`ECONOMIC DEVELOPMENT' IS STRETCHED

In its special session earlier this month, the Missouri General Assembly sent to the governor a major economic development bill. Now, most observers would agree that flying under the banner of "economic development" are a multitude of sins -- er, subjects. Each year, it seems, persons pushing "economic development" bills push the envelope a little more.

There are certainly some good provisions in the bill, especially the new tax credits for historic preservation of older buildings. These credits could help in renovating delapidated structures and the deteriorating urban neighborhoods where they are located. If these tax credits formed the major portion of the bill it would indeed be a laudatory measure, but such isn't the case.

The Constitution contains a flat prohibition against taking funds from the state treasury and giving them to any private entity or purpose. It is this laudatory provision that seems more at risk each year under what gets called "economic development" these days. At stake is an expansion of tax increment financing in the new bill.

Tax increment financing has been used since 1947 in Missouri to help bring about new development. This method of financing involves a TIF district set up to dedicate the additional tax revenues created within its boundaries to be used to retire bonds issued to fund improvements such as the water lines, power lines and roads needed to make the projects possible. Taxes on the property pre-dating the improvements continue to be paid to the taxing entity. Once these TIF bonds are retired, the new revenues are also paid to the local tax base.

Until now TIFs have always involved only local property -- not state -- taxes. This will change under the new bill. For the first time, with the creation of a new animal called a super-TIF, state income and sales taxes generated within the TIF district will be included among those taxes to be abated.

Under the bill on the governor's desk, super-TIFs must be in a state enterprise zone and a blighted area, and buildings must be over 50 years old. Approval must also be given by the state director of economic development, the director of the office of administration and the General Assembly through appropriations before the project can proceed. Proponents say these safeguards are adequate.

Why, then, did the bill earn perhaps the largest-ever number of no votes ever, at least in the Senate, where it won the barest minimum 18 votes? Because critics fear this expansion of TIFs moves the state right square into the business of picking winners and losers in our free-market economy. This is a step toward a version of industrial policy of the kind that has been demonstrated not to work well in Japan.

TIFs are great for a major new industrial plant such as Procter & Gamble in Cape Girardeau County. P&G competes with other world-class industrial players around the globe. Can the same be said for a major retailer or a chain of movie theaters that may want to put in the next huge mixed-use development, such as is now proposed for downtown Kansas City? Should the state be in the business of favoring one kind of retailer over another that competes directly with every other retailer in town? Are super TIFs for "economic development," or will they be for well-heeled developers with a good lobbyist?

Backers of the bill say there are sufficient safeguards built into the bill to prevent abuses. Maybe. But next year there will be another economic development bill, in which the same people who pushed this one will be back, pushing the envelope yet again. Attentive lawmakers will need to be on their guard. Meanwhile, citizens need to be on guard as well. The next TIF outrage could be in your own back yard.