Bike Walk KC’s Fuzzy Math and Incorrect Claims

Posted on by Patrick Tuohey

Kansas City leaders have been considering a proposal to spend millions on a bicycle master plan for the city. The effort has sparked controversy, and advocacy group BikeWalkKC’s executive director Eric Rogers appeared on KCPT’s Ruckus last week to discuss the matter. Host Mike Shanin asked about the number of people who commute to work in Kansas City and Rogers offered, “And [biking is] on the increase. We know from the Census data that here in Kansas City biking to work, in particular, has gone up 20 percent since the 90s. And it’s actually gone up 130 percent since just 2016.”

These struck me as very large increases in such a short period of time. The last census report on biking to work was published in May 2019 and only includes data up to 2017. It indicated that only 0.6 percent of U.S. workers commute to work by bike. In Kansas City, the 2017 census data indicated that the number was 0.3 percent in the city and only 0.2 percent in the broader metro area. Where is the data that bike commuting has jumped 130 percent since 2016?

After Rogers stated those percentages, Shanin asked him what the numbers of commuters were [starts 3:39]. Rogers declined to answer, suggesting instead that viewers could do the math on their own. But they can’t from what Rogers provided; a percentage increase does not indicate the actual numbers. In fact, the high percentage increases may be a function of low actual bike commuting numbers. If two people in Kansas City biked to work in 2016, and three more joined them in 2018, that would represent a 150 percent increase—but it’s still hardly impressive.

Rogers has yet to respond to several requests for the data underlying his claim.

Incidentally, Rogers still has a blog post on BikeWalkKC that makes demonstrably false claims. In an April 1 (!) post titled, New Bike Plan Will Save Lives and Boost the Local Economy, he writes, “Economic Impact Analysis shows new bike master plan will save 36 lives every year, add $500 million to the regional economy, and create 12,000 jobs.” My colleague Kelvey Vander Hart addressed the claim about saving lives earlier this year.

But the jobs claim is just flatly wrong. The summary of findings upon which the Bike KC Master Plan claims are based states on page 6 that “this increase in economic activity leads to 12,600 additional jobs (measured in job years) over the period.” The period is 30 years, 2020 through 2050. Dividing 12,600 “job years” by 30 years gets 420 actual jobs. (Frankly even that seems high, but it’s not 12,600!)

Contorting data to justify dubious claims about job creation doesn’t help anyone. It only gives Kansas Citians even more reason to be skeptical as advocates ask taxpayers to spend hundreds of millions of dollars for something in which some neighborhoods see little value.

LIHTC 101: How Does it Work?

Posted on by Elias Tsapelas

I recently wrote a post explaining what the low-income housing tax credit (LIHTC) is. But how does it actually work? Let’s start by saying you’re a developer, and you want to build a low-income housing project. What would the process of obtaining low-income housing tax credits and financing the associated project look like?

First, you need to develop a plan for the project and estimate how much it will cost. For simplicity, let’s assume you want to build a new apartment complex for low-income individuals, and it will cost an estimated $1.25 million. Of those costs, only $1.11 million are eligible for tax credits because land and several other expenses aren’t eligible.  In this case, the project would be eligible for the new construction credit, which means that up to 90% of all projected costs could be covered. So if approved, you could receive nearly $1 million in state and federal credits over ten years.

To start the process, you have to get your project approved by the Missouri Housing Development Commission (MHDC), the state’s housing agency. This complex approval process includes filling out a slew of forms, completing audits of your finances, hosting inspections of the property, and paying a variety of fees.

Once you jump through the required hoops and get your project approved, you will likely need to sell the tax credits to begin development. (This is because many firms need the startup capital to fund construction; the credits are paid out over several years) To do this, most developers find a tax syndicator, which is simply a business that helps find investors willing to buy credits in exchange for financing the project. This process can be difficult because Missouri’s tax credits are non-transferrable, which means they cannot be transferred or sold to any investor that isn’t part of the development group. Thus, new legal partnerships are formed for most projects that include the developers and investors to allow them to buy and use the credits.

Once you have people willing to buy your credits, how much can you expect them to pay? The first hurdle is the federal tax implication for each investor. Paying less in state taxes (because they’re using credits) reduces the claimable portion of the federal tax deduction that comes from state taxes paid. In other words, using state tax credits can increase their federal tax liability. As a result, the value of the state credit to each investor drops by the federal tax rate they would have to pay on those funds—typically around 35% of the credit’s value.

In addition, getting money for tax credits today requires selling them at a discount, because the tax credits are issued over ten years. Selling all your credits today, adjusted for net present value, and including all fees for the syndicator’s efforts, you can expect to receive around 65% of the remaining value. After all is said and done, your $1 million in LIHTCs results in around $420,000 cash for project construction. These figures are in line with the analysis completed by Missouri’s State Auditor’s Office.

The rest of the project’s financing has to come from the developer, other investors, or mortgages. No matter the amount MDHC awards in tax credits, the end result is the same; there will typically only be around $0.42 of each dollar in tax credits available for actual construction. More than half the state’s investment in your project is lost by the time the construction can begin. This is a big reason why the program is such an inefficient use of taxpayer dollars.

For the next post in this series, I’ll look into the LIHTC program’s measurable impact (or lack thereof) on the supply of affordable housing in Missouri.

 

 

Charter Schools Can Fill the Void in Rural Areas

Posted on by Abigail Burrola

Finding options for your child’s education can be challenging to begin with, but living in a rural area can make it even harder. I’ve written before about how charter schools can provide more opportunities for students in rural areas, and a new EducationNext study shows how charter schools can serve rural communities by filling specific educational needs.   

The study examined four different rural charter schools in New Mexico, Minnesota, Florida and Arizona and described the factors that contributed to their success.

According to the researchers, a close connection to the community and the ability to fill an academic need was critical to the success of the charter schools they studied. For example, the Glacial Hills Elementary charter school in Minnesota started up after the local district school closed in 2005 due to issues with finances and declining enrollment. Opening a charter school meant that students had a local educational option instead of having to travel an hour each day to the nearest school.

In a rural community in Florida, families were quickly moving out of the local school system or enrolling in private schools for a quality education, so Crossroads Academy opened to provide a local, rigorous public education for students.

I bet there are Missouri families who would like to shorten their child’s daily commute to school or have a quality academic option nearby. According to the National Center for Education Statistics, about 61 percent of Missouri’s rural school districts have experienced a decline in enrollment from 2010 to 2016. This is part of a larger migration trend in Missouri, but those who remain in rural areas still deserve a quality education. The Minnesota and Florida schools mentioned above show how charter schools can thrive in rural areas with declining enrollment.

The researchers also produced a website that has more in-depth analysis on their findings, and it’s worth a look for more information on each charter school.

Other states are leading the way in providing quality options for rural students. Why doesn’t Missouri do the same?  

 

LIHTC 101: Program Basics

Posted on by Elias Tsapelas

Since the program’s inception, the low-income housing tax credit (LIHTC) has been the federal government’s primary tool for increasing the supply of affordable housing across the nation. The program has become so prominent that 15 states, including Missouri, have implemented their own versions. Today, Missouri’s LIHTC program is the state’s most expensive tax credit. And despite the enormous cost to Missouri taxpayers, very few resources exist that explain how the state’s program actually works or what it is trying to accomplish.

In 1986, the federal government enacted the LIHTC program with the second round of President Reagan’s tax cuts. The idea was simple: provide a supply-side incentive to make housing more affordable. LIHTC represented a new approach to government-funded housing policy. Instead of directly subsidizing the rents of low-income individuals, the program forgoes future federal tax revenues to incentivize developers to build more housing. And in exchange for the tax credits, the developers must agree to reserve a portion of the subsidized units for low-income tenants and to cap rents for low-income tenants for thirty years.

Each year, the Internal Revenue Service allocates federal LIHTCs across all 50 states based on population. It is then the responsibility of each state’s housing agency to distribute those credits for approved projects. Last year, Missouri was allocated $2.75 per full-time resident from the federal government, which translated to $17 million in tax credits available for new projects. But not every project is eligible for the same amount of tax relief. Within the federal program, there are actually two types of tax credits: one for new construction projects and another for rehabilitations. The credits for new construction are the most popular, and can cover up to 90% of all construction costs over 10 years. The rehabilitation tax credits are less lucrative and cover closer to 40% of construction costs over the same period.

Awarding tax credits for the cost of construction lowers the investment required by the project developers, but not in the way you’d expect. Developers rarely use the credits to build housing directly; instead, developers typically sell the tax credits to independent investors at a discount to finance the originally approved project. The project’s investors then use the credits as dollar-for-dollar reductions in their business or individual income tax liability over the following 10 years.

And the way Missouri has implemented its state LIHTC program has made things worse. In response to claims from developers that the federal program alone cannot make projects profitable, Missouri’s LIHTC program fully matches each federal credit dollar for dollar with a state credit.

Over a series of upcoming blog posts, I’ll discuss how the LIHTC program as described fundamentally fails to effectively or efficiently improve Missouri’s affordable housing landscape.

 

It Might Take Stan Kroenke to Reform Missouri’s Special Taxing Districts

Posted on by Patrick Tuohey

The St. Louis Post-Dispatch has a great piece by Jacob Barker on an effort by the city of Wentzville to partner with a private developer to finance and build a rec center it has long wanted. The outrage is that the private firm is connected to Stan Kroenke, owner of the St. Louis Los Angeles Rams, perhaps the most hated man in the St. Louis region.

The rest of the piece catalogues the standard objections to special taxing districts, which in this case is a Community Improvement District (CID). They include: unfair taxation, developer subsidies, a blight finding so that the developer is even less constrained in spending the CID funds, and the lack of transparency in the tax collection and spending.

While everything in the Post-Dispatch story is true, none of it is unique. Kroenke’s involvement may make it even less palatable, but special taxing districts such as these are common and becoming more so. My colleague Graham Renz and I wrote about it in this essay, which includes some especially odious examples and ideas for reform. It would be a wonderful irony if a man like Kroenke, who has profited so handsomely from such subsidies, was himself a cause for their reform. One can hope.

 

Even Kansas City’s Director of Economic Development Knows that CDFA’s Incentive Study is Bogus

Posted on by Patrick Tuohey

If, despite all that has been written here and elsewhere about how Kansas City’s Incentives Study was a complete and utter sham, you still think there may be something to it, consider this additional item. The Kansas City Star reported the other day that in 2018, Kansas City spent $175 million in economic development incentives. The story includes this gem:

City Hall officials say it’s difficult to establish what Kansas City gets in return for it its investment in incentives.

Kerrie Tyndall, director of economic development for Kansas City, said the benefits of incentives are spread over several years and agencies and, thus, “extremely difficult to quantify.”

Extremely difficult? The city just spent $350,000 on a report Tyndall oversaw that concluded, “each incentive dollar invested generated $3.83 in additional tax revenue.” So to quantify the benefits of incentives for 2018, we just take the $175 million spent on incentives and multiply by 3.83. That gives us . . . $670,250,000 in additional tax revenue! Voila!

Even if that $670 million in additional tax revenues doesn’t appear right away, Kansas City has been doling out more than $100 million each year in incentives for quite a while. Where exactly in the budget might we find that tax revenue windfall?

Nowhere. The city sees nowhere near the return on incentives claimed by CDFA in a report Tyndall personally oversaw for two years. The fact that she doesn’t mention the multiplier today suggests that even she knows it is laughably wrong. Laughable, that is, if these subsidies weren’t so tragically destructive to Kansas City.

 

Some Good News Regarding Missouri’s Highways

Posted on by Patrick Tuohey

The Reason Foundation just released its 24th Annual Highway Report, ranking Missouri’s highway system as the third best overall, behind North Dakota and Virginia. This is good news.

According to the study, the assessment is based upon:

. . . data that states submitted to the federal government, [and] ranks each state’s highway system in 13 categories, including traffic fatalities, pavement condition, congestion, spending per mile, administrative costs and more. This edition of the Annual Highway Report uses state-submitted highway data from 2016, the most recent year with complete figures currently available, along with traffic congestion and bridge data from 2017.

The write up specific to Missouri is here, and it is worth reading in its entirety. While some states spent in excess of $200,000 per mile, Missouri maintained a high rating while just spending under $24,000 per mile. This did not come at a cost to pavement condition, where Missouri ranked higher than some of the states that greatly outspent us.

It’s also worth noting that Missouri scored the worst on bridges (40 out of 50). Some good news is that the governor just announced a federal grant of $20 million to address exactly that.

My colleagues and I have written a great deal about the need to increase MODoT revenue and have suggested some possibilities. Advocates of restrained government are right to demand that government spend existing money wisely before seeking more revenue. This report from Reason suggests that MoDOT is being more responsible with taxpayer money than other states.

 

Missouri Should Follow Our Neighbor’s Lead and Review Occupational Licensing

Posted on by Kelvey Vander Hart

Should you need to train for 175 days to be a skin care specialist? How about more than 700 days of training to apply pest control products? These requirements may seem excessive, but nonetheless are mandated by Missouri’s occupational licensing laws.

According to a study released by the Mercatus Center, the Missouri Division of Professional Registration subjects 240 occupations to varying forms of licensure. This means that in Missouri, 21.3 percent of the workforce is licensed (with an additional 5.4 percent requiring certification).  

An earlier study conducted by the Institute for Justice examined 102 low- to moderate-income occupations and noted that Missouri requires a license for 31 of these occupations. Licensing requirements can be costly, both financially and in terms of time, and serve as a barrier to entry for job seekers.

The licensing requirements in Missouri also are not especially well matched with actual safety risks (like consumer health risks). As the Mercatus Center explains, “Occupations that are less likely to involve risk to the public are often more highly controlled than riskier occupations.” For example, Missouri requires emergency medical technicians (EMTs) to undergo 23 days of training while athletic trainers are required to undergo 1,460 days of training.

What can be done about excessive licensing? Show-Me Institute researchers have previously written about license reciprocity, but Missouri could also take a cue from its neighbor, Nebraska.

Nebraska is beginning a legislative review of all the state’s occupational licensing laws. The review will be carried out over the next five years with the ultimate goal of identifying less restrictive options for professional regulation (and identifying which professions need these regulations at all).

Reviewing each license and the options for reducing or eliminating licenses seems like a great place to start in reforming occupational licensing.

Missourians should be able to practice the profession of their choice without excessive barriers to entry. Instead of making it harder for people to work, shouldn’t we be removing unneeded roadblocks?

 

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