Testimony: Take This TIF And Pool It!

7/30/2019 Testimony: Take This TIF And Pool It!

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TESTIMONY

ADVANCING LIBERTY WITH RESPONSIBILITY

BY PROMOTING MARKET SOLUTIONS

FOR MISSOURI PUBLIC POLICY

TAKE THIS TIF

AND POOL IT!By David Stokes

Testimony Before the Missouri Joint Interim Committee on SainLouis Metropolitan Statistical Area Governance and Taxation

August 28, 2013

When it comes to

municipal sales tax

competition, Missouri

has gone too ar. Te

sales tax pool system

in Saint Louis County

has been one way to

address that problem.

To the Honorable Membersof the Committee:

Introduction

My name is David Stokes and I ama policy analyst or the Show-MeInstitute, a nonprot, nonpartisanMissouri-based think tank thatsupports ree-market solutions orstate policy. My testimony relates tothe expansion o the sales tax pool inSaint Louis County and the use oshared-service agreements betweencities within the county. Te ideaspresented here are my own.

Some communities in Saint LouisCounty are attempting to alterthe sales tax distribution systemwithin the county and greatlyreduce, or eliminate, the pooledsharing o sales taxes amongmunicipalities. he thinking isthat a city somehowdeservesall thesales taxes collected within the cityjust because the shopping centerhappens to be there.

As the members o this committeeare well aware, Saint LouisCounty has 90 municipalities or1 million people. Tat is amongthe highest per-capita rates omunicipal governments or any largecounty. By comparison, JacksonCounty (Kansas City) has just 18municipalities or approximately700,000 residents, and Jackson

Countys rate is average, not low, bynational comparisons. With so manycities and counties imposing varioussales taxes, tax competition can bea major actor in Saint Louis andthroughout Missouri. Competitionis good, but as with many things, itcan be taken too ar. When it comesto municipal sales tax competitions(i.e., ax Increment Financing,

IF), Missouri has gone too ar. Tesales tax pool system in Saint LouisCounty has been one way to addressthat problem. Te elimination othe pool would make the overallproblem o incentive abuse worse,not better, or taxpayers.

David Stokes is a

policy analyst at the

Show-Me Institute,

which promotes

market solutions for

Missouri public policy.


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SHOW-ME INSTITUTE I TESTIMONY

2

Tax Increment FinancingIs Harming Missouri

Missouri has gone too ar becausesales tax competition has morphedbeyond the application o comparative

advantage, where some citiesmight compete via lower salestaxes and cities with malls mightunderstandably depend on themmore. he explosion o specialtaxing districts and tax subsidies hasaltered the implementation o salestaxes in negative ways. In particular,IF has distorted local tax undingmechanisms throughout Missouri.IF has encouraged cities to provide

excessive property tax subsidies todevelopers because other taxingdistricts bear the brunt o the costs.Cities can easily make up or lostproperty taxes with higher salestaxes. Other units o government,such as school districts, cannotdo that. Consider able 1, whichillustrates a theoretical examplewhere a city rationally supports a

IF that increases its tax base whiledecreasing the overall tax base. hishas been happening in Missouri ortwo decades. Municipalities supportIFs that beneit their own city whileharming the overall region. heeconomic evidence on this subject isclear.1 IF use does not growan economy.2

Te consequences to the state oMissouri would not be as bad imunicipalities abuse o IF had onlyreduced tax levels and governmentunding in Missouri. But theconsequences have been much worse.

Te abuse o IF and other subsidieshas created many problems or ourstate, specically:

1. Te heavy use o IF has ledto increased involvement andeconomic planning by localgovernments in avor o subsidizedretail developments.

2. It has been the primary cause o

eminent domain abuse in Missouri.

3. It has made subsidies apermanent xture o development.

4. It has ailed at its ostensiblemission o economic development.Te East-West Gateway Council oGovernments (the area planningagency) has estimated thatthe Saint Louis area has spent$370,000 in tax subsidies or everyone job that IF has created. Tatis not a route to economic growth.3IF and other subsidies shrink thepie and move it around the plate;they do not eed more people.

Currently, Missouri has only one salestax pool.4 It was ormed in the late1970s in Saint Louis County. It last

Te economic evidence

on this subject is clear.

IF use does not grow

an economy.

Source: Show-Me Institute Policy Study Tax Increment Financing and Missouri, by Paul F. Byrne

NPV = Net Present Value.


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August 2013

went through major changes in the early1990s. Municipalities in Saint LouisCounty are either point-o-sale, a.k.a.,A cities, or pool, a.k.a., B cities.5A cities keep the majority o the 1percent general county sales tax collected

within the city boundaries. Tey sharea portion o their tax collected with thepool on a sliding scale basis accordingto a complicated ormula. B cities putall o the 1 percent general sales tax intothe pool, which is then distributed to thepool cities based on the same ormula.(City population is a major part o theormula.) Tere are other actors inthe pool, such as the optional 1/4-cent

general sales tax, but the larger point isthe most important. Cities share sales taxcollections within Saint Louis County.

Pooled sales tax systems are not uniqueto Saint Louis County. New York,Illinois, Colorado, and Caliorniaare our states that allow variousorms o sales tax pooling or sharing.6Pennsylvania authorized a major salestax pool in Allegheny County, which

includes Pittsburgh. Tis is notablebecause Pittsburgh, like Saint Louis, isconsidered a heavily ragmented areawith many local governments. Tegoal or Allegheny County, much likeSaint Louis, was to reduce disparities inunding between cities. According to onecase study, the Allegheny County poolsystem has worked well.7

The Saint Louis CountySales Tax Pool

How has this system worked withinSaint Louis County? In my opinion,it has been a major success. Cities thatare pool cities use IF and other taxsubsidies ar less than point-o-salecities. Te dierences are substantial.According to data collected by the East-West Gateway Council o Governments,

within Saint Louis County, point-o-sale cities have enacted 53 IFs andredirected $392 million to developers.8Te pool cities have enacted only32 IFs and redirected $160 millionto developers.9 Tat dierence is even

larger than it may appear, becausepoint-o-sale cities constitute only36 o the 91 municipalities (countingunincorporated Saint Louis Countyas a municipality or the purposes othis calculation) and make up just 38percent o the countys population, yetredirected more than twice as muchmoney to developers. Tirty-ninepercent of the cities account for 71

percent of the total IF payments.Five cities have voluntarily switchedrom A status to B status in recentyears. Tat act should be commendedand supported. Tree o them institutedIFs beore the change. I you add thoseve cities back into the point-o-salecategory, you nd that 44 percent of thecities have accounted for 75 percent ofthe total IF payments.10

Te acts are clear. Te point-o-salecities use (abuse) IF with ar greaterrequency than the rest o the county.Tis means that the pool cities arestaying out o local developmentdecisions and letting markets workwith ar greater requency. Tat lacko involvement in local economicplanning is something that needs to beencouraged and incentivized. Sales tax

pools are that incentive.A pool city benets rom developmentwherever it occurs in the county.Point-o-sale cities only benetrom development within theirboundaries. Tat encourages point-o-sale cities to abuse subsidies, andthat harms the region. Markets workbest without restrictions or subsidies,

Te acts are clear

Te point-o-sale

cities use (abuse)

IF with ar greater

requency than the

rest o the county


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4

and development works best when itslocation decisions are based on businessactors, not tax giveaways.

Te sales tax pool system is not socialism,as some have claimed.11 All the money

involved is government money noneo it goes back to the private sector ithe system is changed. Like any mobilearea, residents shop at stores in a varietyo cities. All governments should benetrom the dollars those citizens spend.Host cities do not deserve all the salestaxes just because they host a majorshopping center. Host cities rarely payor the transportation assets that bringpeople to those malls in the rst place.

Every major shopping center in SaintLouis County is on a state or countyroad. Te costs that are imposed on hostcities by a mall or other shopping areacan be more than met with propertytaxes, other non-shared sales taxes (e.g.,the parks and stormwater sales tax),business licenses, and other ees.

In recent years, some point-o-salecities have tried to revise the pool system.

While the system is not perect (it ismore complicated than it should be),Saint Louis County should move in thedirection o a wider pool, not a smallerone. Any attempts to eliminate the poolwould greatly harm the region because itwould increase the use o subsidies. Tecounty would be better advised to go inthe other direction and expand the pool.All general 1 percent sales tax dollars in

the county should be put in the pool andthen shared by population ormula.

Tere are other benets to sales taxpooling besides reducing the use osubsidies and limiting governmentplanning, though those reasons are morethan strong enough on their own. Pooledsales tax systems give local governmentsmore fexibility and reduce their ocus on

sales taxes. Pooled sales taxes are betterable to address the issue o use taxes andthe uture potential/threat o Internetsales taxes. (Tere is an error rate to taxreporting with so many small cities.)Te bottom line is that sales tax pooling

has many benets and little costs or thepeople o Saint Louis County.

Policy SolutionsFor Missouri

Te combination o having a largenumber o cities with state-grantedauthority to impose IF and othersubsidies has led to these problems.Tere are several policy solutions, other

than sales tax pooling, which should beseriously considered. Tese necessarychanges include:

1. Te imposition o county IFcommissions and the removalo city authority to override thecounty commission.12Tis may bethe most important change thelegislature can make.

2. State caps on total local sales

tax rates.

3. Improved accountability andnew limitations on the use otransportation development orcommunity improvement districts(DDs or CIDs).13

4. I the City o Saint Louisre-enters Saint Louis County,it should be required to do so

as a pool city. Otherwise, theproblems o luring businesseswith incentives around the regionwill continue unchanged.

Shared Municipal Services

Te sharing o services between citiesand Saint Louis County, or among citiesthemselves, is an excellent way to save

Sales tax pools

are a more ree-

market change that

encourages growth

or the whole region

instead o having

cities fght with

each other or retail

development.


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August 2013

taxpayer dollars in Saint Louis. I believethe 90 cities within the county do a betterjob o sharing services and costs thanpeople realize. Some examples o sharedservices include:

1. Municipal 911 emergency callcenters this was historicallycommon in North County andcurrently shared in Mid-County.

2. Cities contracting with Saint LouisCounty or police patrols and codeenorcement.

3. Cities contracting with other citiesor police patrols, such as Oaklandcontracting with Kirkwood.

4. Recreation acilities, such as theshared service agreement betweenBrentwood, Richmond Heights, andMaplewood involving, respectively,the ice rink, indoor pool, andoutdoor pool.

Tere are many other examples.Generally speaking, cities within SaintLouis County have authority to enter

into contracts with each other andwith the county. Tis is good publicpolicy, and the state should support itwhenever possible. Te most importantthing is or the state to resist eorts torestrict or limit eorts at cooperationand cost savings between cities orcounties, including Saint Louis Cityand Saint Louis County. I am notreerring to a merger here. I amreerring to eorts such as the MajorCase Squad and the Convention andVisitors Bureau, which have long servedboth the city and county in a sharedmanner. With or without a merger or are-entry, those options have served ourarea well and need to be continued.

Independent Study on City-County Governance

Finally, I know that this committeeis studying the larger issue o city-county governance in Missouri. I am

amiliar with one study by independenteconomists that did an excellent job olooking at St. Louis overall governmentstructure. I would like to take thisopportunity to recommend economistsRoger Parks and Ronald Oakerson tothis committee. Tey did a ne job 20years ago comparing the ragmentedgovernment systems in Saint Louisand Pittsburgh.14 I believe both are stillworking as economists, and I think they

may be able to assist this committee witha study o the Saint Louis area.

Conclusion

Many key Missouri counties shouldcareully consider sales tax pooling. Whileit may sound great that cities competewith each other or retail development,the reality is that the eects o thatgovernment competition have been

harmul or Saint Louis County. It hasresulted in tax giveaways and hometakeaways, all or the sake o bureaucratstrying to plan our local economies. Tegovernment planning and the abuse oIF have ailed to benet our regionseconomy. It has not grown jobs oropportunity.

Tere is a better way, a more ree-market-oriented way. Te Saint Louis County

sales tax pool is a more ree-market-oriented system that encourages growthor the whole region instead o havingcities ght with each other or retaildevelopment. Saint Louis County needsto move urther in that direction.

Te sharing o services

between cities and

Saint Louis County,

or among cities

themselves, is an

excellent way to save

taxpayer dollars in

Saint Louis


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NOTES1 Swenson, David, and Liesl Easth-

ington. April 2002. Do Tax Increment

Finance Districts in Iowa Spur RegionalEconomic and Demographic Growth?

Department o Economics, Iowa State

University: 11.

2 Dye, Richard, and David Merriman.March 2000. The Eects o Tax Incre-

ment Financing on Economic Develop-ment. Journal of Urban Economics,

Volume 47, Issue 2.

3 East-West Gateway Council o Govern-

ments. January 2011. An Assessmento the Eectiveness and Fiscal Impact

o the Use o Local Development Incen-

tives in the St. Louis Region. FinalReport: 18.

4You could consider the Saint Louiscity and county regional hotel tax to be

another pooled tax.

5 A cities can switch to become B

cities. Five have done so. B citiescannot become A cities. A cities that

incorporate B areas must maintainthat portion o the city within the pool.

They are known as A/B cities. For our

purposes here, because any TIF withinan A/B city would be done within the

point-o-sale, or A portion o the city,they are counted with the A cities.

6 Source: Research or the Show-MeInstitute by policy extern Levi Ben-

nett. To the best o our knowledge,no other pool sharing system in the

United States is exactly like Saint Louis

Countys. As such, comparative study othe topic is limited.

7 BBC Research and Consulting. Local

Revenue Sharing Methodologies. Octo-

ber 2001, pp. 17-18.

8 Source: East-West Gateway Council

o Governments data. Analysis o databreakdown by A and B cities by

Show-Me Institute researcher KacieGalbraith. View online here: http://www.

ewgateway.org/DIRR/DIRRData/dirrdata.htm.

9The list o pool cities would include

unincorporated Saint Louis County asits own municipality, as that is how it is

included in the sales tax pool ormula

calculations.

10 For that calculation, you would use 92total municipalities, counting unincor-

porated Saint Louis County as one andadding back the dis-incorporated villageo Saint George, which was in existence

during that time.

11 Murphy, Kevin, Battle Brewing

Over Sales Tax Distribution. Webster-

Kirkwood Times, January 20, 2006. View

online here: http://www.websterkirk-woodtimes.com/pdalpeditorial.lasso?-

token.story=170806.113118.

12 Stokes, David. April 2012. TIF Gives

Cities An Unair Advantage Over Other

Governments. Show-Me Institutecommentary. View online here: http://

www.showmeinstitute.org/publications/commentary/corporate-welare/743-ti-

gives-unair-advantage.html.

13 Stokes, David. August 2011. The Nixa

CID: Public Dollars For Private Beneft.Show-Me Institute commentary. View

online here: http://www.showmein-

stitute.org/publications/commentary/taxes/601-the-nixa-cid-public-dollars-

or-private-beneft.html.

14 Parks, Roger, and Ronald Oakerson.

Comparative Metropolitan Organiza-tion: Service Production and Gover-

nance Structures in St. Louis (MO) andAllegheny County (PA). Publius, Vol. 23,

No. 1, Winter, 1993.

6


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August 2013

PERSONAL NOTES


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Testimony: Take This TIF And Pool It!

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