Better Preparation for a Rainy Day

Imagine opening a savings account so that you can put aside some money in case of an emergency. But when you go to the bank, the bank won’t allow you to put as much money in the account as you think you’ll need. And when an emergency arises, you are only allowed to withdraw half of what you had put away. That wouldn’t be a very helpful savings account, would it? That’s essentially how Missouri’s rainy-day fund works today.

Missouri’s savings account, or rainy-day fund, was created more than two decades ago to serve two purposes: provide the state government with short-term liquidity (cash flow) and help stabilize the state’s budget whenever there’s an unexpected shortfall (emergency). On average, Missouri spends a little more than $800 million in state tax dollars every month. With such significant spending obligations, it’s relatively common for the timing of revenue collections and immediate spending needs to not perfectly align. When this happens, the state’s budget administrator can authorize the transfer of some funds from the rainy-day account to help fill the short-term cash-flow gap. The only requirement is that the amount borrowed must be repaid to the fund by May 16th of the current fiscal year. So long as the cash-flow needs are truly short term, the fund can be reliably used for this purpose.

When the disparity between revenue collections and spending obligations are longer term—for example, during a recession or pandemic—Missouri’s current rainy-day fund is much less useful. The fund has a strict minimum and maximum balance, which can be problematic when times are bad. Each year, the fund typically has around $700 million at the beginning of the state’s fiscal year, before money is borrowed for cash flow. Missouri ranks in the bottom half of states for available savings, and during the 2008 recession state tax revenues declined by more than a billion dollars. In other words, the current fund is too small.

There are also strict rules about how the funds can be spent, and how they must be repaid. First, the governor must declare a state of emergency, or state expenditures must be reduced below their original estimates (which would happen if there was a revenue shortfall because Missouri’s budget must remain balanced at all times). Then the governor must request that the legislature approve emergency use of the fund, and the legislature must approve the proposed use by a two-thirds majority. Once approved, only half of the fund’s balance can be used for budget stabilization, and at least one third of the borrowed amount must be repaid by the following July 15th. In short, the fund is very hard to use.

The difficulty in using Missouri’s rainy-day fund for budget stabilization discourages lawmakers from calling on the fund in times of need. Its insufficient balance makes any effort even less worthwhile. While some of the limitations placed on the fund’s use are likely an effort to ward against improper overuse and needed, there’s a fine line between discouraging bad behavior and encouraging inaction. In fact, ever since this version of Missouri’s rainy-day fund was created in 1999, it’s never been used for anything other than cash-flow assistance.

The COVID-19 pandemic has illustrated the importance of governments preparing for rainy days. Ensuring Missouri’s rainy-day fund is something that can be reliably turned to when unforeseen events arise would help our state prepare for the future. I know I’d never sign up for a savings account like Missouri’s.

How Are We Recovering? (Part 3)

Now that we’ve discussed unemployment insurance (UI) in general and in connection with the Great Recession, it’s time to analyze UI in relation to the COVID-19 pandemic. As we all know, the federal government substantially increased unemployment cash benefits and broadened eligibility. Many people couldn’t go to work and many businesses couldn’t operate, leading to our national unemployment rate peaking at 14.8 percent back in April 2020.

The CARES Act made several large changes to the unemployment insurance system. These changes were intended to be temporary and preserve family and small business finances during the period of greatest uncertainty. Specifically, the CARES Act extended the duration of unemployment benefits, added a $600 weekly supplement to the usual state benefit amount, expanded eligibility to gig workers and many others traditionally excluded from the unemployment insurance system, and introduced other modifications such as the waiving of job search requirements to account for the unique circumstances of the pandemic. At the end of 2020, the federal government extended into March the supplemental benefit amount at a lower level of $300, and President Biden’s American Rescue Plan extended these enhanced benefits further until September 2021.

These changes to the unemployment system have undoubtedly had major effects on individuals and the economy. The additional $600 was certainly beneficial for the financial situation of the unemployed; researchers have found that additional benefits from the CARES Act resulted in 76 percent of unemployed people earning more than their previous wages on unemployment between April and July. In Missouri, the median replacement rate of UI benefits (including the $600) to lost wage earnings was 154 percent, meaning those on unemployment made 54 percent more than their lost wages. Even with these extra earnings, research has found that unemployment benefits did not harm job growth in spring and summer 2020 when lockdown restrictions made job search very difficult.

However, conditions have changed. Most businesses are open, vaccines are available to those who want them, and the unemployment rate has fallen from 14.8 percent to 6.1 percent. Are these extra unemployment benefits still necessary? Job openings hit a preliminary record high in March and anecdotally, many businesses are struggling to find workers. It’s certainly possible that the additional $300 and the long extension to September are causing people to push back their job search and extend their time receiving UI. Jobs will likely be even more abundant by the time benefits expire, thereby reducing the risk of a delayed job search.

It seems that the job market (and therefore our economic recovery) is being helped by vaccine access and business re-openings and hurt by extended unemployment benefits. However, we may be able to see the light at the end of this UI tunnel. Governor Parson announced that Missouri would end participation in the federal pandemic unemployment programs on June 12th, saying that these benefits were always meant to be temporary and it’s time to get people back to work. The federal government is also taking steps to return to pre-pandemic UI rules. Lawmakers seem to recognize that getting people back to work is a priority and enhanced UI benefits may not have been moving us toward that goal. Hopefully, these changes will help us continue to recover quickly.

Tax Subsidy Spurious—St. Louis Grift

St. Louis Mayor Tishaura Jones is giving me hope with her more disciplined approach to tax subsidies in the City of St. Louis, but despite this the requests—and unfortunately, the approvals—for far too many harmful and unnecessary tax subsidies keep coming in throughout our region.

Chesterfield is a vibrant, popular, and growing area. The idea that tax subsidies are needed for businesses there is absurd. So, what does St. Louis County do when a new studio wants to build a production facility there? Well, give away the store, of course. This week the county council unanimously passed a subsidy worth between $88 and $130 million for the new business in one of the most successful and wealthy parts of the state. This is insanity.

In years past, I was honored to be able to testify in favor of tax-increment financing (TIF) reform before the state legislature alongside other reform supporters from Dierbergs Markets. So, who is now asking for a major TIF in Crestwood, another prosperous St. Louis County suburb with no need to give away tax subsidies? Dierbergs, of course. It wants $17 million in subsidies to open a grocery store just down the block from a competing grocery store. Crestwood giving away this money would be insanity.

Hopefully, the St. Louis County TIF Commission will reject this wasteful TIF, just as County Executive Page’s TIF appointees admirably did with the Maryland Heights floodplain TIF monstrosity that was rejected in early 2020.

Finally, despite Mayor Jones’ efforts, St. Louis City commissions keep approving subsidy upon subsidy, including a new $92 million subsidy for a downtown hotel that already received a separate TIF a few years back. If the first subsidy doesn’t work, just give them another, I guess. Hopefully, Mayor Jones will oppose this proposal, too.

Just like the Fast & Furious franchise, the plotlines for tax subsidies keep getting recycled over and over. Recent tax subsidy vetoes and rejections by the Jones and Page administrations give me some hope, but sometimes it feels as if the cruise ship is sinking and all one has is a small bucket to bail with.

“If You Ain’t First, You’re Last!”

It’s billed as The Greatest Spectacle in Racing, but the Indianapolis 500 isn’t just a sporting event. At its core, the Indy 500 is a tradition steeped in American notions of meritocracy and competition. Behind the wheels of the cars will be domestic and international drivers, past winners and current challengers, veteran drivers and rookies making their debuts. If you’re one of the best drivers on the planet, there is probably a seat waiting for you in one of the 33 cars on the track this weekend.

And if you’re like me and not one of the best drivers in the world, well, there’s always a seat in the stadium or at home. After all, it is a spectator sport.

But what’s all this have to do with Missouri? A lot, actually. Indiana, home to the 500, is often viewed as a peer and competitor to Missouri, and in recent years, the Hoosier State has started pulling ahead of us in economic growth. At the end of World War II, Missouri’s population was a touch larger than Indiana’s; today Indiana is larger than Missouri by a half-million people, with a bigger economy to boot.

For years, Missouri has behaved more like a spectator than a racer in this economic competition. Missouri is falling behind, and as Institute analysts have written before, Missouri’s not just falling behind Indiana in the race for growth.

The good news is it seems like Missouri policymakers may finally be turning a corner. The 2021 legislative session was generally a very positive one that built on some of the good government and deregulatory progress made in recent years. In fact, the state started gaining some national accolades for the work of its policymakers, especially the work on licensing reforms. As someone who’s been at the Show-Me Institute for about a decade now, I can tell you that national accolades for Missouri lawmaking weren’t just rare before; they were virtually non-existent.

But will this positive trend continue? Time will tell. There is so much work left to be done for real school choice, tax credit reform, protecting individuals’ rights and reining in overreaching local government, and so many other issues that we’ve talked about again and again. While the 2021 session was good, it still could have been much better.

“If you ain’t first, you’re last!” Ricky Bobby declares after a race in the comedy Talladega Nights, and while the line’s tied up in Will Ferrell’s patented oafishness, the mentality isn’t exactly wrong. Missouri policymakers need to—and should continue to—think not in terms of what maintains the status quo in the state, but in terms of what can make the state the best.

The race for growth and reform has already started, and right now Missouri is stuck in the middle of the pack. Missouri policymakers, in this summer’s special sessions and beyond, should race to win against our fellow states. Racing to do anything short of winning for Missourians is losing.

SMI Podcast: The Session Ends, Mayor Jones Vetoes and KC Makes a $43 Million Change to Police Budget

Susan Pendergrass, Patrick Ishmael and David Stokes discuss the end of the Missouri legislative session, the “pass it now, fix it later” approach of some policymakers, Mayor Jones’ approach to corporate welfare in St. Louis and the latest on a nearly $43 million change to the KCPD budget.

Listen on Apple Podcasts

Missouri’s Health Facilities Review Committee Shouldn’t Exist

With all the drama of the past year of pandemic policymaking, one of the health care-related policy reforms that didn’t get a great deal of attention in Missouri was the potential abolishment of Certificate of Need, or CON. CON laws allow the government to decide whether a variety of health care facilities can upgrade their equipment or even operate at all, and it gives a platform to incumbent providers to advocate against new entrants to the market.

Bizarre, right? I thought so and wrote a whole paper about it. The good news is CON laws are falling out of favor across the country, and there are rumblings in the Missouri Legislature that CON elimination could be a major priority in 2022. The bad news is it isn’t 2022 yet.

In the meantime, the old and broken system lingers, and as The Missouri Times reported this week, seasoned health care providers who want to serve Missourians (or just serve them better) are still having to go hat in hand to beg the government to let them offer care for people. Indeed, the Health Facilities Review Committee (HFRC), which grants or denies certificates, was back at work, and the absurdity of the system was once again front and center.

Among the lowlights, an hour-long debate over a pair of proposed senior living facilities in St. Charles County stands out. Opponents argued that the new facilities would pressure existing providers to find quality employees, presumably because the newer facilities would pay better and would, of course, be newer. (“Competition for staff” is a common objection at these hearings.) Opponents also argued that a lot of certificates of need had already been issued in the region, but the holders of many of those certificates haven’t opened facilities yet and thus a certificate shouldn’t be issued here.

In other words, opponents wanted the application denied not because there were too many facilities serving St. Charles County, but because there were too many certificates. What nonsense.

And then there are the applications to add or upgrade existing equipment.

Barnes-Jewish in St. Peters needed to ask the HFRC for permission “to replace its cardiac catheterization lab where doctors work to restore blood flow after a stroke” with a new $2.8 million investment. It was approved. A cancer center in North Kansas City was approved for a “$2 million replacement for its PET/CT system which administrators said was lacking.” It was approved. A Kansas City area provider wanted to add a $2.6 million MRI unit. Approved. Obviously.

Again, why is the state involved in this at all?

The idea that the government has any business interfering with qualified health providers creating or upgrading facilities is absurd and counterproductive to the public interest. I’m hopeful that next year will be the year that CON requirements are finally eliminated in Missouri. It’d be a great thing for providers and patients alike.

Missouri Can Take a Lesson From Florida’s Toll Roads

I recently spent time in Florida, which included driving from Miami down to the Florida Keys. Along the way, I traveled on several toll roads which are part of Florida’s expansive turnpike system. If Missouri wanted to implement toll roads, Florida’s system serves as a reminder to Missourians that electronic tolling is eminently possible and can raise money from drivers to keep roads in good condition.

Every toll road I drove on was tolled 100 percent electronically—there was no option to pay with cash. My rental car was equipped with a transponder that registered with overhead sensors when driving through a checkpoint. Cars that didn’t have a transponder would have their license plate photographed and a bill sent to them in the mail. Drivers without transponders paid higher rates to reflect the higher administrative costs of physically mailing bills rather than deducting money from an online account.

Toll rates vary by vehicle type and number of axles. The more axles on your vehicle, the higher the toll. Rates also vary by the location of the road. The higher the cost of maintaining the road, the more drivers pay for its use. And while I did not use it on my trip, the Florida Turnpike’s website has an online map that lets drivers calculate the cost of tolls on their trip based on the exact route they plan to take.

Florida’s all-electronic toll roads are the future of tolling. Drivers don’t need to stop and start at every checkpoint, nor do they need to constantly remember to carry cash. Missouri has heavily traveled highways that need rebuilding (page 18), and tolling is a responsible way to raise the money needed to get them back in good shape. It wouldn’t be easy to establish toll roads in Missouri. There are a number of legal hurdles that would make implementing tolling in Missouri a challenge, and voters have been reluctant to accept their use.

But if Missourians knew how easy it is to drive on modern toll roads, they might be willing to give tolling a shot.

A Win for Restaurants and Cocktail Enthusiasts

Senate Bill 126 has passed the legislature and will permanently allow restaurants to serve to-go cocktails if signed by the governor. During the height of the pandemic, the state waived the regulation that prohibited to-go cocktails to allow restaurants more opportunities to serve customers. This was a lifeline for many restaurants and was hugely popular with customers.

When regulations such as this one were originally waived, I (and many others) hoped these waivers would become permanent. If these regulations weren’t necessary during the pandemic, are they necessary during normal times? What is the harm in allowing restaurants to serve packaged, tamper-proof to-go cocktails? It doesn’t seem any different than buying a canned cocktail or the ingredients for a cocktail at a liquor store.

Luckily, the legislature is siding with restaurants and customers. If signed, this bill would allow restaurants more freedom to do business and please customers as they see fit.

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