest in their companies. A company seeking to expand will have an easier time using its own profits instead of issuing debt or equity to raise capital.

Second, it’s fair.  As we have seen in Missouri, when legislators want to incentivize investment in the state, often they create targeted tax credit programs (like Aerotropolis). This allows the state to place a bet with taxpayers’ money on favored industries. Also, evidence shows that tax credits aren’t very effective. A corporate tax cut applies to every corporation in the state and thus companies can succeed on their own merits and not on how well-connected they happen to be.

Third, corporate tax cuts make a company more competitive. If Company A and B are in two different states and they make the same product at the same cost, but Company A has a higher tax rate than Company B, then Company B will have a competitive advantage. However, Company B would have a competitive advantage not of its own making; instead, the company would have an “artificial” edge due solely to its location. Company B can use that tax advantage to cut its prices and thus gain more customers than Company A.

Having a competitive advantage is important, especially in today’s economy. This applies to individual companies as well as states. If a state wants more job growth, then it needs a competitive tax environment. According to the U.S. Department of Labor (hat tip to Tax Foundation), most mass job relocations occur from one U.S. state to another and not to overseas locations. People in Kirksville, Mo., have more to fear about their jobs moving to Des Moines, Iowa, than to Delhi.

According to data obtained from the Tax Foundation, Missouri has the sixth-highest corporate tax rate compared to its neighbors (the states sharing a border with Missouri). However, if Missouri cut its corporate tax rate to 5.5 percent, it would have THE lowest corporate tax rate compared to its neighbors. In a time when every job is precious, and with the way things are in Washington, D.C., shouldn’t the state do everything it can to make doing business here more attractive?

As the St. Louis Business Journal put it: “…devotion to God, country and the region was [questioned] by almost anyone who dared question the planks of the China proposal.”

From today’s St. Louis American, which is generally sensitive to incorrect negative stereotypes: “…and some rhetorical heat was added by tea party types who created hysteria around a threatened ‘Chinese invasion’ of Missouri subsidized by Missouri taxpayers.”

The claim above is similar to those echoed in online forums and elsewhere that the widespread public opposition to the Aerotropolis tax credits was based on a fear of increased international trade with China, or that concerns voiced came from uninformed individuals.

Ostensibly, the purpose of the tax credits was to encourage increased international trade at Lambert-St. Louis International Airport. However, the tax credit proponents made numerous claims that lacked evidence, or were flat out wrong.

I don’t dispute that well-informed individuals can disagree on a policy proposal. But throughout the past year, I have spoken to many community groups about tax credits and answered questions from many other individuals who were concerned about the Aerotropolis proposal. The accusation that those concerns are rooted in xenophobia is false.  I am disappointed that some tax credit proponents have characterized the advocates for reform in that way.

Look, the primary concern I heard was genuine interest in encouraging legislators to abandon corporate welfare policies of the past. True, some focused specifically on the Aerotropolis tax credits. But many voiced skepticism and concern about tax credit programs in general — on the grounds that state government shouldn’t be favoring some industries or individuals over others.

I hope that when the legislature reconvenes in 2012, we can have a public debate regarding the merits of tax credit programs, instead of resorting to name-calling.

“You made more money when it was illegal — it wasn’t even remotely close,” said Tony Green, a ticket broker for 20 years. “We knew all the cops, so they wouldn’t bust us.”

So, how did my 2007 prediction on ticket scalping work out? There may be no way of knowing if more people are paying above face value for their tickets to these playoffs, but I still think that is a reasonable belief. However, my predicted overall price decrease for major sporting events was apparently dead on (not that it was a difficult prediction).  

In case you have not watched it yet, please enjoy this video of the Show-Me Institute turning all of our interns loose in a ticket-scalping competition last summer.

From the Liberty Tribune: “The tax rate the district considers necessary would be significantly lower if not for TIF,” Superintendent Mike Brewer said.

Frankly, I’m inclined to agree with him.

TIF allows developers to freeze taxes at a base level and invest any increase in property tax value that otherwise would go toward taxes into developing the property, for up to 23 years. Essentially, TIF allows newly-developed property to escape the higher taxes that higher property values normally entail. If a residential developer acquires approval of a TIF plan from the city, new homeowners can send their kids to public schools but the taxes collected will go towards paying off the debt for the development instead of financing their children’s education. A good deal if you can get away with it.

Missouri law governing the use of TIF underrepresents schools and grants cities a majority on commissions authorizing TIF use. Considering the 43-cent tax increase that Liberty School District officials have placed on the ballot, it seems schools are feeling financial pressure from TIF and that property owners are possibly facing higher taxes. For the sake of lower taxes and better education, TIF law should be revisited.

Proponents of the so-called “Aerotropolis” tax credits argued that they would primarily help subsidize warehouse construction and facility construction in order to encourage increased international trade. Don’t get me wrong, I support increased trade. After all, that is one of the best ways to grow an economy.

But, the bulk of the Aerotropolis tax credits didn’t seem to be directed at that admirable goal. My colleagues and I were early and passionate critics of portions of the legislation that didn’t appear to make much sense from a public policy standpoint.

We wondered: Why was the state considering subsidizing warehouse construction in the St. Louis area if more than 18 million square feet of vacant warehouse space was already available? Why did versions of the legislation give the mayor of Saint Louis City and area county executives the power to restrict who could receive hundreds of millions in tax benefits? Why were the construction tax credits in some cases limited to individuals and companies who owned more than 100 acres of land? Where was a substantive cost-benefit analysis?

It didn’t help that proponents of the tax credits cited conflicting, and seemingly overblown, job estimate numbers. Missourians should consider those types of estimates with skepticism. Missouri Gov. Jay Nixon made similar promises last year, when he visited Moberly to announce the creation of more than 600 jobs. The state and local governments promised public support for the development. Unfortunately, in recent weeks we have learned that the jobs have failed to materialize and the city of Moberly may be on the hook for millions in bond payments.

It bears repeating: Tax credits have a poor track record for success.

Frankly, I find it incredible that so much political effort (and taxpayer money) was spent on trying to tack a new form of corporate welfare onto attempts to implement tax credit reform. The legislature is aware that reform is needed; Nixon’s own Tax Credit Review Commission recommended cuts and sunsets to many of Missouri’s tax credit programs. Indeed, several legislators were actually part of that commission. And yet, here we are, having spent more than a month and more than $280,000.

Imagine what could have been accomplished if legislators had spent that much time and effort on accomplishing something substantive. Our state may face a large budget shortfall next fiscal year, and may have to make tough budgetary decisions as federal “budget stabilization” dollars run out. Or, what if the legislature had worked harder on passing more sweeping education reform? School choice continues to be limited to St. Louis City and Kansas City, though certainly students in Columbia and Springfield deserve the ability to choose quality schools just as much as students in urban areas.

Hopefully, the Missouri Legislature will spend less time on corporate welfare during 2012, and more time fixing the state’s worst problems.

Because of cases like  Moberly; the seemingly political provisions of the Aerotropolis legislation; and the general poor performance of tax credits, we will continue to comb through similar proposals. We will continue to argue against legislative proposals that will harm Missouri taxpayers. And, we will work to propose market-based solutions to Missouri’s pressing public policy problems.

At the time, there was an incredible amount of blowback, with the deal barely squeaking through the legislature and facing court challenges.

“The whole thing stinks,” said Indiana State Rep. B. Patrick Bauer, then the House Democratic leader. The two companies, he said, “got a heck of an unbelievable deal. We got a bad deal.”

And now, Governing magazine reports that the companies that bought the lease may not be able to make payments related to the deal. The project lost more than $260 million last year.

More astonishingly, Indiana officials say that the terms of the deal mean that if the toll road project defaults or goes into bankruptcy, the companies that bought the toll road could either find new investors, or the toll road would be returned to the state, with Indiana keeping the $3.8 billion.

In this case, it appears that the Indiana government got a pretty good deal.

Compare the case above to the news that developers are asking Saint Louis County to issue $7 million more in debt to finance the NorthPark development. The NorthPark development was also launched in 2006, during the height of the real estate bubble.

From the St. Louis Post-Dispatch:

“The developers are not only seeking to refinance the mortgage, but they’re also upping the size of it by almost 50 percent,” said Brian Tournier, director of research with Ascent Investment Partners in Brentwood, which specializes in bond investments. “And the county, ultimately, will be on the hook.”

As business owners know, the reward for taking on risk is the possibility of making a profit. The risk of failure is why so many of us do not set out to build a better mousetrap, be it Pets.com, Myspace, or Zynga.

What is so shocking about the Indiana toll road case is that it was a situation where government allowed the private sector to take on risk — for a price. If the state really won’t be held financially responsible if the project continues to lose money, then the state managed to shift all of the risk associated with the project to the private companies that invested in it.

In the case of NorthPark, it looks like the county is getting ready to take on more risk. And why, exactly? NorthPark could stand to profit if the development is successful. But if it isn’t, the county could lose. Proponents may point to job or investment increase estimates. But those numbers frequently fail to materialize.

There is no better example of what can go wrong when government takes on risk than that of the fiasco in Harrisburg, Pa. The city took on $125 million in debt to rebuild and expand its incinerator, which it hoped would become a money-maker. Instead, the incinerator project is more than $288 million in debt. The city, bankrupt as a result, has to cancel Christmas (well, its annual Christmas parade).

When you hear elected officials talking breathlessly about taking risks for the promise of money or jobs, think about Harrisburg or Mamtek, right here in Moberly, Mo. Though the jobs and investment numbers promised may be little more than a dream, the risk of failure is real.

I have to say, in light of other failures, this line from Saint Louis County Councilman Steve Stenger (D-Dist. 6) about NorthPark troubles me: ”The county knew the risks going in to this development. But that’s a risk that you have to take if you want progress.”

If officials want to get into the business game of taking on big risks with the potential to make big profits, they should get out of government. In business, if you make the wrong choices and fail, you are financially responsible. When government tries to take on the risk of private businesses, taxpayers are on the hook for failure. And sadly, government officials rarely are held accountable for bad bets.

In this case, Missouri can learn from Indiana and Mamtek. A better move is to leave risk and profit to the private sector.

In other news, due to stimulus money running out (slide 15 in Budget Stabilization row), there will be at least a $64 million shortfall in the Missouri Department of Elementary and Secondary Education (DESE) budget that needs to be made up from somewhere else. That is, of course, unless the state government is fine with cutting the full $64 million out of the DESE budget.

Now, canceling the presidential primary won’t automatically fix this shortfall, but it would be a significant first step.

I have been reading quite a bit about the protests going on in New York City, in the rest of the country (my cousin participated in Occupy Omaha, he’s the one in the suit near the center) and even around the world. The protests and the protesters are not totally united in their goals or their beliefs, but there are certain common threads that bind the movement and represent a shared objective. One of the most common complaints you’ll hear is anything along the lines of “get Wall Street out of Washington.” This is an expression of the idea that business and government should not have such cozy relationships. The word for this concept in popular usage is “corporatism,” and although the protesters may not realize that a free-market think tank represents an ally in their fight, we have published countless studies and commentaries asserting that government should not be in the business of picking winners and losers in the marketplace.

We oppose tax credits such as the Aerotropolis subsidy package, film tax credits, and other publicly-funded business incentives. Indeed, so strong is our stance against corporate welfare that it’s one of our six main policy areas.

The Occupy protests and the people calling themselves the 99% are fired up and out on the streets for a reason. H.L. Mencken said “Every decent man is ashamed of the government he lives under,” but when left and right are aligned in opposition to pervasive policy that hurts all but a very few well-connected people, and when thousands take to the streets to voice their disillusion, there’s a glimmer of hope for real change to the status quo.

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.

There really is no legitimate argument against it. There might be legitimate gripes or complaints against it, but those aren’t arguments. Every person reading this, or listening to Bernie’s show (probably more of the latter), would – if they owned a parking lot downtown – raise prices in this situation. Parking for sporting events like this is an example of market-day supply, like the fish market in your economics textbook. The supply of parking is fixed for any individual baseball game. With the increased attendance for the playoffs (the dominant, but not only, factor, increasing demand here), the demand for parking increases. Because the supply of parking is fixed, prices will increase. This will happen in every situation everywhere, and there is nothing wrong with it. (Note: the supposition that the supply of parking is fixed in a single day is correct, but there might be some exceptions. You can’t build a new parking lot in a few days because the team makes the playoffs. However, some things could be added to the supply in response to high demand. For example, a private parking lot may open itself to the public in response to high demand and high prices. That, of course, would result in more supply and lower prices.)

None of this says that parking lot operators are taking advantage of monopolistic power. People have plenty of choices here. Parking farther away from the stadium will still be less expensive than parking closer. If you are willing to walk further, you can save money. You can carpool and share parking expenses. You can take a bus or Metrolink. If parking lot operators set the price at $1,000 per spot, they won’t sell many spots. Every parking operator is going to set the price at a level they think will result in selling all their spots for as much as they can. If they set their prices too high, they will lower them quickly as market equilibrium sets in.

Of course, Mr. Miklasz would do the exact same thing with his show and column. If his ratings skyrocket, he wil increase the advertising rates for his show. Now, he might not be able to increase his rates today in response to more listeners during the playoffs.  But that is not because he is behaving morally and parking lot owners immorally. It is likely because he has chosen to sell long-term advertising agreements with customers for so many spots over a period of time because that is the best way for him and his station to operate. The parking lot operators who service the ballpark are not under such constraints.  

If Bernie was to say, write a terrible book that for some strange reason millions of people buy and it becomes a terrible movie, he will demand a raise from his employers. If they don’t give him the raise he feels he deserves, he can write more terrible books and make money that way. If he has enough time and desire, he can try to do all of these things at once. But he will sell his services, and the various items that accompany his services (ad rates, etc.) for the highest price he can based on the ever-changing market conditions. 

The parking lot operators do the exact same thing. There is absolutely nothing wrong with it.

Video clips at Ustream

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.

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.

If anyone with a planning firm can send me any such examples, I would appreciate it. You can send them directly to me (david.stokes@showmeinstitute.org) or post them in the comments. My guess is that a totally negative answer has never happened in Missouri, at least in the past 20 years. I won’t be totally surprised if it has happened on a very few occasions, and I’d love to be proven wrong by finding a number of examples where it has occurred.

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

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.

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.

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 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.

I also hope city officials will require the businesses to post notification of the extra sales tax at the front door and the check-outs, so that shoppers can make an informed choice. (The state legislature needs to correct the mistake that applies notification rules only to TDDs and not to CIDs.)

Nixa is a very nice town and does not need to start playing the game of subsidizing private businesses with tax dollars. If they choose to start playing it anyway, I hope they make several of these improvements to the proposal. Nixa has some dedicated activists who have brought this matter to our attention, and I wish them the best in fighting this proposal in their community. Just like the proposed Tax Increment Financing (TIF) in Columbia, the worst part of this CID is the path on which it puts Nixa. Once you approve one of these types of programs, every development in the city is going to demand one. There is no end to the game until you have hollowed out your property tax base.

The Star’s Sept. 29 editorial, “Voters spoke: Don’t kill e-tax or hike debt levy,” criticized outgoing Kansas City Federal Reserve chairman Tom Hoenig for recommending that Kansas City eliminate its earnings tax. The editorial stated Dr. Hoenig’s comments weren’t backed up with facts.

All the “facts” Dr. Hoenig needs is that as a PhD economist who has spent 38 years with the Kansas City Fed, he knows that Kansas City’s earnings tax harms economic growth in the city. Studies document the harm local earnings taxes have on economic growth, including three relating to Kansas City by Missouri’s Show-Me Institute (which did recommend a way to replace the tax).

Even though a large majority of Kansas City voters chose to keep the tax, that does not prove those studies or Dr. Hoenig wrong. It proves that the people of Kansas City wanted to keep the tax for a variety of reasons, which is entirely their right.

But good economics and popular public policy don’t always go together, which is exactly what Dr. Hoenig has been trying to warn us about at the national level for the last three years as well.

 

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.

So, I was happily surprised to see at the LRA’s monthly meeting today that the agency did not reject a single offer of the 25 it considered. (The agency did reject half of one man’s offer: He offered to purchase two properties, and the LRA voted to accept his offer for only one of those properties.)

This is big news! During an eight-year period, the LRA rejected more than 42 percent of the offers it formally considered. It now appears that the agency is working to accept or counter more offers to purchase vacant property in the city. In the entire eight years surveyed for our study, there was only one month during which the agency rejected zero offers — and that was after we started taking a close look at the agency’s operations.

The LRA’s lack of rejections this month is just the latest sign that the agency is thinking about ways to improve its operations. In March, the agency accepted more offers than it previously had been accepting, and lowered the price of some of its properties.  The agency also tweaked its policy to allow more individuals to purchase side lots.

I hope these changes are all signals that the LRA is working to sell more properties so they can be put back into private, productive use. Accepting and countering more offers is the latest development, and it certainly is a step in the right direction.

In what now appears to be standard operating procedure, Missouri Gov. Jay Nixon visited Kirksville to announce the loan and to tout the promised jobs. His office also issued a press release, stating that “with Action Fund loans, high-tech companies like Wi-Fi Sensors can create quality jobs and help jump-start our economy.”

Furthermore, according to the governor’s press release:

The loan will allow Wi-Fi Sensors to expand its operation in Missouri. Under the terms of the loan, the company guarantees the creation of 40 new jobs and new investment of $4,069,000. While guaranteeing a minimum of 40 new jobs, Wi-Fi Sensors representatives believe they may create as many as 100 new jobs through this expansion.

Sadly, the TV station visited the Wi-Fi property on Monday, and found nobody. According to its report, Wi-Fi missed its first payment to the state in November 2010.

This sounds similar to the situation in Moberly. As you’ve read on our blog, the sucralose production company, Mamtek, promised more than 600 jobs and millions in investment to the city. The state promised millions in tax credits, and the city of Moberly backed $39 million in bonds for the projects.

And yet, Mamtek recently failed to make a debt payment, leaving the city on the hook for the money, and had not created the promised jobs.

Missouri senators are planning to investigate Mamtek, according to the Associated Press. Specifically, they want to investigate the DED’s role in the project.

But our state senators shouldn’t assume that Mamtek is an isolated failure. Tax incentives frequently fail to produce the jobs promised, and there have been many state audits and incidents suggesting that all is not right at the DED. Wi-Fi Sensors looks like the latest example.

We don’t have to look too far into the past to see other failures and near failures. Late last year, a company in Cape Girardeau promised 135 new jobs – if the state would kick in about $2 million in tax credits. It turns out that the head of that company was convicted of passing more than $90,000 in bad checks.

Policy Analyst Christine Harbin wondered at the time whether she should spend her time at the Show-Me Institute running tax credit recipients’ names through the Missouri courts database to see if she found any other matches.

Then, of course, earlier this year the DED awarded millions to a company for a development project that the courts had ruled as ineligible.

Don’t even get me started on the state auditor findings that the DED was inflating business creation and investment numbers reported for certain tax credit programs.

Like Chrissy, the Wi-Fi Sensors case has me tempted to go through the governor’s press releases touting job creation to see which projects are currently operational. Sadly, for Missouri taxpayers, the Mamtek and Wi-Fi failures suggest several others may have failed.

Questions to ponder if you dare:

Did Hamilton, Madison, and Jay overestimate the soundness of the federal design when advocating for the adoption of the U.S. Constitution? Why did Frederic Bastiat carry such a negative view of morality, law, and government? Has our federal government succumbed to many, if not most, of the corrosive influences Bastiat identified as likely to corrupt civil society?

Please join us for a lively discussion of life, liberty, and the pursuit of happiness. You may email the Book Club at bookclub@showmeinstitute.org. RSVPs are appreciated.

A gas station and liquor store were located just across the border on the other side of the bridge; their parking lots rarely had an open space. Conversely, in Atchison, the liquor bottles and cigarette packs collected dust on store shelves while gas pumps remained unused. The higher excise taxes in Kansas on these products drove business away from my home state and into her eastern neighbor’s economy.

This scenario soon may become a distant memory. The American Cancer Society is leading a coalition that submitted a ballot initiative to the Missouri Secretary of State on Sept. 20. The proposed measure is expected to generate $308 million annually through tax increases on tobacco products, primarily cigarettes.

A similar initiative failed in 2002 and 2006. Like the 2006 vote, this initiative includes a proposed 80-cent increase in the cigarette tax, bumping the total tax to 97 cents if passed. This proposition, however, will not affect just the Show-Me State, but surrounding states as well, a point the Show-Me Institute has covered in the past. As David Stokes, a policy analyst for the institute, alluded to in an Aug. 4 blog post and video, Missouri’s neighbors often are propelled to make tobacco purchases in this state because of its attractively low cigarette tax.

The cigarette tax in Kansas now stands at 79 cents, 18 cents cheaper than the proposed tax increase in Missouri. What is intended to be a profitable deal for Missouri will prove to be more beneficial for the state of Kansas. The incentive for Kansas to cross the border in pursuit of a cheaper pack will be eliminated. Missouri stands to lose some revenue from the current cigarette tax; other revenue-increasing proposals, such as the fair tax, would not balance out this budget loss.

Should this initiative pass, the eastbound cigarette-seeking Kansans who flood into this state might be replaced by Missourians driving in the opposite direction.

Ed Robb, Rest In Peace.

On Tuesday, a key Kansas City transit group unanimously endorsed a plan that would put the downtown route primarily down Main, not Grand Boulevard.

The city’s Parking and Transportation Commission approved a consultants’ recommendation, which favored streetcars over rapid buses on a two-mile route from the River Market to Crown Center.

“A Main Street streetcar is the superior alternative,” project manager Charlie Hales, with HDR Engineering, told the commission.

This calls for a Kansas City trolley soundtrack. Hit it, Johnny!

For those unfamiliar with Kansas City’s politics, the idea of bringing rail lines in one form or another has been kicked around exhaustively for the last two decades, to the point where currently there are actually two competing passenger rail proposals: the Main Street trolley and, no joke, a $1 billion-plus rail project that perpetual rail proponent Clay Chastain has put forth. While the prospects of Chastain’s proposal (again) look bleak, supporters of the trolley project are pumping theirs up at a fraction of that price – a cool $100 million.

But even Chastain, of billion dollar rail fame, won’t rally behind a trolley project:

One outspoken opponent [of the trolley project] is Clay Chastain, who has mounted numerous unsuccessful attempts to bring light rail to Kansas City. Chastain has once again gathered sufficient signatures to place a $1.4 billion light rail system before voters next year, but the City Council has not yet approved it for an election.

“You’re not going to take a streetcar to the airport,” Chastain said Tuesday when told about the commission’s recommendation. “This is not the major response we need to build a world-class transit system.”

When Clay Chastain says your project is impractical, that’s saying something.

Of course, Kansas City’s not the only major metropolitan area in Missouri that might put hundreds of millions of quarters on municipal rails. St. Louis is putting together a trolley project that would run from Forest Park to the Delmar Loop – locations that Metrolink already serves, and within walking distance of the #1 Metro bus.

To give you an idea of the sort of distance we’re talking about here:

View Larger Map

The estimated cost for the roughly 2-mile line? About $50 million.

Are these projects really the best use of taxpayer dollars? At least one form of public transit already serves both areas, and in the case of St. Louis’ proposed line, there are two. The money the respective cities would spend on these projects couldn’t be spent on other pressing municipal matters. What would the cities forgo by rebuilding rail lines that were torn out long ago?

In this economy, Kansas City and St. Louis need…trolleys? Really?

US-China Chamber of Commerce President Siva Yam says Missourians shouldn’t expect too much from Chinese investment.

“There has been an illusion that Chinese investment are coming to America and help the economy. ”

Yam says most of the investments from China are looking for research and sales opportunities, rather than hiring laborers.

I wrote on Monday about the “mistakes” that were made that China Law Blog identified with regard to Mamtek. CLB calls it the “China is rich. We want money. Therefore this is a good deal” syndrome. Economic activity requires more than just a connection to China.

Yam seems to agree. In fact, it’s not the St. Louis economy that a China Hub would mainly help, Yam says. It’s the city’s PR.

Yam says the publicity values are what St. Louis and Missouri really benefit from.

“It’s a good news for St. Louis not from an economic perspective, but having a China hub would basically help St. Louis proceed itself to be more international in the future.”

We’ve been skeptical of the job estimates given for the project for a long, long time. It’s amazing that at this late stage in the session, the president of the USCCC is basically saying Aerotropolis is a giant public relations project.

One thing on which we rank very high is the use of Tax Increment Financing (TIF). This excellent paper on TIF, by Randal O’Toole with the CATO Institute, ranks Missouri third in total and fourth per capita in the sale of TIF bonds from 2005 to 2010. (See page 12 of the paper for the table.) This is not something of which to be proud.

TIF is common in Missouri. Right now, we have more ongoing applications than I can keep track of. The city of Columbia wants a giant TIF for its downtown area.  A TIF is being sought for a section of St. Charles, even though the main landowner of the area in question is a tax-exempt educational institution. Just a few months ago, Kansas City approved a gigantic TIF for the city. Developers are seeking a TIF in Shrewsbury that will do nothing but continue the rearranging of the deck chairs for retail in Saint Louis County. From the Patch story on that proposal, if I may be so bold as to quote myself:

David Stokes, a policy analyst with the Show-Me Institute, said what he heard was “just a terrible economic fallacy.”

“Of course it’s just preliminary, but from what I can tell it is just another example of the economic issues the East-West Council of Governments supported in their report two months ago, which is that every city is doing something to support their own little city, but it’s killing our county’s economic base, and it’s hurting the region,” Stokes said. “It might benefit Shrewsbury in the short run but seems it’s just going to be another type of TIF development that’s going to hurt our region.”

“Maybe if it can’t be done without public dollars, maybe it just shouldn’t be done,” he said.

The problems in these cases is the cities, not the counties. In fact, St. Charles County Executive Steve Ehlmann, along with his predecessor, Joe Ortwerth, have been strident in opposition to TIF in that county, to their great credit. Also to his credit, Saint Louis County Executive Charlie Dooley has recently taken the lead in opposition to these TIFs – he really gets it that a few cities are helped but the entire county is hurt. And Jackson County Executive Mike Sanders at least sued to get more equal representation on the Kansas City TIF commission.

But, even though they have instituted county TIF commissions in Saint Louis and its currounding counties, the insane rule still applies that city councils can override the TIF commission with a supermajority vote. So, the city council for the 15,000 people of Bridgeton gets to override the Saint Louis County TIF Commission and determine tax policy that will affect the one million people of Saint Louis County. I totally support county TIF commissions, but the part of the law that allows city councils to override the TIF commission with just a supermajority vote is insane. They should not be allowed to override it at all. Lot’s more to come on this issue in the coming weeks and months. And this time, I mean it.

This is no rumor. What makes this story even more depressing is the fact that the reporters at the Mirror were right to ask questions: The development in question made big news recently when it left the city of Moberly on the hook for nearly $40 million in debt. This story is an especially relevant warning, because tax credit supporters have recently been touting absurd job creation and business investment numbers as a sign that the state should create more development subsidies.

During mid-2010, state and local officials raced to close a deal with Mamtek, a company that promised to build a factory that would produce SweetO, an artificial sweetener. According to the Mirror, $7.6 million in Missouri Quality Jobs tax credits and $6.8 million in Missouri BUILD tax credits were promised to the company, as well as $2 million in Community Development Block Grant funds, $800,000 in funding for job training, and $368,000 for job training.  The city of Moberly kicked in, too, providing nearly $40 million in bonds, and $500,000 in grants and services.

The total came to nearly $50 million in promised state and local tax dollars.

As is always the case with these things, a large press conference was held. In July 2010, Missouri Gov. Jay Nixon spoke to a large crowd about the Mamtek deal.

“And SweetO is about to make Missouri’s economy a just a little bit sweeter, too,” Nixon said then. “Because Mamtek will be creating 612 new jobs and investing $46 million in capital.” He repeated: “612 jobs, they’re investing $46 million.”

Understandably, the Mirror was curious about the promises touted. As editor Janet Morales wrote, the Mirror wondered about the employment numbers and asked whether it might make more sense to use an existing vacant facility instead of building a new one.

But answers were less than forthcoming. Morales wrote that Mamtek wouldn’t answer her question, and directed her to the local Chamber of Commerce. Morales writes that the “[executive director of the chamber] told me not to ask questions or Moberly could lose the Mamtek company.

In the fall, Morales writes that she was informed that area merchants had been told about the Mirror’s “investigation,” and that they were warned not to advertise with the Mirror. Seeing that businesses were no longer interested in subscribing to the Mirror and that the paper would soon close, the Mirror decided that it might as well investigate the Mamtek deal in its last month.

Some of the Mirror’s unanswered questions and concerns sound strikingly familiar to our questions regarding the Aerotropolis subsidies. Why were there conflicting job estimates? Where were the supporting documents? Why was there such a rush to get the deal approved? Proponents said that their Chinese business interests were involved, but the Mirror was unable to locate them, or anyone who was familiar with Mamtek’s operations in China.

As I already noted, this story does not have a happy ending. The Mirror is gone, though it still hosts the Mamtek story on its homepage. A nearby paper, the Marshall Democrat-News, covered the Mirror’s closure, noting that Marshall had also considered the Mamtek deal, but considered the public support requested for the project too great. The executive director of the Marshall-Saline Development Corporation told the Democrat-News that “…Moberly offered them $15 million and took (Mamtek) off the market. That was part of the deal. I wouldn’t do that. I wouldn’t ask the city to do that.” He added “I’m not sure it’s legal.”

It now appears that the city of Moberly is on the hook for the nearly $40 million in bonds it issued for the project. And, sadly, it appears that state and local officials have not heeded the Mamtek warning. There is still an effort to expand tax incentive deals in Missouri.

Some critics of the Show-Me Institute have dismissed our concerns about the Aerotropolis tax credits because, sometimes, tax credit deals and public partnerships “work.” Well, a broken clock is right twice a day. There will always be successes. The question is, what level of failure are we willing to pay for in order to attain those successes? Sometimes, in public policy matters, failure is a rarity. But it has been well-documented that tax incentive deals frequently do not deliver the results that were promised.

So, I wonder, how many Mamtek-type failures are tax incentive proponents willing to trade for the chance of success?

But the idea of awarding tax credits up front should give everyone else pause. We know that tax credits have a dismal track record at delivering on results promised (state audit reports and independent analysis have shown this). So why expand the DED’s power to award tax credits?

The argument is that if Missouri doesn’t award tax credits, other states will, and as a result will encourage companies to leave Missouri and take their jobs and economic impact to other states. Though the argument sounds plausible, we have to consider the facts.

Missouri already issues hundreds of millions in tax credits each year. During fiscal year 2010, Missouri issued more than $400 million in tax credits. To what benefit? According to the state auditor, tax credit programs cost more than predicted, and the DED was frequently overstating job claims and investment estimates related to tax credit awards.

Texas doesn’t award nearly as much as Missouri does in tax credits. The Post-Dispatch reporter, Tim Logan, writes that tax credit programs are “big in Texas.” However, the fund he cites is the Texas Enterprise Fund, which has pledged $439 million in credits to companies since 2003. Though Texas uses tax credits, the program Logan cites pledged over an eight-year period as much as Missouri pledged in a single year.

In fact, according to the state’s “Tax Exemptions & Incidence Report,” Texas tax credit programs offer a relatively small amount in tax credits for job creation. For example, Texas’ “Refund for Job Creation in an Enterprise Zone” awards a maximum of $5,000 for companies that can show that they created at least 10 new jobs.  In its report on tax exemptions, Texas notes that the revenue cost of that program is “negligible.” If we look at Missouri, the state issued nearly $15 million in “Quality Jobs” tax credits during fiscal year 2010. Tax credits may be big in Texas, but they are really big in Missouri.

We might be winning the bidding war with Kansas. Legislators point to businesses that move from Kansas City, Mo., to Kansas City, Kan., when tax credits are promised. But, according to Kansas’ recent Tax Expenditure Report, the state’s tax credit expenditures for development and services are about $200 million. Missouri may be giving away about twice as much tax revenue to favored industries and companies than Kansas.

Furthermore, Missouri has a more favorable tax climate than Kansas. The Show-Me Institute collects and posts tax data for all 50 states to help people compare tax burdens among states. According to that data, about 23% of Missourians’ income goes to taxes. However, 26.5 % of Kansans’ income goes to taxes.

In short: When it comes to taxes, Missouri is already competitive, compared to Kansas. We should continue to lower our tax burden for all, in order to entice more businesses and individuals to move to this state.

If tax credits result in growth, Michigan would be an economic powerhouse. It is not. Every time I hear a legislator or reporter question whether tax credits are needed to move industry to a state, I can’t help but think of my home state. Michigan awarded more than $1 billion in tax credits last year to just a few auto companies. In fact, the governor’s report on tax exemptions estimates that more than $33 billion in tax exemptions are awarded each year in the state. And, what exactly does Michigan have to show for that much in tax credits and other awards? Not a lot.

Look, tax credits don’t guarantee growth. What they do guarantee is that many pay a tax rate that is too high so that the favored few can get a tax break.

The protest movement that culminated with the Boston Tea Party was not a dispute about high taxes. The price of legally imported tea was actually reduced by the Tea Act of 1773.

Wait, what?

Let’s go back a bit. For years, the British East India Company enjoyed a monopoly — granted by the British crown — on importing tea to Britain. Because the American colonies were under British rule, this also meant that all their tea had to come from the East India Company — first imported to London, then shipped to America by a third party. At the time, Britain had high import tariffs, which raised the price of all East India Company tea. Colonists could buy Dutch tea smuggled into the colonies  much more cheaply because it never touched a port with high tariffs. In 1773, Parliament passed the Tea Act, which allowed the East India Company to import tea to the colonies duty-free. Suddenly, all the people who imported tea to the colonies, legally and illegally, were priced out of the market by a competitor that received special government favors. Some of the people on the boats in Boston Harbor the night of December 16 were concerned about overreaching government authority and a pattern of abuse, but lots of them were smugglers or legal shippers who were rebelling against the loss of their livelihood to a government policy that favored one business at the expense of others.

Here’s another quote from Wikipedia:

In 1772, legally imported Bohea, the most common variety of tea, sold for about 3 shillings (3s) per pound.^[33] After the Tea Act, colonial consignees would be able to sell it for 2 shillings per pound (2s), just under the smugglers’ price of 2 shillings and 1 penny (2s 1d).^[34]

So the colonists got their tea cheaper than before. Where’s the problem? Well, in addition to the problem of taxation without representation, competing businessmen lost out under the new tariff regime. There were other losers as well — namely every British citizen who paid higher taxes because the East India Company had this duty-free dispensation.

My co-workers at the Show-Me Institute have talked about targeted tax credits before. Targeted tax credits are just one way that governments pick winners and losers in the marketplace. When this happens, the logic of the market is overturned and almost everyone suffers — except those the government selects to receive its largess. It’s easy to point to these people and conclude that the tax credit was a success, but maybe that’s because the injured parties so seldom throw a historic party to make their plight known to the world.

A company that promised 600 jobs and drew Gov. Jay Nixon to Moberly to announce $17.6 million in state aid is in financial trouble and could potentially stick the city with payments on a $39 million bond deal.

Mamtek International Ltd., a company with Chinese and American ownership, planned to make sucralose, a zero-calorie sweetener at the facility. The $65 million deal, ballyhooed at the start by former Gov. Bob Holden, chairman of the Midwest U.S.-China Association, was put together in 73 days last year and was supposed to include $8 million in private investment.

Moberly issued $39 million in bonds to build the Mamtek factory, buy and install the equipment and take care of other items necessary for the company to begin production. It was supposed to have put 116 people to work — perhaps as early as late last year, according to early reports — and double that employment within 18 months.

China Law Blog is a website operated by Harris & Moure, pllc, a law firm based out of Seattle, Wash., with a China law practice. China Law Blog’s Dan Harris highlighted Mamtek’s troubles on Thursday, telling readers that “[m]any many months ago, I got a quasi-anonymous email from someone in Moberly, Missouri” regarding the Mamtek project. After a series of back-and-forth emails with the tipster, Harris determined “that the odds were that this deal would prove disastrous.”

As it turned out, the deal did prove disastrous. So what happened? According to Harris (Emphasis mine):

First, it appears that got overly excited about the possibility of getting Chinese money. It appears it fell prey to the classic “China is rich. We want money. Therefore this is a good deal” syndrome. Second, it appears nobody conducted adequate due diligence. Were the very valid suspicions of my e-mailer ever checked out? I doubt it. I have no idea if my e-mailer ever raised her/his suspicions with City Hall, but having dealt with governments, I can only imagine how they were treated. Can you say groupthink? Third, the deal was rushed. The Columbia paper noted how it all went through in “73 days, far less than the six months or more usually needed to conclude such a deal.” Rushing a deal does not mean it will fail, but it certainly increases the chances.

Governments are responsible to the people for the public money they spend and the public credit they extend. Especially in a down economy, governments will oftentimes risk a little — or more likely, a lot — of both to get the “jobs, jobs, jobs” flowing. The problem, of course, is that governments have a terrible track record of picking economic winners and losers. Unfortunately for the city of Moberly, that’s a lesson residents now know all too well.

Dr. Strauss appears as part of a KMOV report on the status of the “China Hub” proposal in the Missouri Legislature’s Special Session, calling Aerotropolis a “pie in the sky” project. That segment is below:

Meanwhile, Dr. Haslag has written an article for the Columbia Business Times expressing similar concerns on the jobs front, saying that “the models used by DED [to estimate tax credit project success and job creation] have been discredited” predominantly because they fail to incorporate the cost of the government taking money from the private sector to fund the project. Dr. Haslag also tells a brief but useful story about the problem of trying to “count” jobs. (Emphasis mine)

There is a legend about employment and government projects involving Dr. Milton Friedman. During a visit to India, an official was taking Friedman on a tour of a public works project. New machinery was being used, and the official touted the number of jobs that were created by the project. Friedman responded by saying that if you wanted to count new jobs, the project leaders should have provided the workers with spoons instead of state-of-the-art construction equipment. If it is jobs we want, there are lots of silly ways to get those jobs created. A nobler goal is to find a set of rules that promotes opportunity for all, not just gifts graciously handed to a select few.

Our skepticism of the wide array of Aerotropolis job estimates has been well-documented. Dr. Strauss’s and Dr. Haslag’s analyses of the project again confirm the questionable nature of proponents’ jobs assessments.

Kansas City recently began investigating its pension systems. You may access our previous coverage here and here. Recently, outside consultants to its Pension System Task Force recommended that taxpayers pony up an additional $23 million per year “to make the city’s pension funds more financially stable.” Apparently, the city may now make current and future taxpayers pay for the sins of prior administrations. They are passing the buck onto future generations of taxpayers and their children.

Perhaps greater Missouri should pay heed. According to the Cato Institute’s recent work, Missouri’s public pension plans are grossly under-funded when accounting for reasonable expectations of future economic conditions. Think about the impact this may have on the tens of thousands of state employees and retirees and their families, if and when they are unable to support themselves on their broken pensions. They deserve better. Taxpayers have reason for concern as well. Ultimately, the state loses credibility when it breaks its promises. And under that scenario, everyone is a loser.

Kansas City and Missouri are far from alone. WLBT TV-3 out of Jackson, Mississippi, reports that the state pension fund, the Public Employees Retirement System (PERS), is now guided by a 12-member commission. The commission is empowered to:

…examine the financial, management and investment structures as well as determining the legality of modifying the system. All in an effort to dodge a potential problem in the long run.

Mississippi Gov. Haley Barbour notes that PERS is funded at only 60 percent of where it should be and pays out benefits that exceed its structural limits. Kudos to Mississippi for beginning the discussion on sustainability and reform.

Fortunately, some of our sister states have gone pro-active, confronting the looming crisis. The Center for State & Local Government Excellence has just released a study of five successful pension reforms in Iowa; Oregon; Vermont; Gwinnett County, Georgia; and Houston, Texas. Although not perfect, these reform efforts provide some hope that pension stakeholders can meet and iron out their differences. Here’s hoping that Missouri joins the party before midnight strikes. Better late to the party than dead broke on the outside looking in.

Well, let’s not rush to do something drastic just because Kansas is set to award $47 million to a company.

Tax credits are especially bad public policy because they frequently fail. Just this week, a company in Moberly made news because it looks like the company will default on $39 million in city-backed bonds. You may remember the company, Mamtek, because politicians promised the company would create 600 jobs, the state was set to award millions in tax credits to the company, and because Missouri Gov. Jay Nixon traveled to Moberly to announce the job creation.

Unfortunately, after a newspaper was pressured to close because it was asking too many questions about the tax incentive deals, Mamtek appears to have failed. Clearly, the promise of tax credits isn’t a guarantee of investment and job creation.

If Missouri legislators are so eager to copy Kansas’ policy of awarding tax credits, they might want to look at Michigan. More than $33 billion in tax incentives each year are awarded in Michigan, and yet the state has a dismal job rate and incredibly depressed economy. Just last year, Michigan announced the creation of more than $1 billion in tax credits alone.

Certainly, if tax credits resulted in tremendous economic growth and job creation, Michigan would be on the right track. It is not. In fact, the Mackinac Center for Public Policy, a research institute in Michigan, surveyed Michigan tax credits over a 10-year period and found that in more than 90 percent of cases, tax credits failed to deliver on promises.

It has been shown again and again: Tax credits fail frequently, and in many cases, taxpayers are stuck with the tab.

Remember Liberty Mutual? The company is still eligible to receive “Quality Jobs” tax credits from Missouri, despite the fact that it issued pink slips to many of its employees this year. Those employees were told that they could apply for lower-paying jobs at the company.

Furthermore, the argument that tax credits are just a way of returning one company’s tax dollars to it is incorrect. Tax credits are transferable, meaning that they can be sold. What this means is that a company can receive an enormous tax credit, of say $10 million, even if the company’s tax bill is only $100,000. The company can sell the remainder of the credit to someone else, and use the cash.

Transferable tax credits mean that the taxes that you and I pay subsidize tax credit projects like the “quality jobs” being created at Liberty Mutual.

Look, I understand legislators’ concern: A company is leaving Missouri for Kansas. But should we panic? Kansas has offered AMC $47 million. AMC says it will bring about 400 employees to the state. That comes out to a subsidy of more than $100,000 for each job brought to Kansas.

Maybe those jobs aren’t worth all of us chipping in more than $100,000 for each one, especially given how frequently tax credits fail to deliver on promises. Instead, we should focus on what does work. Let’s lower tax rates for everyone, instead of just the favored few. Lowering the state income tax or Saint Louis’ and Kansas City’s earning taxes would be a great place to start. Let’s get rid of unnecessary regulations and licenses that do no good, like limitations on taxi cabs, removing barriers to becoming a veterinarian, or by allowing dental therapists to provide dental care to rural and low-income Missourians.

It’s easy to call attention to a single company that moved across state lines because it could get a better deal. But let’s not forget all of the individuals and companies that stay in Missouri because of what this state does have to offer.

To Calzone, the context behind Missouri’s Constitutional language is of particular interest with the Aerotropolis bill, and he says the state’s concerns about the subsidization of railroads in the 1800s were a motivating factor behind how the text of the state’s Constitution was drafted. Calzone questions the constitutionality of the Aerotropolis tax credits because he says the legislature would be exceeding its authority in granting the credits. He notes explicitly these sections of the Constitution in support of his argument: Article I, Section 2; Article III, Section 36; Article III, Section 38(a); Article III, Section 39; and Article III, Section 40.

The state Constitutional argument seems to be gaining steam, too; Missouri Sen. Jim Lembke (R-Dist. 1) spoke on the floor of the Senate yesterday about the Constitutional problems with the state government picking winners and losers. (You can find the full text of the Missouri Constitution here.)

I’ll be checking out the case law and may follow this post up with an exploration of any court cases that may have dealt with these sections of the Constitution. In the meantime, I invite our readers to check out the Constitution themselves, using the links above, and leave your thoughts in the comments. Should be a very interesting conversation.

Just in time for this process, the Show-Me Institute has released a series of pieces on property taxation. We have a new policy study that details exactly how property taxes are implemented in Missouri, including a literature review considering the economics of property taxation and the ideas of Charles Tiebout.

There is a case study that details the manner in which public services and property taxes are capitalized into housing prices in Richmond Heights, Mo. We have two videos: one describing the myriad of tax districts that implement property taxes in Missouri, from the common to the little-known, and one which also focuses on Richmond Heights.

The policy and case studies share the briefing paper, and there is an op-ed that has already run in the Saint Louis Beacon on this topic. These pieces were all written by Christine Harbin and myself. Josh Smith helped out with the research and the videos. A number of interns helped out as well, and proud we are of all of them. If you are interested in the questions and debates that involve property taxation, we hope you find these studies and videos interesting.

Republicans are scaling back a plan offering tax breaks to spur international trade at the St. Louis airport. But it isn’t over yet.

KMOX Jefferson City Bureau Chief Phil Brooks says House leadership is expected to try to re-insert the $300 million cut by the Senate and then attempt to ram the bill through the Senate.

More undoubtedly to come. Stay tuned.

Regular Show-Me Daily readers are, I am sure, nearly sick of hearing about Patrick Ishmael’s and my questions regarding that $300 million.

We wondered: Why was the state considering subsidizing warehouse construction in the St. Louis area if there was more than 18 million square feet in vacant warehouse space already available? Why did versions of the legislation give the mayor of St. Louis City and area county executives the power to restrict who could receive hundreds of millions in tax benefits? Why were the construction tax credits limited to individuals and companies who owned more than 100 acres of land? Where was a substantive cost-benefit analysis?

We would have stopped asking those questions if someone had provided substantive answers. And yet, there really were none.

It is brazen to ask for $300 million, in the public or private sector, without substantive evidence that the money is necessary and would be put to good, productive use. As such, the removal of warehouse and facility construction tax credits from the legislation is good news for Missouri taxpayers.

But, things could easily change. There is a chance that the $300 million could be reinserted at the last moment. CBS reports that the Missouri House may attempt to re-insert construction tax credits in the legislation and “ram the bill through the Senate.”

So, perhaps, this may be more about politics than good policy. I hope that isn’t the case.

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Wednedsay, Patrick Ishmael was on with Mark Reardon on St. Louis’ KMOX in a 5-minute radio hit. That segment follows:

Read what David Martin wrote in The Pitch:

The project, which has neighborhood support, sounds worthwhile. But there’s a catch. The public has to provide assistance. The developer is asking for a tax break worth $2.76 million.

The Kansas City City Council will be told that the project won’t work without the incentives. Yes, West 39th Street is vibrant with restaurants. Across the state line, the University of Kansas Hospital is expanding.

The developer concedes that the failed Qdoba sits on a valuable piece of land. But here’s where the proposal begins to look like blackmail.

“Sure, it’s an attractive piece of property for development for lots of different uses,” Aaron March, an attorney working for Price Development, tells The Pitch. “But if we were just in it for the money, we would sell it to McDonald’s or QuikTrip. But we’re not.”

[...]

So what will you have, Kansas City, a spiffy new apartment building or a McFlurry? “If you’d rather have a convenience store or a gas station or a fast-food restaurant,” March says, “then don’t give the incentives.”

This is the view from the property’s doorstep.

View Larger Map

It takes real je ne sais pas quoi to go to the government, concede that your property’s valuable, and then claim that if you don’t get a tax abatement, your only option would be to build a gas station or a fast food joint. That may be business as usual these days when it comes to the private sector’s interactions with the government, but it’s bad business, and bad policy.

I hope all is well in “common sense radio” land. I heard you had John Beck, your senior vice-president, on with you this morning, and that you or he gave us a mention. I appreciate that, but I continue to be mystified that you and/or Mr. Beck won’t allow one of our policy analysts on your program to discuss the Aerotropolis proposal.

We here at the Show-Me Institute have studied and written about this bill for months. To simply claim, as I’m told Mr. Beck did, that we are against all tax credits is shallow, at best, and in this case, completely misses the point. The fact, as we have pointed out in numerous op-eds, papers, blog posts, videos and radio and TV interviews, is that Aerotropolis remains a massive tax credit giveaway program that may well leave Missouri taxpayers picking up the tab.

Mr. Beck, who is also a board member of the RCGA, clearly doesn’t see it the way we do. That’s fine, but isn’t this topic important enough that your listeners deserve to hear both sides of the debate? I repeat what has become a long-standing offer to have one of our policy analysts come on your program to talk about Aerotropolis.

I await your call.

Best,

Rick Edlund
Communications Director
Show-Me Institute
314-454-0647