Hope on the Horizon for Missouri Students?

Posted on by Susan Pendergrass

What a year. Last March 21, Governor Parson issued a statewide order to close every public school in Missouri due to the spread of the coronavirus. As we all know, schools, teachers, and parents were blindsided. And it took many districts months to figure out their plan for educating their students. Virtual learning for every student, learning pods, hybrid school schedules, no solid attendance numbers or test scores – these were unimaginable a year ago. Now, they’re old news.

It has not gone smoothly. Parents and teachers will likely point fingers at each other for the educational fallout from this year for some time to come. But students got the real short end of the stick. What do we imagine happened to kids whose parents simply couldn’t be available to help them learn virtually? How do parents who work outside the house full time manage a hybrid schedule? What happens to a struggling student who can’t stay after school and whose parents can’t afford a tutor? With no test scores from last year, how do we have any idea whether district plans worked or didn’t this year?

There is some good news out there. Quite a few Missouri legislators are determined to help parents right the ship. The Senate Education Committee has passed a bill that would create a scholarship program, with contributions to the scholarship fund receiving a 100 percent tax credit. It would also expand charter schools to other large communities in the state and make accessing the state’s approved virtual programs easier. The Senate Education Committee also passed a bill in which the same scholarships would simply be funded by the state. We’ll see if the full Senate will get behind these family supports.

The House Education Committee and the full House has also passed a tax credit scholarship bill and it now awaits Senate consideration. This was an historic vote and, the House stood up for parents and children.

As I have been saying for months, the public education system has suffered a crisis-level shockwave this past year. It will take bold ideas to support all students and all families, regardless of background, and to help them get the education services they need now. The “assigned-school-only” approach to public education fell apart for so many families this year. It’s time to make sure that every family has a bare minimum of two options by giving them access to scholarships, charter schools, and accredited virtual schooling.

A Big Win for Taxpayers in Maryland Heights

Posted on by David Stokes

As far as I know, the biggest defeat of a tax increment financing (TIF) package or similar tax subsidy (and, thereby, the biggest win for taxpayers) in Missouri history was when the St. Louis County TIF commission voted down the Maryland Height floodplain TIF proposal early last year. St. Louis County had opposed TIFs before, but under previous law the local municipality could just override the TIF commission and do what it wanted. Now there are much tighter limits on that override authority.

So when the St. Louis County TIF Commission voted the atrocious Maryland Heights proposal down last year 7-5 (with all county members and a Parkway school board member voting no), it was fantastic news. It was not the first defeat of an awful subsidy proposal in Missouri, but it was certainly one of the most important when you consider the amount of damage—fiscal, economic, and environmental—the project would have done. That’s why such a large consortium of individuals and groups opposed the project.

Of course, the City of Maryland Heights wasn’t going to take this decision lying down. No, it was going to do all it could to make sure it was able to use other people’s tax dollars to subsidize a hugely damaging project. So, after the vote, the city sued to overturn the decision of the TIF commission, claiming the commission itself was improperly constructed. Would the city have sued claiming the commission was improperly constructed if the commission had voted to pass the TIF? To ask the question is to answer it.

The great news that came down on Tuesday is that the court upheld the decision of the TIF commission and decided against Maryland Heights. This is a big win for taxpayers everywhere, and hopefully it will help inspire people around the state to continue opposing these types of tax giveaways with renewed fervor. I hope people are listening in Boonville, Lake Ozark, Kansas City, Chesterfield, and beyond. You can stand up to these awful local government plans and win.

SMI Podcast: Lessons From The Last Economic Recovery

Posted on by Susan Pendergrass

Dr. Aaron Hedlund joins Dr. Susan Pendergrass on this episode of The Show-Me Institute Podcast.

Aaron Hedlund

Aaron Hedlund is chief economist at Show-Me Institute and an associate professor with tenure in the economics department at the University of Missouri-Columbia as well as a research fellow at the Federal Reserve Bank of St. Louis.

Listen on Apple Podcasts

No, School Choice Does Not Defund Public Schools

Posted on by Michael McShane

A version of this commentary appeared in the Kansas City Star.

School choice legislation is under consideration in the Missouri legislature, which means it is time for the same misleading argument against the effort to be trotted out—school choice programs “defund” public education.  If the voices of the educational establishment are to be believed, allowing even a small number of students to find an educational option other than the traditional public school that they are residentially assigned to will lead to larger class sizes, decreased offerings for students, and lower teacher pay.

None of that is true. In fact, it is a veritable pinata of falsehood and unclear thinking that can be whacked from many different angles. Here are four ways in which this argument is wrongheaded.

First, it is important to think about how schools are funded. A large portion of funding comes via local property taxes. This funding stream flows into schools regardless of the number of students that attend them. A levy is instituted against the value of homes and property in an area and sent to local school districts. If 10 or 100 or 1,000 students leave, local funding is untouched. Don’t believe us? Check your property tax bill.

Schools also receive funding from the state on a weighted, per-student basis. This is where the second bit of slippery thinking comes in. Rather than being punished for students leaving, there are multiple provisions in both the current formula and in several of the proposed pieces of school choice legislation that hold districts harmless. This means school districts may continue receiving funding for students they are no longer educating. For instance, if 100 students decided to move from the Rockwood School District to the Wentzville School District, the state would still send funding to Rockwood for those students for two years while also sending money to Wentzville. That’s under normal circumstances in the current state law. The school choice bill that passed through the Missouri House of Representatives goes even further, allowing school districts to receive funding for five years after a student leaves one of its schools.

But beyond that, the third bit of slippery thinking is based on the premise that students leaving schools is akin to “defunding” them. This way of looking at the issue ignores several key facts. When students leave, yes, some portion of the money allocated for them leaves as well (after a period of time), but the district no longer has the obligation to educate them. Both the revenue and the expense leaves. Critics are only looking at one side of the ledger. By this logic, parents choosing to homeschool their own children “defunds” education; so does the student who moves. Do we think that a student “defunds” the Blue Springs school district when they move to Lee’s Summit? Should we bar families from moving? Taking that logic to its conclusion leads to absurdity.

Some people will acknowledge all that we have pointed out and yet still claim tax credit scholarships “defund” public education by reducing the amount of general revenue. This brings us to our fourth point. And we have to be clear here: the state does not spend any state tax money on a tax credit scholarship program. These programs are funded by charitable donations which receive tax credits. Tax credits, whether for development or for charitable endeavors, can lead to a reduction in general revenue for the state. That part is true, but when is the last time you’ve heard the complaints that low-income housing tax credits “defund” public education? This argument suggests that any program which could potentially impact education funding is actually “defunding” education. Money that goes to roads could instead be going to schools. Was the expansion of Medicaid a massive $9 billion effort to defund public education? Again, this is absurd.

Particularly in the wake of the coronavirus pandemic, there are important debates to be had about the shape and nature of our public school system in Missouri. These debates will benefit from clear thinking and facts, not misleading and tired rhetoric.

The Loop Trolley and the Definition of Insanity

Posted on by Jakob Puckett

Albert Einstein once said that the definition of insanity is doing the same thing over and over again and expecting different results.

In other news, backers of the Loop Trolley are once again asking for financial support to restart the little trolley that couldn’t. The Loop Trolley Company is asking the East-West Gateway Council of Governments—an agency that coordinates governmental action in the greater St. Louis area—for $1.26 million to restart trolley service.

The Loop Trolley has been beset with problems since the beginning. After several years of construction delays, the first cars did not hit the tracks until late 2018, two years after the scheduled opening, and even then only two cars ran four days per week. Daily service was supposed to start in April of 2019, but instead operating hours were cut later that year to only 29 hours per week with only one car running.

Why the dismal performance? Simply put, people did not want to ride the trolley. Ridership was less than 10 percent of what was expected, and its first full year of operations brought in $32,546 instead of the expected $428,672. The only way the trolley made money was by collecting $51 million in taxpayer money, nearly $34 million of which was from the federal government. After just 13 months of operation, when local governments declined to bail out the trolley one last time, the trolley shut down.

The trolley was billed as a boon to business, but all the construction and taxes levied to pay for the trolley took a toll on local businesses, as many closed or moved elsewhere. The University City government even gave out loans to businesses suffering due to problems caused by the trolley.

Backers of the trolley admit that more taxpayer money will be needed to get the trolley running again, and they expect trolley service to start again in 2022—but this time with free fares Thursday through Sunday—if the $1.26 million grant is approved.

Why would it be different this time? Will $1.26 million get the trolley to daily service? Will it finally put more than two cars on the line? Will it bring ridership over the vaunted 10 percent threshold? Based on the trolley’s track record, there’s no real reason to think the answer to any of these questions is “yes.”

After several years and $51 million of other people’s money, isn’t it time to realize that doing the same thing over and over again just won’t work?

Will Boonville Repeat the Mistakes of St. Louis and Kansas City?

Posted on by David Stokes

A version of this commentary was published in the Columbia Tribune.

Tax-increment financing (TIF) is Missouri’s bad idea that refuses to die. Now it is Boonville’s turn to face off against the TIF zombie. Developers have proposed a new, 400-home subdivision in Boonville. Great news, right? Well, there is a catch. The developers want a massive TIF subsidy to fund the project. Residents and taxpayers in Boonville should reject this horror show of a proposal.

TIF is a type of tax subsidy that allows developers to keep the taxes they would otherwise pay to fund some of a project’s costs. With TIF, if a property generated $100 in property taxes before it was developed but generates $200 after improvements are made, the developer gets to keep the $100 difference.

Of course, the actual numbers in this proposal for Boonville will dwarf our little example. As best we can tell, the current property pays $1,176 per year in taxes based on its current appraised value (as farmland) of $116,300. The new subdivision, based on stated goals of 400 homes at an average of $200,000 each, would, if not for the TIF, pay $1,026,912 in property taxes, based on an assessment of $15.2 million at the current area tax rate. With TIF, that would result in an annual subsidy—once the project is fully built—of approximately $1,025,736. For the life of the TIF (23 years is standard), that would be an estimated $23,591,930 maximum subsidy. That is outrageous. Even if the city council were to consider a smaller subsidy, any tax incentive would be a needless giveaway to the developer.

While the people of Boonville may want more housing opportunities for the area, using TIF for residential projects would benefit only the developer. If the city’s population grows as the TIF proposal assumes, and people currently living in Columbia or elsewhere move in to fill the 400 new homes, it is certain that at least some of them will have school-aged children. Boonville will have hundreds of new children in the school district without the expanded tax base to pay for them. Of course, a likely scenario is that some of the home purchasers will come from other parts of Boonville. Local families will move from houses where their property taxes fund the schools to new homes where they do not. How do you think the Boonville R-1 school district is going to pay to educate the children in this subdivision with 400 homes not paying taxes to the schools? There is only one answer: they are going to raise taxes on everyone else.

TIF has had numerous negative economic effects in Missouri. It has increased government involvement in the economy, subsidized politically connected developers, sparked abuse of eminent domain, shrunk the tax base, and made corporate welfare a permanent fixture of development. Furthermore, TIF has failed at its main purpose: economic growth. An Iowa study of TIF usage concluded that, “On net (…) there is no evidence of economy-wide benefits, fiscal benefits, or population gains.” Other studies across the country have found similar results.

The dirty little secret that economic development officials in Boonville and around the state don’t want you to know is that subsidies like TIFs and Enterprise Zones do not work. They do not succeed in growing the local economy. St. Louis and Kansas City have tried using generous taxpayer subsidies to revive their local economies for decades. It has not worked. I can already hear readers in Boonville saying, “But we’re not Saint Louis or Kansas City.” That’s absolutely right—you are not. And there is no reason for you to imitate their mistakes. It is one thing for Saint Louis or Kansas City to try these projects and have them fail. It would be even worse for a city like Boonville to follow that example with the knowledge that the entire process has consistently failed. At least the trailblazer who takes the wrong path has an excuse.

Do Boonville and Cooper County Need $40 Million?

Posted on by David Stokes

Developers have asked the City of Boonville for a tax-increment financing (TIF) subsidy to “help” them build a new subdivision for 400 homes in Boonville. (Well, in Boonville if the annexation request is also approved.) There are many reasons why this is outrageous, starting with the obscenity that one developer gets a $40 million tax break while everyone else has to keep paying the same tax levels.

One of the many serious flaws with the TIF process is that it empowers cities to make financial decisions that impact other taxing districts far more than the city itself. Boonville is happy to surrender decades worth of property taxes to the developer because Boonville is substantially funded by sales and gaming taxes. It is the school district, the county, and other taxing districts which are funded at a much higher percentage by property taxes that take the real hit here.

Boonville itself may be well-funded by the gaming taxes, but are other taxing districts in the region awash in tax revenues? Based on comments from the Cooper County Health Department administrator, I would imagine not. As she described funding in her office during the pandemic:

Melanie Hutton, administrator for the Cooper County Public Health Center in rural Missouri, pointed out the local ambulance department got $18,000, and the fire and police departments got masks to fight COVID-19.

“For us, not a nickel, not a face mask,” she said. “We got (5) gallons of homemade hand sanitizer made by the prisoners.”

To be clear, she was referring specifically to funding from the state and federal governments, but I think it is clear that her own department is lacking the proper resources to deal with the pandemic. The Cooper County Health Department is primarily funded by property taxes, the very taxes that the Boonville City Council (which has no authority over the Cooper County Health Department) will impact with the TIF vote.

The fact that the city council gets to reduce funds for the county health department is absurd. But that is how the tax subsidy, abatement, and credit game works. How does a local community win that game? Well, as the wily computer told a young Mr. Carrie Bradshaw in “War Games” many years ago, the only winning move is not to play.  

Capping LIHTC Isn’t Enough

Posted on by Elias Tsapelas

Missouri’s low-income housing tax credit (LIHTC) is a classic example of throwing good money after bad. The program—which provides $1-for-$1 in matching funds to supplement the federal LIHTC created in 1986—awards credits to developers to offset construction costs in exchange for agreeing to reserve a fraction of units for low-income tenants.

Despite having some of the most affordable housing costs in the country, historically Missouri spent the second most of any state on LIHTC, which is consistent with research finding that the LIHTC program is poorly targeted. What’s worse, multiple state audits in Missouri have found that less than $0.42 cents of each dollar are spent on actual construction. It wasn’t until 2017 that Missouri finally faced up to the failures of its LIHTC program and suspended it. But no longer.

After a three-year shutdown, Missouri is now reviving its LIHTC program with grand promises of reform. Specifically, the Missouri Housing Development Commission (MHDC) stated that it will cap the state’s yearly LIHTC awards at 70 percent of the annual federal allotment, and the legislature is considering enshrining the cap into law. The benefit of the cap is that instead of state taxpayers being on the hook for $180 million per year, they might only be out $135 million. However, a smaller loss is still a loss, and good stewardship of taxpayer funds means insisting that programs deliver value and achieve results.

Given the structure of the LIHTC program, even the aforementioned savings are likely to take years to materialize, if ever, assuming that legislators don’t backtrack on reforms. In particular, the LIHTC awards credits not all at once but rather in equal allotments over ten years. As a result, the savings from any reduction in credits will also take a decade to gradually phase-in.

The tendency of the federal allotment to rise each year and the creation of a new MHDC pilot program that increases the payout rate for some state projects both may lead to further backloading of savings. Specifically, the pilot program will allow 20 percent of projects awarded credits to redeem the awards on an accelerated schedule that matches the federal yearly allotment at the full 100 percent in the first five years before evenly spreading out the remaining funds over the final five years.

The table below gives a concrete illustration. Before 2017, a project that was eligible for $1 million in federal credits would also have been eligible for $1 million in state credits with awards distributed over ten years. Under the new cap, the total state credit falls to $700,000, which amounts to $70,000 each year. However, under the pilot, the project could receive $500,000 of the $700,000 in just the first five years—matching the $100,000 per year that it would have received before 2017—and then claim the final $200,000 in the last five years. In short, taxpayers would not see any savings from the cap until after five years, which gives vested interests more time to reverse reforms before they ever take hold. Though the idea behind the pilot program may have some merit, the bottom line for taxpayers is still delayed and potentially uncertain savings.

Spending less on an inefficient LIHTC program is better than spending more, but it will do taxpayers a disservice if lawmakers use this superficial change as an excuse to declare success, move on, and not undertake more fundamental reforms.

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