In this episode, Dr. Susan Pendergrass and Dr. James Shuls celebrate National School Choice Week and provide an update on some key legislation.
James V. Shuls is an assistant professor of educational leadership and policy studies at the University of Missouri St. Louis and a Distinguished Fellow in Education Policy at the Show-Me Institute.
With the Missouri Legislature back in session, important proposals are already on the move in both chambers. Educational choice appears to be on a fast track of sorts in the Senate, an urgent reminder that Missouri’s kids are suffering as many district schools remain shut down in the face of the coronavirus pandemic.
But education reform is just one iteration of a bigger idea: that the state has an obligation to step in to protect the rights of Missourians when local government bodies fail to do so. Yesterday the House Special Committee on Small Business held hearings on a wide array of COVID-related legislation. These bills would limit what local government could do in picking winners and losers among Missouri businesses, whether by shutting them down or dramatically limiting their operations for public health reasons. As we’ve said before, living in Chiefs Kingdom doesn’t make you Kansas City’s peasant, and having a small business in Missouri doesn’t make you a second-class citizen to big box stores and casinos.
Now many local administrators are crying “local control!” to defend their policy decisions from last year and to push back on these proposals as they pick up steam. Yet, shouting that “local control” is important doesn’t change what state subdivisions really are: managerial conveniences to the state. And when managers fail, the boss—here, the state—has to step in.
Local government exists not because it is categorically more efficient and effective in carrying out state priorities. It exists because there is a reasonable expectation that on most issues it will be. After all, local knowledge often has benefits to administration, but sometimes that just means more bureaucracy as we’ve seen in the explosion of administrators in both health care and education. “More administrators” sometimes just means “more administrators” and not “better administration.”
And that’s what mayors, county commissions, and a host of other local government jobs are: administrators. Where the state hasn’t spoken clearly, their role is to execute policies that don’t undermine the rights provided to Missourians who happen to be within the borders they administrate.
To fail to uphold state rights and adequately manage local privileges isn’t just some opportunity for a natural experiment, with local administrators ruling as they will. When a failure of local administration is identified, the state is duty-bound to consider intervention, and perhaps even intervene, to protect the rights and interests of Missourians in those districts.
That’s why I have to smile when I read about big Missouri cities and counties that intermittently extol the virtues of “local government” as a defense against state reform.
When Kansas City mayor Quinton Lucas pumps up the importance of local control to defend his COVID shutdowns and then advocates not only for a statewide mask mandate but for a national one (!) too, his local control argument is actually about his preferred ends of “local control” in a specific instance, not the means of “local control” as a general rule. Legislators should learn this well in the months ahead because local officials will be using “local control” as an argument to fight reform.
One final note:
The relationship between local governments and the states is not the same as the relationship between the states and the national government. States create or enable the creation of local governments as subsidiaries to their control. States created the national government as a co-sovereign. “Local control” is not the same as a “state’s rights” argument, nor should anyone conflate the two.
I’m thankful that the legislature is already queueing up a round of legislation to curb the excesses and rights violations that happened last year in Missouri. I hope legislators ensure local government is properly restrained in the future.
2020 was a big year for Missouri’s low-income housing tax credit program (LIHTC). In September, the governor and Missouri Housing Development Commission (MHDC) revived the state’s program for subsidizing the construction and rehabilitation of low-income housing after a three-year hiatus (read more about the program and how it works here and here). And by the end of the year, more than $14 million in new LIHTCs had been awarded. We’re told the program has been reformed and will work better than ever before. But will it?
Prior to being halted in 2017, the state’s LIHTC program was plagued by several serious problems. As I’ve written many times before, Missouri’s program was one of the biggest in the country and was repeatedly shown to be ineffective, costly, and utterly lacking in accountability. Sufficiently addressing each of the program’s shortcomings has proven to be elusive for the state’s elected officials, with legislative attempts to reform the program failing over the past three years. Absent any legislative action, the governor and MHDC decided to bring the program back on their own terms by administratively implementing changes.
The MHDC’s changes include a yearly cap on state credits, a scoring rubric for project applications, and a new pilot program that allows more credits to be redeemed over the first five years (of ten total) of the project. At first glance, the changes seem to touch on each of the major issues with the program outlined above. But do they make the program worthy of taxpayer expense?
In theory, the yearly cap should make the program less costly because Missouri used to match each federal LIHTC on a dollar-for-dollar basis. A cap would mean that is no longer possible. The scoring rubric could add some accountability by showing how the chosen projects stack up against those that aren’t awarded funding. And the pilot program should make the credits more enticing to investors, and in turn, increase the value for which they can be sold.
After details of the revived program were made public, an optimistic real estate developer was quoted saying he expected the new state LIHTCs to sell for roughly sixty cents on the dollar. It is important to keep in mind what this means: Developers are happy to trade each taxpayer dollar they receive for a little more than half its value. How can LIHTC be a good investment for Missourians if the people who profit off the program believe what they’re receiving is worth much less than what state taxpayers are paying? It will be some time before there are enough data to determine the full effect of these changes, but even if this estimate of improved sale value is proven true, Missourians would still be receiving a very poor return on their investment.
The program’s revival is certainly a good deal for already-wealthy developers. But shouldn’t the governor and MHDC instead ensure that Missourians have an affordable housing policy that’s good for everyone?
A nationwide $15 minimum wage appears to be under discussion in Washington. While they are mulling it over, policymakers might want to check out a new paper published by the National Bureau of Economic Research.
Titled “Myth or Measurement: What Does the New Minimum Wage Research Say about Minimum Wages and Job Loss in the United States?” it surveys the existing research on the effects of the minimum wage.
What does it find? According to the authors:
Our key conclusions are: (i) there is a clear preponderance of negative estimates in the literature; (ii) this evidence is stronger for teens and young adults as well as the less-educated; (iii) the evidence from studies of directly-affected workers points even more strongly to negative employment effects; and (iv) the evidence from studies of low-wage industries is less one-sided.
Labor economics isn’t my field of expertise, but from an outsider’s perspective, raising the minimum wage doesn’t look good!
Ever wonder how many different taxes you pay in Missouri? Or how much tax revenue your city collects? Check out the Show-Me Institute’s new booklet—The 2020 Missouri Tax Landscape:
Most of us know that when you shop, the price on the tag is not the price you pay at the register. Sometimes these prices aren’t even close (especially in Missouri) thanks to sales taxes. With a state sales tax, local sales taxes, and special taxing districts, Missouri governments collect a lot from taxable sales. However, sales taxes are a volatile form of revenue. It can be risky for governments to rely too much on sales tax revenues because they can drop drastically during economic downturns. This article from NextSTL helps illustrate this problem.
The article compares 2019 and 2020 taxable sales throughout the St. Louis area. Most of the St. Louis area saw a decline in taxable sales when comparing the second quarters of 2019 and 2020. St. Louis County taxable sales were down by just over 10 percent, while St. Louis City taxable sales were down by over 25 percent. The image below from the NextSTL article shows the change in taxable sales by zip code. Notably, taxable sales were down 89 percent in the Downtown zip code, 76 percent in the Airport zip code, and 75 percent in the Downtown West and Midtown zip code.
Taxable Sales/Use % Change Apr-Jun 2020 v 2019
This makes sense—a lot of these zip codes rely on visitors, bar and restaurant patrons, and office workers spending their money away from home. All these things became rarer during the economic shutdown.
So what is one takeaway from the pandemic? Our governments need to take a hard look at how they are generating revenues. If revenues are unpredictable, promised public services can be compromised.
The City of Lake Ozark is looking for more funding for road improvements. A local fuel tax could be the answer.
The city claims it needs $3 million to repair an important local road but lacks the funding to do so. The city’s leaders are considering a transportation development district (TDD) to raise money for the road through an extra sales tax, which would effectively subsidize road maintenance via shopping. My colleague David Stokes has already written about why a TDD is a poor remedy for this problem.
Fortunately, there is a better solution—local fuel taxes. Fuel taxes can be an economically sound and fair way to raise money for roads. They ensure that those who benefit from the roads also pay for them.
As the National Surface Transportation Infrastructure Financing Commission has noted, funding roads through methods not related to their use (such as sales taxes) promotes inefficient vehicle and travel choices. This, in turn, leads to faster road deterioration, wasted fuel, traffic congestion, and air pollution. If the sales tax (via the TDD) is a ploy to get tourists to help foot the bill for road maintenance, it should be noted that the same tourists would also pay the fuel tax. However, fuel taxes connect the cost of driving and the cost of using the roads.
Local fuel taxes allow localities to raise money for roads within their jurisdictions. When enacted, an additional fee is added to the price at the pump in a given jurisdiction. And since the Missouri Constitution requires that money raised from local fuel taxes be spent only on road construction and maintenance, it reduces the risk of this revenue being spent on other, potentially wasteful projects.
One potential challenge is that local fuel taxes can be tough to enact. The Missouri Constitution requires that local fuel taxes be passed with a two-thirds majority among voters. If it chooses to pursue it, Lake Ozark would be one of the first localities in Missouri to enact a local fuel tax. Foristell tried to enact one several years ago, but the measure fell just short with 65 percent voter approval. However, it was able to pass a 1 cent local fuel tax the following year.
Ultimately, before sales or other tax increases, local fuel taxes are an option worth considering as a fair solution to the City of Lake Ozark’s funding predicament.
In this episode, Susan Pendegrass is joined by Michael Podgursky and David Rose. Michael Podgursky is a professor of economics at the University of Missouri Columbia, a senior advisor on urban education and economic development at Saint Louis University and sits on the board of directors of the Show-Me Institute. Dave Rose is a Professor of Economics at the University of Missouri-St. Louis. They discuss David’s new book, Why Culture Matters Most.
Listen Here:
It is disappointing to read that Lake Ozark leaders want to address legitimate road issues along the heavily used Bagnell Dam and Valley roads with a new transportation development district (TDD). There are many better ways to fund roads in Missouri, including tolling, gas taxes, and property taxes. Another sales tax-based special taxing district is not what the Lake of the Ozarks needs.
A recent state audit of TDDs highlights the problems with these districts. Five of the twelve TDDs mentioned in the report collected incorrect tax amounts. I’ll let you guess as to whether they collected more or less than authorized. (Hint—it was more.) Statewide, 92 percent of TDDs have been formed by developers and were not subject to any votes or public involvement. Not surprisingly, when you allow private developers to raise tax dollars for private purposes (like improved parking lots for their own developments) they are going to act like it is private money, not tax money, and often spend it improperly. Audits on these types of special taxing districts by state auditors of both political parties have consistently found that they frequently violate the Sunshine Law, do not competitively bid out contracts, make errors in tax collections, and more. They are designed in the first place to act like fiefdoms, with little oversight of the tax dollars being collected and spent for private purposes by the developers that almost always dominate the board. The problems with these districts are, in fact, so consistent that they must be considered a feature, not a bug.
This proposed TDD will require voter approval in the April 2021 elections. Seeking voter approval here is, obviously, a good choice. However, only voters who live within the TDD itself can vote on the proposal, not all Lake Ozark voters. I would expect the district to be gerrymandered until it looks like the lake itself in order to limit voter participation and help guarantee passage of the TDD. That is the prior experience in Missouri.
In a news story on the new TDD, supporters cite the “high quality of roads within the Horseshoe Bend Special Taxing District” as an example of why the TDD would be beneficial. The high quality of roads in that district may well be true, but Horseshoe Bend is not a TDD—it is a traditional, property tax-based special road district. The distinctions are important. Special road districts like Horseshoe Bend are subject to voter input, property tax rollback mandates (when assessed valuation increases), and much more comprehensive budgeting and financial reporting requirements. If Lake Ozark residents want better roads along with oversight, transparency, checks, and balances, the creation of a taxing district like Horseshoe Bend is a legitimate option. Other good options include passing a local gas tax to pay for the road improvements or simply raising city or county property taxes to fund the road improvements.
Honesty demands that I admit the Lake Ozark Community Toll Bridge is a TDD and has been successful for the community. In this case, the tolls collected pay for the bonds that built the bridge, and most importantly, the act of driving is connected to the cost of driving. Sales tax TDDs, such as this proposal, do not have that connection.
If people want a new taxing district with questionable dealings, little oversight, and limited voter involvement, then a TDD is the way to go. While Marty Byrde might approve of that, I trust the rest of the residents and taxpayers of the Lake Ozark region do not.
