New Year’s Resolutions for DESE

Posted on by Susan Pendergrass

The holidays are upon us, and now that we have a quorum on the state board of education and a commissioner it’s time to think about what Missouri students and parents should expect from the Department of Elementary and Secondary Education (DESE). This isn’t so much a wish list as a set of objectives that should be met if we are going to improve public education in Missouri.

There are four primary areas that DESE needs to address.

  1. Implementing the Missouri Course Access Program (MOCAP)  Last year the Missouri legislature passed, and the Governor signed, a state law granting all Missouri students access to classes in the MOCAP online program. MOCAP is a step toward providing students with expanded opportunities. Through MOCAP, students can take courses online that their own schools may not offer, such as advanced placement or foreign language classes. The law also allows a student to choose to take their full course load through MOCAP. DESE is responsible for implementing MOCAP. This entails (1) making sure that districts notify parents that they can access the program; (2) ensuring that each district has a link to the program on the home page of its website; and (3) maintaining a fully functional MOCAP website a complete approved course catalog and registration information.
  2. Providing accurate, timely and user-friendly information on school performance  Under the federal Every Student Succeeds Act (ESSA), DESE is required to prepare and widely disseminate an annual report card for each school. The law requires that the report cards be developed with parent input and be easily accessible and understandable by parents. DESE continues to use the Annual Performance Report (APR) to determine accreditation status, but the APR is difficult to interpret and is a poor gauge of student learning. Under the APR system, nearly 99 percent of Missouri school districts were fully accredited by DESE in 2017, making it impossible to determine which schools are doing well and which are doing poorly. Individual school reports are available on DESE’s website, but they are difficult to locate and they don’t contain the full suite of information required. I hope that by December 31 DESE posts accurate, user-friendly report cards that include school-level performance data for 2017–18—as required by law—and I’m curious to find out how they will put these in the hands of every parent.
  3. Making school finance data transparent and accessible  House Bill 1606, passed and signed last year, requires Missouri school districts to post their financial data online in a searchable format. Additionally, federal legislation requires DESE to submit school-level finance data to the U.S. Department of Education. DESE needs to make sure that these obligations are met in good faith and to the full extent of the law. Taxpayers should be able to easily determine how schools spend their money.
  4. Adopting a high-quality accountability system that can be used for a longer time period  DESE should adopt a high-quality tool for assessing student progress, use it consistently, and return results in a timely manner. It has been difficult to see how schools are performing over time because DESE has changed the standardized tests every few years, making it nearly impossible to see whether schools are improving or regressing. Missouri’s most recently adopted accountability plan, submitted to the U.S. Department of Education under ESSA, was given low to mediocre marks by an independent review panel. DESE has an opportunity to get this right.

I have recently expressed my concerns over the State Board’s decision to rehire the former commissioner of education rather than embark on a national search for one who could launch us in a new direction.  Under the commissioner’s prior tenure, DESE was hardly an innovator for real reform. That could certainly change, and I hope it does.

This list is not an ambitious one. One of DESE’s most basic jobs is to generate, collect, and provide data to parents, students, teachers, administrators, policymakers and taxpayers. I simply expect DESE to do that job well.

Is Missouri’s Business Tax Climate Competitive?

Posted on by Elias Tsapelas

How do Missouri’s business taxes stack up against those of our neighbors? According to the 2019 State Business Tax Climate Index by the Tax Foundation, Missouri’s tax climate is more favorable than those of all its neighboring states. Missouri’s nationwide ranking improved by one place from the previous year (from 15th to 14th), passing Tennessee for the first time. However, in many respects the Index paints an incomplete picture.

The Tax Foundation’s rankings are a composite based on each state’s corporate, individual income, sales, property, and unemployment insurance taxes. Missouri ranks in the top ten for three of the taxes (corporate, unemployment insurance, and property), but 25th for the remaining two (individual income and sales).

Despite the generally favorable ranking of Missouri’s tax climate from the Tax Foundation, the state’s economic growth continues to lag. In 2017, Missouri was ranked 37th among states with a paltry 1.1 percent real Gross State Product (GSP) growth rate, while the average growth over the previous ten years is even worse at only 0.48 percent. The tax climate is certainly not the only contributor to economic growth, but the difference in state rankings raises the question of whether the Tax Foundation’s index may be missing something.

To evaluate the applicability of the ranking results to Missouri, it is helpful to consider what makes a business climate attractive to new businesses, and whether the index attempted to capture those criteria. Studies show the main determinants of business climate are the tax and regulatory burdens each business must bear. From the outset, the Tax Foundation index does not measure regulatory burden, and also excludes most local taxes from their calculations. If the Index is missing several important components, should the state’s Department of Economic Development be touting the results?

The Tax Foundation’s rankings offer valuable information about Missouri’s business tax climate, but should not necessarily be the basis for future policymaking. If lawmakers are serious about improving Missouri’s business climate, reducing the regulatory burden and reforming local taxes should be part of the discussion.

A New Internet Sales Tax? Only if It’s Revenue-neutral

Posted on by Patrick Ishmael

As we head into the holidays, many of us are already thinking of the gifts we’ll be giving and receiving. We might even give ourselves a gift! But very few of us would ever give ourselves a gift with someone else’s money, for this holiday or any other. That would be impolite (and probably illegal). Unfortunately, some in Jefferson City are already musing about whether the government will give itself the gift of more of your tax money in the new year—thanks to a proposed Internet sales tax.

The issue here isn’t really the tax itself. Researchers at the Show-Me Institute have long-supported low tax rates with a broad base, and sales taxes are less destructive to growth than income taxes. But as the sales tax base broadens, another tax should contract to ensure the government isn’t growing and treating taxpayers like a piggybank. In fact, the tax reform bill passed earlier this year originally included a provision that would have created an Internet sales tax in the state, but also simultaneously reduced state income taxes. That revenue-neutral approach is not just good governance—it is good policy that shifts the state’s reliance away from growth-destroying income taxes.

More to the point, that revenue-neutral approach to the Internet sales tax nearly became law last year, and I support it becoming law this year. But if lawmakers want to create the tax and gift the revenues back to growing government spending, that will be a non-starter for supporters of small, responsible government and free-market policies.

Sorry, Non-KC Residents . . . The Star Doesn’t Care for Your Opinion

Posted on by Patrick Ishmael

It should be no surprise that people living outside the city limits of Kansas City and St. Louis are interested in what happens in those cities and the ways in which urban policies affect regional prosperity. To take one obvious example, thousands of people who work but don’t live in these cities are directly affected by the earnings taxes they pay. Their opinions matter, too.

That’s why I was startled at the tone of yesterday’s Kansas City Star editorial. The piece targets an individual lawmaker, but it sketches out a remarkably shallow framework for attacking critics of the earnings tax now that its repeal will likely be considered in the next few months. The editorial board can do better, and the Star’s readers—Kansas City residents, suburbanites and exurbanites alike—deserve better.

First, the board’s dismissal of the concerns of residents and lawmakers from “little” Missouri towns—on the grounds that only those who live within the boundaries of one of the cities should have a say in the earnings tax debate—doesn’t hold up to scrutiny. After all, some of the Star’s own executive staff don’t even live in the same state as the earnings taxes in question. If the standard for valid earnings tax opinions is residency, then the Star would be forced to dismiss its own opinion. The board should consider a better limiting principle for who can join the debate if it wants to remain a part of it.

Second, the Star’s sudden appreciation for local decision-making could well strike long-time readers as curious at best. Where was this zeal for local control as the federal government has issued sweeping mandates in education and health care? I could write a whole blog about the difference in the relationship between the federal government and states (sovereigns) and the relationship between states and the cities within them (subdivisions), but it isn’t clear to me whether The Star’s local-government argument here is being made seriously or instead is being offered as a tu quoque to supporters of small government.

Third, as St. Louis City particularly shows, when the hub of a metropolitan area fails, the region flounders, too. The Star says, in short, that the rest of the state should mind its own business regarding the earnings tax—but arguing that my next-door neighbor’s house fire shouldn’t concern me until my own house bursts into flames is the kind of nonsense that has scorched the economic prospects of the St. Louis region for decades. The Star doesn’t constrain its own commentary to matters directly related to Kansas City, Missouri; that it would attempt to delegitimize the opinions of others on the earnings tax question runs precisely counter to what the newspaper should be about.

Lastly, the complaint that a Senator’s proposed legislation is effectively invalid because the impact would be felt outside his district is an objection that would apply to nearly all statewide legislation. I don’t recall the Star objecting on those grounds to proposals by Kansas City politicians for tax increases, health care impositions, or other legislative measures that would affect locales other than (or in addition to) Kansas City.

Show-Me Institute writers have shared a fairly consistent opinion on earnings taxes for well over a decade from our offices in both St. Louis and Kansas City. We have opposed them, for the same reason we have been consistently skeptical of the state’s income tax: Both taxes hurt economic growth and, ultimately, hurt people. The earnings taxes imposed by Kansas City and St. Louis are especially pernicious and regressive because in contrast to the state’s income tax, the earnings taxes attach to earnings at dollar one, meaning the impact on the poor is especially pronounced.

Kansas City’s political class is on the wrong side of history in trying to prop up the earnings tax, not only because it will eventually go away, but because as policy and as a moral matter, it needs to go away.

So yes, people living outside of Kansas City and St. Louis can and do have an interest in how those cities’ policies impact their regions’, and the state’s, prosperity. Rather than resort to ad hominem attacks, the Star would do well to focus on the argument and the policies involved and explain to readers why, unlike thousands of cities across the country, Kansas City and St. Louis couldn’t survive without an earnings tax.

2018: A Bad Year for Government-failure Deniers

Posted on by Andrew B. Wilson

Are you a government-failure denier – someone who believes that the government that governs best is one that overflows with good intentions, regardless of the cost? Are you someone who thinks a lot about “market failures” and never stops to think about government failures?

Well, my friend, if you are, I have to admit: You had a couple of modest “wins” in 2018. Here in Missouri, free-market thinking took it on the chin in two ballot initiatives. On Aug. 7, by an overwhelming majority, Missourians voted to kill a right-to-work law passed by the Missouri Legislature in 2017. Then on Nov. 6, Missouri voters passed another ballot initiative boosting the state’s minimum wage from today’s $7.85 to $12 by 2023.

Compared with other news, however, those victories by deep-pocketed trade union groups and their co-dependent, big-government allies were small beer. The year’s big story was the striking success at the national level of free-market policies in driving faster growth and widely shared prosperity for all groups of people. For two years, the federal government has been lifting the burden of regulations and taxes on businesses and consumers alike. The dynamism of American capitalism has done the rest.

Recent GDP growth has been close to 4 percent – or about double the rate sustained over the eight years of the prior administration. Suddenly, there are more job openings than people seeking work. That, in turn, has led to higher pay for people at all income levels.

On Oct 2, Amazon CEO Jeff Bezos announced that he was raising his company’s internal minimum wage for warehouse and other unskilled workers to $15 an hour. This led to mutual back-slapping between Bernie Sanders and Bezos. The self-declared socialist complimented the world’s richest man on “doing the right thing,” and Bezos responded with self-congratulations, saying he hoped that other companies would follow his lead.

But guess what? He wasn’t leading. The U.S. Labor Department recently reported that wages for nonsupervisory warehouse employees had risen 4.6 percent from a year earlier, to $17.87 an hour. That’s almost $3 an hour more than the wage set by Amazon’s act of supposed enlightenment. Faced with the demands of an expanding economy and a tight labor market, companies did what they had to do – they raised wages to poach workers or keep the ones they have. So it wasn’t Mr. Bezos who deserved the compliment, but the unimpeded operation of the free market.

If you look around the country and the world, you see people everywhere who are fed up with the cluelessness of wealthy and long-established political elites who continue to pursue highly questionable policy objectives regardless of the cost in higher taxes, reduced paychecks, and lost economic growth. We are witnessing what the Wall Street Journal calls a “Global Carbon Tax Revolt,” with ordinary people rising up in protest against fuel-tax hikes and costly climate-change initiatives aimed at boosting unreliable renewable power. That has happened with the violent “Yellow Vest” protests in Paris and many rural areas that have rocked the presidency of France’s Emmanuel Macron. Other hot spots in the same revolt by taxpayers opposed to sacrificing growth on the altar of environmental piety include Germany and Canada, along with the states of Arizona, California, and Washington.

In sum, 2018 was a bad year for government-failure deniers. It was a much better year for those who believe in the unrivaled power of free markets to create and spread wealth and to promote greater individual freedom, responsibility, and creativity. But 2018 wasn’t all roses either, with rising fears of a global trade war sparked by retaliatory tariffs.

Tariffs are another tax – a tax on commerce. Of course, the more you tax something, the less you get of it. Missouri is a soybean basket to the world. Our state can ill afford a major disruption in world commerce. Neither can the nation. Looking ahead to 2019, let us hope that the substantial economic gains made in 2018 are not jeopardized or lost through the folly of managed (or mismanaged) trade policy.

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.

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