New Report Highlights Excessive Energy Subsidies

Posted on by Jakob Puckett

A new report released by the Texas Public Policy Foundation documents federal subsidies received by the energy industry over the last decade. While all sources of energy received federal subsidies of varying amounts, some energy sources benefited much more than others.

Wind and solar power received the most subsidies in absolute terms, receiving $37 and $34 billion, respectively. When broken down by subsidies relative to the amount of electricity produced, the results are staggering.

Subsidies graph

The report concluded that wind and solar producers received nearly as much money from subsidies as they did from selling their electricity on wholesale markets.

The report does not provide state-level data, but Missouri is no stranger to these subsidies. While not having much solar power, Missouri has several wind plants. In addition to the Lost Creek wind farm that received $107 million in subsidies from the 2009 federal stimulus bill, numerous wind plants are recipients of the federal Production Tax Credit (PTC), which is the biggest provider of wind energy subsidies in the nation.

The PTC reimburses wind power producers between $15 and $24 per megawatt hour of electricity generated over a period of ten years. The PTC has been extended several times since its inception in 1992. However, it is being phased out and is set to expire at the end of 2020, although IRS rules effectively stretch this to 2022.

The latest Missouri plans to claim more subsidies is a $1 billion taxpayer-funded wind power expansion by Ameren. Construction will begin in time to claim the last of the PTC, a consideration that Ameren noted helped speed up the construction schedule.

The Energy Information Administration, the data branch of the federal Department of Energy, has repeatedly predicted a near cessation of new wind plant construction once the PTC expires. As Warren Buffett, himself the owner of several wind farms, has said: “without the production tax credit” he wouldn’t build them. “They don’t make sense without the tax credit.”

As the PTC expires, we shouldn’t replace it with a state-level program. Missouri borders tornado alley—the nation’s best region for wind power—and it’s time for the wind industry to compete without subsidies and mandates.

Federal Stimulus Money in Missouri: What We Know So Far

Posted on by Jakob Puckett

With the federal government handing out trillions of dollars in “stimulus” money (I would call it relief funds), you might wonder how much is coming to Missouri. Over $10 billion has flowed to private and public Missouri entities, with more to come. In addition to money already received, several sums of money have either been awarded to Missouri without notification of delivery yet or are expected based on funding announced via a federal formula for allocation. Some funding is also available for Missouri agencies but not guaranteed, as the relevant agencies must apply for the funding. Here’s what we know based on the information released thus far.

State and local government

Missouri has received roughly $2.096 billion for state and local government relief. $521 million of that must be distributed to counties and cities with populations under 500,000 within ten days of Jefferson City receiving the funds. St. Louis County has also received roughly $173.5 million and Jackson County $122 million. The money is to be used for non-budgeted coronavirus-related expenses.

Community health centers

Twenty-nine community health centers have received a total of $29.8 million for testing, treatment, and continuing primary care.

Education

Missouri’s Department of Elementary and Secondary Education has filed the appropriate paperwork to receive $208.4 million from the Elementary and Secondary School Emergency Relief Fund. Further, the governor has announced that $54.6 million from the Governor’s Emergency Education Relief Fund will also arrive to assist with K-12 and higher education, as well as $117 million from the U.S. Department of Agriculture to help provide school lunches. Senator Roy Blunt has announced that Missouri will receive $206 million for colleges and universities, half of which will be immediately available for institutional and student use, as well as $66.5 million through the Child Care and Development Block Grant for early childhood education needs.

Transportation

The Missouri Department of Transportation has received $61.7 million from the CARES Act to be used for operating expenses and capital assistance for 30 rural agencies. Additionally, Missouri has received $152.4 million to be used for revenue assistance at 75 airports across the state.

Housing

$57.7 million in Community Development Block Grants are reported as being available to a combination of 16 Missouri cities, counties, and state government by the federal Department of Housing and Urban Development. This money is supposed to be used as block grants, emergency solution grants, and housing opportunities for persons with AIDS. The Missouri Department of Economic Development has announced that it will receive $13.6 million of that total.

Unemployment

The Missouri Division of Employment Security has used more than $66 million in federal funds to provide additional unemployment compensation, although more compensation will be distributed once the state determines how to process workers in the “gig” economy.

Emergency management

Missouri can apply for roughly $1.86 million to assist with emergency management procedures ranging from data collection and sharing to response plan development. A 50 percent match in state funding for the program is needed to receive funding.

Public safety

The cities of Joplin and St. Joseph have received funds to assist with public safety expenses for a combined total of $170,000. Overall, $5.5 million is available for 28 Missouri county and city agencies and $11.6 million for state agencies, should they choose to apply for these funds.

Small business loans

Over 46,000 Missouri businesses have received loans from the Paycheck Protection Program, totaling slightly more than $7.5 billion.

Summary

Received: $10.201 billion

Expected: $710.2 million

Available through application: $18.79 million

If you add these sums together you get $10.918 billion. This is what we know so far. More dollars may arrive in the future, boosting the totals for many—if not all—categories.

 

Don’t Subsidize What’s Already Happening

Posted on by Corianna Baier

When the country needed more personal protective equipment (PPE), many PPE-producing companies ramped up production, while other companies started making these products. Now, Missouri lawmakers want to give a tax incentive to PPE-producing companies that expand or relocate to Missouri. Does this raise some red flags? It should.

A tax incentive is meant to lower the tax burden on a business in order to achieve a desired outcome. For example, if the state wanted more boat production, then it could create a tax incentive for boat production, which lowers the cost of producing boats and might increase the supply.

Whether you agree with tax incentives in general or not, the logic here with PPE doesn’t work. The desired outcome—more PPE production—is already happening in the market. The demand for PPE rose drastically due to the pandemic, and suppliers have responded by expanding and shifting production. Firms will continue to respond as long as the demand remains high.

Even if you support tax incentives, the timing here is backward. Why would Missouri subsidize something that is already happening? The market has already incentivized companies to produce PPE; there is no reason to give handouts to try and steer the market when the market is already doing its job.

In this case, there is no reason to give away future tax dollars through government handouts. Additionally, should the state be giving away future tax dollars when the budget will suffer huge hits from the pandemic? Missouri has a rocky history with tax incentives, and this would be an unnecessary addition.

 

KC’s League of Women Voters Weigh in on TIF

Posted on by Patrick Tuohey

The League of Women Voters of Kansas City/Jackson-Clay-Platte Counties recently released its study of tax-increment financing (TIF). In a radio interview on Kansas City’s KKFI, report co-chairwoman Cheryl Barnes indicated that the League first learned of the problems with TIF from former Chairman of the Show-Me Institute Crosby Kemper. Many of the study’s recommendations are similar to those previously offered by Show-Me Institute researchers.

The report provides a good overview of TIF, how it is used and how it impacts taxing jurisdictions. Much of the narrative will be familiar to regular readers of this blog, including this quotation of a study from the W.E. Upjohn institute for Employment Research:

Incentives are still far too broadly provided to many firms that do not pay high wages, do not provide many jobs, and are unlikely to have research spinoffs. Too many incentives excessively sacrifice the long-term tax base of state and local economies. 

The report cites a story in The Kansas City Star indicating that in 2018, Kansas City issued $175 million in tax breaks, of which $94 million would have otherwise gone into city coffers.

The League’s recommendations include some social and economic justice planks that might only further developers’ ability to game the system, such as Community Benefits Agreements and things such and “sustainable construction.” However, its recommendations for oversight could have come from the Show-Me Institute. The study recommends a more rigorous but-for analysis, capping such incentive packages at 10 years in length, using the blight standard more narrowly and increasing transparency both before and during the period of the incentive.

One additional recommendation from the League that fits well with previous Show-Me research, which focused on the relationship between campaign contributions and TIF awards: “Those seeking public financing, including their representatives, declare city and council campaign contributions and gifts for the prior ten years.”

The desire to rein in economic development incentives is not a function of ideology or partisanship. It is simply a matter of good government and fiscal responsibility. The League has provided a valuable service to its members and policymakers. The time for serious and significant reform is overdue.

 

An Idea to Address Missouri’s COVID Learning Loss

Posted on by Michael Q. McShane

Missouri schools closed their doors in March and will not likely re-open them until this fall. This approach risks serious learning loss. Researchers affiliated with the testing nonprofit NWEA project that, “Preliminary estimates suggest impacts may be larger in math than in reading and that students may return in fall 2020 with less than 50% of typical learning gains and, in some grades, nearly a full year behind what we would expect in this subject in normal conditions.”

Like most things in education, the losses will probably not be spread evenly across the population. Students from families that have been able to provide instruction at home will likely suffer less than those who haven’t. Students from districts that have been able to more competently roll out distance learning will be in a better position than those from districts that have not. But, even within districts, schools, or classrooms, there will likely be a wide range of consequences from this crisis.

Assuming that students can return to some semblance of normalcy in the fall, teachers are going to need to know where students are and what needs to be remediated so that students can move forward.

As part of the shutdown, Missouri (like every other state) has cancelled its state assessment, and even in the best of times, those scores are of limited value when it comes to shaping instruction. What teachers need is a focused diagnostic assessment that can identify the key building blocks from the previous academic year that students have missed so they know where to start and what supplemental efforts are required.

Here’s an idea. Why don’t teachers come up with their own assessment? The Department of Secondary and Elementary Education (DESE) could convene a virtual working group for each grade level and 10 to 20 teachers could put together an assessment that tests what students should know when they start that grade. These teachers know best what kids need to know at the start of the year and I’m confident they know how to assess it.

Because this would just be a diagnostic tool, most of the concerns around standardized testing don’t really apply. Test security isn’t an issue, because there is no incentive for students to do better or worse on the test. Reliability is basically a non-starter as this is a one-off event. The validity of the test should be strong because the people who will bear the brunt of its success or failure (the teachers who will have the students in their classes) are the ones making it.

Now, I understand the broad diversity of schools in Missouri, so one test might not be appropriate. But this could be done through similar districts collaborating with one another. That way,  there isn’t just one test, but rather 5 or 7 throughout the state based on school needs.

It would be great if researchers could get access to the results, as measuring and quantifying the impact of COVID-19 is something they are going to be trying to figure out for years. That said, making an assessment that is useful to researchers is not the primary goal here. If it is useful to researchers, that’s great, but if not, that’s okay too.

DESE does not need to contract with an expensive testing vendor to create a useful assessment. Some small stipends for teachers’ time and free open-access platforms can be used to create and disseminate the tests.

What do y’all think? Can we get this done?

 

A Regulatory Win for Military Spouses – But Much More Left to Do

Posted on by Corianna Baier

Jefferson City delivered a win for the spouses of military members in Missouri recently. The governor signed off on licensing reciprocity legislation that allows military spouses to more swiftly receive a Missouri occupational license if they hold a valid license in another state.

As I wrote when this legislation was first being considered, this is a worthwhile removal of red tape. Military families are very mobile, and military spouses are especially burdened by regulations that don’t allow occupational licenses to transfer from one state to another. Licensing reciprocity will significantly reduce the barriers for military spouses, giving them easier access to jobs while their spouses serve our country. This legislation is also good for Missouri, potentially leading to more qualified professionals in our workforce and making our state a more desirable location for military families to relocate.

While this is a good move by Missouri lawmakers, a bigger question remains: Why is broad licensing reciprocity only allowed for military spouses and not the rest of the workforce? Military couples aren’t the only people who have to deal with the issues created when a move is required because of job demands. Lawmakers should remove barriers for all workers, not just a select few. Hopefully we will see licensing reciprocity for all workers very soon.

 

Another Fine Convention Hotel Mess

Posted on by Patrick Tuohey

The New York Times recently published a story on the impact of the COVID-19 virus and the economic downturn on a number of publicly financed convention hotels around the country. The piece included this:

The timing is especially vexing for new publicly funded convention hotels that were built to draw business travelers. The $367 million Loews Kansas City convention hotel in Missouri was supposed to open on April 2 and had already hired 340 of the roughly 450 employees it needed. But in mid-March, Loews announced that it would delay opening the 800-room property indefinitely. Kansas City provided financing incentives valued at about $166 million.

The Times piece is worth reading in it entirety, and it includes comments from Heywood Sanders, who spoke on this exact issue at the Kansas City library on July 22, 2016. The Show-Me Institute previously published a brief history of Kansas City’s convention-related failed promises since 1969. In short, despite decades of hype and public funding, Kansas City has never seen a significant increase in convention business despite considerable public investment.

A reasonable person might conclude that city leaders shouldn’t be held responsible for unforeseeable circumstances such as COVID-19. That is fair, but it also demonstrates that city leaders shouldn’t be involved in such speculative investments in the first place. As I’ve argued for years, the job of city government should be to provide basic services efficiently.

Private investors are much better at assessing risk because they are investing their own money. Cities are responsible for providing the basic services that we all depend on, and should be more interested in protecting the public dollars that we may depend on in a time of crisis.

 

Stimulus Spending Checklist

Posted on by Jakob Puckett

Missouri has received billions of dollars in federal stimulus money and is now deciding how to allocate those dollars. Considering the amount of money involved, guiding principles are necessary to ensure the money is used effectively while maintaining the public’s trust. Here are four suggestions for Missouri.

  • Policymakers must recognize that this is a one-time injection of money, so they must not create any new programs that require recurrent funding. Economic recovery will take enough time on its own, and higher taxes will only slow it down.
  • Further, stimulus money should only be spent on or reimbursed for pandemic-related expenses, whether they be totally new costs or additional costs incurred from programs facing additional strain. This would allow jurisdictions already transferring money from unrelated funds to pay for virus-related expenses to be reimbursed and the transferred-funds replenished. Spending money outside these parameters would likely lead to new programs and higher taxes in the future.
  • Transparency is paramount. Taxpayers have a right to know how their money is being spent, especially in a crisis where governmental decrees curtail normal behavior. While it is necessary to move quickly in a crisis, government action should be out in the open in order to strengthen public trust.
  • To meet these objectives, Missouri counties and cities should publish their spending—all of it, since money is fungible—as a condition of receiving stimulus dollars. Extending the Treasurer’s Show-Me Checkbook project to receive and include these records would be a logical approach. That way, state policymakers can confirm that local governments have complied with the stimulus transparency requirement, and taxpayers can simultaneously track local spending themselves, now and in the future.

The governor has assembled a task force to determine how Missouri’s money will be spent. Abiding by these principles can help keep government honest and taxpayers informed.

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