In theory, establishing a TIF district involves serious and impartial deliberation and calculus. A city intends to revitalize a part of its community, but first it must go through a complicated process designed to test whether certain tax incentives are allowed. The city contracts with urban planners who independently determine if the proposal could happen “but for” the taxpayer assistance, and also if the area meets the standards for a designation of “blight,” or “conservation” (or another appropriate designation), making it eligible for subsidies. A developer is then brought into the process and, with the assistance of the government and the taxpayers, produces an economic growth engine that provides jobs, a revitalized community, and (eventually) an expanded tax base.

Since the late 1990s, Missouri’s tax credit system has grown into one of the biggest burdens on the state’s annual budgets, expending billions of dollars over the last decade and setting the stage for significant budgetary crises in the near future. In fiscal year 2013, Missouri expects tax credit redemptions to cost the state as much as the state is spending on its correctional and public safety systems — roughly $700 million. Put in another context, the entirety of 2013’s projected deficit is less than the state’s expected tax credit payout by about $200 million. Suffice to say, this is real money that legislators will have to understand and grapple with, given the squeeze tax credits have put on the FY2013 budget and will put on state budgets in future years.

Our testimony today is intended to provide an explanation of House Bill 840, the Aerotropolis Trade Incentive and Tax Credit Act, and the probable damaging effect that it would have on the Missouri economy. This legislation is fraught with hidden costs, no study has been published that quantifies its supposed benefits, and tax credits in general have been a poor strategy for economic growth in Missouri.

Senate Bill 11 proposes rescinding Missouri's ethanol mandate. This entire subject is a perfect example of Thomas Sowell’s famed statement about public policy, “There are no solutions, only trade-offs.” Corn farmers gain from ethanol production, as do investors in ethanol plants. Missouri has a large number of corn farmers, as you well know. The argument has been made that ethanol has resulted in lower visible gas prices at the pump. In immediate terms, that seems to benefit Missouri drivers.