Rough Road Ahead for Missouri’s Budget

Posted on by Elias Tsapelas

Recently, Governor Mike Parson signed the largest supplemental funding bill in the state’s history. In response to COVID-19, lawmakers approved more than $6.2 billion in new spending just to get through the end of the state’s fiscal year, which ends June 30. While the majority of those funds are coming from the federal government ($5.7 billion), Missouri’s budgetary woes extend far beyond what can be covered by outside “stimulus.”

Just last week, Governor Parson restricted an additional $47 million in state funds in response to Missouri’s rapidly declining tax revenues. Restrictions are one of the mechanisms the governor can use to withhold state funds from being spent in an effort to keep the state’s budget balanced, as is constitutionally required. This second round of restrictions brings the current year’s estimated revenue shortfall to over $210 million, and there’s no end in sight. Over the past few months, we’ve seen the important role that governments play in responding to public health emergencies, but we’re also just beginning to see the economic toll of those efforts.

Missouri’s yearly revenues come almost exclusively from income and sales taxes. These are taxes that suffer dramatically during an economic downturn, or a period of quarantine where people are not working or shopping as much. The impact from a slowdown can be felt almost immediately, as Moody’s (a major credit rating agency) recently estimated that Missouri could see up to a 30 percent decline in revenue collections over the coming year.

Falling revenues mean that further reductions in funding will be immediately required because of the state’s balanced budget requirement. To compound the issue, when the economy worsens, spending on programs such as Medicaid increase. Dealing with COVID-19 means there will be less and less money for policymakers to spend while the cost of simply maintaining the status quo becomes more expensive.

So, what should Missourians expect going forward? First, Missouri’s government-funded programs and services will likely be impacted by the shortfall for years to come. For example, Missouri’s tax revenues in 2014 were still below what they were before the start of the 2008 recession. And since roughly 65 percent of Missouri’s collected revenues go toward funding education and Medicaid, there will likely be changes to programs that hundreds of thousands of Missourians rely upon.

These challenging times will require solutions beyond what the federal government can provide. Missouri’s policymakers must re-examine the state’s programs and determine the best ways to fund them. It is now more important than ever to get government out of the way and allow the market to work in order to move Missouri forward.

 

Missouri Auditor Blasts Jackson County Anti-Crime Program

Posted on by Patrick Tuohey

The Missouri State Auditor just released an audit of Jackson County’s Community Backed Anti-Crime Tax (COMBAT) Fund. It’s a doozy. The auditor uncovered that the county legislature failed to properly oversee spending, engaged in questionable real estate transactions, and misused funds. None of this should be a surprise to anyone who has been paying attention. As we pointed out in 2016, it is difficult to discern in any meaningful way a positive impact from these programs.

Auditor Nicole Galloway wrote: “The county has not developed a plan for ensuring that performance evaluations of the programs funded by COMBAT are performed annually as required by county code.” She recounted how the county sold a building to the Independence School District for $10 “without an independent appraisal or cost-benefit analysis” after spending $1 million in COMBAT funds on renovating the building. But perhaps her biggest hit was on failure to oversee contracts:

The County Legislature appropriates COMBAT funds to outside agencies, without going through the comprehensive process the COMBAT unit follows in awarding similar contracts to agencies. The contracts awarded to one outside agency by the County Legislature, totaling $120,000 during 2017 and 2018, were a questionable use of COMBAT monies.

In a story on the audit in The Kansas City Star, Mike Hendricks wrote that, “Galloway alleged no criminal wrongdoing and offered few surprises,” because the audit:

. . . largely mirrored findings of the private accounting firm that Jackson County Prosecutor Jean Peters Baker hired in late 2018 to review the drug and anti-violence program she now oversees. Baker released that report on COMBAT last fall.

In response, the Jackson County COMBAT Communications Administrator issued a release welcoming the audit and pledging to make changes. The county also set up a webpage where people can make anonymous allegations of mismanagement of funds.

This is welcome, but as we pointed out in 2016, the problem is not merely that a few contracts may have been mishandled, but that there is scant evidence this anti-crime tax is doing anything to reduce crime. Kansas City is in the midst of a years-long, nation-leading spike in homicides. Can anyone argue that if the COMBAT program were suspended entirely that anything would change? The onus is on the county to make its case, and if it cannot, the program should be dismantled.

 

Toll Roads, Past and Future

Posted on by Jakob Puckett

While driving this Easter to spend time with family in Charlotte, North Carolina, I saw the past and future of toll roads. If Missouri implemented tolling, it seems clear to me what type of toll road drivers would prefer.

Heading south on the West Virginia Turnpike, I hit all three mainline toll plazas. Each occurrence involved coming to a complete stop as I handed a toll booth worker $4.00 to drive through. No credit cards were accepted, but I was fortunate to have enough cash. Drivers who had an E-ZPass transponder were able to avoid a complete stop, although they still had to slow down to 5 miles per hour.

In North Carolina, the I-77 express lane was quite a contrast. The express lane was the smoothest-paved part of the road, set apart by a light barrier to easily identify which lanes are tolled and which are not. There was no stopping, as most drivers paid via a NC Quick Pass transponder. If you didn’t have a transponder, you would get a bill in the mail based on your license plate registration. Rates were per mile and variable depending on traffic conditions, and if you had three or more people in the car you could travel in the express lane for free.

Most new toll roads have a similar structure to North Carolina’s. The hassles of always needing adequate cash and the stop-and-start nature of old turnpike plazas are avoided. Further, research has shown that toll roads with no stopping are significantly safer than traditional toll plazas regarding fatalities, crashes, and property damage. Even collection costs are between two to four times lower (page 59) for electronic tolling than for traditional (page 12) toll plazas.

Electronic tolling is an innovative way to fund road maintenance in a driver-friendly manner. Missouri also has heavily traveled highways that need rebuilding (page 18), and the president wants to lift the federal prohibition on tolling interstates. Missourians have opposed toll roads in the past, but if they knew how easy modern toll roads are, they might be inclined to change their minds.

 

A Peculiar Solution for Ever-Increasing Water Rates

Posted on by Patrick Tuohey

On June 2, residents of Peculiar, Missouri will vote on the sale of the City of Peculiar utility system to Missouri American Water. The purchase price is to be $16.9 million up front with an additional $300,000 paid out over the next three years. A legal memo describing the deal and the associated resolution is available online here, beginning on page 37.

Missouri American Water, naturally, is supportive of the plan and is confident it can deliver the same services to Peculiar residents they receive now and at a lower rate. A webpage in support of the proposal shows the recent rates in Peculiar compared to other American Water customers across Missouri, including Kansas City neighbors Platte County, Lawson, and St. Joseph. (Incidentally, the Environmental Protection Agency (EPA) claims, “the average American family uses more than 300 gallons of water per day at home” or around  9,000 gallons per month.) 

At a time of increasing water rates in Kansas City, it might be worth considering such a deal here. Kansas Citians already look to private—albeit heavily regulated—companies for their electrical power and natural gas. Why not water too? And if such a sale here would include an upfront payment to the city as well as potentially improved management and lower rates over the long run, city leaders have a responsibility to consider the offer.

All of this hinges on a serious and substantive audit of the Water Department, as Kansas City Mayor Quinton Lucas has called for previously. That is a necessary first step so that taxpayers and any interested buyers know exactly what is at stake. Even without a looming financial crisis, Kansas Citians should be looking to shed costly burdens that can be better and more cheaply provided by others.

 

National Charter Networks Are Leading Distance Learning Strategies

Posted on by Abigail Burrola

As of last week, all Missouri schools are closed to in-person classes for the rest of the school year. This means many Missouri educators will attempt to transition to remote learning. But this process hasn’t been smooth for everyone. In particular, there seems to be a gap in remote learning capabilities between traditional public schools and charter schools.

As of now, it is up to individual districts in Missouri to establish their own guidelines for distance-learning plans. Districts can decide how much classwork students need to complete and if teachers or the district create assignments. For districts that didn’t have any online learning components before COVID-19, switching completely online has presented challenges.

Missouri schools aren’t the only ones figuring out distance learning right now. The Center for Reinventing Public Education (CRPE) has created a database for the largest public school districts in the nation and compiled what each has done in response to the coronavirus. CRPE then added 18 national charter school networks, and found that many charter networks are leading examples in how schools can continue to deliver quality instruction remotely to students.

Of the 18 charter networks CRPE examined, many were able to quickly adapt to entirely remote learning despite using different approaches. CRPE found that “half had created comprehensive learning plans with formal curriculum, instruction and progress monitoring.” Some of the charter networks, like Success Academy Charter Schools or Uncommon Schools, are even incorporating synchronous teaching. This is when all students in a class are logged online at the same time and learning from their teacher. In comparison, some Missouri school districts are not grading assignments, perhaps because they are still developing remote learning practices.

Missouri school districts don’t have to reinvent online learning. But they should be learning from other schools that have implemented remote learning successfully, like some of the leading national charter school networks that are leading the way on remote learning.

 

Stimulus Package Highlights Missed Energy Opportunity

Posted on by Jakob Puckett

The recent $2 trillion stimulus package included a lot of different ideas to help keep our economy afloat, but one proposal that was rejected deserves a closer look.

A steep decline in oil demand due to the economy being paused and an increase in oil production from a price war between Russia and Saudi Arabia brought oil prices to a twenty-year low. Recently, 23 countries have agreed to reduce global oil production by around 10 percent, but global demand has dropped nearly 30 percent, leaving significant surplus oil in the market. As such, many American oil producers are on the brink of bankruptcy as low prices combined with loan repayment schedules jeopardize an industry vital to the economy and national security.

Extra storage space in America’s Strategic Petroleum Reserve (SPR) could help offset this oil market turbulence.

The SPR is a stockpile of oil that helps protect American oil supplies from shortages or price spikes. Its rainy-day function deters adversaries from using oil as a weapon against America and provides more leverage for American foreign policy. Occasionally, oil from the SPR is sold to raise money for the Department of Energy (DOE), emergencies, or public works programs, although the merits of using the SPR to fund public-works programs are debated.

So how could the SPR be used at this time?

The president suggested purchasing surplus oil to fill the SPR to the top as part of the recent stimulus. Opponents blocked this idea and will likely block a new bill to purchase oil for the SPR independent of a stimulus.

In light of these developments, the DOE is leasing empty space in the SPR for companies to store surplus oil until the market stabilizes. As Congress has decided to reduce the SPR’s size (another debated matter), this would use existing space while costing taxpayers nothing. Several companies have already submitted bids to store oil, with room for more. The world is scrambling to find enough space to store surplus oil, as too much production risks sending prices further into a tailspin.

The move to lease space in the SPR could benefit taxpayers and remove some oil from an oversaturated market.

 

Some Estimates on the Impact of Covid-19 on Small Business

Posted on by Patrick Tuohey

A working paper by the National Bureau of Economic Research (NBER), authored in part by Dr. Ed Glaeser of Harvard University, asks: How Are Small Businesses Adjusting to Covid-19? The report is brief and is worth reading in its entirety, however here are a few key takeaways from the data:

  • 41.4 percent of businesses reported that they were temporarily closed because of COVID-19. A far smaller number—1.8 percent—reported that they were permanently closed because of the pandemic. By contrast, only 1.3 percent reported that they were temporarily closed for other reasons. 55.4 percent reported that they were still operational.
  • Approximately one-fourth of firms have cash on hand totaling less than one month’s worth of expenses. About one-half of firms have enough cash on hand to cover between one and two months of expenses.
  • More than 64 percent reported that it is very or extremely likely that they would be open on December 31, 2020—which is used as a measure of the probability of being open. A growing literature has found entrepreneurs to be overoptimistic about their prospects

It is completely appropriate for policymakers in Missouri and across the country to debate the efficacy and appropriateness of aid to small businesses. As with aid to municipalities, we do not want to reward bad decision-making with public funds. But as Glaeser and his co-authors point out, the impact of the virus and the public response is great and already with us.

While I am often skeptical of government intervention in the economy, it is difficult to argue that there is no role for government here. After all, even the most ardent Objectivists over at The Atlas Society understand that there we are in unprecedented times. For anyone who wants to consider exactly how unprecedented, this NBER paper is a good start.

 

Transparency Needed for Coronavirus Stimulus Spending

Posted on by Jakob Puckett

St Louis County expects to receive $173.5 million from the federal government in the coming weeks to handle expenses related to the coronavirus. While the influx of cash will likely help the county, there are questions about how the money is being handled.

According to the Post-Dispatch, the “administration was moving quickly and unilaterally—without oversight or public notice—to spend upwards of $173.5 million that it expects the federal government to refund.” Further, the county executive is requesting the county council to grant him the ability to transfer funds without councilmembers’ approval.

For instance, the temporary morgue being built in Earth City in anticipation of more coronavirus deaths was constructed with the sole approval of the county executive. Alerting councilmembers and the public, as well as offering justification for its construction, are all standard procedures that were ignored.

It is understandable that in a crisis moves must be made quickly, but they can still be made publicly. As my colleague Patrick Ishmael said recently, if local governments want stimulus money they should be transparent about how that money will be spent.

 

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