The Financial State of Missouri Cities

Posted on by Patrick Tuohey

It won’t be a surprise to readers of this blog that Kansas City and St. Louis are in bad financial shape. Taxes and debt are both high. But a recent study of American cities finds that things may be even worse than we thought.

The reason for the discrepancy is that according to the report, “cities balance budgets using accounting tricks” such as moving payments to a different year or failing to make sufficient payments to public pension funds. None of these solve the problems, of course; they just shift the burden to future taxpayers.

The organization Truth in Accounting, a nonprofit dedicated to honest accounting in municipal finances, “developed a sophisticated model to analyze all the assets and liabilities of the nation’s 75 most populous cities, including unreported liabilities.” Kansas City and St. Louis are ranked 55th and 66th (lower on the list means higher unreported liabilities), respectively. How did this happen?

While both Kansas City and St. Louis have balanced budget requirements, both have accumulated a great deal of debt. The report points out that cities can do this by inflating revenue assumptions, understating the true cost of government, and delaying the payment of bills.

The report also states that most of the top U.S. cities do not have enough money to pay their bills. In the aggregate, these cities have $335 billion in unfunded debt. That includes $211 billion in pension debt, largely the result of cities papering over their cash problems by shortchanging their public pension obligations:

Although these retirement benefits will not be paid until the employees retire, they still represent current compensation costs because they were earned and incurred throughout the employees’ tenure. Furthermore, that money needs to be put into the pension fund in order to accumulate investment earnings. If cities didn’t offer pensions and other benefits, they would have to compensate their employees with higher salaries from which they would fund their own retirement.

Missouri is no stranger to these problems. The problems at the state level are well publicized, but there are also serious issues at the municipal level.

These are just some of the highlights; the entire list of factors contributing to the financial woes of St. Louis and Kansas City is too long to cover in a blog post. As we enter the new year with a list of new projects and priorities, perhaps policymakers should spend less time fixating on pie-in-the-sky solutions, like luring Amazon to the state. Instead, they should  focus on the less glamorous but more important task of regaining sound fiscal footing. 

Governor Releases Tax Plan, Rightly Aiming For Revenue Neutrality

Posted on by Patrick Ishmael

 After releasing his proposed budget last week, today Governor Eric Greitens followed it up in with his long-awaited tax cut plan. Readers will find details at the link, but I wanted to highlight one noteworthy paragraph from the release:

In order to responsibly achieve these results, Missouri should eliminate or alter some tax breaks that are outdated, unfair, or unnecessary, and close loopholes in the tax code. This tax plan boldly cuts taxes for nearly every Missouri taxpayer and dramatically improves Missouri’s tax environment for businesses. It is also revenue-neutral according to an analysis from the Department of Revenue. By eliminating these breaks and closing these loopholes, Missouri families and businesses will see a tax cut and Missouri’s budget will not be unduly burdened. The alterations to tax breaks and loopholes are laid out in detail in this document.

Translation? Rather than continuing a raft of carve-outs for special interests and activities—carve-outs whose burdens, of course, fall on the shoulders of other taxpayers—this plan appears to be a reorientation of tax policy away from income taxes and toward a broad sales tax base. The immediate beneficiaries should be individuals (especially the poor, whose income taxes would effectively be zeroed out under the plan) and corporations, whose income tax rate would be cut by about a third. 

I could write at length comparing this  plan to the two tax cut plans already afoot in the state Senate. Perhaps the biggest difference is that this plan appears to omit an increase in the gas tax for infrastructure improvements. But it seems in all three cases, the policy principle sitting in the sidecar of each tax cut plan is that of revenue neutrality. As I discussed with Marc Cox earlier this month, while the details of the Governor’s plan were unknown at that time, it was reasonably easy to speculate about its principal parts, given the explicit neutrality targets and what had already been filed in the Legislature.

That isn’t to say that tax cuts must always be revenue-neutral, since reorganizing tax revenues for a government that has grown too large obviously doesn’t address its largeness. Yet, one can divide the questions of pro-growth tax policy and government size into different legislative pieces rather than addressing both issues all at one time and, potentially, confusing the issues in the process. These proposals address the pro-growth policy questions first and leave the question of government size for a later date, and in my opinion, that’s a responsible approach that adheres to both good and limited government principles. 

Does Banning the Box Work?

Posted on by Patrick Tuohey

WDAF TV in Kansas City recently reported that City Councilmember Jermaine Reed is seeking to expand the city’s ban-the-box initiative that currently prevents the city from including a box on job applications asking if the applicant has had a felony conviction. Approval of Reed’s proposal would mean that private companies and landlords would be subject to the same restriction in their applications. However, despite good intentions, research tells us that ban-the-box policies hurt minorities.

The WDAF story goes on to point out:

The city has “banned the box” since 2013 and said it’s been a big success. Employers can still do background checks, which could prevent someone from getting hired. But getting rid of the check box can help eliminate the stigma [that would] prevent qualified candidates from getting hired just because of their criminal history.

That is certainly a noble goal. But research from respected universities and public policy organizations casts doubt on the effort’s effectiveness. According to The Atlantic magazine,

. . . banning the box may actually be hurting some of the exact groups of people it was designed to help, according to a few new studies. In a recent paper from the National Bureau of Economic Research, Jennifer L. Doleac of the University of Virginia’s Frank Batten School of Leadership and Public Policy and Benjamin Hansen of the University of Oregon looked at how the implementation of ban-the-box policies affected the probability of employment for young, low-skilled, black and Hispanic men. They found that ban-the-box policies decreased the probability of being employed by 5.1 percent for young, low-skilled black men, and 2.9 percent for young, low-skilled Hispanic men.

The left-leaning Brookings Institution found the same, detailing what happens when the felony conviction disclosure is removed:

Employers are forced to use other information that is even less perfect to guess who has a criminal record. The likelihood of having a criminal record varies substantially with demographic characteristics like race and gender. Specifically, black and Hispanic men are more likely than others to have been convicted of a crime: the most recent data suggest that a black man born in 2001 has a 32% chance of serving time in prison at some point during his lifetime, compared with 17% for Hispanic men and just 6% for white men. Employers will guess that black and Hispanic men are more likely to have been in prison, and therefore less likely to be job-ready.

In short, ban-the-box policies are likely hurting minorities.  Hiring discrimination is a thorny problem, but not all such problems have easy or obvious solutions. If your proposed solution is hurting the people it is intended to help, it’s probably time to think about a new approach.

It’s Not Food Deserts, It’s Food Swamps!

Posted on by Patrick Tuohey

Does how close you live to a grocery store influence your diet? Advocates claim that it does, but research has failed to establish a connection. Nor does the research show a correlation between an area’s obesity rate and access to healthy foods. A new study suggests the real problem is not lack of access to healthy food, but rather an abundance of access to unhealthy food options, like corner markets and fast food.

Researchers at the University of Connecticut’s Rudd Center for Food Policy and Obesity have a name for places where unhealthy food is especially easy to find. They call such areas “food swamps,” and they define them as “areas with a high-density of establishments selling high-calorie fast food and junk food, relative to healthier food options.” The abstract from a recent Rudd Center study suggests there are policy implications:

Based on these findings, local government policies such as zoning laws simultaneously restricting access to unhealthy food outlets and incentivizing healthy food retailers to locate in underserved neighborhoods warrant consideration as strategies to increase health equity.

Just as with food deserts, the narrative surrounding food swamps sounds reasonable: If unhealthy food is more convenient and accessible than healthy food, then unhealthy food is what people will eat. But creating policy to address such a situation isn’t simple, nor is it without potential problems. One can imagine municipal leaders rushing off to draft all sorts of new feel-good legislation restricting restaurateurs’ property rights through zoning. The result could be nothing at all, or a raft of unintended consequences.

Ultimately, demand drives markets. Making healthy food more easily available will only help if people want healthy food. That might be why Rollin’ Grocer, whose mission was “to provide affordable, fresh food to customers living in food deserts and underserved neighborhoods through mobile grocery stores,” ceased operation in July 2017. Kansas City is spending upwards of $17 million to subsidize a Sun Fresh grocery store at the Linwood Shopping Center. Also at that center are a thriving Popeye’s Louisiana Kitchen, Linwood Chinese Express, and Pizza Hut.

If demand for healthy food does not increase, expect the Sun Fresh to face the same fate as its predecessor at that shopping center (it closed in 2007) while the fast-food restaurants nearby continue to flourish. The only thing that will change is a faster depletion of public funds.

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