The New Mayor Vetoes Two Tax Subsidies

Posted on by David Stokes

In a welcome development, St. Louis Mayor Tishaura Jones vetoed two newly proposed tax subsidy bills. One is a small project and one is large, but what they have in common are generous tax subsidies for projects in areas that are doing just fine economically.

The main veto was for a new 300-unit apartment complex right by St. Louis University. The new apartments will be marketed toward students, of which there are many nearby because it is right next to a major university. The developers were asking for a 10-year, 95 percent tax abatement. A 95 percent tax abatement on an $80 million project is a lot of money for the developers, and that money will inevitably be offset by higher taxes on other residents and businesses. The idea that a development such as this at this location needs a huge tax subsidy is absurd. I commend Mayor Jones for these two vetoes and hope it sends a signal for the rest of her administration.

Don’t get me wrong. I think taxes in the City of St. Louis are too high. But if Mayor Jones and the new generation of city leaders can substantially reduce tax subsidies for the lucky few and expand the tax base by doing so, then we might be able to get a tax cut for everyone. If the taxes on commercial development are too high, then lower the commercial property tax surcharge for all businesses. Giving away generous tax abatements to some (who, shockingly, tend to be politically connected) is not the solution.

This is a positive step for Mayor Jones’ term.

Charter School Students Are Public School Students

Posted on by Susan Pendergrass

Imagine two teenage siblings with jobs—a rarity these days. Their parents require them both to pay for their own transportation with their earnings. One only has to pay for gas and the occasional oil change. The rest of their paycheck can be spent on other things. The other has to cover a car payment, gas, tires, car insurance, and any other expense related to keeping their car moving down the road. You can debate if this is good parenting, but clearly one teen will have to stretch their paycheck a lot further. And it doesn’t seem quite fair.

That is essentially how funding for charter school students differs from funding for other public school students. Public school districts can fund buildings, buses, maintenance, and other long-term costs by issuing bonds. Capital projects are funded with dollars outside of the stream of revenue that is received from federal, state, and local sources each year to educate students. Charter schools, however, have to fund everything—buildings, new roofs, HVAC systems, buses, gyms, libraries—using the same annual funding that traditional public schools can dedicate to the classroom. It’s very difficult.

Finally, some Missouri charter schools will have access to state funds for capital improvements. The recently passed education budget bill, House Bill 2, includes $5 million from the General Revenue Fund “for deferred maintenance grants for charter school facilities, provided that the charter school has been operating, with students enrolled, for at least ten years, further provided the charter school maintains twenty percent (20 percent) reserves, further provided that the charter school not be a part of a for-profit charter management organization’s network, and further provided the charter school owns or is purchasing the building or is occupying a building owned by the local school district.”

It’s not a ton of money, considering that there are more than 70 charter schools in the state, but it’s a start. It’s good to see the Missouri Legislature begin to chip away at the systems that work against families and their educational needs.

Suggested Change to Missouri’s Nuclear Construction Bill

Posted on by Jakob Puckett

A new bill in the Missouri Legislature proposes easing regulations on nuclear and renewable power construction. House Bill 261 would allow utilities to charge ratepayers for the construction of nuclear and renewable power plants before they’re operational. However, this would only apply to plants with the capacity to generate more than 200 megawatts of electricity per year.

This exemption would favor large, traditional nuclear power plants at the expense of cutting-edge nuclear energy technology—small modular reactors (SMRs). Putting aside the merits of the current monopoly structure—customers in other states benefit from competitive electricity markets—does it even make sense for a bill to promote traditional nuclear over SMRs?

Let’s put this in perspective. Few large, traditional nuclear power plants have been built nationwide in the past few decades. In recent years, multi-billion dollar cost-overrun debacles for new traditional nuclear plants in South Carolina and Georgia have put a damper on constructing new large nuclear plants. So what’s so special about SMRs?

SMRs are much smaller than traditional nuclear power plants (generating fewer than 200 megawatts of electricity per year) and are also cheaper to construct on a per-megawatt basis than traditional nuclear plants. NuScale Power, which is on track to receive the U.S. Nuclear Regulatory Commission’s first construction approval of an SMR this August, expects its SMR to produce electricity for $65 per megawatt-hour. That price is competitive with electricity from natural gas plants, which are also “baseload” power providers. (Baseload power is reliable, around-the-clock power, as opposed to the intermittent power provided by solar and wind.)

SMRs are also safer than traditional nuclear plants. The traditional way of generating nuclear power is already the safest form of electricity production available, even when considering disasters like Chernobyl or Fukushima, but SMRs come with enhanced safety features. For instance, traditional nuclear power plants cool their reactors by circulating water via electricity, meaning that in the event of a natural disaster that removes all possibility of power (such as what happened in Fukushima in 2011), the reactor could malfunction. SMRs use natural circulation rather than power to cool the reactor, meaning that a disaster like Fukushima is even less likely to happen with SMRs, and it is already extraordinarily unlikely.

Their smaller size also means that SMRs may be deployed in places where it wouldn’t make sense to build an enormous, traditional nuclear power plant, such as in remote towns or industrial sites. SMRs can operate individually as well as being grouped together, again in contrast to traditional nuclear plants. This allows for more flexible operation and even expansion if population or industry requires it.

SMRs are nearing full approval by federal regulators and are already being built in several countries. Putting aside the concerns about the monopoly powers Missouri utilities currently have (which are not insignificant), wouldn’t Missouri be better off focusing on the future of nuclear energy technology rather than the past?

SMI Podcast: It’s Always Infrastructure Week Somewhere with Brian Riedl

Posted on by Susan Pendergrass

On this episode of the Show-Me Institute Podcast, Susan Pendergrass is joined by Brian Riedl.

They discuss his recent piece in National Review titled Four Principles for a Conservative Infrastructure Alternative

Brian Riedl is a senior fellow at the Manhattan Institute, focusing on budget, tax, and economic policy. Previously, he worked for six years as chief economist to Senator Rob Portman (R-OH) and as staff director of the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth. He also served as a director of budget and spending policy for Marco Rubio’s presidential campaign and was the lead architect of the ten-year deficit-reduction plan for Mitt Romney’s presidential campaign.

Listen on Apple Podcasts

A Huge Win for Missouri Families

Posted on by Susan Pendergrass

Thankfully, the Missouri Legislature has recognized that one size does not fit all when it comes to education. The House and the Senate have passed a bill that will allow Missouri families to receive scholarships to customize their children’s education outside of their assigned public schools. Once the legislation is signed by the governor and people begin donating to the fund, students in the St. Louis, Kansas City, Springfield, and Columbia areas can apply for an Empowerment Scholarship Account (a kind of ESA) to pay for private school tuition, tutoring, virtual education, micro-schools, or educational therapies. This is a huge win for Missouri and for Missouri families.

The scholarships will be funded by donations to non-profits. Donors to the scholarship-granting organizations will receive a 100 percent credit on their state taxes for the amount donated. The next step is to encourage Missourians to change a child’s life by donating to the organizations. The scholarship-granting organizations can raise up to $50 million each year.

Missouri joins several other nearby states, such as Oklahoma and Iowa, that have also created school choice programs this year.  No doubt the experiences of the past year—when parents were put in the driver’s seat—brought to light that kids need choices. As Show-Me Institute analysts have repeatedly pointed out, parents support school choice, parents need school choice, and the states that give parents school choice outperform those that don’t.

It’s the dawning of a new era of parental empowerment in Missouri. Hopefully, this is just the beginning.

Indexing Fuel Taxes

Posted on by Jakob Puckett

Paying tax on gasoline or diesel fuel by the gallon makes intuitive sense—the more gas you buy, the more tax you pay. But in this case, our intuition isn’t doing us any favors. The per-gallon model for taxing fuel doesn’t account for inflation or the increased fuel economy of newer cars, and those two factors are making it harder to pay for the upkeep of our roads and bridges.

In addition to a 17-cent-per-gallon state fuel tax, Missourians pay federal fuel taxes on gasoline and diesel fuel of 18.4 and 24.4 cents per gallon, respectively. This federal fuel tax revenue is deposited into the Federal Highway Trust Fund (HTF), from which money is sent to each state—and money from the federal government is the largest part of the Missouri Department of Transportation’s road and bridge budget. In 2020, MoDOT received almost a billion dollars from the HTF, making up nearly 40 percent of MoDOT’s road and bridge budget. In fact, for every $1 that Missouri drivers contribute to the HTF through federal fuel taxes, MoDOT gets $1.21 back. Obviously, it’s in Missouri’s best interest to keep the HTF healthy.

But the HTF isn’t looking so good these days, because its mechanism for generating revenue hasn’t aged well. Fuel taxes are charged by the gallon rather than as a percentage of the purchase price, so they don’t automatically keep up with inflation. The price of gas has gone up a lot since 1993, but regardless of whether you paid $1.25 or $2.50 per gallon during that time, the federal tax on each gallon has been stuck at 18.4 cents (or 24.4 cents for diesel fuel) for the past 28 years. Meanwhile, inflation has increased all the costs associated with road maintenance and repair. Worse yet, the costs of road construction equipment and materials have risen faster than overall inflation. As a result, each dollar raised from the fuel tax now has one third of the purchasing power it had in 1993.

In theory, a per-gallon fuel tax can still bring in increasing revenue over time as more drivers hit the road and log more miles every year. This is exactly what would have happened, except that improvements in vehicle fuel efficiency (not to mention the advent of electric cars) have decreased the amount of gas we buy for each mile we drive.

So where does that leave us? Fuel tax revenue is no longer sufficient to cover the HTF’s expenditures, and Congress has resorted to transferring money from the general revenue fund just to keep the fund solvent. This is at best a short-term fix that doesn’t solve the HTF’s core problem, adds to the national debt, and should hardly make Missourians feel comfortable. The fund we depend on for almost 40 percent of our road and bridge budget can’t support itself anymore. Up to this point, the federal government has covered the shortfall, but can we count on that to continue?

At the federal level there appears to be some recognition of the problem. A bipartisan group of 58 members of Congress has proposed indexing the federal fuel tax to some combination of inflation, construction costs, and fuel efficiency to keep it current with the times. The exact mechanism for the indexing hasn’t been determined, but the proposal is a promising start. Perhaps of more interest to Missourians is that several states have already indexed their own fuel taxes to measures like these. Policymakers here should consider indexing our fuel tax as well, since state fuel tax revenues have stayed practically the same for the last 17 years.

If we believe that quality roads and bridges are important for Missouri’s economy, then it makes no sense to allow the funding source that pays for them to remain stuck in the past.

PACE Loans Are Out of Line

Posted on by David Stokes

A decade ago, Missouri created the Property Assessment Clean Energy (PACE) loan program to help homeowners and businesses get loans for clean energy improvements to their property. A PACE loan would be available if you needed new, energy-efficient windows, furnaces, water heaters, etc. Administration of the loan program has been contracted out to private entities around Missouri, generally authorized and “supervised” at the county level.

Unfortunately, the program has become another way for lenders to target the disadvantaged. I know what you may be thinking if you are familiar with Show-Me Institute’s work. “Wait, I thought you liked privatization?” Yes, I do. But this PACE program really is a combination of the worst of all options. The PACE program:

  • Is a government program of questionable need in the first place. Is it really the government’s job to facilitate personal loans for new appliances?
  • Was outsourced to the private sector with basically no oversight at all,
  • Authorizes private lenders to use government taxing authority to collect on loans. PACE bills can be placed on your tax bill, and if you don’t pay the PACE bills, tax authorities can take your home on behalf of the lenders.

We learned about all of this through terrific reporting by investigators at Pro Publica. Jeremy Kohler and Haru Coryne documented how private lenders were making loans above the value of someone’s entire house at relatively high interest rates to people with risky credit histories. They were targeting these people and doing this precisely because they had greatly reduced risk. If the homeowners didn’t pay, the loan amounts would be put on the tax bills and the lenders would be able to take the homes eventually. Here are examples from the Pro Publica report:

But in St. Louis, an elderly widow said she had no idea she had taken on thousands of dollars in PACE debt, though she saw her property taxes rise sharply. A disabled couple in the Kansas City suburb of Raytown said they weren’t told of the impact on their property taxes; now they’re two years behind on their property taxes.

A Vietnam veteran and his wife in Kansas City are struggling to pay off a $21,658 loan for a solar panel array despite being enrolled in an energy assistance program; they said they just wanted to do something good for the environment.

A PACE loan is NOT a mortgage. Even with a mortgage, the private lender has to go through a civil process with their own lawyers to enforce the loan on the home. With a PACE loan, the county collector is required to do it for them. That is wrong. This situation is like taking out a loan for a new car, and then losing your house if you can’t make the payments. If the PACE private lenders were assuming more risk themselves, they would have been much more careful about their loans.

I have defended the title and payday loan industries in the past. Those companies loan very small amounts compared to what PACE programs will lend you—at admittedly extreme interest rates. But at least when you miss payments to the payday loan company, you don’t lose your home. (My understanding of title loans is they just work with vehicle title.) Those companies take some risk.

PACE lenders basically take on very little risk. Sure, if they loan more than the value of the house and don’t get any money back, you can say they are taking some risk. But how often will the recipient make no payments at all? Between the comparatively high interest rates cited in the articles and the availability of seizure for non-payment, the PACE lenders are incentivized to make large loans to people who might not normally justify the risk.

The St. Louis Business-Journal also has a very good story on this issue this week. There have been bills introduced to reform PACE in Missouri, and reforms are much needed. Some of the true heroes of this fight have been local county collectors who have pushed back against the involvement of their counties in this harmful program.

In my opinion, we should probably get rid of the entire program, but at the very least the ability of lenders to put the loan on your tax bill and take your home if you miss payments must be eliminated.

Are Occupational Credentials the Answer to Educational Polarization?

Posted on by Michael McShane

As a scholar of education policy, three related facts have troubled me recently:

Fact #1: Our economy and society are increasingly bifurcating along educational lines.

Fact #2: People with bachelors’ degrees are doing much better than people without them.

Fact #3: Not everyone can or should earn a bachelor’s degree. (Okay so this one is part fact, part opinion)

A recent paper by economists Anne Case and Angus Deaton showed that while racial gaps in life expectancy are narrowing, the gaps in life expectancy between those with bachelor’s degrees and those without them are widening. And, tracking the last two decades of unemployment data shows that every time there is an economic contraction, those at the lowest end of the educational spectrum are hurt substantially more than those with college degrees. This is reflected in the completely different pandemic experience of more-educated Americans who were more likely to have jobs that could be performed remotely and less-educated Americans who had jobs that had to be performed in person.

If our society continues to cleave along educational lines, there will be serious negative consequences for our politics, communities, and economy.

It is tempting to respond to this problem by saying “Okay, well then everyone should get a bachelor’s degree,” but we know that many good jobs don’t require bachelor’s degrees, many people are unable or unwilling to engage with college-level work, and college is increasingly expensive.

The real question is: Is there another way?

A recent working paper published by the Annenberg Institute at Brown University may offer a better way forward. Researchers from Rice University and the RAND Corporation examined occupational credentials—post-high school certifications that denote skills or knowledge relevant to a particular field.

The authors found that certifications increased the probability of employment for workers without a bachelor’s degree by 37 percent. As they put it, “this suggests that occupational credentials act as an important signal to employers in the hiring process, especially for those with less than a bachelor’s degree.” This, as one might imagine, also translates to higher earnings.

It is increasingly clear that students need some kind of post-high school education to access more stable, more rewarding, and more remunerative jobs. Creating quality certification programs and helping link students to the training that they need could go a long way in bridging the educational divide.

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