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.
Missouri’s roads are getting some attention from the legislature. Two nearly identical bills that would increase Missouri’s fuel tax by 10 cents per gallon over five years (but through different processes) have been filed in the Missouri Senate. This increase would be carried out in 2 cent increments each year.
Both bills would place the question of raising the gas tax before Missouri voters. One would require a statewide vote to change Missouri’s current law regarding fuel tax rates, and the other would require a statewide vote to enshrine the new fuel tax rates in Missouri’s constitution. Missouri’s fuel tax has remained at 17 cents per gallon since 1996, and a 10-cent increase today would roughly adjust it for inflation since then. However, the full 10-cent increase under these bills would not be in place until 2026, and we can expect further inflation during the extra five years. Still, if our gas tax is five years behind inflation in 2026, that would be an improvement over the current 25-year gap.
The extra funds would provide a boost for Missouri’s roads. The Missouri Department of Transportation estimates that roughly $745 million in high-priority road and bridge repair and maintenance go unfunded each year. The most recent proposal in 2018 to increase fuel taxes by 10 cents per gallon was estimated on the ballot to raise an additional $400 million each year for road and bridge maintenance. The current proposals would likely reach this mark after the full 10-cent per gallon increase is reached after five years.
While voters have rejected fuel tax and road-dedicated sales tax increases in the past decade, research suggests that voters may now be amenable to increasing fuel taxes. A recent report from the Missouri Chamber of Commerce found that 85 percent of Missourians believe more money should be directed to road maintenance.
Specifically, drivers were asked about their support for a 10-cent fuel tax increase to repair Missouri’s roads. The report found that 45 percent of drivers support such a fuel tax increase, but when respondents were informed that it would cost an average driver $5 extra per month, 51 percent supported raising the gas tax 10 cents and adjusting its 1996 levels to current costs.
Ultimately, both fuel tax bills would have to navigate the Missouri Legislature before reaching voters, but the recent support may be the extra boost they need.
A version of this commentary was published in the Jefferson City News-Tribune.
What a difference a year makes. A year ago, parents across the state of Missouri were likely not even aware that the last week of January is National School Choice Week. In Missouri, school choice—at least from what I can tell from following the state legislature—is exclusively a policy for poor kids in failing urban districts. Suburban and rural Missourians don’t need school choice because their schools are “good.” Rural districts in particular are often described as “loving” their local schools regardless of how they perform. They’re the center, the heartbeat, of the community. What they provide was good enough for my parents and my grandparents, and it is fine for my kids, so the story goes.
Unfortunately, that story fell apart in 2020. Thousands of Missouri students essentially sat out the last couple of months of the last school year, especially in rural districts with technological challenges. This year, as positive COVID tests and the need to quarantine wreaked havoc on school schedules, the number of Missouri students who only had the option of fully remote learning went from around 90,000 in September to 248,000 in December. Blended learning, in which students attend school for a few days a week, and which, as a working parent, sounds like a worst-case scenario to me, peaked at around 300,000 students last December. For reference, Missouri has about 900,000 public school students.
The point is that we are halfway through a school year in which students and families from all backgrounds and all types of communities across Missouri have learned the hard way what it feels like to have only one type of education available, whether it works for them or not and regardless of how often that one type changes. And good will is beginning to slide.
A survey of Missouri parents taken in early December found that over one-quarter of parents would give their child’s remote learning experience this year a grade of “D” or “F.” Parents are worried. Last school year, about half of Missouri parents felt their children were ahead academically and less than 7 percent felt they were behind. Just ten months later, only 18 percent of Missouri parents believe their children are ahead and a troubling 37 percent believe them to be behind.
This concern reflects an erosion of trust in the public school system. Just 47 percent of Missouri parents trust the public school system to make decisions that are in the best interest of their children’s education all the time or almost all the time. Last year, that number was almost 70 percent. Sadly, the percentage of parents who never or only rarely trust the public education system has gone up by 26 points in just one year.
The antiquated system of assigning every student to one, and only one, type of education based on their address has to go. If Missouri wants to rejoin the ranks of states that attract families and businesses, it needs to create a system of education that reflects current and future conditions, not the past. Parents should be able to use public funds to enroll their children in a charter school, a private school, a micro-school, or a virtual school. Parents should be able to access public funds to get the tutoring or educational therapies their children need. Regaining the trust of parents must be earned. It should start with trusting parents first.
Our neighbors get it. Iowa Governor Kim Reynolds has committed to expanding K-12 education options for all Iowa students, including, but not limited to, open enrollment, education savings accounts, and expansion of charter schools. Oklahoma Governor Kevin Stitt has expanded scholarship programs for students with disabilities to include religious schools and used flexible stimulus funds to help parents in need to continue to pay for private school tuition. In addition to having more than 40 rural and suburban charter schools, Arkansas allows students the option to transfer out of failing schools. And Arkansas, it should be noted, is brave enough to call them “F” schools.
For far too long, the Missouri legislature has listened to superintendents and school boards that want to ban any form of school choice happening in their backyard. but parents were put in charge of their children’s education this year. They’ve had some time to consider it. They have concerns. And maybe now the legislature should listen to them.
David Stokes joined Gary Nolan on Thursday, January 14 to discuss the possibility of a new online sales tax in Missouri.
Comprehensive online sales tax collections in Missouri are likely inevitable. Because of the ongoing pandemic, they are also necessary. Covid and its effects on our lifestyle and economy have accelerated existing trends toward more online shopping. To fund the necessary functions of state and local government, it is important that sales and use taxes are collected as part of online sales in Missouri.
But we should not simply mandate an online expansion of the existing sales tax system. The current system has many problems and has been poorly implemented by the heavily fragmented local government in Missouri. For decades, our current sales tax system has incentivized corporate welfare and tax giveaways, unduly benefitted a few cities with large shopping centers, motivated many cities to export fiscal costs onto shoppers instead of residents, and enticed higher rates due to the political expediency of sales taxes over other forms of taxation.
In case you were wondering, none of that is a good thing. In my personal opinion, property taxation (especially land taxation) should be the primary method of funding local public agencies, complemented by sales taxation and direct fees for services. When people pay for the services they use, they want to make sure they are getting value for their tax dollars. When the cost of funding a city is paid for by shoppers from other areas, it becomes easy to constantly increase the rate to fund whatever the city wants, whether it is truly needed or not. After all, the voters aren’t paying for it—those other people are. If you are looking for evidence of this, think of all the Taj Mahal-like municipal recreation centers that have been built in Missouri over the past 15 years.
As part of a substantial expansion of the sales tax base with online collections, we should lower the rate to benefit residents. That rate reduction can be a general one or specific to certain, special taxes. I have one to propose first. If we collect online sales taxes, then the extra sales taxes added (on top of all the regular sales taxes) for sit-down meals at restaurants in St. Louis and Kansas City should be eliminated. We all want to help restaurants recover from the dire circumstances of the pandemic, so let’s remove that extra tax they pay that puts them at a price disadvantage against other types of food sales.
I make no claim to having all the answers here. Our myriad of sales tax exemptions, the alphabet soup of special taxing districts, and various distribution formulas make it all very complicated. But if we are going to expand the sales tax system to include all online sales, we need to rearrange that system in Missouri to fund our local governments while removing the harmful parts of the system we have seen much of in recent decades. More questions, comments, and suggestions on this topic to come soon.
The start of a new year is a great time to reflect on the past and make resolutions for the future. As the 2021 legislative session begins, we can put this into practice with Missouri cities by looking at their growth over the last few years and brainstorming “resolutions” to improve growth.
Missouri has eight metropolitan statistical areas (MSAs), a term used to describe a city with a population of at least 50,000 and the surrounding area. Below is a graphic from my latest publication, The 2020 Missouri Tax Landscape, which provides an overview of Missouri’s economy and taxes at the state and local levels. The compound annual growth rate (CAGR) of these MSAs is a calculated rate helpful for evaluating growth over time. While GDP growth is volatile, the CAGR provides a calculated rate as if the growth had occurred at a steady rate during the period.
Notes: Some MSAs cross state lines, indicated by the inclusion of the states in the label. Real GDP numbers are for the entire MSA. Real GDP numbers are in chained 2012 dollars, meaning they are adjusted for inflation over time with 2012 as the base year.
Source: Bureau of Economic Analysis. Real GDP by County and Metropolitan Area. https://apps.bea.gov/itable/iTable. cfm?ReqID=70&step=1#reqid=70&step=1&isuri=1
Columbia and Kansas City had the highest growth rates from 2009 to 2018, growing by 1.6 percent each year on average. St. Louis grew by less than half of that rate—a meager 0.7 percent. The CAGRs of Missouri’s largest MSAs are nowhere near those of large MSAs in surrounding states. In the same period, Oklahoma City, OK grew by a rate of 2.9 percent; Cincinnati, OH-KY-IN by 2.4 percent; and Omaha-Council Bluffs, NE-IA by 2.2 percent. Additionally, all of Missouri’s MSAs fell below the national growth rate of 2.3 percent during this period.
There are a lot of factors that contribute to a metro area’s growth, and the tax climate is certainly one of them. High tax rates take spending money away from citizens and make cities and states less attractive to people and businesses. There’s a plethora of research showing that taxation (and especially taxation on income) has a negative effect on economic growth. Given the low growth rates of Missouri’s MSAs, it may be time for some tax-related New Year’s resolutions.
A version of this commentary appeared in the Columbia Tribune.
Missouri is considered one of the most “conservative” of the 50 states. Is that a good thing or a bad thing? It depends on how you define the word.
Over the past several decades, Missouri has been going downhill both economically and educationally—as one of the worst-performing states in GDP growth and educational achievement in K-12 public education. Why?
Too often, Show-Me State conservativism has been characterized by a lack of urgency and a satisfaction with the status quo.
As I would define it, conservatism does not begin and end with the preservation of existing institutions, and it most definitely is not about protecting the privileges of the rich by exploiting the poor or being indifferent to the problems of the needy. Where it begins is with the desire to protect and enlarge freedom for all members of society—enabling people to work and live lives of their own choosing so long as they do no harm to others in the pursuit of their own betterment.
Here, then, are five New Year’s Resolutions for leaders in local and state government:
#1: Improve Missouri’s competitiveness; turn the Show-Me State from an economic sluggard into a great place to live, work, and own or operate a business. That means lowering taxes—leaving more money in people’s pockets to spend or invest as they choose. It also means removing obstacles to commerce and opportunity posed by excessive licensing and regulatory requirements.
#2: End crony capitalism—stop providing subsidies and tax carve-outs for politically favored businesses that are not available to all other businesses. In 2019, Missouri reported 524 tax-increment financing (TIF) projects from 100 political subdivisions across the state. These projects are anticipated to have $10.1 billion in TIF-reimbursable project costs. Such subsidies drain money from public services and have a bad track record of failing to deliver promised job, investment, or economic growth. Reductions in tax incentives and spending can provide some of the budgetary space to lower or eliminate individual income and earnings taxes.
#3: Don’t treat small, owner-operated businesses as the designated fall-guys in government-ordered lockdowns—calling them “non-essential” businesses while allowing their big-box counterparts such as Wal-Mart and Target to continue to operate.
#4: Don’t be penny-wise and pound-foolish when it comes to taking care of essential infrastructure on a timely basis. Interstate 70, an economic and transportation lifeline, is falling apart. Numerous other major roads are badly in need of repair. Travel on Missouri’s roads has increased by 12 percent since 2008, but the state’s transportation budget has fallen by 15 percent. According to Missouri’s Department of Transportation, it now gets only enough revenue to cover a little more than half the state’s needed road and bridge repairs. One thing is certain: Postponing needed maintenance on long-lived assets such as roads and bridges is not a smart idea. It leads to escalating costs and catastrophic failure.
#5: Expand educational choice for students and families at all income levels throughout the Show-Me State. There is no worse example of blind allegiance to the status quo than Missouri’s K-12 public education system.
Supported by nominally conservative lawmakers, the state’s educational establishment—meaning school superintendents, teachers’ unions, and DESE (Missouri’s Department of Elementary and Secondary Education)—have blocked almost every initiative aimed at expanding school choice from vouchers and education savings accounts to expansion of charter schools. Despite a long record of poor results in the so-called “Nation’s Report Card,” members of the establishment continue to oppose all forms of competition and choice in public education.
And who is hurt the most by this self-serving obstinacy on the part of the providers of public education? It is of course the users: students and their parents and families, and most especially lower-income families trapped in non-performing schools who cannot afford to move to other school districts or to private schools.
As I see it, true conservatism is really about an allegiance to principles—and to enduring values such as freedom, hard work, and equality under the law—rather than an allegiance to the status quo.
