The Biden Infrastructure Bungle

Posted on by Aaron Hedlund

Following on the heels of its $1.9 trillion stimulus bill, the Biden administration just unveiled another multitrillion-dollar spending plan, this time notionally aimed at fixing America’s infrastructure needs. Unfortunately, the “American Jobs Plan” is just as much a misnomer as the “American Rescue Plan,” in that it does more to push liberal political goals than to light a fire under the economic recovery or long-term growth.

America’s infrastructure needs are genuine and significant. Investment in basic infrastructure (power, transportation, water supply, etc.) has failed or barely kept up with depreciation, leaving the country with an aging infrastructure stock with dwindling years of remaining service life. Moreover, although the United States spends roughly the same on infrastructure as it did in 1956 in inflation-adjusted per capita terms, it gets less bang for the buck today. In particular, the cost per mile of interstate construction has more than tripled in inflation-adjusted terms since the 1960s.

This combination of flat spending and rising costs means less actual new infrastructure. Worse yet, costs vary widely across states. From 1956 to 1993, high-cost states spent more than $8.8 million more per mile of interstate than low-cost states, and $3.3 million of this differential is due to factors under policymaker control. Thus, rather than measuring the ambition of a bill by the sticker shock of its price tag, a superior metric is to evaluate the quantity and quality of infrastructure it is likely to produce and what spillovers it will generate for economic productivity. On both counts, the Biden Administration’s plan falls far short.

First, the composition of spending in the bill appears not to have gone through any credible cost–benefit analysis to determine where best to allocate scarce (or not so scarce, given the size of the bill) dollars. For example, the American Society of Civil Engineers reports that 20 percent of the more than 4 million miles of roads in the United States are in poor condition; the same report estimates a nearly $800 billion backlog of maintenance and repair needs. Why, then, does only 5 percent of the bill (see Figure 1) go to roads and bridges, only promising to fix 20,000 miles worth of road? Moreover, why spend nearly the same amount on public transportation even though only 5 percent of people rely on it to get to work? The bill also includes Medicaid expansion of home and community-based services (HCBS) masquerading as “infrastructure.” The administration every right to make its case for a “care economy” agenda, but simply calling it infrastructure to piggyback off of the popularity of spending on roads and bridges does not make it so.

Cost breakdown

Figure 1

Secondly, and more egregiously, the American Jobs Plan’s prevailing wage, project labor agreement, and PRO Act provisions are a huge giveaway to unions that would likely raise costs, reduce growth, tilt the playing field, and overturn the will of voters in states that passed right-to-work laws to safeguard worker freedoms. The practical effect of these measures will be to reduce the number of infrastructure projects that can get completed for a given amount of spending and to needlessly harm economic performance through the elimination of worker freedom protections.

Lastly, the Biden plan partly finances the eye-popping $2.3 trillion price tag by raising the corporate income tax, thereby undermining the very competitiveness that infrastructure investment is supposed to enhance. Even the administration tacitly admits the harm such a tax hike will cause for the economy, offering only to beg other countries to raise their own taxes to prevent them from attracting companies looking for friendlier business environments in what the Biden administration misleadingly calls a “race to the bottom.” It’s hard to imagine any countries taking us up on the offer. In all fairness, the American Jobs Plan does promise workers whose jobs are displaced counseling and case management services, though many will unsurprisingly prefer to keep their job instead.

In sum, America’s infrastructure could use a jolt of investment, but the spending priorities in the bill are off target and in many cases unrelated to true infrastructure. The bill is littered with union giveaways that will raise costs and reduce the quantity of new infrastructure that could otherwise be produced, and the promised corporate tax hikes counteract the same economic growth that infrastructure spending aims to ignite. But it’s not too late. The Biden administration should learn from previous mistakes, when the Obama stimulus failed to improve the nation’s highways, and instead refocus on a pro-growth and fiscally responsible approach to solving America’s pressing infrastructure needs.

St. Louis City’s Earnings Tax Is Not the Lowest in the Country

Posted on by Corianna Baier

The earnings tax was one topic of conversation during a recent forum for St. Louis mayoral candidates. During the forum, one candidate claimed that St. Louis has the lowest earnings tax rate in the country. This claim was made while discussing a possible expansion of the earnings tax to St. Louis County. No matter how you look at it, the claim that St. Louis has the lowest earnings tax rate in the country is false.

Most cities in the United States, including most large cities, do not have any form of local income tax. As of 2019, there are only 17 states with local income tax jurisdictions and only 19 of the country’s 100 most populous cities have some form of local income tax. This means that thousands of cities (including comparable large cities such as Chicago, Omaha, and Nashville) have a lower earnings tax than St. Louis city—their earnings tax is 0 percent!

Even if we’re just looking at the jurisdictions with local income taxes, St. Louis still doesn’t have the lowest rate. Many jurisdictions in Indiana, Kentucky, and Ohio have rates below 1 percent. In Colorado, Aurora, Greenwood Village, and Sheridan have monthly local income taxes of $3.00 or less on those that make over $500 per month, which is a 0.6 percent local income tax at most. Clearly, St. Louis does not have the lowest rate among local income taxes.

Objectively, 1 percent is not all that high, and a few large cities with local income taxes have slightly higher rates. But the earnings taxes in St. Louis City and Kansas City are certainly not the lowest in the country and they are definitely not negligibly low. The additional 1 percent that Kansas City and St. Louis city residents and workers pay creates real negative effects for these cities. The local income tax in Missouri’s two largest cities is higher than those in hundreds of other cities in Missouri and thousands of cities across the country, making our largest cities less competitive while also taking money away from our hard-working citizens. That’s not a false claim.

Medicaid Expansion Brings Missouri to a Constitutional Crossroads

Posted on by Elias Tsapelas

Missouri’s House Budget Committee took a historic step this week by voting down the bill that would fund Medicaid expansion. Writers across the state were quick to lambaste the legislature for “denying the will of the voters,” but there is much more to the story.

When Missourians voted on Medicaid expansion this past August, they were told the initiative would save the state billions of dollars. I wrote repeatedly at the time about how wrong those estimates would prove to be; expansion was then approved by a narrow margin.

With Medicaid expansion set to go into effect in a few months and Missouri’s Legislature now putting together next year’s budget, the true price tag for Medicaid expansion has finally come into focus. The state’s most recent estimates suggest that the first year will require more than $1.5 billion in new spending, which includes a significant portion of federal funding and a state share of approximately $100 million. Where will the legislature find these funds? Instead of searching for the money elsewhere in the budget, the House Budget Committee is questioning whether they need to fund expansion at all.

Of course, Missouri voters did approve the petition to expand Medicaid eligibility, but the issue is whether the constitutional amendment requires the legislature to come up with the funds. Our state’s constitution, like the U.S. Constitution, gives the legislature the “power of the purse”—the responsibility of authorizing all state spending. The constitution also provides that amendments cannot impose a new cost without outlining how that cost would be paid for. Unfortunately, the Medicaid expansion amendment, which will have an enormous cost, included no such funding mechanism.

The House Budget Committee’s stance is that without such a mechanism, the legislature is under no obligation to include funding for Medicaid expansion in next year’s budget. The committee’s move is just the first step of many if the legislature wants to avoid appropriating the funds necessary for expansion. But if the eventual budget does not include funding for expansion, the issue would probably be challenged in court.

While discussions on this topic are just beginning and will likely continue for the remainder of this legislative session, it’s important to recognize what’s happening here. There are legitimate constitutional questions being asked here, and despite what you may hear, this is about more than simply the politics of Medicaid expansion.

Some St. Louis School Districts Are Responding to Parents

Posted on by Susan Pendergrass

Apparently, parents like options, and school districts like keeping students. What a concept. This past year has forced public school districts to realize that some—but not all—students excel when they can learn virtually. Other students are more successful when they learn in person. One size does not, in fact, fit all.

Nationally, there are several indicators that learning remotely works for a lot of families. The number of homeschooled students doubled this year. An NPR/Ipsos poll found that nearly 30 percent of families were considering sticking with virtual learning next year. Another tracking poll found that 45 percent of parents want a virtual and in-person hybrid approach next year.

Missouri families who prefer virtual learning have the option of enrolling in the Missouri Course Access and Virtual School Program. But their assigned public school district has to cover their cost. It’s not surprising, therefore, that several school districts in the St. Louis region are going to continue their virtual programs for students who want them. One local superintendent was quoted as saying that extending virtual learning programs will “prevent” students from leaving for the statewide program. Not exactly—parents can still choose either. In fact, a poll of Missouri parents in December found that nearly a quarter graded their children’s remote learning experience as a “D” or an “F.” Regardless, districts are apparently feeling a little heat from the competition.

As the dust settles from the great COVID education disruption, we will discover more about how the experience affected families and learning. I suspect that traditional public school districts will be forced to recognize that the power shift from school administrators to parents is not going to reverse itself any time soon.

Who Will Speak For the Family Businesses They Shut Down?

Posted on by Patrick Ishmael

Late last night and into the wee hours of today, the Missouri Senate debated a bill that sought to rein in many of the local government COVID excesses of the last year, including requiring local elected officials to vote on whether entire classes of businesses should be closed for extended periods of time. After hours of filibuster, the bill failed—with several members of the majority party voting against the measure.

I have to say I am disturbed. During last night’s debate, the conversation seemed to make it clear that some senators have more common cause with local political officials than they do with the people who elected them. The role of the legislature isn’t to simply defend bad local decisions. The role of the legislature is to defend constituents—the people who elected them in the first place—against bad local decisions.

Keep in mind it wasn’t long ago that the state stopped local officials from banning plastic bags. The state was also okay with stopping local officials from hiking their minimum wages locally, for fear of the business-destroying effects the higher wage requirement might have.

But straight up banning entire categories of legal businesses from operating for indeterminate periods of time?

The state senate is A-OK with that.

How excruciatingly unserious.

State elected officials are elected by the public, not by local bureaucrats, and it’s the interests of those regular Missourians that the legislature is duty-bound to prioritize. State officials need to realize now, not later, that they are elected to be a check on local officials. Their job is not to rubber stamp business-destroying decisions simply because a local official did it. Their job is to fight those decisions and protect their constituents from them.

TIF and the Pandemic, Part Two

Posted on by David Stokes

In my previous post on the struggle of county health departments during the pandemic, I touched on funding levels for health departments before the pandemic. Even before COVID hit, were funding levels too low?

The Post-Dispatch article states that Missouri spends less state money on public health than any other state. That certainly seems to indicate that public health expenditures are too low in our state. But what if many other states collect public health money at the state level, while here in Missouri we collect it at the city and county level? As long as services are provided, would it really matter who collected the money first? I don’t think so.

Another comparison ranks Missouri rather high nationally in public health spending (ninth) and properly notes that most Missouri public health money is raised and spent at the local level. Most Missouri counties have a local property tax dedicated to funding their health departments. Many of our larger cities do also. So, we ought to realize that the reason the state may rank so low is that we fund public health at the local level while other states seem to fund more of it at the state level. I don’t think there is anything wrong with that, but I think people need the full picture of funding services like this before making judgments.

TIF and the Pandemic, Part 1

Posted on by David Stokes

The St. Louis Post-Dispatch reported recently on the struggles of county health departments in Missouri during the Covid pandemic. We all recognize the vital services public health workers have provided over the past year to our communities. The article describes the myriad issues county health departments and their employees have faced in the past year, including funding levels.

Are the funding levels from state and county taxes (more on that in a subsequent post) enough to provide the right level of public health services? Federal emergency funds sent to the state stabilized funding issues for many departments during this crisis, but are we properly funding public health efforts in Missouri aside from that?

Well, I don’t know what the proper level of public health funding is, but I do know that the rampant abuse of tax-increment financing (TIF) and other tax abatement programs takes a very large bite out of local public health funding. Local governments in Missouri have given out over $7 billion worth of subsidies for TIF alone over the past few decades. Most of those subsidies come from property taxes, the precise taxes used to primarily fund our local health departments. If you add in property tax abatements and other types of tax subsidies, the number would be substantially higher.

I don’t know what percentage of that $7 billion in TIF would have gone to local health departments (both past, present, and future subsidies), but while it would likely be a low percentage, a low percentage of $7 billion is still a lot of money.

So, on top of all the economic, fiscal, social, and environmental damage TIF has caused, we can add in reduced public health funding during a pandemic. We can’t pass massive subsidy reform in Missouri fast enough.

Gas Tax Bill Undergoes Several Changes

Posted on by Jakob Puckett

A bill in the Missouri Legislature that would raise Missouri’s fuel tax has undergone several important changes.

Instead of raising the fuel tax by 2 cents per gallon each year for five years, the bill would raise the fuel tax 2.5 cents per gallon each year for five years. If it were to become law, Missouri’s fuel tax would be raised from 17 cents per gallon now to 29.5 cents per gallon in 2025. The bill’s sponsors estimate that, once the increases are fully phased in, these measures would raise an additional $462 million per year starting in 2026.

The tax increase would eventually cover a little more than half of the annual $745 million MoDOT claims it needs for high-priority road and bridge needs. Increased transportation funding is needed, Show-Me analysts and other organizations have pointed out.

There’s another new wrinkle added to the bill: residents can claim an exemption and refund for the additional tax amounts they paid as a result of the fuel tax increase. This exemption would only apply to vehicles that weigh less than 26,000 pounds, effectively ruling out commercial trucking companies from receiving the refund. The recordkeeping and reporting requirements for the exemption and refund are onerous particularly if you have more than one vehicle. Under the current draft of the legislation, the claim for a refund shall at a minimum include:  (1) Vehicle identification number of the motor vehicle into which the motor fuel was delivered; (2) Date of sale; (3) Name and address of purchaser; (4) Name and address of seller; (5) Number of gallons purchased; and (6) Number of gallons purchased and charged Missouri fuel tax, as a separate item.

It’s hard to know how many Missourians would take advantage of this refund mechanism, but available evidence suggests that most won’t. The fuel tax refund is modeled after South Carolina’s fuel tax rebate, and only $3.4 million in rebates were issued out of over $500 million raised.

Perhaps the most interesting change is that the bill would establish an Electric Vehicle Task Force to study how to ensure drivers of electric vehicles (EVs) adequately pay for the damage they cause to roads. As more people use EVs and don’t fuel their cars with gasoline, this will become a salient question for future legislation. The task force would also study how the charging of EVs will impact the state electric system, the role of utilities and the Public Service Commission in overseeing charging stations, and ensuring that electric customers without EVs don’t end up subsidizing those who do.

The bill still faces another vote in the Senate, so things could change once again. Hopefully, we see a final bill that addresses transportation funding issues in Missouri in a fair and equitable way.

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