From eminent domain abuse to subsidies and tax breaks for the powerful and well-connected, government officials often try to pick winners and losers in the market. The Show-Me Institute develops policy recommendations to protect property rights and promote economic growth without caving in to demands for corporate welfare. Secure property rights encourage investment and entrepreneurship. Trying to create economic success through government intervention is a formula for failure.
The property rights of ordinary Missourians have eroded over the years. The founding principles that established our nation held that individual rights must be protected against the majority. This ideal once guided Missouri’s Supreme Court, as well. Missouri needs to cultivate a renewed respect for the freedoms of all.
Missouri is one of only three states that require a 10-percent minimum ethanol blend (E-10) for retail gasoline sold within the state. The Missouri Corn Merchandising Council (MCMC) recently released a study purporting to demonstrate the positive economic benefits of the state's ethanol mandate for Missouri consumers. The study claimed that Missourians will save more than $285 million through ethanol-induced fuel cost reductions in 2008 and nearly $2 billion in present value during the following decade. The MCMC study ignores important effects of the E-10 mandate, however, most notably the documented decrease in fuel efficiency of E-10 blended fuel and the taxpayer cost of ethanol subsidies. We find that accounting for these costs significantly impacts the MCMC savings projections and would result in a net loss to Missouri consumers of almost $1 billion during the next decade. If one were to consider the additional impact of the E-10 mandate on higher food prices and CO2 gas emissions, these costs would be even higher.
Some municipalities in Saint Louis County have filed suit to overturn a state law granting counties more tax increment financing (TIF) authority. However, counties are better positioned than municipalities to make good decisions about the use of TIF, and have a history of using these and other tax incentives more selectively.
Although the economic growth benefits of tax credits are easy to see, it’s harder to see their drawbacks. Looking more carefully at the evidence and applying basic economics shows that lowering tax rates across the board is much more efficient at encouraging growth than singling out a few credit recipients at the expense of everybody else.
Tax credits may seem like a great idea to encourage growth by enticing firms to relocate to Missouri, but the reasoning used to support this type of development is almost certainly wrong. The higher marginal tax rates created by targeted credits actually eliminate more jobs than are created by the tax credit beneficiaries.
Officials who use tax credits as a plan to spur economic development tend to rely on discredited economic models. SB 1234 is one such bill, designed to attract “mega-projects” and spur related job creation. Such tax credits will cost taxpayers millions of dollars, without any reliable way of predicting relevant economic growth.
Arnold v. Tourkakis was a rare opportunity for Missouri to protect its citizens property rights, but the state’s Supreme Court ruled in favor of eminent domain for private development — letting that chance sail by. Other property owners throughout the state must now face the sad reality that everybody’s homes and businesses are at risk.
Local governments often try to lure favored businesses with tax breaks or TIFs. But Saint Charles County rejects these incentives, and has been Missouri’s fastest-growing county in Missouri for three decades. It’s more important to create a favorable tax and regulatory climate across the board, attracting a wide base of business and development.
On January 17, the Missouri Supreme Court will hear arguments in City of Arnold v. Tourkakis. This case will decide whether the Missouri Constitution still offers property owners any meaningful protection against municipalities seeking to give their homes, businesses, or houses of worship to commercial developers.
The Show-Me Institute has released a new policy study about the abuses of eminent domain in Missouri, "The Specter of Condemnation: The Case Against Eminent Domain for Private Profit in Missouri," by Timothy B. Lee and Shaida Dezfuli.
This study examines the abuses of eminent domain when used for private profit in Missouri. Although many government officials believe that eminent domain is necessary for comprehensive development projects that will help stimulate the economy, authors Timothy B. Lee and Shaida Dezfuli focus on how eminent domain often hurts economic development by creating economic uncertainty and harming small businesses. Furthermore, it exacerbates poverty in inner city communities by destroying affordable housing and undermining community reform efforts. The study documents numerous examples of the negative impact that eminent domain has brought to local communities. It argues that the abuses will only worsen, until the Legislature passes a constitutional amendment that strengthens property rights in Missouri.
Attempts by the state to pick and choose which industries deserve to prosper in the Missouri economy will choke off the real sources of economic development and impose costs on taxpayers by increasing marginal tax rates. Growth stems from wide-ranging market activity, not state command-and-control.
Imagine you sign a two-year lease with your landlord. After the first year, you decide you're tired of paying rent and would like to buy the property instead. You make him an offer, which he rejects as too low. In response, you go to the board of aldermen and ask them to declare the apartment blighted, condemn it, and turn it over to you for redevelopment. It might sound absurd, but something very similar is happening right now in Saint Louis. The story demonstrates just how ripe for abuse Missouri's eminent domain laws have become. And there's little reason to think the eminent domain bill the state legislature passed in May will prevent such abuses in the future, because the "blight" loophole being used by the city was not closed by the legislation.
Last November, Clayton business owner Dan Sheehan learned from the newspaper that his property suffered from "age, deteriorated condition, and outmoded design." That was a surprise to him because the property is located in one of the most prosperous neighborhoods in St. Louis and is home to four thriving small businesses, including his own. If the buildings were "deteriorated" and "outmoded," their customers didn't seem to notice. Yet the city of Clayton has begun making plans to seize Sheehan's property — and four others on the 7700 block of Forsyth — using eminent domain.
One year ago today, in the case of Kelo v. New London, the Supreme Court ruled that local governments have wide latitude to transfer property from one private party to another for purposes of "economic development." The public was outraged. In response, politicians across the nation pledged to enact state legislation to strengthen property rights. Last month, the legislature passed House Bill 1944 into law, which Governor Blunt touted as "protecting the rights of responsible property owners."
In January of 2004, the city of Arnold unveiled a plan to re-develop a large chunk of Arnold commonly referred to as the Arnold Triangle. The plan envisioned 250,000 square feet of retail space, a Dierbergs Market and a Lowe’s store. Unfortunately, there were 52 homes and businesses already occupying the area. They don’t pay as much in taxes as the city expects to get from the big box retailers, and the city has decided to remove them in favor of wealthier businesses. One of the property owners the city wants to displace is dentist Homer Tourkakis.
Last summer, Missouri’s elected officials promised to crack down on eminent domain abuse. Last week’s legislation falls far short of that promise. It makes some changes to the process of eminent domain takings, but it fails to curb “blight” takings, which are the primary justification for the abuse of eminent domain.
The summer of 2005 was not a good one for Sharon Fitzgerald. On Memorial Day, she learned she had inoperable lung cancer. Three days later, she got a knock on her door. It was Jonathan Browne, head of real estate developer Novus Equities. He wanted to buy her house. And he made it clear that this was an offer she couldn't refuse. "He told us that if we didn't sell, he'd just use eminent domain and take our home anyway," said Sharon, "What could we do? With my health and everything and the chance to lose our home anyway, we didn't really have a choice."
Missouri's asset forfeiture laws avoid a conflict of interest by prohibiting law enforcement officials from keeping forfeiture profits. Instead, the money is dedicated to a public education fund. And under Missouri law, seized property cannot be auctioned off until its owner has been convicted of a crime. But some law enforcement officials don't like those sensible safeguards for property rights.
It's true that the McRee Town was in distress. Some buildings had problems so serious that condemnation and demolition was the only option. But the use of eminent domain to seize and demolish entire city blocks was unfair, unnecessary, and wasteful. It destroyed badly needed affordable housing and uprooted dozens of poor people, most of whom were forced to start over in another bad neighborhood. A better renovation plan for McRee Town would have focused on helping those already living and working in the neighborhood by expanding the stock of affordable housing.
Tuesday's recall of St. Louis Alderman Thomas Bauer puts all Missouri public officials on notice: voters won't put up with politicians who abuse the power of eminent domain for the benefit of well-connected private developers. Voters in the 24th Ward were outraged after Bauer attempted to seize several homes and businesses at the corner of Manchester and McCausland in order to make room for a QuikTrip gas station.
