Kansas City’s Christmas Tree

Posted on by Patrick Tuohey

If you’ve lived in Kansas City for a while, you’ve heard all about building new things.

We’ve built a new entertainment district along with several luxury apartment high-rises, corporate headquarters buildings, and hotels—including an 800-room convention hotel. We’re trying to build a new single-terminal airport, revive the 18th and Vine Jazz District, and expand the streetcar. There is also talk of building along the riverfront, possibly including a new sports stadium!

But along with building structures, we’re also building a reputation—and not a good one.

Perhaps you have also heard about a years-long, nation-leading spike in homicides, an underperforming Kansas City Public School District, and a nonexistent affordable housing policy. Maybe you’ve read about blighted structures on the East Side collapsing under their own weight. You may be aware that the police department has about 10 percent fewer uniformed officers than it did before the homicide rate jumped.

These things are related. Our leaders are falling over themselves to offer generous tax incentives to everyone from Amazon to Burns & McDonnell to Cerner while city services are being starved of tax revenue because those companies are no longer paying. Recently, both the Kansas City Library and Mid-Continent Public Library turned to taxpayers to make up for funds lost to such subsidies. Sometimes service providers like the Community Mental Health Fund are less able to help those in need.

Like a crazed Christmas shopper, we’ve paid for much of this development spree armed with credit and questionable judgment. Kansas City’s leaders were warned about high levels of debt in 2012 in the Citizen’s Commission on Municipal Revenue. But since then our debt per capita has only risen, and last year city leaders sought and were granted 40 more years of debt.

If you’re looking for a metaphor from the season, it might be that we’re hanging a lot of shiny ornaments on a dry, dying Christmas tree.

Proponents argue that without generous subsidies, wealthy corporations could not afford to build their luxurious headquarters buildings. Beyond the question of why taxpayers should support such things, the research from around the country tells quite another story. A 2018 study from The Upjohn Institute for Employment Research concludes in part, “for at least 75 percent of incented firms, the firm would have made a similar location/expansion/retention decision without the incentive.”

Another cost of these burdensome baubles on our community Christmas tree is they make it harder for us to keep the tree itself alive and healthy. Consider the time and attention spent on the new airport terminal or the convention hotel that might have been used addressing housing policy or the homicide rate.

We are diverting money and seeing no real gain. So why do city leaders keep doing it?

One reason might be explained by another Christmas metaphor: gift giving. A Show-Me Institute study of tax-increment financing (TIF) projects in Kansas City from 2002 through 2018 found that developers’ campaign contributions to city council and mayoral candidates increased in the years leading up to their TIF applications and then dropped off in the years after TIF was awarded. This finding suggests a TIF-for-tat arrangement between developers and city leaders, and it could help explain why an economic development policy universally decried as suspect remains popular—and increasingly so—in Kansas City.

The final days of a year are often a time to take stock and reflect. As Kansas City prepares for local elections, we need to focus more on the real issues affecting our municipal tree—crime, infrastructure, education, and debt—and less on the distracting and ultimately unsuccessful policies of economic development subsidies.

What Is Going On with the KCI Project?

Posted on by Patrick Tuohey

No one seems to know what is going on with the KCI new single terminal project. Or if they do know, they aren’t leveling with the public. A recent story in The Kansas City Star includes the following:

The conversation with [Southwest Airlines chief executive Gary] Kelly, which [Mayor Sly] James initially denied but Southwest confirmed, happened early in the week. James, through a spokeswoman, said the conversation was about cost sharing among airlines for a baggage handling system at the KCI terminal, a $20 million element in the project but a fraction of the overall cost.

I don’t know why the mayor would have initially denied speaking with an executive at Southwest. However, it is the sort of tactic that proponents of the new single terminal have been employing since the very beginning. Remember that proponents of the new terminal told us that there is no correlation between ticket prices and the fees airlines pay to fund airports. But Spirit and Allegiant Airlines have made it clear there is a connection.

Then we learned the price for the terminal was going way up. Cat Reid’s story on November 1 for KSHB indicated that this wasn’t a big deal for the airlines:

The director of the Kansas City Aviation Department, who has been meeting with airline executives across the country, said they have “no anxiety at all” about the $1.9 billion price tag on the new terminal.

But that wasn’t true. The airlines did have problems with the $1.9 billion price tag, and are asking to have their own consultants look at the price.

Fox 4 reported on November 15 that Mayor James said the price problem was specific to a dispute about paying for the new baggage handling system. But that wasn’t true, either. While there is a dispute regarding baggage fees, Steve Vockrodt reported on December 2 in the Star that, yes, the price itself was a point of contention.

Part of the reason why airline buy-in is so important is that Kansas Citians have been told all along that the airlines would be footing the bill without taxpayer funds. But this might not end up being the case—finance department representatives said they might use the general fund to cover initial costs. Now the city council is acting to make sure that those previous promises are honored.

Regardless of whether officials are misleading the public or simply do not know what they are doing, the airport project appears to be a mess. But civic leadership is willing to look the other way. Good public policy is unlikely to result from such an awful process.

 

How Not to Study Economic Development Incentives

Posted on by Patrick Tuohey

Economic development incentives are all the rage. And they aren’t all multi-billion-dollar packages to attract a new Amazon headquarters. Many come from small towns offering sales tax breaks on construction equipment. But either way, cities and states are falling over themselves to underwrite private investment. As the number and size of such subsidies grow, some public officials are asking if these incentives are worth it, while others are relying on questionable assumptions to justify their policies.

Contrary to what proponents of economic development subsidies are claiming, the incentives aren’t really driving companies’ decision-making. The Upjohn Institute for Employment Research released a study in February which concludes in part that, “for at least 75 percent of incented firms, the firm would have made a similar location/expansion/retention decision without the incentive.” Amazon’s choice to move its new headquarters to New York City and a suburb outside Washington, DC, illustrates the point: companies do what is best for them, and tax incentives are rarely enough to outweigh other factors (like quality of workforce, for example) that influence decisions about where to set up operations.

Cities are starting to reevaluate their incentive programs. Nashville recently suspended the use of tax-increment financing (TIF) pending a study. St. Louis completed a broader study of economic development incentives in 2016 and is now considering reforms.

Kansas City undertook an effort to study its incentive regime, but the process seems intended to obfuscate. In a July 2016 story in The Kansas City Star, Mayor Sly James seemed to appreciate exactly how important a well-done study of incentives could be in improving policy. He said,

Such an analysis, if done correctly, will take some time to complete; however, we will be working to complete it as soon as possible. The report will provide the sort of data and facts that can lead to reasonable and responsible improvements to our economic development policy.

By October 2016, the mayor appeared to be backpedaling. In a speech to city employees he said, “City Hall doesn’t do a good enough job of promoting how economic development benefits the city.” That suggested a shift in purpose from a serious analysis of city policy to merely a public relations effort to promote existing policy.

Kansas City received eight bids—ranging from $174,000 to $287,000—on the proposed study, including from the PFM Group, an asset management company that had conducted the above-mentioned study in St. Louis. The highest bid came from the Council of Development Finance Agencies (CDFA), which according to its website is “a national association dedicated to the advancement of development finance concerns and interests.” It is not an accounting or economic evaluation firm, but a trade group seemingly placed in a conflict of interest.

Kansas City contracted with CDFA and paid the firm $350,000—more than what CDFA bid on the project, and approximately twice as much as St. Louis paid PFM for their 2016 study. There was now more reason to suspect this was not going to be a serious or rigorous analysis.

CDFA presented its report to the Kansas City Council on August 16, 2018—16 months past the original contract deadline. The report was a disappointment, but not a surprise. Rather than undertake the rigorous work of measuring the real impact of subsidies, CDFA simply assumed that subsidies had a positive economic effect. For example, it appears that the authors tallied up the value of a given economic development incentive and then divided it into the jobs or tax revenue that project generated. As a result, the CDFA report concluded, incredibly, that “each incentive dollar invested generated $3.83 in additional tax revenue.”

Importantly for policymakers, the report made no attempt to determine how or if a given incentive caused the subsequent development. It made no effort to determine if some projects generated more and better returns on incentives invested than others. During the presentation, council members continually questioned the consultants assembled about how the report could help them make better decisions in the future, or when incentives in a particular part of town met with diminishing returns. The consultants could not answer, because the study avoided such important questions.

Some organizations with an interest in promoting economic development incentives, such as the Greater Kansas City Chamber of Commerce and the Downtown Council, have uncritically parroted the $3.83-per-dollar-invested return rate on incentives. They should have known better. The editor of the Kansas City Business Journal called the report a “hot box of poo” and wondered, “did Kansas City blow a couple hundred thousand dollars on a completely useless study?”

While other cities are taking this issue more seriously, it appears that in Kansas City the answer is yes.

There Is More Than One Way to Measure Poverty

Posted on by Emily Stahly

Back in 1980, 13 percent of people were living below the federal poverty line, and 13 percent had standards of living that qualified them as poor. Fast forward to today, and the poverty rate has stayed about the same at 13.4 percent—but fewer than 3 percent of Americans have a poor standard of living. How can that be?

To understand, we need clear definitions of our terms. The federal poverty rate is based on pre-tax income of a household and is adjusted for inflation and family size. In 2017, the poverty threshold for one person was $12,060 and increased by about $4,000 for each additional household member. The consumption poverty rate, on the other hand, measures what “families are able to purchase in terms of food, housing, transportation, and other goods and services” and includes savings, access to credit, and welfare benefits, according to the authors of a recent report from the American Enterprise Institute (AEI).

The authors of the report explain that when measured based on consumption and standard of living for the poor, the poverty rate has been steadily declining since 1980 and was 2.8 percent in 2017. The fact that the consumption poverty rate has fallen relative to the federal poverty rate is a positive development. It means that a growing percentage of people whose income place them below the federal poverty line are materially better off—that is, able to consume at a higher rate—than those who were in poverty in 1980. This improvement in standard of living for those with low incomes is due in large part to public assistance programs.

While we should not declare we are “solving” poverty through the provision of welfare benefits, we should recognize that public assistance has played a role in significant progress in alleviating the effects of poverty by providing things like food and housing assistance. The ultimate goal, however, is to help move people who currently depend on welfare for a decent standard of living toward economic independence.

It is critical that Missouri identify and then pursue policies that help people out of poverty and equip them to support themselves and their families without government assistance. Breaking cycles of poverty would allow the state to focus efforts and resources on the 2.8 percent of people at the very bottom of the economic ladder while reducing welfare expenditures overall and saving tax dollars in the long run.

 

Patrick Ishmael Discusses the Future of Health Care on KWMU-St. Louis

Posted on by Patrick Ishmael

On Thursday, December 6, Show-Me Institute Director of Government Accountability Patrick Ishmael appeared on KWMU-St. Louis Radio’s St. Louis on the Air to discuss the future of health care in America.

In a wide-ranging discussion, Patrick and two other panelists—a physician and a former health insurance executive—debated the potential effects of increased government involvement and the constructive potential of the free market in health care policy.

To listen to the entire show, click here.

 

You Gotta Spend Money to… Spend Money?

Posted on by Patrick Tuohey

We’ve all heard the phrase, “you have to spend money to make money.” Thanks to some reporting by Brian Robbins and Jacob Kirn of the St. Louis Business Journal, we know that in Missouri we spend money just to spend money.

According to their November 29 piece, St. Louis and Kansas City spend a combined $99 million annually just in staff and overhead of various organizations to promote their respective regions. Not all of this is taxpayer money; some of it is from chambers of commerce, regional councils, and economic development corporations. But much of the effort probably results in publicly financed incentives such as abatements, tax-increment financing, tax credits, and the like. In short, we spend money to give away money.

For example, these were the organizations that put together the infamous taxpayer giveaways meant to lure the second Amazon headquarters to the Show-Me State. The bids were unsuccessful, but someone had to foot the bill for putting together the proposals.

To add insult to injury, Robbins and Kirn point to a study of economic growth in 200 U.S. cities by the Milken Institute. It shows that we appear to be getting little return on our investment. In the areas of job growth, wage growth, and high-tech GDP, St. Louis ranks 152nd, 142nd, and 99th, respectively. Kansas City does little better at 91st, 83rd and 96th, respectively.

Missouri needs to reform its tax credit and economic development incentive policies to make sure that over-eager cities aren’t handicapping themselves with expensive and apparently fruitless efforts. We’re spending money just to spend money, and we have little to show for it.

Private Schools and the Making of Americans

Posted on by James V. Shuls

There is a strange notion going around that public schools are the only place, or the best place, to inculcate students with the values of citizenship. David Labaree, a professor in Stanford’s School of Education, made this claim recently in his piece, Public Schools for Private Gain: The Declining American Commitment to Serving the Public Good. By his assessment, citizens are made by bringing children together in public schools; and by this very act of congregating together, we somehow teach children what it means to be an American. As Labaree puts it in his description of the 19th-century common-school movement that laid the foundation for our modern public education system, “The key characteristic of the new common school was not its curriculum or pedagogy but its commonality.”

That simply is not the case.

In his 1953 book, “Educational Wastelands,” Arthur Bestor, an advocate for strong liberal arts education in public schools, argued:

The school is not creating a democratic structure of intellectual life merely by gathering all the nation’s children within its walls. It becomes an agency of true democratization only if it sends them forth with knowledge, cultural appreciation, and disciplined intellectual power—with the qualities, in other words, that have always distinguished educated men from uneducated ones.

Bestor’s argument is that what we teach in schools matters more than simply gathering children together.

I was reminded of Bestor’s comment as I watched the children of The Classical Academy de Lafayette (including my own) on KSDK News. The school was featured because the students memorized the Gettysburg Address last month in commemoration of the 155th anniversary of Lincoln’s speech. You can watch the full video of the students reciting the Gettysburg Address here.

Listen to the words of the address and listen to the comments by Katy McKinney, the school’s director. I think you will see that it is quite possible for any school, even a private school, to instill a virtuous character in students and to teach them what it means to be a citizen.

There are many arguments against school choice, but it is time we put this one to bed. We do not need enforced conformity to teach students what it means to be an American. 

Medicaid Is Stifling Economic Growth in Missouri

Posted on by Elias Tsapelas

Stop me if you’ve heard this one before: Medicaid costs in Missouri are expected to increase drastically again next year. This yearly refrain will continue again into State Fiscal Year (SFY) 2020, as indicated by the recently released state department requests for next year’s budget. The exploding cost of Medicaid is something my colleagues have written about extensively, especially since the passage of Obamacare in 2010. The scale and importance of the program for our state’s fiscal health certainly warrants continued attention.

Medicaid is the most expensive program the State of Missouri administers, and the share of the budget that the program occupies only continues to grow. In SFY 2000, Missouri spent 18.4 percent of its budget on the Medicaid program. For this year’s SFY2019 budget, Missouri will spend more than 37 percent. These totals include federal and other funds, but the impact on state General Revenue doesn’t look any better.

The state’s General Revenue is funded mostly by individual income and sales tax collections. Each year, Missouri’s budget is put together based on an agreed-upon assumption of how much the revenue collections will change for the year. When a single state program grows rapidly, it prevents lawmakers from allocating funds to other worthy public policy priorities when the economic outlook is good, and it also limits options for response when there is a downturn.

To understand Medicaid’s effect on the budget, consider this: In the ten years between SFY 2008 and SFY 2018, state General Revenue collections increased by $1,464.7 million (or 18.3 percent). In that same time period, the General Revenue cost of Medicaid increased by $770.3 million. So in effect, over the past decade nearly 53% of all tax revenue growth in Missouri has been consumed by the growth in cost of the Medicaid program.

Sadly, it looks as if this story will continue into SFY 2020. According to the department requests submitted by the MO HealthNet Division of the Department of Social Services, the Medicaid program is expected to need an additional $302 million in General Revenue next year. What does such an increase mean?

First, note that the projected increase for next year ($302 million) is nearly 40 percent as large as the total increase from SFY 2008 to SFY 2018.

Second, even if the only cost increase Missouri had to worry about in its entire budget this year was for Medicaid, state revenue collections would still have to increase by 3.2 percent in order to keep up. And Missouri has only met or exceeded that rate in five of the previous ten years.

As next year’s legislative session approaches for Missouri’s policymakers, the continued growth of the state’s Medicaid program is certain to remain a major concern for our elected budget preparers. Current and future public spending priorities will have to be continually pushed aside until the program can be reformed and the costs controlled. With regard to the future of our state’s budget, Medicaid reform cannot come soon enough.

Medicaid budget graph

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