On Thursday, February 8, the Show-Me Institute’s Patrick Tuohey appeared on KCPT’s Ruckus to discuss Kansas City’s $1.5 billion dollar debt and $811 million employee pension fund shortage, the Greitens tax plan and other big news stories of the week.
Map: Missouri State Government Spending in FY2017
Last month the Show-Me Institute published an extensive dataset of state spending from the Office of Administration, stretching back to FY2000 and through FY2017. You can find the spreadsheets, broken down by quarter, here. Given the success of the Municipal Checkbook’s app, we decided to render one for the state for the past fiscal year. You can find it below.
Users can scroll through the vendors with whom the state did much of its spending, zoom in on a map of vendors to see who does a lot of business with the state in your neighborhood, and look at spending and transaction patterns between the state and vendors over the course of the year.
Have a thought or suggestion about future visualizations? Leave a comment below. And be sure to give the app a minute to load; after all, it’s processing over a million transactions.
A Streetcar Undesired
As Omahans consider spending hundreds of millions of dollars for a streetcar system, proponents point to Kansas City as an example of a successful system. But the claims about Kansas City’s success are grossly overstated, and voters reject the system almost every time they are given a chance. I hope Omaha can learn from our misadventure.
It is noteworthy that in the age of driverless cars, some want to look backward to the inflexible fixed-rail technology of the 19th century. In Kansas City, when we get icy weather, the streetcar system is shut down and replaced with buses. And when even a single streetcar is involved in an accident or breaks down, the whole system is shut down. Streetcars cannot reroute themselves; they cannot drive around an accident. As neighborhoods grow over time, fixed rail routes cannot shift as demand shifts. Streetcars are literally and figuratively stuck in a rut. And on top of this, streetcars cause traffic congestion because they are so large and slow moving. Streetcars also fail to remove cars from the road. Research shows that streetcars really just move people away from buses, not out of their cars.
Because streetcars are such an inefficient and expensive transit option, proponents instead point to the economic development they purportedly create. Every new development is met with satisfied nods as evidence of the streetcar’s success. The research around the country and our experience in Kansas City tell another story. It’s not the streetcar that drives development, but all the taxpayer money handed out to encourage construction along the route. Abatements, cash handouts, tax credits and tax increment finance subsidies litter the streetcar route here.
On top of the subsidies, there’s the price tag on the streetcar itself. The cost of a streetcar is many times the cost of simply adding a new bus route. It is almost humorous that Kansas City raised taxes to fund a large portion of the approximately $110 million cost for 2.2 miles of track, then lowered taxes for developers to entice them to invest along the route. Imagine what would have happened if the city had skipped the streetcar and instead lowered taxes for everyone!
Omahans should be aware that Kansas City voters have been rejecting streetcars for decades. Due to an odd artifact of Missouri law, small groups of citizens can create transportation development districts and tax themselves. As a result, fewer than 400 votes cast in the district committed all of Kansas City to supporting a $110 million project. In response, activists circulated a petition requiring a city-wide vote before the Council could spend any tax money on streetcars. The petition collected the necessary number of signatures, was verified, and was passed by a vote of the people in August. But our Council declared the petition unlawful and appropriated more funds to the streetcar anyway.
Before the Obama Administration, few if any federal funds were available for streetcars. Since then, however, the spigots have been flowing—and the result has been a boom in streetcar spending in cities across the country. In several cases the percentage of people who use transit in those very cities has actually dropped.
Streetcars do look fun, however. One pundit in Kansas City refers to ours as a party bus. It’s free to ride, looks sleek, and is something new on the street. But it doesn’t help the city grow or efficiently move people where they want to go. It requires a lot of money to build and operate and requires even more subsidies along the route to create the illusion of economic growth. In Kansas City, the few (if any) benefits of a streetcar have not been worth the significant cost. Omaha taxpayers should be wary.
Solutions for Missouri’s Transportation Infrastructure
Missouri’s transportation system is critical to the state’s economy, but the Missouri Department of Transportation (MoDOT) says it doesn’t have the funds needed to maintain the state highway system in the near future. With many Missouri roads and highways needing to be repaired or rebuilt, the state will have to make some tough decisions. Learn more about transportation infrastructure solutions in our 2018 Missouri Blueprint.
Crosby Kemper III Appears on KCPT’s Ruckus
The Show-Me Institute’s Chairman Crosby Kemper III appeared on KCPT’s Ruckus on February 1 to recap the events of the week including Mike Sanders pleading guilty to wire fraud charges, Jeff Colyer taking over as Kansas Governor and President Trump’s first State of the Union.
Missouri Needs Criminal Justice Reform-and Fast
Incarceration rates are on the rise in Missouri, and with a larger prison population come growing costs for the state. According to the Missouri State Justice Reinvestment Task Force, if current incarceration trends continue, Missouri will have to build two brand new prisons in the next few years. The price tag to build and operate two new facilities will be $485 million over the next five years. To put that amount in perspective, the entire budget for the Department of Corrections was $725 million for 2018.
If Missouri can reduce growth in the cost of our criminal justice system through responsible reform, shouldn’t we do it? Governor Greitens’s proposed budget for FY2019 includes some of the recommendations from the task force, such as treatment courts and community-based treatment programs, but much was left out. With Missouri taxpayers staring at such a large bill, additional reforms deserve serious consideration.
Reform objectives fall within three broader categories: reducing violent crime, reducing treatment-related admissions, and reducing recidivism. Addressing each of these areas could help slow the growth of our prison population.
Let’s take a closer look at what the task force has proposed:
- Reducing Violent Crime in Our Communities by giving more state support to local police departments, providing more support for victims, updating technology systems, and providing incentives for county jails to reserve limited jail space for dangerous offenders
- Reducing Mental Health and Substance Abuse Treatment-Related Admissions by improving current treatment programs in prison, improving community-based treatment options, strengthening community supervision centers, and expanding behavioral health services
- Reducing Recidivism and Readmission to Prison by amending supervision practices to reduce revocations, better preparing people leaving prison, providing proper training on risk assessment and correctional practices for staff, and supporting treatment courts
The total cost of these reforms is estimated at $189 million over the next five years—about $300 million less than the cost of building two more prisons.
With our prisons already over capacity, we need to begin thinking about reform immediately. Lawmakers have introduced criminal justice reform bills that include “Raise the Age” (requiring 17-year-olds to be tried as juveniles), mandatory minimum sentencing reform, and changes to state reimbursements to county jails. Nevertheless, additional reforms will likely be needed in order to control, let alone reduce, our prison population in the coming years.
When faced with similar circumstances in Texas—spend $2 billion on new prisons or curb incarceration rates—the legislature decided to invest $241 million in reforms instead. Now Texas is closing facilities that are no longer needed, and crime rates fell 26 percent between 2007 and 2014. With a bit more urgency, perhaps Missouri can also protect taxpayers while at the same time making our communities safer.
Show-Me Institute Rolls out Municipal Checkbook Project
Missouri residents should be able to tell how their cities are spending their tax dollars—to make sure public officials are being good stewards of public resources. The Show-Me Institute’s Municipal Checkbook Project was started to show taxpayers how cities spend money—and who they do business with—so we can decide for ourselves if our cities are operated in a fiscally responsible manner.
Beginning last summer, researchers at the Institute sent sunshine requests to cities throughout Missouri asking for each city’s expenditure records for the last five years. So what is the cost for this kind of transparency? Well, if you live in Battlefield, you would have to cough up $35,101.60 for research, paper copies, and mailing costs. On the other hand, if you live in Salem or Palmyra, you wouldn’t be charged at all for this information.
So why is there this huge discrepancy? It is because the law does not require cities to keep their records in any specific format. Some cities keep their expenditure records electronically, which makes it easy and cheap to produce them upon request. Others keep only paper copies, which means city workers have to spend time looking for information and either scan or mail the relevant documents.
The interactive municipal checkbook database is a tool for taxpayers to use to research their city’s spending. Cities that do not maintain their records in electronically accessible formats will not be available. When a city provides information that is downloadable, the city will be be added to the database. We hope that someday, as a matter of routine, all cities will release this information online and in a format that is taxpayer friendly. If the government can spend your money, shouldn’t you be able to see how?
The Downtown Council’s Fuzzy Math
On Friday, Kansas City’s Downtown Council hosted its annual luncheon, titled “Downtown K.C. Smart City? Or The Smartest City?” If that makes you think the Council is more interested in boosterism than sound analysis, its “State of Downtown” report won’t make you feel any better. The whole report appears to hinge on creative interpretation and presentation of data.
For starters, the report refers to “greater downtown” Kansas City, which extends as far south as 33rd Street and includes the campus of Penn Valley Community College, two miles away from the Sprint Center. That may be a defensible standard, but I’m guessing it doesn’t fit with most Kansas Citians’ understanding. The photo above is of the KC skyline from a point within the area considered “greater downtown.”
The Downtown Council also released a chart of downtown population growth with projections for future growth, and the outlook is decidedly positive. But if you examine the x axis, you’ll see that 1990 is as far from 2000 as 2019 is from 2020. This scale makes for a misleading presentation of the data.
We took the exact same data points and spaced them more evenly on a time series chart. What you see is largely flat growth from 1990 through 2016. Then the population projection lines rocket upward. The report concedes that this is “unprecedented growth,” but does little to explain exactly why the next few years will be so radically different than the past few decades.
Is it credible that between 2010 and 2020, “greater downtown” Kansas City will see a 46% population growth? For some context, researchers at the University of Virginia project that Kansas and Missouri are only supposed to see a population growth of 4 percent and 3 percent, respectively, in the same time period.
The Downtown Council offers questionable analysis when it discusses which generations choose to live downtown. The text of the report states:
At 41%, Greater Downtown Kansas City has the highest percent of millennials in our community. As you move farther away from downtown, the percentage drops to 26% for Kansas City, MO and 22% for the regional MSA.
The report goes on to tell us:
The data demonstrates that the living, location, and employment patterns of millennials is generally consistent across the country. They are choosing downtown for all their needs.
The report seems to say that because 41 percent of greater downtown residents are millennials that 41percent of millennials live in the greater downtown area. In fact, millennials are not “choosing downtown for all their needs.” Looking at the same 2016 ACS Census data and breaking it down by age group instead of by region, we learn that there are 548,588 millennials (aged 15 to 34) in the Kansas City MO-KS regional MSA. Just over 140,000 live in the city of Kansas City, MO, and according to the Downtown Council, 9,388 live in the “greater downtown.” This means that 74 percent of millennials reside in the region outside Kansas City, MO; 24 percent live inside Kansas City, MO but outside the greater downtown area; and 2 percent live downtown. In other words, downtown may have a large percentage of millennials, but among millennials themselves, only a tiny fraction live downtown.
Everyone wants Kansas City to do well, and promoting a city requires sound policy that rests on solid research. The “State of Downtown” report seems to provide neither. In fact, by presenting population projections wildly at odds with both recent history and state trends, and by overlooking where millennials chose to live, this report appears to deliver little more than mere boosterism.
Tax Reform and Tax Hypocrisy
Conservatives have long argued that taxes matter. Sure, they matter, progressives have countered – if all you care about is making the rich richer and doing nothing to help working people.
Witness an incredible turn of events:
We now hear the proudly progressive governors of California and New York howling in outrage at the removal of a substantial tax break for those at the highest level of income – the top 10 percent, and, especially, the top one percent.
Under the Tax Cut and Jobs Act that went into effect on Jan. 1, taxpayers may no longer count all of their state and local income tax payments, plus property taxes, as deductible expenses on their federal returns. The new law caps the deductibility of these state and local taxes (the so-called SALT deduction) at $10,000 per taxpayer. What follows is a rough calculation of how the cap will impact people at several different levels of income (focusing only on California, where local income taxes are not as important a factor as they are in New York, and disregarding property taxes).
Based on California income tax tables, a couple earning $150,000 in 2018 will owe $8,797 to the state of California – with the consolation of knowing that every cent will be deductible. The couple will save about $2,000 on their federal return.
A tipping point occurs at $164,000 in adjusted gross income. Exceeding that, a California couple filing jointly runs out of cap room and gets no further benefit from the SALT deduction.
The top one percent in California starts at about $500,000, according to the latest available data from the Internal Revenue Service. With that income, an entry-level couple in the one percent club will owe $41,347 to the state. Since all but $10,000 of the state tax is nondeductible under the new law, it has the effect of bumping up the adjusted gross income on their federal return by $31,347. Applying the top federal rate of 37 percent to that sum, the couple will owe an additional $11,598 to Uncle Sam.
The average income for families in the top one percent in California is $1.6 million, or more than three times the starting income. So how does the “average” ultra-rich family fare under the new tax regime? In 2018 it will owe $165,072 to the state – with a whopping $155,072 no longer counting as a deductible expense. Consequently, the family will take a hit of a little more than $57,000 in what it owes to Uncle Sam.
In a nutshell, the top one percent of filers in California are about to lose a huge tax break. No longer will they be able to reap one dollar in federal tax savings for every three or four dollars going to the state government.
No wonder the governors of the two states are worried. At 13.3 percent, California has the highest marginal income tax rate of all the states. New York State’s top rate is 8.82 percent, and that jumps to 12.7 percent in New York City. Each state garners nearly 50 percent of its total income tax revenues from the top one percent of earners.
Who has compensated for the outsized deductions that the highly paid denizens of Hollywood, Silicon Valley, and Wall Street have been able to claim on their federal returns due to exceptionally high state and local taxes?
Taxpayers in low-tax states and less affluent regions have done so. In the process, they have helped to subsidize the growth in public spending that has occurred in Sacramento, Albany, and New York City.
The situation will soon change. In early 2019, when people file their local, state, and federal tax returns for the 2018 tax year, the cross-subsidies, of a reverse Robin Hood nature, will largely disappear.
At the same time, taxpayers outside the top ten percent of filers will appreciate the positive impact of a near doubling in the standard deduction – to $12,000 for individuals and to $24,000 for couples. According to the nonpartisan Tax Foundation in Washington, D.C., a married couple with two children and a combined adjusted income of $85,000 will reap a $2,254 tax savings in 2018 as a result of provisions in the new law.
So, what about the vociferous complaints coming from progressives, who say that the new law only serves to make the rich richer and does nothing to help working people?
But the tax tables tell an entirely different story.
