(Yet) Another Chapter in the Loop Trolley Bungle

Posted on by Graham Renz

The Loop Trolley appears stuck in an endless loop of delays.

It was recently announced that the opening of the over-budget historic streetcar line will be delayed yet again. This is, by our estimates, at least the fifth time the project’s opening has been delayed. Besides these delays, other snags have caught the project up along the way too.

The trolley line, which will run between University City Hall and the Missouri History Museum on Delmar Blvd and DeBaliviere Ave, was originally slated to begin operations in mid-2016. Since then, it’s been bailed out by taxpayers and private firms, threatened by the Federal Transit Administration, and under such financial strain it had to reduce its planned operating hours. It’s become increasingly hard to see the project as anything besides a policy and infrastructure disaster.

Whether you ultimately think the trolley will be a welcome addition to the Loop or just an eyesore and a money pit, all parties can agree the process of getting it up and running has been slow, painful, and embarrassing. This just doesn’t seem like how good policy is rolled out.

St. Louis, University City, County, and federal taxpayers deserve far better.

Are Sales Taxes to Fund Pre-K a Good Idea?

Posted on by Patrick Tuohey

Kansas City Mayor Sly James is working on a proposal for a sales tax increase to fund expanded pre-K education. Despite a real cost to taxpayers, few details have been provided about how the money will be spent. According to The Kansas City Star,

Details and key questions of the sales tax plan — how the money is distributed, who oversees and manages the program, how outcomes are measured — remain a work in progress.

While the details of the 3/8-cent sales tax plan remain unclear, so too are the benefits. My colleague Emily Stahly wrote in late 2016 that,

In Georgia and Oklahoma—states with universal pre-K programs—there is evidence that pre-K has reduced achievement gaps. The jury is still out in New York, which established universal pre-K only two years ago. Tennessee, on the other hand, implemented targeted pre-K for low-income children. Positive results were evident when these children entered kindergarten, but the benefits began to fade by first grade. By third grade, these students were performing worse than other students on statewide assessments.

One much-heralded study claiming big successes as a result of pre-K was perhaps oversold. Mike McShane wrote for National Review,

If you look at the table [page 8 of the study by Heckman et al.] that describes the cohort of students the authors studied, you see an initially recruited sample of 121 students. The actual “treatment” of center-based child care from ages zero to five had 53 participants in one of the two programs and 17 in the other, for a total sample of 70 students. It is a huge leap to argue that such an intensive, hothouse study of such a small sample is proof that such an intervention would work at scale.

Pre-K education makes intuitive sense, but actual research suggests that it isn’t as simple as funding a program and getting results. Sometimes it seems to work, and sometimes it doesn’t. Similarly, we agree that K–12 education is a good idea and yet recognize that not every district does a good job of offering it.

One promising aspect of the plan, according to the Star, is that the program may be set up to offer tuition assistance for families to choose their own program, including from among public and private providers. Giving decision-making power to parents will increase the likelihood that the Pre-K providers will need to produce results if they want to attract students.

In any case, there’s no need for a headlong leap of faith into a costly pre-K program. If Kansas City leaders want to once again increase an already-high sales tax rate, voters need much more detail and likely more time, to evaluate the proposal and its promise.

Michigan Repeals Prevailing Wage, and Missouri Should, Too

Posted on by Patrick Ishmael

Good policy doesn’t have to be complicated. That’s the lesson we should take from the way Michigan legislators took on their prevailing wage (sometimes called a “public construction minimum wage”) law. Here in Missouri, some action was taken in the 2018 legislative session to lightly modify Missouri’s version of it. But last week in Michigan, they showed us how it should be done, achieving an important victory for good governance and free markets by simply repealing the state’s prevailing wage law. 

With the legislative initiative process Gov. Rick Snyder, who supports the prevailing wage law, does not have to sign the measure. Instead, by meeting a signature threshold and being approved by both chambers, it becomes law immediately.
 
Rep. Lee Chatfield, R-Levering, said the measure eliminates a carve-out.
 
“The success of the United States of America was not made by a government mandate of a prevailing wage. The success of our state did not occur because we had a government mandate and a government carve-out,” he said.
 

Prevailing wage laws force taxpayers to spend more than they should have to on construction labor for public projects. In fact, the research on prevailing wage laws suggests they significantly inflate the cost of public construction projects. At best, the consequence is an inefficient use of taxpayer money. But in some cases, the increased cost is prohibitive, meaning that a potentially beneficial project never even gets started. That could mean putting needed improvements to public services, including schools, on an indefinite pause while additional funds are sought out. Creating special advantages or, as the Michigan legislator put it, “carve-outs,” for particular industries doesn’t just hurt taxpayers in the short term. It also causes long-term, compounding damage as services that might be necessary today are put off.

It was disappointing that in an otherwise successful session, the legislature failed to repeal Missouri’s prevailing wage. As I’ve said before, reconstituting how the wage is conjured is not the same thing as repeal, and yet that is mostly what the legislature passed in 2018. It is true that HB1729 may provide some relief to local governments by exempting projects below $75,000 from the prevailing wage, but that strikes me more as a way of preserving a bad system by reducing the number of communities damaged by it. Rather than being trimmed, the prevailing wage needs to be pulled out of the law, root and stem.

If Michigan (!) can do it, Missouri can, too. I hope repeal will be on the docket in 2019.

 

Charter Schools: The Education Opportunity Hidden in Plain Sight

Posted on by Susan Pendergrass

By next week, the Missouri State Board of Education should be up and running again. They’ve got plenty of business to attend to, including replacing the needlessly confusing Missouri school accountability system known as MSIP 5 with a new version, MSIP 6. Is there any reason to expect that the new model will be any better than the old one? Meanwhile, there’s growing support among parents for an education reform that actually works—charter schools—but that Missouri policymakers continue to fear.

As I noted in an earlier post, our scores on the National Assessment of Educational Progress (NAEP), considered to be the Nation’s Report Card, have been basically flat for over a decade. For all the changes made to standards and all the accountability efforts, including multiple iterations of MSIP, we’ve made little if any progress. The national scores don’t look much better. In 12 years, American 8th-grade students gained just 5 points in reading and 3 points in math, despite huge bets on No Child Left Behind and the Every Student Succeeds Act.

But what about charter schools? This year, the Missouri House Committee on Elementary and Secondary Education went so far as to suggest that we need a two-year task force to study these new, exotic schools to see if they’re working. No need. In 2005 there were fewer than 4,000 public charter schools serving about one million students. Now there are over 7,000 schools serving over 3 million students. And while traditional public schools in Missouri and across the U.S. were making no progress on the NAEP, the nation’s charter schools were making double-digit gains. This even though nearly one in three charter school students attends a school that has 75 percent or more low-income students, compared to less than one-quarter of students in traditional public schools. At this rate, charter schools will soon surpass the nation’s traditional public schools.

Unfortunately, we can’t see NAEP results for Missouri charter schools because here charters are used as punishment and are relegated to just two cities. What this means is that, unlike in most states, it’s not possible to create a sample of charter school students in Missouri that can be compared to a representative group of students across the state.

The charter model gives participating schools the autonomy to innovate but demands that those schools either produce results or close down. Accordingly, we should expect to see continuous improvement, as low-performing charter schools are closed and what has been learned is used to open newer ones that are stronger. And it seems to be working—at least where it’s allowed to.

Taxpayer Largesse Unnecessary, Wasteful in U City Development

Posted on by Graham Renz

University City officials seem far too eager to give away taxpayer dollars to developers who are hardly in need of a handout.

Developers and officials in University City are pushing for a $70.5 million subsidy to help fund a $190-million development at Olive Blvd. and Interstate 170. The project is slated to include a Costco, apartments, restaurants and retail space. The taxpayer money would come via tax-increment financing (TIF), which captures increased sales, property and other taxes generated by a development to cover some of its costs. In this case, taxpayers would cover nearly 40 percent of the project’s costs!

The controversial project has raised a number of concerns. Some worry about gentrification, neighborhood and cultural disruption and the possible use of eminent domain to force out longstanding businesses. These topics are serious and ought to be debated at the June 22 public hearing on the potential development. But a fundamental problem with the project deserves more attention: the fact TIF is unnecessary and fails to deliver on its proponents’ promises.

First, TIF was intended to encourage development in areas where no one wants to invest money, which hardly describes the area under consideration. The developer’s proposal cites (see pp. 6–10) conditions such as cracked sidewalks, overgrown grass and overflowing dumpsters as evidence that the area is “blighted.” These conditions, though less than ideal, surely don’t make development so unappealing as to require $70.5 million in taxpayer assistance. The area surrounds a busy interstate interchange and is flanked by Olivette, Ladue, and Clayton—there’s a reason current businesses don’t want to leave!

More importantly, proponents are promising the public higher property values, increased tax revenue for city services, and a bustling, inclusive neighborhood should the subsidy be approved, but decades of research shows these promises are rarely kept. It was just in 2016 that the City of St. Louis released a mammoth report detailing the near-total failure of its incentive programs. From 2000 to 2014, St. Louis lost out on more than $700 million in revenue because of TIF and related programs for naught. “[W]hile there may be disagreement about the value of some [incentive] packages,” the report concluded, “it is clear that the City gains no net benefit from an extremely costly program with no real economic development impact” (p. 6).

The study also failed to find a significant connection between TIF and job creation or increased property values outside parcels directly benefiting from subsidies. “[T]here is little evidence of significance [sic] spillover effects around incentivized parcels after the use of incentives. Across most project types,” the report continues, “there is no significant change in the trajectory of assessed value, permit investments or jobs” (p. 5). Economists from across the country have found almost exactly the same thing. In short, there is little evidence to support claims that handing out taxpayer cash will usher in an urban renaissance in University City, or anywhere else for that matter.

If officials and residents want to invest in University City’s third ward (where the proposed development would be located), there are other, more prudent ways to scratch cash together. Businesses and residents could form a community improvement district to collect property taxes—authorized by a public vote—to fund improvements. The “blight” designation assigned to the area as part of the TIF application would mean that those revenues could even be used to help fix up private residences. Before officials needlessly forego tens of millions in revenue over the next two decades, they owe it to University City residents to consider other options for improving the third ward.

A Fine First Step in the Right Direction for Special Taxing District Reform

Posted on by Graham Renz

For decades, Missourians have been paying hundreds of millions in special sales taxes they all too often had no clue about. Special taxing districts, like transportation development districts (TDD) and community improvement districts (CID), collect taxes to (mostly) subsidize private developments. While the laws authorizing these taxes have transparency provisions, they’re seldom enforced (or are toothless), so reliable data on TDDs and CIDs are hard to come by.

Thankfully, reforms are being passed and Missouri’s shadowy sales tax mosaic may soon come into view. HB 1858 was signed into law this past Friday. The law will require all political subdivisions (such as counties, cities, TDDs, and CIDs) to submit maps of their boundaries to the state Department of Revenue. The result will be a clear and concise presentation of the myriad sales tax jurisdictions littering our state. The map should be available by July 2019.

A map of all the jurisdictions collecting sales taxes may not sound like a big deal, but it is. While it’s easy to know what county or town you’re in, it hasn’t been so easy to figure out whether you’re shopping in one or more TDDs or CIDs. These districts are required to present maps of their boundaries only when petitioning to form, and so it is often nearly impossible to figure where they are exactly later down the road. They can also be as small as a single shopping center or district! In short, you could have been paying an extra two percent in sales taxes and had no way to find out where to shop to avoid it (other than an expensive sort of trial and error).

While HB 1858 is a win for taxpayers and transparency advocates, there is still a lot of work ahead of us. TDDs and CIDs continue to be used for projects with questionable public benefits, have poor reporting standards, and operate with little to no public scrutiny. Missouri taxpayers deserve accountable, transparent government for the public good, and it’s time to give it to them.

Kansas City Dodged the #HQ2 Bullet

Posted on by Patrick Tuohey

Richard Florida is an urban studies theorist who promoted the idea that the creative class would drive urban renewal and that smart cities should cater to them. He was wrong, and he admits it. But not before cities like Kansas City, Missouri jumped on board and spent “probably in excess of a billion” dollars trying to create a hipster paradise downtown.

More recently, Florida tweeted a warning to cities jockeying to play host to Amazon’s new headquarters. In responding to a Financial Times story on unpleasant working conditions in Amazon’s UK warehouses, Florida tweeted:

Psst HQ2 cities. You’re gonna subsidize this company to the tune of billions … Maybe think twice …

Florida is right. Amazon demanded lots of taxpayer subsidies from the cities lining up to woo them, including Kansas City. Show-Me Institute researchers have been warning cities about such subsidies for years, but I wonder if Florida offered this same warning to Kansas City, as the area development council paid him to assist on the Amazon bid.

Mercatus Study Affirms SMI Tax Credit Suggestion from 2012

Posted on by Patrick Ishmael

Six years ago, Michael Rathbone and I coauthored a paper that looked at Missouri’s corporate income tax, assessed its problems and posited a way of eliminating it through tax credit reform. As we said at the time, 

Missouri issued more than $400 million in development tax credits in 2012 alone. That is a lot of wealth transference.
 
Yet the magnitude of Missouri’s tax credit problem brings with it a great opportunity. Missouri’s CIT recently has generated slightly more than $300 million per year for the state—nearly equivalent to what development tax credits cost Missouri each year. In a sense, the CIT could be seen as underwriting the state’s tax credit largesse, but as has been described before, both the CIT and these tax credits tend to hurt economic prosperity. It is a growth-busting double whammy.
 
Observing that tax credit spending exceeded corporate income tax revenue, we noted that “the CIT can likely be extinguished without raising other taxes or forcing any cuts to services.”
 
Enter our colleagues from Mercatus, who released a report this week on tax incentives nationally and their impact on state tax policies (emphasis mine):
 
Several states, including Missouri and New York, could reduce their corporate tax rates by more than 90 percent if policymakers eliminated corporate incentives. Michigan, Nebraska, and Oklahoma could completely eliminate corporate taxation and still have room for cuts in other taxes if they eliminated all corporate incentives.
 
Tax credit spending and corporate income tax revenues vary year-to-year, but the picture is the same; if legislators abandoned corporate tax incentives, they could effectively eliminate the corporate income tax. Mercatus’s verification of this circumstance in Missouri is gratifying. You can find some of the underlying data used in their analysis here.
 
Missouri’s decision this year to reform its corporate income tax and reduce it to 4% is certainly welcome. That said, the ultimate target should be the elimination of the tax entirely. It hurts growth. It hurts the state. But ultimately, it hurts people. It’s time to move past it.
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