Subsidies Are Cleared for Takeoff as Wow Air Comes to Saint Louis

Posted on by Andrew Aubuchon

In August, many Saint Louisans (myself included) were excited to hear that Iceland’s budget airline Wow Air will begin operating flights to and from Lambert Airport next May. By chance, I happened to be in Europe and had recently flown with Wow Airlines when the news was announced. While I was initially thrilled by the thought of low-cost, transatlantic flights emanating from Saint Louis, it turns out that there was more to the story than initially met the eye.

Wow’s expansion into St. Louis could be more of a curse than a blessing because of the cost to the city’s tax base from taxpayer-funded subsidies. The largest of these will come from the Saint Louis County Port Authority, which will provide $600,000 to advertise Wow’s services over the next two years. However, the fun doesn’t stop there; Lambert Airport (a public entity) will contribute another $200,000, and Wow’s landing fees will be waived for 18 months (a subsidy of nearly $400,000).

Unfortunately, corporate welfare seems to have become standard operating procedure for cities, usually to their own detriment. And while the example of Wow Airlines is not the most dramatic, it does show the pervasiveness of corporate welfare in Missouri. It’s great that a European airline wants to enter the Saint Louis market, but should taxpayers really be subsidizing their neighbors’ travel expenses?

Beware the Perils of Corporate Welfare: An Open Letter to Jeff Bezos

Posted on by Andrew B. Wilson

Amazon is amazing. Just amazing.

In just 20 years as a public company, it has experienced a thousand-fold growth in sales – going from $148 million in 1997 to $138 billion in 2016 and a projected $160 billion in the current year. Adjusted for splits, the price of the stock has gone up 200-fold – from a high of $5 a share in 1997 to $1004 a share today.

To paraphrase the bard, Amazon doth bestride the narrow world of retailing like a colossus. Others quake at its every movement. Back in June, when the company announced the acquisition of Whole Foods, the stocks of other grocery chains plummeted – with Kroger falling 26 percent in the two days following the announcement and SuperValu down 16 percent. Wal-Mart fell 5 percent. Within days, Amazon’s market cap went up nearly as much as the $13.7 billion it agreed to pay for Whole Foods.

In many years of writing about business and economics, I can think of no other enterprise that has come so far so fast. Even so, waxing biblical in your 2016 letter to shareholders, you said it is still “Day 1” (the first day of creation) in the company’s evolution. When someone asked you at a recent “all-hands meeting” what Day 2 would look like, you answered:

Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.

Your words prompt me to warn you that Day 2 may be approaching much more quickly than you think. Surely you don’t want to turn Amazon into a subsidy junkie. If that happens, Day 1 will turn into Day 2 in the blink of an eye.

Right now, cities and states across the country are competing with one another to throw big money – taxpayer money – at Amazon in the hope of being chosen as the site for Amazon’s proposed second headquarters. With one hand, you dangle the promise of up to 50,000 jobs paying an annual average of more than $100,000 per employee. With the other, you rattle a tin cup, stating in your request for proposals:

Incentives offered by the state/province and local communities to offset the initial capital outlay and ongoing operational cost will be significant factors in the decision-making process . . . . Outline the type of incentive (i.e., land, site preparation, tax credits/exemptions, relocation grants, utility incentives/grants, permitting, and fee reductions) and the amount. The initial cost and ongoing cost of doing business are critical decision drivers (emphasis added).

A few years ago, Boeing Commercial Airplanes, your cross-town neighbor in Seattle, initiated a similar nationwide bidding war for production of its latest big new wide-body – the 777X. In the end, Boeing decided to keep production at its massive facility in Everett, Washington – but only after winning nearly $9 billion in tax breaks and subsidies from the state legislature. That worked out to more than $1 million per promised job, or about $50,000 per year per job over a 20-year period (the tax breaks do run out eventually).

Maybe that sounds great to you. From your perspective, it may seem like the equivalent of having local and state governments pick up half of the anticipated HQ 2 payroll for a long time.

But think of the downside of making Amazon and its people deeply dependent upon corporate welfare. Think of the gross unfairness of huge tax carve-outs for Amazon that are denied to other smaller businesses (which have to pay for their initial costs and ongoing costs out of their own hard-earned dollars). How do you want your company and its people to succeed – by winning in the marketplace . . . or by securing a fatter portion of government largesse?

Last but not least, think of the hypocrisy of preaching a gospel of “obsessive customer focus” as the key to maintaining “Day 1 vitality,” while gouging money out of taxpayers. According to Consumer Intelligence Research Partners, there are now about 85 million Amazon Prime members – that’s 68 percent of all U.S. households! As Amazon becomes increasingly ubiquitous, most of every dollar that Amazon takes out of taxpayer pockets will be money stolen (or lifted) from its own customers.

As one of your customers told me, “I am never in favor of using my tax money to build someone else’s business so that it can sell products to me and profit off me a second time.”

Like Google, Amazon Wants Good Government over Gimmickry

Posted on by Patrick Tuohey

The imaginations of municipal governments across the country have been captured by the prospect of being chosen as the location of Amazon’s second headquarters. The project promises 50,000 jobs and an overall investment of $5 billion. How likely is Kansas City to win?

While the details of Kansas City’s pitch remain predictably secret, other cities have made offerings, both substantive and gimmicky. Tucson, Arizona, tried to send Amazon CEO Jeff Bezos a 21-foot cactus. Stonecrest, Georgia, recently offered to name part of the town Amazon if chosen.

Not to be outdone, Kansas City Mayor Sly James took to the internet in a “desperate” attempt to get attention by spamming Amazon’s website with hundreds of fake product reviews each extolling the town.

This is all reminiscent of Google’s contest to choose the first city to host their Google Fiber service back in 2010. Like Stonecrest, for example, Topeka, Kansas, actually did change its name to Google. In the end, Google Fiber selected Kansas City, Kansas—our neighbor to the west—to offer its service. In doing so, they told The Kansas City Star, “We wanted to find a location where we could build quickly and efficiently. Kansas City [Kansas] has great infrastructure and Kansas has a great business-friendly environment for us to deploy a service in.”

Similarly, Amazon’s request for proposals includes that Amazon has a preference for “A stable and business-friendly environment.” While Kansas City is genuinely world class, our government is definitely not business-friendly. Property taxes and sales taxes are high, and on top of that the city charges a 1 percent earnings tax. The head of the Economic Development Council said that the city uses tax subsidies to mask the full impact of Kansas City’s regulations. Let’s not forget an unaccredited school district and a years-long spike in the homicide rate. Even one of the prominent consultants working on our Amazon bid, Richard Florida, does not include Kansas City on his list of top-five prospects.

Regardless of the outcome of this process, Kansas City must do a better job demonstrating it is a good place to locate a business. Government must be small and responsible, taxes low, and services efficient. That is not the city we are now, and gimmickry will not get us there.

School Choice for Me, But Not for Thee: Part 4

Posted on by James V. Shuls

Over the past two posts, I have discussed reservations some parents have expressed about school choice programs. First, I examined whether school choice programs hurt traditional public schools. Next I discussed the trade-off of moving from a democratically controlled school system to one that is controlled by choice. Today, I’m addressing a concern shared by many parents in focus groups I conducted in Saint Louis and Kansas City. This one focuses on private schools themselves.

Reservation Number 3: School choice may lower the quality of private schools

The argument goes something like this: the children who can’t afford to attend private school would bring the “problems of poverty” with them into whatever school they attend. The schools would get worse as a result. Tuition-paying families would leave. And on and on and on…

There are several problems with this argument. First, we should acknowledge that this response sounds really tone-deaf to the single mother living in poverty who wants a great education for her child. How many amazing figures from American history were born into poverty only to excel in school; Ben Carson and Supreme Court Justice Clarence Thomas are two that quickly come to mind. One of the first lessons we learn in Kindergarten is to never judge a book by its cover. We should give the benefit of the doubt to families who are working hard to find better schooling options for their kids.

Second, we have to recognize that this belief betrays a low opinion of private schools. It suggests that the schools are not good because of the effectiveness of the staff, the value of the school’s mission, or the innovativeness of the school’s curriculum. Rather, this line of thinking suggests a private school is only as good as the students who go there. In other words, the school would be no better than the surrounding public schools if they were forced to take all students. Is that what private-school parents really think about their schools? If so, they may want to reconsider their schooling decision.

Third, and in contrast to that argument, many private schools have a long and proud tradition of educating low-income and minority students. Moreover, they have been quite successful at it. Indeed, research suggests urban minorities are among the greatest beneficiaries of Catholic schooling.

To summarize, it is understandable for parents with kids in high-performing private schools to be concerned about the impact of a private school choice program. Yet, concerns about “dumbing down” private schools are often overblown. Moreover, we mustn’t forget that they get to choose whether they will accept any students at all! They don’t have to participate.

For policymakers, it is important to understand this dynamic when designing programs and when speaking with constituents. It is also important to remember public policies should not be designed to protect the privileged. Good public policy should attempt to enhance freedom, encourage individual responsibility, and improve outcomes for citizens. School choice accomplishes all of these goals.

Minnesota Is Embracing School Choice-Missouri Should, Too

Posted on by Emily Stahly

School choice is shaking up Minnesota’s public school system. Either by using the open enrollment system or attending a charter school, 132,000 students opted out of their assigned school or district just last year.

Unsurprisingly, parents are welcoming more control over their children’s education. Marguerite Mingus, a mother of four in Minneapolis, wrote a powerful article on school choice; all of it is worth reading, but this paragraph is particularly striking:

I made the intentional choice—and continue to make the choice every day—to put my children first. I put my children ahead of what is convenient for me, ahead of what would be best for the district’s budget and ahead of what other parents whose kids do just fine in their neighborhood schools think I should do.

State money flows to the school of the student’s choice, and away from the school the student leaves—putting pressure on some districts that are losing students to other districts or charter schools. But as the editorial board of the StarTribune, the largest newspaper in Minnesota, noted, this situation presents a great opportunity for traditional public schools:

By popular demand, school options are likely here to stay. Given that reality, traditional public schools should do more to understand what their communities want and need. That starts with improving academic performance to retain and attract more students. In some cases, it means getting a better handle on school discipline and safety. And traditional schools should find ways to work cooperatively—both in programs and financially—with charters and other districts to offer the best, most effective programs for kids.

More school choice does not mean the end of traditional public schools; rather, public schools can and should be an important part of a diverse schooling system that better meets the needs of students. Here in Missouri, some healthy competition would improve our public schools and, more importantly, help ensure that every student in the state has the opportunity to attend a school that works best for them.

It would be hard to come up with a better endorsement of school choice than these two quotations. Parents in Minnesota have been given more control over their children’s education, and they intend to keep it. Is there any reason to think that parents in Missouri wouldn’t feel the same way? 

School Choice for Me, but Not for Thee: Part 3

Posted on by James V. Shuls

Many people who have (and use) the resources to choose their own child’s school nevertheless oppose programs that make school choice available to all families. In this series, I have been discussing four reservations these parents cite in their opposition to government-sponsored private school choice programs. In my last post, I discussed whether school choice programs hurt students left behind, school districts, and the community. Today, I look at a different reservation—control.

Reservation Number 2: School choice gives the public less control of the school system.

Local control of public schools is as American as apple pie and baseball. In the vast majority of U.S. school districts, governance is of the people. Citizens in the local school district elect school board members. The citizens control the school system. Some worry that school choice would strip local taxpayers of this ability. Is this true? Just as is the case in considering finances, the simple answer is yes. In most school choice systems, whether public charter schools or private school choice programs, citizens do not have the ability to elect school board members. Here again, we must consider what this means.

Let’s first consider the current system where you and I can elect school board members. Say you are upset with something, or you want the curriculum changed (as I have in the past). What are your options? First, you can, and should, address the issue with the teacher. If this does not resolve the issue, you approach the principal and work your way up the chain of command—principal, assistant superintendent or district coordinator, superintendent, etc. Finally, you may approach the school board. When you bring your petition to the school board, it is not uncommon for them to grant you three minutes to speak at a public hearing. If you are lucky, they may take up the issue for further discussion.

Chances are you will not be very successful in getting the school district to change policy (So far I’m batting .000 on my complaints). If you are dedicated, and educated, enough, you may run for a position on the school board. You will have to hit the pavement and participate in local events to get up your name recognition. Let’s then say you get yourself elected to the board. Now, you have to convince a majority of the board members to vote your way on the issue.

How long has this process taken you? Probably years. And what have you gained? You have just managed to foist your will on the remainder of the students and parents in the school district, many of whom may disagree with you. As I have written elsewhere, our current system invites conflict because it is a winner takes all system.

While the current system puts the power into the hands of citizens, the average citizen actually possesses very little power to exact any meaningful change.

Now, let’s consider a school choice system. In charter and private schools, most boards are self-appointed and the board members may or may not be from your local community. Some schools may have parent advisory committees, but they often do not determine policy within the school. In this system, you lose your ability to elect board members; but you gain something else. You gain the ability to leave without having to move or pay for tuition. If the school isn’t meeting your needs, you can take your child to another school. This places tremendous pressure on the school to be attentive to your needs.

Right now, can you name all of the members of your local school board. No? OK, now name one or two great schools in or around your community that you would like your kids to go to. I’d wager more people could do the latter.

By switching to a school choice system, we lose control at the ballot box and gain control in the classroom. That seems like a good trade-off. 

School Choice for Me, but Not for Thee: Part 2

Posted on by James V. Shuls

In my last post I discussed how some people support school choice for their children, but do not support private school choice programs that would extend options to other children. From my focus groups with 35 parents in Saint Louis and Kansas City, I found four main objections to these programs. These reservations were not held by everyone, but each was stated by numerous participants in the study. Over the next few days, I am dedicating a post to each reservation. If we are to convince parents, and the public at large, that school choice is a viable method for delivering on the promise of public education, we have to address these important issues.

Reservation number 1: School choice may hurt traditional public schools.

As I wrote in the paper, “Some worried that school choice programs may drain intellectual and financial resources from the low-performing schools. It is possible, they argued, that only families with the wherewithal to take advantage of the program would be able to access the choice schools. This would leave traditional district schools with the most difficult students to educate.”

This argument has been popular among opponents of school choice for a long time, so it was not surprising that it was also mentioned by parents. There was, however, some nuance to this reservation. Some parents worried about finances, others about students left behind, and still others about the impact on the local community. I’ll briefly deal with each of these issues.

Does school choice hurt school districts financially?

Let me tell you a little secret. Any time a student leaves a district, the district receives less money.

When a student moves to another public school district, the home district receives less money. When a student leaves to attend a charter school, the home district loses money. When a student uses a voucher to attend a private school, the home district loses money.

But it is also true that when a student leaves a district, that district has one fewer student to educate.  What’s more, because most school choice programs actually allow fewer dollars to follow the student than would otherwise be spent on him or her, most school choice programs leave money behind in the district. As a result, per-pupil spending in the district goes up. 

School choice doesn’t hurt school districts any more than families moving does, and we wouldn’t dream of banning people from moving.  Why should we prevent them from finding a better schooling option for their child?

Does school choice hurt students who are left behind?

A substantial amount of research has been conducted to answer this question. As EdChoice states:

Thirty-one empirical studies (including all methods) have examined private school choice’s impact on academic outcomes in public schools. Within that body of research, 29 studies find that choice improved the performance of nearby public schools…To date, no empirical study has found that school choice harms students in public schools.

It is perfectly reasonable to be concerned about disadvantaged students who may not participate in choice programs. We should look for every opportunity to help and support those students. The evidence, however, tells us that these students are not worse off; they are typically better off in a school-choice environment.

Does school choice hurt the community?

One thing is clear: Bad schools hurt a community. When students are forced to attend a low-performing school, more advantaged peers tend to leave. The quality of the school drops lower and housing values are depressed. School choice changes this. It makes it possible for families to stay in their communities and send their children to schools that meet their needs.

So what do we make of this reservation? As it turns out, we can put our minds at ease. Rather than harm academic, school, and community outcomes, school choice programs can have a positive impact on each. 

St. Louis’s Multi-Million-Dollar Toy Train

Posted on by Frank Catanzaro

When will St. Louis’s long-delayed and over-budget Loop Trolley open? It’s hard to say, but in the meantime, construction on the project is causing a nightmare for nearby businesses. Even worse, the delays mean millions of dollars in additional costs for the public.

To learn more about the Loop Trolley project:

Face-Palm: Loop Trolley Over-Budget Likely Delayed, Again

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