Double Taxation: Saint Louis Zoo Edition

Posted on by Graham Renz

Policymakers in Jefferson City passed Senate Bill 49 (SB 49), which allows for a sales tax of one eighth of one percent to be levied in Saint Louis City and County for construction, maintenance, and operations at the Saint Louis Zoo. The bill itself doesn’t impose the sales tax, but simply allows a ballot to be submitted to voters. Voters in the city and county would have the final say on whether or not to impose the extra tax.

The version of the bill in front of the Governor has changed since it was first introduced. Previous drafts would have allowed for similar sales tax hikes in Saint Charles, Franklin, and Jefferson counties. The narrower focus of the bill means distant shoppers won’t have to subsidize the zoo (which is fair), but it also means a smaller portion of the public will shoulder the burden of supporting a “free” zoo. It also means city and county taxpayers could be taxed twice for the zoo. 

Currently, the zoo is supported by visitor spending, donations, and a property tax levied in Saint Louis City and County. So if a sales tax is passed, city and county voters will pay two taxes for the zoo. And while taxpayers would get an improved zoo for that extra money, the new funding wouldn’t fix the underlying problem with the zoo’s funding structure: free riders.

Since no admission is charged at the zoo, city and county taxpayers support the zoo for everyone, from Saint Charles residents to visitors from Hawaii. Predictably, the issue of fairness arises: why should just city and county residents pay for the zoo? While some propose a regional taxing structure to remedy the free-riding problem, in reality it would convert only a portion of the free riders into supporters. A fairer solution would be to charge admission for those not paying zoo property taxes. (For perspective, a $2 admission fee for residents outside the city and county, assuming a 10% reduction in visitors, could raise more than $3.5 million a year.)

A zoo sales tax would worsen the ever-growing sales tax burden for city residents. With the passage of the MetroLink sales tax hike in April, the city’s sales tax rate jumped to 9.179%, the 13th highest of major US cities (and higher than in New York City, Los Angeles, and San Francisco). If a zoo tax were to be approved, the city’s base rate would top 9.3%, and in some areas littered with special taxing districts, be as high as 11.3%. For many city families, these tax increases mean hundreds of dollars a year they cannot spend on food, school supplies, and other goods and services.

We all love the zoo, and there’s no denying it could use some cash for infrastructure and other projects. But taxpayers should think hard about whether sales taxes are a fair way to fund this famous Saint Louis institution.

Money Doesn’t Grow on Trees, But We Can Grow the Economy

Posted on by James V. Shuls

When we were kids, our parents used to say things that seemed strange, but made sense after a little thought. For instance, “Money doesn’t grow on trees.” Of course it doesn’t. You don’t have to tell a kid that; it’s obvious. Nevertheless, some people still fail to completely grasp this lesson. As we grow older, we realize the importance in our own lives of spending less than we make. We know that we must make decisions to balance our budgets, and that if we spend more on one thing we have to spend less on another. Yet somehow, when we move from talking about personal finance to state finances this lesson goes out the window. We know money doesn’t grow on trees, but we sometimes treat it as if it should.

For years, educators and some lawmakers in the state have railed against the legislature for failing to fully fund the foundation formula for K-12 public schools. Last year, one lawmaker said her colleagues “refuse” to fund the formula. While lawmakers could choose to fully fund the formula, they aren’t simply deciding to withhold money without reason. Those dollars have to come from somewhere, which means less funding for other programs.

Indeed, this year lawmakers have passed a budget that increases aid for the foundation formula by $45 million, to a total of $3.4 billion. For the first time since the new formula was enacted in 2006, lawmakers will fully fund the formula.

Did they find that elusive money tree? No, of course not. They simply took the money from somewhere else (and they wisely reinstated a cap to growth of the foundation formula target amount)

One place hit hard by this reallocation of funds was higher education. As a result, higher education administrators are making cuts and laying off staff. (Full disclosure: I am a professor at UMSL which has been negatively impacted by the budget cuts).

State lawmakers have done exactly what you and I do when the budget is tight: shift funds from one thing to another. This will always happen as different administrations prioritize one thing over another. The only way to reduce the need to shift money around is to increase the amount of money available by growing the economy. To do this, policymakers should refer to the Show-Me Institute’s 20 for 2020 policy proposals. We’re far more likely to find new revenue for schools through sensible policy reform than by looking for it on trees.

 

Essay: Education, Income, and Social Behavior Across Missouri

Posted on by Rik W. Hafer

You wouldn’t expect a lot of pushback if you claimed that there is a positive relationship between income and level of education. But simple truisms only get us so far, especially in formulating policy. Education budgets aren’t unlimited, and the best use of our resources isn’t always obvious. Should we concentrate on maximizing the number of people who earn a college degree, or is it more important to focus on getting as many students as possible through high school?

A new essay by Gail Heyne Hafer and Rik Hafer explores questions like these by examining data across Missouri counties to track not only economic outcomes but also social behavior in order to see whether different levels of education produce different outcomes at the county level and to inform debate about how educational funding should be allocated across the state.

Click on the link below to read the entire essay.

 

Kansas City’s Airport: A Monument to Political Ego

Posted on by Patrick Tuohey

Kansas City has an effective and efficient airport. There is no reason why Kansas City cannot continue to meet the needs of modern travelers while honoring our past architectural innovation, maintaining the convenience we have come to cherish, and keeping costs down. Many of the complaints that people have are largely cosmetic: (lighting, USB chargers, bathrooms) and could be addressed by repairs and upgrades rather than a complete rebuild. Yet a focus on these less-expensive options is absent from the current debate. Why?

Could the airport just be a legacy project? Two years ago, then–Aviation Department Director Mark VanLoh made it seem that way when he told the Northland Regional Chamber of Commerce, “You don’t have [all the information] yet. We don’t even have it yet. I know what I want because I want a new airport.” He just wanted it.

VanLoh is gone, but the strange enthusiasm for a single terminal continues. The new plan is just as over-the-top as the old one. The justifications for the spending come and go—claims of EPA mandates, TSA concerns, and airlines’ refusal to expand services—but the project itself remains the same: a $1.2-billion single terminal that is actually a downsizing of what we have now.

What is new in this round of the discussion is the financing and no-bid contracting. But regardless of who finances and builds the airport, the risk to Kansas City comes from the possibility of increased fees to airlines and passengers. Right now, Kansas City’s airport is very cheap for airlines, and travelers benefit with lots of flights from here. Increase the costs to airlines, and we risk losing that competitive advantage. Other airports have suffered after building new terminals for just that reason (Consider Cincinnati, Sacramento, or San Jose.).

The good news is that the city is no longer claiming that the airlines agreed to finance the project. This was never the case, despite incorrect claims from the Kansas City Star and the Kansas City Business Journal. In truth, the airlines merely agreed to pay higher rent for a new terminal while reserving their right to renegotiate once the terminal is built. They did not issue or back any debt; they accepted no risk.

Proponents of a new terminal are fond of telling us that the new terminal idea is not a Taj Mahal. In fact, they’ve been using that curious term over and over again for years (see the Google search here). The Taj Mahal, of course, is a 400-year-old elaborate mausoleum in India built to house an emperor’s wife. Such determination to settle for nothing less than a new terminal, however, combined with the candor of Mark VanLoh and the out-of-hand dismissal of cheaper alternatives, suggests that this is exactly what the new terminal is: a modern monument to political ego—not what is best for Kansas City.

Breaking: Blue Cross KC to Leave Obamacare Exchanges

Posted on by Patrick Ishmael

Major news from Andy Marso at the Kansas City Star. Reportedly the move comes after the company experienced a $57 million loss on the exchange in 2016: 

As we have noted before, rural areas of Missouri were already severely underserved by the Obamacare exchanges, and the departure of Blue Cross Kansas City will leave dozens of counties with no Obamacare providers next year if nothing else changes. To give our readers a sense for what part of the state the insurer covered, BCBSKC’s 2017 service map in the exchanges is below:

This may only be the first major insurer departure from Missouri that could happen this year. More on this story as it evolves.

Show-Me Now! Joplin Rebuilt Without Government Subsidies

Posted on by Patrick Tuohey

Six years after a tornado destroyed much of Joplin, MO, the city is back. The population is larger now. Property values are higher now.  And what role did government play in all this? They helped with the cleanup and they reduced the regulatory burden on construction, but when they tried to subsidize the rebuilding effort through tax increment financing (TIF), the developer that received the TIF money failed. And yet the people of Joplin pulled themselves up by their bootstraps and demonstrated for the country that subsidies are not needed to rebuild.

For more information, read our recent case study, Tax-Increment Financing in Post-Tornado Joplin.

 

Break Missouri’s Utility Monopolies

Posted on by Patrick Ishmael

Yesterday Governor Eric Greitens announced that he is calling the Missouri legislature back into a special session that would address economic development issues in the state’s Bootheel. Specifically, the legislature will likely take up a bill, or a variation of it, that died in the regular session’s final days that would allow state regulators to negotiate lower electricity rates for at least two plants in southeast Missouri—a privilege not readily available to other Missouri companies and individuals. Supporters argue that because the plants would be heavy electricity users, a variance in state utility policy is warranted to make the sites more competitive, especially in light of the jobs that would come to those facilities. As the session closed, one representative in particular presented an electric, heartfelt soliloquy on behalf of his constituents who would benefit from the change. I have little doubt that this special session is being called at least in part because of that representative’s fervent advocacy. 

But as happens with proposals like this, there is a tradeoff: other electricity users would ultimately pay more so that these plants could pay less. And it’s that tradeoff that promises to be hotly debated next week when the bill comes up for reconsideration.  Here is the 64-dollar question: rather than carving out exceptions to rules as they go along, why don’t policymakers first consider whether the rules themselves need to be changed for everyone? Such a reanalysis seems exceedingly appropriate as the Legislature focuses its energy on Missouri’s public utilities.  

As a general matter, utility customers across the state do not have a choice in who provides their power, and that impacts us all. If you could only subscribe to one cell phone company, the incentive for that company to compete for your business with better service and lower prices would be drastically reduced. The same is true of utility companies.  Why does Missouri allow the default electricity arrangement to be basically choiceless for the average Missouri customer? 

The state is part of a dwindling subset of utility regulators that still substantively curb utility choice in the United States. I would be more open to the notion that an energy customer is uniquely situated to require a break on its energy costs if Missouri was already operating in a market environment for utilities—one in which market forces could drive down the prices everyone pays. Whatever the eventual disposition of the smelter legislation in this special session, legislators need to have that serious reform discussion sooner, not later. And chances are good that discussion will begin in earnest next week.   

School Choice Criticism: Heads We Win, Tails You Lose

Posted on by Michael Q. McShane

On multiple legs of my commute this week I’ve heard parts of an NPR series on school vouchers. In general, I think much of the commentary has been fair. School vouchers are not some miracle cure that improves schools overnight. Voucher programs are created imperfectly, implemented imperfectly, and thus have growing pains, so not everyone is happy with them. Those people deserve to have their stories told just like families who use vouchers and are thriving.

However, one line of criticism has irked me. The headline of this story encapsulates it well: “Indiana’s School Choice Program Often Underserves Special Needs Students.”

It is true that a smaller percentage of voucher-using students in Indiana are identified as having special needs. It is also true that the maximum voucher amount in the state is $4,800.

That $4,800 number was reached because opponents of vouchers argued that the program should not be able to access local property tax dollars or federal dollars for low-income students or students with special needs. The voucher is derived only from the funding that the state allocates to educate children. What’s more, it also leaves behind 10% of state funding so that traditional public schools have money for fixed costs like debt service and capital upgrades, because opponents also argued that even if students leave, traditional public schools still have to keep the lights on, the building heated, and the parking lot paved.

So opponents constrain the funding amount to a level that can barely pay to educate a student with zero special needs in an already efficient school and then complain when schools don’t take on harder (and more expensive to educate) children.

It’s heads we win, tails you lose. If you actually get the money you need to meet the needs of students with special needs, you are sucking the system dry. If you don’t, and thus don’t serve those kids, you’re discriminating. School choice programs can’t win.

We should be realistic about the tradeoffs in the design of school choice programs. Limiting the amount of money that follows each child will shape who gets served and who doesn’t. If you want voucher programs to serve more students with special needs, send more money with them. If you don’t want to send that money, how is it fair to cry “discrimination” when students aren’t served?

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