How Are We Recovering? (Part 1)

Posted on by Corianna Baier

The economic recovery from the COVID-19 pandemic has been much more rapid and robust than people initially predicted. It’s possible that memories of the slow rebound from the Great Recession created pessimistic expectations. However, despite the faster-than-expected rebound in 2020, employers are reportedly experiencing hiring difficulties, which may slow the return to economic prosperity. Evidence from the aftermath of the Great Recession suggests one risk factor that may delay jobs recovery: generous unemployment benefit extensions. This blog post will be the first in a series that discusses the unemployment insurance program, its economic effects, and its implications for the current recovery.

In the spring of 2020, the COVID-19 pandemic and associated shutdowns quickly sent our country into unimaginable economic lows. The national unemployment rate reached its peak of 14.8 percent in April 2020 while Missouri’s unemployment rate jumped to 12.5 percent the same month. However, the economy has bounced back faster than expected. Recent numbers show the national unemployment rate at 6.2 percent in February 2021, and Missouri’s preliminary unemployment rate for January 2021 was 4.2 percent.

Though still higher than the national unemployment rate of 3.5 percent from January 2020, we’ve recovered much more quickly than we did from the Great Recession.  It took nearly five years for the unemployment rate to fall from its peak of 10 percent in October 2009 to below 6 percent. As the image below shows, unemployment reached an even higher peak during the pandemic but has still managed to fall to 6 percent in less than a year’s time.

Source: https://www.bls.gov/opub/mlr/2020/article/employment-recovery.htm

Perhaps the historical fiscal relief packages passed in 2020 help explain the more robust recovery. The CARES Act was passed in March 2020 to support the economy in a variety of ways through a period of widespread lockdowns. Included in the CARES Act was enhanced unemployment insurance to help those who had lost their jobs at a time when it was difficult to find jobs.

However, with the economy re-opening, job postings on the rise, and accelerating vaccinations signaling a potential end to the pandemic, it is worth re-examining the evidence on the effects of unemployment benefits during downturns and recoveries. Are the benefit extensions helping the recovery by sustaining consumer spending, or are they slowing the recovery by discouraging people from searching for jobs by paying them generously not to work? This will be discussed in future blog posts.

St. Louis County Needs to Get the Auditor’s Office in Order

Posted on by David Stokes

I was an aide at the St. Louis County Council in 2003 when the council appointed Mark Burchyett as the county auditor. Mr. Burchyett was a highly qualified, experienced government and business auditor before coming to St. Louis County. Before him, the county auditor’s office had been, in the words (spoken to me) of a Post-Dispatch reporter who shall remain nameless, “A dumping ground for political hacks.”

Fast forward a decade or so, and the county has unfortunately appeared to have returned to those undistinguished roots. Several years ago, the council appointed an individual to the auditor position who had essentially no experience in large-scale government auditing functions. Over the past several years, the inability to actually do such audits has resulted in an auditor’s office almost without audits. This is not an exaggeration. It just takes a moment to compare the output of the St. Louis and St. Charles county auditor’s offices to see the striking difference. One has some very short reports over the past several years. The other (St. Charles) has real audits.

In fact, if you go to the two pages that list St. Louis County audits and reports, there is exactly one (ONE!) released financial document in all of 2020 and 2021, and that document is one (ONE!) page long.

This county auditor oversees a very small staff of just 2 or 3 people The auditor is not just overseeing audits and reports; he has to actually do the work himself. Members of the St. Louis County Council have recently asked for a state audit of county funds in light of the fact that the county auditor has not performed this vital task. The county council is also considering instituting tighter qualifications for the position.

With the enormous amount of money coming into St. Louis County over the past year from federal aid, the office of the county auditor is more important than ever. The county needs a qualified, independent auditor’s office to provide oversight on the spending. (The auditor’s office is one of two positions in St. Louis County government that reports to the council, not the county executive.)

Loyalty is a wonderful thing and calling for people to be replaced is not something anyone should ever be cavalier about, but it is well past time for St. Louis County to have an auditor who will get the job done.

Repeating School Spending History

Posted on by Michael McShane

I saw a meme once that said “Those who fail to learn history are doomed to repeat it while those who learn history are doomed to watch as other people repeat it.” I can’t help but identify with that as the details of the federal government’s massive school spending plans are unveiled.

Those of a certain age in Kansas City might remember the landmark Missouri v. Jenkins case that wound its way through the courts during the 1980s and 1990s. The decision led to direct oversight of the Kansas City public schools by a federal judge and billions of dollars in spending,  but the key indicators that the case hinged on—student academic performance and racial segregation—barely budged.

I can’t do the whole story justice here, but I can highly recommend University of Colorado professor Joshua Dunn’s outstanding book on the case: Complex Justice: The Case of Missouri v. Jenkins.

Here is a brief excerpt from his conclusion, which might give us pause today as we think about the new spending heading our way:

Many of the problems afflicting urban education can be traced to school districts’ political and institutional arrangements, which give incentives to school boards and superintendents to institute quick reforms that do not challenge established interests. The KCMSD is no exception. In the 1970s and early 1980s, a new superintendent would come in with a “new” plan to rescue the city’s schools. The plan would fail. The school board would fire the superintendent and then commission a study to come up with another plan. That plan would fail as well. Missouri v. Jenkins was the continuation of this failed policy strategy by judicial means. Even with the aggressive oversight of a federal judge, the KCMSD’s problems persisted. A dysfunctional organization given all the money it asks for will likely use that money in a dysfunctional way. Fixing the “root causes” of the problem—poor administration and poor instructions—should be the place to start.

Let’s Look at Some Numbers

Posted on by Susan Pendergrass

The Missouri Legislature is hard at work on the budget for the next fiscal year. One of the biggest components of the budget is K-12 public education. I think it’s helpful to periodically pause and take a look at what is actually spent on education to see if it’s too little or too much. Most people have no idea how much is even spent, and if they think they know, they underestimate the dollar amounts. So, here’s the truth.

The following numbers are from the Department of Elementary and Secondary Education’s (DESE) Missouri Comprehensive Data System (MCDS). The file is called “Finance Data and Statistics for All Districts” and it can be found here.

Last year, when every school in the state shut down and many were able to offer little more than homework packets and buses stopped running and buildings were closed, Missouri public school districts spent just over $16,000 per student. That sounds a lot like the tuition at a fancy private school.

Of course, we did get about $300 million in federal stimulus funds for public education, but that only explains the $330 difference in federal spending per student between 2019 and 2020. State and local spending also increased. In 2021, Missouri is set to receive an additional $2.8 billion in federal stimulus, or over $3,000 for every student in the state. Does that mean that spending per student will be $19,000 in 2021? Will it be more?

In addition to working on the budget, the Senate is set to debate whether donations to scholarship-granting organizations should continue to be treated as tax deductions or if the donor should get a full tax credit. Giving donors a full tax credit would greatly incentivize donations to these scholarship organizations. The tax-credit-funded scholarships would give families money to customize their children’s education outside of their assigned public school. The defenders of the status quo—superintendents, school boards, and teacher union leadership—will undoubtedly say we can’t afford it. In light of the numbers above, does that seem true?

The New York Times Talks Property Assessments in St. Louis County

Posted on by David Stokes

The New York Times had an excellent article on property taxation issues a week ago. The article had a nationwide focus, but it included St. Louis County among its data examples. As Missouri is entering its biennial reassessment cycle, the article is especially timely here.

My first work in government was in property assessment and tax issues. I was hired in June of 2001 to work for the St. Louis County Council as an aide. A short time later, the 2001 “Drive-By Assessment” scandal erupted, and the next few months of my life were devoted to property tax and assessment-related constituent work. In 2019, taxpayers in Jackson County experienced a similarly critical and difficult assessment cycle.

The Times story discusses studies that have found that lower-value homes tend to be over-assessed, and higher-value homes tend to be under-assessed. This leads to a shift in the property tax burden to the poor. Why does this happen? It’s due to the way assessment systems work. Home valuations are based on comparable sales data, and at the extreme high and low ends there are fewer sales to compare to. This naturally creates a regression to the mean; houses at the higher end get compared to houses that aren’t quite as expensive, and houses on the lower end get compared to houses that are a bit more expensive. That leads to lower-value homes being over-assessed, and higher-value homes being under-assessed.

That does not mean we should get rid of the average-based assessment system. In fact, I think we should expand on it and stop individually assessing homes every two years. We should just raise or lower assessments based on the average in an area. We could combine that with accurate assessments at sale price for sold properties (important for high-value ones), individual assessments for new construction, and maintaining the appeal system for property owners who believe their property value has increased less than average.

I have been discussing this problem for years. In a 2007 op-ed for the St. Louis Business-Journal, I wrote:

This would safeguard against incorrectly undervaluing properties – particularly expensive ones – that might be underassessed over time by the use of an average-based system.

These changes would make for a much easier rollback of tax rates. When assessments go up, property tax rates are rolled back because assessments are not supposed to lead to a tax increase. However, this isn’t the case for many people. The rollbacks are based on averages, but assessments are currently individual. So if your assessment increased by 20 percent, but the average in the area was only 10 percent, you will get hit with a significant property tax increase. Using an average would mean that everyone faces the same increase, and the same rollback.

I will have much more to say over the coming months about property taxes in Missouri. In particular, it’s time to remove the Kansas City school district’s exemption from property tax rate rollback requirements. That is a big part of the assessment issues in Jackson County that needs to be addressed. But clearly, as the article in the Times shows, we have work to do in Missouri.

The Latest on Missouri Empowerment Scholarship Accounts and HB 349

Posted on by Susan Pendergrass

On Thursday, April 15, 2021, Dr. Susan Pendergrass joined The Gary Nolan Show to provide an update on House Bill 349.

HB 349 would establish the Missouri Empowerment Scholarship Accounts Program. The program would allow taxpayers to claim a tax credit of up to 50 percent of their tax liability for contributions to educational assistance programs. The funds would be pooled in ESAs for use on tuition, textbooks, tutoring services, and other costs.

Learn more about ESAs

 Listen to more from The Gary Nolan Show

We Have the Money. Let’s Expand Education Options for All Students

Posted on by Susan Pendergrass

In the latest round of federal stimulus, Missouri will receive about $2 billion in funding for public education. Of this, the Missouri Department of Elementary and Secondary Education (DESE) keeps 10 percent, or $200 million. What should DESE spend it on? How about supporting the education hubs that have already popped up to help parents with virtual learning? How about creating more of them so that students can access tutoring and other services to overcome learning losses and prepare for next year? Private organizations, such as The Mind Trust and the National Parents Union are already joining the effort.

A database collected by the University of Washington offers several examples of where this is already happening in Missouri. The Boys and Girls Club in Columbia created a virtual learning center this year that provides students in grades K-5 academic support for remote learning and enrichment activities. They charge $150 per child per week. The YMCA locations in Kansas City created the Y Learning Academy. They provide in-person learning support for children up to 12 years old. Staff members are trained in youth development and provide enrichment activities. They charge $35–$60 per child per day. The Timothy Lutheran Church in St. Louis created a virtual learning classroom for parents working outside the home. Church staff help students with their virtual learning. They charge $50 per child for a full day and $25 per child for a half day. The Discovery Center of Springfield created a Learning Support Care program for children in grades K-8. They offer multiple options, including having district teachers leading remote instruction while Discovery Center staff provide support and tutoring. They charge $40 per child per day, plus an additional $25 for tutoring.

These are just a few examples of what is happening across the state. These pop-up education hubs have become a lifeline for working parents. Undoubtedly, many struggle to pay the $150-$250 per week, but what are their other options to keep their children safe and learning? Where are the children with working parents who can’t afford private options?

If DESE used just ten percent of the $200 million in stimulus funding to support these programs, it could fund hundreds of thousands of weeks of learning. More hubs would give more students the chance to catch up and recover lost learning. As we emerge from the fog of COVID, we will need to pull out all the stops to ensure that every child gets the education they need. Supporting programs such as education hubs should be part of the plan.

Earnings Taxes and St. Louis’s Catch 1%.

Posted on by David Stokes

A version of this commentary was published in the St. Louis Business Journal.

As voters in the City of St. Louis prepare to vote on whether to retain the earnings tax in April, the city is in a tight spot. The city and school district need more revenue, which comes about through more taxes. But because taxes are high and a detriment to growth (especially the one-percent earnings tax), businesses are not locating in the city and the economy is not growing. So, to attract new businesses and convince current ones to stay, the city selectively gives out generous tax incentives. These may attract some businesses and residents, but because of the incentives, they don’t provide the tax revenue that the city was after in the first place.

Are you with us so far? Count us among those who agree that poor public schools and a high crime rate are harming the City of St. Louis more than taxes. But if the economy were growing, City Hall and the board of education would have more money to hire more police officers and teachers. It’s as if St. Louis is in its own Catch-22: a problem or situation where every solution is impeded by other conflicts. Call it our Catch 1%.

St. Louis’s “solution” to the problem of losing businesses and residents over the past couple of decades has been to offer generous tax benefits to every politically influential Milo Minderbinder who asks for them. Last year alone, there were 70 million uncollected tax dollars because of various subsidies. That approach has been a failure. It has led to substantial tax subsidies for developers who do not need them, such as the St. Louis Cardinals and their Ballpark Village development. They succeed while paying significantly reduced taxes. Their subsidies have helped them drive out smaller competitors (e.g., Mike Shannon’s) who paid taxes, but now no longer do because, well, they are closed. The use of tax subsidies actually leads to a reduction in tax revenues. That’s Catch 1%.

The same thing goes for the idea that tax subsidies are intended for blighted sections of the city. Clearly, there are parts of St. Louis that are struggling, and these areas might well benefit from the use of tax subsidies. But for the most part they aren’t getting them. Why not? From an economic development official’s point of view, the incentives are misaligned. If you have tax dollars to invest, why not direct them into a thriving area surrounded by other successful businesses? You’ll look that much smarter when the development succeeds—even if it would have been just as successful without the government handout. The projects that truly need the incentives aren’t the sure things . . . and that’s the whole point of the incentives—to bridge the gap between failure and success for a project in an economically depressed area. But in St. Louis, the less a project needs a tax subsidy, the more likely it is to get one. That’s Catch 1%.

So here we are, giving out tax incentives to people who don’t need them in places that don’t need them and still funding city government with an earnings tax that limits economic growth. Could the City of St. Louis operate without the earnings tax if the residents and voters wanted to do so? Of course. Most large cities in the United States do not have local income taxes. One problem (of several) with the tax subsidies and abatements the city gives away is that they make it impossible to rely less on the earnings tax and more on local property taxes, which is how many comparable cities fund their local services. Nobody says it will be easy to phase out the tax, which brings in an estimated $159 million per year. But if voters decided to end it, during the 10-year phase-out period an overall effort toward ending corporate welfare, raising alternative (and less economically harmful) taxes, budget cuts, continued pension reforms, service sharing with other governments (as in re-entering St. Louis County), and privatization efforts (e.g., the water utility) would allow St. Louis to continue to fund necessary services. It bears repeating that most comparable cities, including Chicago, Memphis, Omaha, Tulsa, and Nashville, fund their local services without local income taxes.

As St. Louis City voters prepare to decide the fate of the one-percent earnings tax in April, they do not have a simple choice. But the way the city has been operating for years is not working. The population is still declining, crime rates are high again, and the schools are failing too many students. If the city continues to go along as it has been for years, managed decline is about all we can hope for. Perhaps it is time to break out of the Catch 1% the city is in and do something radical.

Support Us

The work of the Show-Me Institute would not be possible without the generous support of people who are inspired by the vision of liberty and free enterprise. We hope you will join our efforts and become a Show-Me Institute sponsor.

Donate
Man on Horse Charging