How crony capitalism thrives in the Show-Me State.
If you are running a business, what are “the most terrifying words” in the English language?
In a famous quip, Ronald Reagan answered, “I’m from the government, and I’m here to help.” Everyone got the joke: Beware of any “help” from the government — as it is likely to come at a frightful cost in increased regulation, lost freedom, and reduced competitiveness. An old Arab proverb contains a similar lesson. On a cold night, a camel asks if it may poke its nose into its master’s tent. He does not object. He thinks: Surely, no harm can come from allowing the beast to warm its nose for a few hours. Soon, however, the camel has its head, neck, and forelegs in the tent. Later, the man awakes to find that the camel has upped and gone — taking the tent on its back and leaving him shivering in the sand.
Funny (or not so funny) how times change. Nowadays, there is general acceptance of the idea that business and government belong in the same tent — like two buddies out in the wild, sharing a big adventure.
That kind of thinking defined and inspired the Three Trails Crossing redevelopment plan — the huge new office campus that the Cerner Corporation is building in south Kansas City. A tax-increment financing (TIF) plan gives Cerner what amounts to a 23-year tax holiday. It redirects all new taxes (both from higher property values and from increased sales and income tax revenue within the development area) back to the company to help pay for the project. That is hundreds of millions of dollars that won’t go to schools, libraries, and other public services. Altogether, taxpayer support from the city and state will cover $1.7 billion, or just under 40 percent of the project’s total cost of $4.3 billion.
What a handsome gift from Kansas City and Missouri taxpayers (who will have to make up for the looming shortfall in tax receipts) to a fast-growing and highly successful corporation! Don’t other companies subject to the same sales, property, and income taxes wish they were so lucky?
Arising out of the ashes of the once-prosperous but long-abandoned and demolished Bannister Mall, Three Trails Crossing will include eleven office buildings and two data centers. Thanks to taxpayer largesse, it will also include bicycle paths, a fitness center, shops and restaurants, and a daycare center for small children of employees. Back in September of 2015, Greg LeRoy, Executive director of Good Jobs First (a research organization that monitors public subsidies), described the Cerner deal as the biggest TIF project — bar none — anywhere in the country.
Building a Corporate Taj Mahal — with Taxpayer Support
But if Cerner needs a corporate pleasure dome for its future success, shouldn’t the health information technology company pay for it entirely on its own nickel?
Not according to Edward Ford, the former Kansas City Council member who was a prime mover in securing TIF for Cerner. He told the Pitch, a Kansas City magazine: “To attract the type of employees they [Cerner] believe they’re going to need to make this work, they really have [to have] a Taj Mahal office complex.”
Cerner’s Mike Nill, executive vice president and chief operating officer, agrees. “Inside the buildings,” he told the Pitch, “we’re going to have a lot of great amenities for our associates.… Cerner is obviously very focused on health — the health of our associates and the health care aspect as well. It will feel like a healthy environment when you drive onto the campus.”
In the same interview, Nill stressed that Three Trails Crossing, even with the incentives, was no more than a “break-even” proposition from Cerner’s perspective, saying, “For us, it’s not a real estate investment. It’s a transaction to provide office space and develop part of the city.” While that may sound noble and altruistic, Cerner would not have qualified for a treasure trove of subsidies if it had said anything else.
The “But-For” Loophole
Profit-seeking ventures do not qualify for TIF; to win approval, an applicant must show that its proposed project meets the “but for” requirement — meaning that the project could not proceed except for the special incentives provided at public expense. That said, the “but for” requirement is rarely much of an obstacle for developers and companies craving public subsidies.
In applying for TIF, businesses routinely press for bigger handouts to help them reach higher “targets” for return on investment (and also to help pay for great amenities for their own employees). Show-Me Institute Policy Analyst Graham Renz brings an insider’s perspective to the subject of TIF — having spent two years as a project analyst in the Jackson County Executive Office. He observes: “They [TIF proponents] will often say, ‘An ROI of 5 or 6 percent is not good enough for us; we need 8, 9, or even 11 percent.’”
TIF, special taxing districts, and other subsidy programs were originally designed to spur development and job growth in distressed urban areas. Though the Three Trails Crossing project ostensibly fits that description, most TIFs and other tax carve-outs in Missouri do not.
More typical is the deal that St. Louis-based Centene Corporation — the largest Medicaid managed care organization in the country — struck with the bustling and highly affluent city of Clayton (a close-in suburb of St. Louis) and the Missouri Development Finance Board. Centene is to receive roughly $92.2 million in taxpayer help for a $771.8-million expansion project in downtown Clayton. The handouts include $75.6 million in property tax abatement from the city of Clayton plus a state-approved $6.6 million from the MO Works Program and $10 million in MO BUILD bonds. Like Cerner’s project, Centene’s taxpayer-assisted project also features a much-touted daycare center.
The High Cost of Government “Help”
There can be no doubt that cities and towns across Missouri — along with the state itself, through the annual award of $500 million or more in targeted tax credits for “economic development” — have been exceedingly generous over the years in extending the helping hand of government to many well-connected businesses and developers. Within our two major metro areas, it has become a rare event when any major hotel, retail, or corporate expansion proceeds without public assistance.
Over the past couple of decades, our cities and state have promised or delivered more than $5.2 billion in subsidies to private businesses, according to the Mercatus Center at George Mason University. Among the 50 states, Mercatus said, Missouri ranks as one of the top ten “corporate welfare kings of America.”
The only question is whether all this “help” has done any good. Unfortunately, evidence that government-directed subsidies really help stimulate economic growth or community betterment — either on a local or a statewide basis — is sadly lacking.
The Best Government “Fix” of All — Having Less Government
Missouri used to rank in the middle of all states in annual GDP growth. That began to change in the 1990s—at the same time that the wheel of public policy within the Show-Me State turned in favor of city and state efforts to promote economic development through special tax incentives. That’s also about the same time GDP growth within the state took a turn for the worse. From 1997 to 2015, Missouri ranked near the bottom of all states (48th out of 50), with average annual economic growth of just 1.0 percent. Missouri under-performed every one of eight bordering states.
The economic performance of our two largest metropolitan areas was especially bad. They have conspicuously failed to play the traditional role of big urban centers as engines of growth for the larger political entities of which they are part. They have not only failed to keep pace with big centers in other states, but they have also fallen behind smaller cities within the state in economic growth. And that decline is despite — or, dare we say, maybe at least partly because of — the abundance of economic aid that has been used to “spearhead” development in these same two centers.
At the Show-Me Institute, we call for an end to corporate welfare and attempts by government entities to engage in economic planning and the picking of winners and losers. Ideally, Missouri should eliminate TIF, transportation development districts, and community improvement districts, and dramatically reduce the availability of state tax credits for targeted economic development.
It is time to take the camel’s nose (in all of its many forms) out of the corporate tent.
 Cerner had 2016 revenue of $4.8 billion and total employment of 24,400. It has a market capitalization of $21.3 billion.
 Vockrodt, S. “Cerner’s TIF Transplant,” The Pitch, September 1, 2015.
Pushkar Fair (anurag agnihotri/Wikimedia Commons)