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.

Where Is That City Report on Economic Development?

Posted on by Patrick Tuohey

Are economic development incentives worthwhile? Abundant research from all over the country says they are not. Kansas City leaders disagree, and the City commissioned its own study of the practice—but that report is already over a year late and counting.

On November 1, 2016, the Council of Development Finance Agencies (CDFA) signed a contract with Kansas City to study the city’s economic development practices. Show-Me was critical of the City for hiring CDFA,  because they are a trade association whose mission is “to promote the common interest of Development Finance Agencies with respect to public policies and programs.” In other words, this group is being hired to analyze the success of the programs they promote. That hardly sounds like an impartial researcher. (But then our TIF Commission staff is funded by fees collected from TIF recipients, so conflicts of interest seem to be the standard operating procedure.)

Nevertheless, a study such as this is warranted, because Kansas City spends or diverts a lot of tax money to private developers. Studies of TIF and other incentives have found they are largely a waste of taxpayer money. This includes a report recently completed in St. Louis for the very corporation that doles out these dollars. That study concluded that TIF does not spur investment or create jobs; that it is not used in the economically struggling areas that need it; and that the level of reporting on these subsidies is poor. Other studies by universities and research institutions have likewise found TIF policies greatly wanting. Kansas City is due such an examination.

The contract signed with CDFA set a maximum payment of $350,000 for the study and set a deadline of May 1, 2017 for the final report. In an October 2017 email, Kerrie Tyndall, the director of economic development for Kansas City, wrote that the report should be received by the end of 2017—seven months late. In a November 2017 Kansas City Star story, Steve Vockrodt wrote that the report should be released in January 2018—eight months late. Ms. Tyndall indicated to me in March that the report should be delivered in mid-April—11 months late. As of this writing, May 25, there still is no report.

It is noteworthy that Public Financial Management, Inc., the company retained to provide analysis of economic development subsidies in St. Louis completed its study in 15 months and for half the cost of what Kansas City authorized. The Show-Me Institute issued its own analysis of TIF use in Kansas City and St. Louis after less than a year of study and at no cost to taxpayers.

A pricey, publicly funded and repeatedly delayed report on subsidies—performed by a group that supports such spending—isn’t likely to build confidence among residents. Kansas Citians deserve better policy and better policymaking.

Like a Sore Thumb: Missouri’s Testing Standards Buck National Trend

Posted on by James V. Shuls

Marching to the beat of your own drummer is all good and well as long as you know where you’re going. A recent study published in Education Next suggests that Missouri—alone out of all 50 states—is headed in the wrong direction with regard to state proficiency standards for students. The study compares how well students in each state do on their states’ proficiency tests to how well they do on the National Assessment of Educational Progress (NAEP). For example, if 25 percent of students in a state scored proficient on the state’s test, but 50 percent scored proficient on the NAEP, that would indicate that state’s proficiency standards are more rigorous than the national standards. Since states have different state assessments and the NAEP is administered in every state, the NAEP serves as a Rosetta stone and allows us to compare the standards of different states.  According to the analysis, every state in the nation increased the rigor of their proficiency standards from 2009 to 2017. . . except Missouri. This could have significant implications for Missouri students, especially students in Missouri’s most disadvantaged school districts.

When a school district in Missouri loses accreditation, students are allowed to transfer to a higher-performing school district. In recent years, thousands of students from the Normandy and Riverview Gardens School Districts used this provision in state statute to transfer to some of the highest-performing school districts in the state. But students lost the right to transfer when the state board of education voted to give the school districts provisional accreditation, based in part on improvements in student achievement-test scores. Based on the Education Next study, we have to wonder whether those learning gains were just an illusion caused by the state making the test easier.

It is important to understand this analysis is not comparing the rigor of the learning standards in each state. Standards say what students should learn in each grade. The relevant measure here is what students must score to be considered proficient by the state assessment. While the tests are developed based on the standards, setting the cut-score is a subjective process.  The lower the cut-score, the higher the percentage of students who will score proficient.

In 2009, Missouri had among the most rigorous assessments in the nation. The two images below come from a report from the U.S. Department of Education, “Mapping State Proficiency Standards Onto the NAEP Scales.” Look far to the right and you will notice that Missouri led the nation in rigor on the 8th grade reading assessment and had the third most rigorous state assessment in 8th grade mathematics.

Language Arts Standards Graph

Mathematics Assessment Graph

What followed 2009 was chaos. Missouri adopted the Common Core standards and ditched our rigorous state assessment. The state then went through turmoil as citizens pushed back against the Common Core, the legislature called for new standards to be written, and the state shuffled through four different state assessment systems. In the end, we wound up with an assessment that was easier than the one we had before.

Forget for a moment the overall message that lowering standards sends and the potential it has to impact all students. In the cases of Normandy and Riverview Gardens, lowering standards may have had a direct and detrimental impact on students. The year Normandy lost its accreditation, just 22 percent of the district’s students scored proficient or advanced in communication arts and 23 percent did so in math, according to the St. Louis Post-Dispatch. In 2017, the district regained provisional accreditation even though the performance of students in the district was not substantially better. That year, 34 percent of students scored proficient or advanced in communication arts and only 19 percent did so in math. Keep in mind these scores were with the easier tests.

Missouri’s state board of education voted to give provisional accreditation to the Riverview Gardens School District in 2016 and the Normandy Schools Collaborative in 2017. It seems those decisions may have been based on the faulty assumption that the student achievement in the districts was improving, when it seems the state was just giving easier tests. At the very least, we owe it to the students of these districts to investigate this further.

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