2018 Blueprint: Economic Development Subsidies

Posted on by Patrick Tuohey

THE PROBLEM: Excessive use of economic development subsidies has diverted much-needed tax revenue to developers and away from schools and other public services. In the past 15 years, Saint Louis City alone has distributed $709 million originally intended for municipal services to developers via tax increment financing (TIF) and tax abatement. Studies from across the country indicate that these subsidies fail to generate promised jobs and growth.

For a project to qualify for some subsidies, the city must declare a parcel of land “blighted,” but the standards for doing so are very low—developers can qualify for subsidies for undeveloped fields or for buildings that are merely vacant. Under the current definition even the governor’s mansion could be blighted!

THE SOLUTION: Economic development reform.

The legal definition of blight should be narrowed to ensure that only truly needy projects would qualify. Other reforms that would help rein in these giveaways include moving TIF decision-making to the county level, providing greater voices for other impacted taxing jurisdictions such as schools, and capping subsidies.

WHO ELSE DOES IT? Various TIF and economic development reform efforts are underway in other states. California, which pioneered TIF in 1952, ended the existing program in 2012 due to the cost.

THE OPPORTUNITY: Focusing state law on addressing actual blight and doing so in communities suffering from high unemployment and poverty will go a long way in making sure that public policy addresses real needs and doesn’t just reward the politically well connected.

KEY POINTS

  • TIF projects active in Missouri have collected almost $2.5 billion since their inception and do not deliver their promised benefits.
  • Many subsidies are not used in the economically depressed areas they were designed to assist. In Saint Louis, less than 25% of TIF spending occurs in the poorer half of the city.

SHOW-ME INSTITUTE RESOURCES

Policy Study: Does Tax-Increment Financing Pass the But-For Test in Missouri?

Policy Study: Tax-Increment Financing and Missouri: an Overview

 

For a printable version of this article, click on the link below. You can also view the entire 2018 Missouri Blueprint online.

2018 Blueprint: Education Savings Accounts

Posted on by Michael Q. McShane

THE PROBLEM: Missouri students are underperforming. On the 2015 NAEP exam, only 31% of Missouri 8th-graders were found proficient in math and only 36% were found proficient in English. For the Class of 2016, only 22% of Missouri ACT test-takers scored “college-ready” in all four tested subjects. Many students from poor or middle-class families are trapped in failing schools because of where they live and have no opportunity to pursue a better education.

THE SOLUTION: Tax credit–funded education savings accounts.

Education savings accounts (ESAs) are flexible-use savings accounts used solely for education purposes. Individuals or corporations would donate to organizations that manage these accounts, and families could use the funds to purchase school supplies, tutoring services, or even private school tuition.

WHO ELSE DOES IT: Six states have ESA programs, and 17 states have tax credit–funded scholarships.

THE OPPORTUNITY: Missouri is one of the last states without some kind of private school choice program. It does, however, have a large stock of private schools, and through the Missouri Virtual Instruction Program we have a vetted set of online courses that are ready for Missouri students to use. The supply is waiting; we just need to connect it to the demand.

KEY POINTS

  • Many Missouri students are not being prepared for success.
  • As educational options for students expand, parents should have the flexibility to customize their children’s education.
  • ESAs are popular. According to polling by the education organization EdChoice, 49% of Americans support ESAs, and only 27% oppose them.
  • ESAs have the potential to save both the state and school districts money.

SHOW-ME INSTITUTE RESOURCES

Essay: Estimating the Fiscal Impact of a Tax-Credit Scholarship Program

Blog Post: ESAs Can Help Missouri Students with Dyslexia

Blog Post: Empowerment Scholarship Accounts Would Be a Boon to Missourians

Video: ESAs Empower Families in Arizona

 

For a printable version of this article, click on the link below. You can also view the entire 2018 Missouri Blueprint online.

2018 Blueprint: Higher Education

Posted on by Michael Highsmith

THE PROBLEM: The University of Missouri system, and higher education in the United States in general, are at a crossroads. Tuition is rising, resulting in over $1 trillion in student loan debt nationwide. At the same time, students who fail to secure high-paying jobs are facing serious financial problems. In the Show-Me State, enrollment at the University of Missouri–Columbia continues to drop. The current freshman class is about 14 percent smaller than the previous year’s and is the smallest incoming class in almost 20 years.

THE SOLUTION: Higher education reform.

Reform in Missouri should focus on reduc­ing costs through innovation to attract more students. Universities could help reduce costs by encouraging competency-based education (CBE), which can reduce the time that students must spend in the classroom by granting ac­creditation when a student shows that she has mastered the subject matter. These programs allow students to pursue a degree while simul­taneously protecting them from excessive costs and loan defaults. At the same time, the state could promote income-share agreements (ISAs), which provide an alternative to student loans whereby a student agrees to pay a percentage of future income in exchange for present financial aid.

WHO ELSE DOES IT? Schools across the nation, such as Texas A&M, Purdue, University of Michigan, and University of Wisconsin, offer CBE degrees. Purdue has a self-funding ISA program in which it loans money to current students and then reinvests returns into future student borrowing.

THE OPPORTUNITY: Recent upheaval at Missouri’s largest university has given us a chance to step back and evaluate how best to improve the higher education environment and provide cost-effective options to students. The University of Missouri system made progress in protecting free speech this past summer; now it should focus on reducing costs to help draw more students to our public universities.

KEY POINTS

  • Higher education can greatly increase a student’s financial prospects, but not everyone who spends money at a university comes out in the black.
  • CBE programs can reduce tuition costs and the time a student must spend in class.
  • By reinvesting earnings, ISAs can fund future de­grees.

SHOW-ME INSTITUTE RESOURCES

Essay: Stuck in the Middle with Mizzou: Examining the Effectiveness and Efficiency of the University of Missouri

Case Study: Moving Mizzou Forward: Reform Ideas from Around the Nation

Op-Ed: Reaping the Whirlwind in Columbia

Blog Post: Mizzou Enrollment Shrinks to a New Low

 

For a printable version of this article, click on the link below. You can also view the entire 2018 Missouri Blueprint online.

2018 Blueprint: Highways/Transportation Infrastructure

Posted on by Patrick Tuohey

THE PROBLEM: The Missouri Department of Transportation (MoDOT) will likely face funding shortfalls in the near future. New revenue will be needed, and it should be generated in a way that is both economically sound and fair to all Missourians.

THE SOLUTION: User fees.

User fees are about having the people who use things pay for them. That means the people driving on the roads are the ones who pay for the roads. Raising Missouri’s fuel taxes—which haven’t been raised since 1996—to account for inflation would raise hundreds of millions of dollars to help MoDOT maintain the state’s road system in the near term. But other, long-term solutions, such as tolling on major interstates and bridges, can help keep infrastructure funding sustainable. Public–private partnerships (P3s) could also help raise funds. Furthermore, expanding MoDOT’s use of design-build (a project delivery method in which a single contracter both designs and builds and improvement, reducing costs and time to completion) could save roughly 20% per project.

WHO ELSE DOES IT? Various forms of tolling are either planned or implemented in many states. Dozens of projects are funded by P3s in more than 10 states.

THE OPPORTUNITY: Missouri has the 3rd-lowest gas tax and the 3rd-lowest diesel fuel tax in the country. Adjusting these fuel taxes to inflation—raising them by less than 10 cents per gallon—would provide the funding necessary to keep Missouri’s infrastructure in good repair. With I-70 soon requiring a full rebuild, simple tolling infrastructure and a design-build workflow could be implemented to help increase available capital and reduce costs.

KEY POINTS

  • A robust and well-maintained transportation system is vital to a strong Missouri economy.
  • User fees are the most fair and economically sound way to fund major projects.
  • Design-build and public–private partnerships bring the strengths of the free market to public infrastructure investment.
  • User fees could prevent unfair special taxing districts from forming to fund wasteful projects.

SHOW-ME INSTITUTE RESOURCES

Policy Study: Funding the Missouri Department of Transportation and the State Highway System

Blog Post: With MoDOT’s Tank Nearly Empty, a Fuel-Tax Increase Might Be the Answer

For a printable version of this article, click on the link below. You can also view the entire 2018 Missouri Blueprint online.

2018 Blueprint: Income Tax Reform

Posted on by Patrick Tuohey

THE PROBLEM: Missouri’s economy has been stalled for almost two decades, as startup growth has slowed and entrepreneurs and taxpayers are leaving the state. Missouri’s economy is shrinking relative to other states, ranking 48th out of 50 states in real GDP growth between 1997 and 2015, and 44th between the third quarter of 2009 and the second quarter of 2016. Individual and corporate income taxes are destructive to the state’s economic growth, productivity, and wealth, encouraging taxpayers to move their work or investments out of Missouri. This not only lowers economic output for the state, but also destabilizes revenue for state and local governments.

THE SOLUTION: Reduction or elimination of the individual income tax.

Lowering or eliminating individual income taxes allows Missourians to increase their take- home pay, increase business investments, and encourage population growth through in-migration.

WHO ELSE DOES IT? Seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) currently have no income tax. Two other states (New Hampshire and Tennessee) levy income tax only on dividends and income from investments.

THE OPPORTUNITY: Income tax reductions could be achieved in several ways. Reductions in tax incentives and spending can, for instance, provide the budgetary space to cut taxes. Whatever the pathway, reducing an obstacle to state and personal income growth should be a high priority if we want to jumpstart Missouri’s economy.

KEY POINTS

  • Missourians work hard for their money and deserve to keep what they earn.
  • Income taxes penalize and discourage work.
  • If you include the 1 percent earnings tax in our two biggest cities, Missouri has a top income tax rate of 7 percent, which is more than all but 17 states. Our top income tax rate equals or exceeds those of all but one of eight neighboring states.
  • A real reduction in individual income taxes raises take-home pay and encourages more consumption of Missouri goods and services, making Missouri more competitive with other states in the nation.

SHOW-ME INSTITUTE RESOURCES

Essay: The 49th State: Revisiting Missouri’s GDP Sector by Sector

Essay: Taxes Matter and They’re Too High for Missouri

 

For a printable version of this article, click on the link below. You can also view the entire 2018 Missouri Blueprint online.

2018 Blueprint: Open Collective Bargaining

Posted on by Patrick Tuohey

THE PROBLEM: Under current Sunshine Law in Missouri, government bodies may close meetings, records, and votes relating to contract negotiations until the contract is executed or rejected. This lack of transparency in negotiations between government unions and government officials can lead to contractual agreements that aren’t in the public’s best interest.

THE SOLUTION: Open collective bargaining.

Open collective bargaining would allow the public to attend meetings where government bodies are negotiating collective bargaining agreements with unions to ensure that tax dollars are being spent wisely. Openness in public affairs empowers citizens to hold their government representatives accountable. The public is directly affected by policies set during collective bargaining; citizens therefore have a right to be present during such meetings. An open collective bargaining rule would not prohibit the public agency from discussing and formulating its bargaining positions in executive session.

WHO ELSE DOES IT? Alaska, Colorado, Florida, Georgia, Idaho, Iowa, Kansas, Minnesota, Montana, Ohio, Oregon, Tennessee, and Texas all require contract negotiations to be open.

THE OPPORTUNITY: A transparent negotiating process will enable the public to hold government accountable in its dealings with public employee unions and help ensure that the agreements reached between the two parties are in the interest of everyone instead of just a select group of employees.

KEY POINTS

  • Open collective bargaining gives citizens the opportunity to attend union negotiations with government bodies and help ensure that tax dollars are spent responsibly.
  • Missouri’s Sunshine Law allows government bodies to close meetings to the public if they relate to a negotiated contract, even though there is no compelling reason why negotiations between a union and a public body should be held in secret.
  • Government unions can make campaign contributions and support candidates that they will potentially bargain with after election. This advantage makes it especially important that the public be aware of how the government and public employee unions interact.

SHOW-ME INSTITUTE RESOURCES

Policy Study: A Primer on Government Labor Relations in Missouri

Video: Government Unions: Restoring Accountability

 

For a printable version of this article, click on the link below. You can also view the entire 2018 Missouri Blueprint online.

2018 Blueprint: Prevailing Wage

Posted on by Patrick Ishmael

THE PROBLEM: Many government construction contracts dictate what potential contractors must pay workers to get the job. These restrictions are bad news for taxpayers and laborers alike. Taxpayers may not be able to afford to start projects whose labor costs are inflated, and of course, laborers can’t get paid for projects that are never undertaken.

The prevailing wage sets a floor for pay, but it can actually hurt the workers it’s intended to help by denying employment to people who can do the job at a more competitive price. To make matters worse, making projects more expensive also means that less taxpayer money will be available for other priorities.

THE SOLUTION: Let the market set wages.

Rather than dictate wages, the government should have policies that support a healthy jobs environment where higher wages for all sorts of construction projects—including public construction—develop on their own without the harmful effects of wage floors.

Policymakers must keep in mind that project delays can hurt their communities over time. It would be better to let the market set wage rates for these projects and to begin delivering those public services sooner rather than later.

WHO ELSE DOES IT? States with no prevailing wage law include Alabama, Arizona, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, New Hampshire, North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota, Utah, Virginia, and West Virginia.

THE OPPORTUNITY: Moving away from market-distorting policies like the prevailing wage will help the state promote job growth and spend taxpayer money efficiently.

KEY POINTS

  • These reforms would promote job growth and make public works projects more affordable.
  • Taxpayers get the most bang for their tax buck when their money is spent efficiently and effectively.

SHOW-ME INSTITUTE RESOURCES

Blog Post: Special Interests Inhibiting Joplin’s Recovery?

Blog Post: Playing Favorites on the Board of Aldermen?

Blog Post: The Race Is On: Wisconsin Pushes to End Project Labor Agreements and Prevailing Wage

 

For a printable version of this article, click on the link below. You can also view the entire 2018 Missouri Blueprint online.

2018 Blueprint: Public Pension Reform

Posted on by Patrick Ishmael

THE PROBLEM: Defined benefit (DB) pension plans promise employees annual payments for life upon retirement, but if a public plan does not have enough money to make these payments, taxpayers are legally bound to fund the difference. Nationwide, state-run public pension funds are underfunded by nearly $1 trillion dollars.

THE SOLUTION: Defined contribution plans.

Defined contribution (DC) plans consist of employer/employee contributions into individual accounts—think 401(k)—which employees can manage as they see fit. Upon retirement, the funds are available to employees. DC plans fundamentally differ from DB plans in that they cannot incur unfunded liability (so taxpayers are not on the hook), they put investment decisions into the employee’s hands, and they are transferable from one job to another.

WHO ELSE DOES IT? Public DC plans exist across the nation; states such as Michigan and Alaska offer DC plans for new state employees, while others such as Florida offer both DC and DB plans.

THE OPPORTUNITY: Pension reform offers a chance to stop the bleeding. DB plans cannot (by definition) incur unfunded liabilities. DC plans also offer employees a retirement account that they can manage themselves and take with them if they change jobs in the future.

KEY POINTS

  • DC plans can protect Missouri from devastating budget shortfalls.
  • When a DB plan’s investment returns are below (sometimes unrealistic) assumptions, taxpayers can be forced to pay the cost.
  • DC plans put investment decisions in the employee’s hands and can be transferred from one job to another.
  • Shifting to DC plans reduces the political incentive to overpromise when impacts won’t be felt for years.

SHOW-ME INSTITUTE RESOURCES

Policy Study: Public Employee Pensions in Missouri: A Looming Crisis

Policy Study: Missouri Transition Costs and Public Pension Reform

Essay: The Funding Status of State and Local Government Pensions in Missouri

 

For a printable version of this article, click on the link below. You can also view the entire 2018 Missouri Blueprint online.

2018 Blueprint: Public Union Recertification

Posted on by Patrick Ishmael

THE PROBLEM: Once a government union comes to power, it can stay in power indefinitely. No further elections are scheduled and no term limits are imposed. This means workers can do little to ensure their union truly represents their interests and is held accountable.

THE SOLUTION: Regular public union recertification elections.

Regular public union elections would give workers the right to elect union representation to fixed terms. Regular elections would help keep union actions in line with worker interests and lead to competition among unions. It would also help prevent backlash from union leadership in response to decertification petitions.1

WHO ELSE DOES IT? Currently, Wisconsin and Iowa require regular public union elections.

THE OPPORTUNITY: The Commonwealth Foundation recently gave Missouri a letter grade of ‘D’ regarding its public labor laws. Show-Me Institute research indicates that regular union elections need not be prohibitively expensive and offer a way to ensure that unions serve workers—not the other way around.

KEY POINTS

  • Public workers in Missouri should have the right to choose who represents them.
  • Regular elections would make unions more accountable to those they represent, just as regular government elections pressure politicians to be accountable to voters.
  • Regular elections can be held at a reasonable cost to taxpayers.

SHOW-ME INSTITUTE RESOURCES

Policy Study: A Primer on Government Labor Relations in Missouri

Essay: The Low Cost of Labor Reform

 

For a printable version of this article, click on the link below. You can also view the entire 2018 Missouri Blueprint online.

Support Us

The work of the Show-Me Institute would not be possible without the generous support of people who are inspired by the vision of liberty and free enterprise. We hope you will join our efforts and become a Show-Me Institute sponsor.

Donate
Man on Horse Charging