Can the Kansas City Streetcar Expansion Be Built Even If It Wins?

Posted on by Patrick Tuohey

The Kansas City Star published a story the other day which examined the new budget proposal from the Trump administration. The piece stated:

Trump’s budget, which would go into effect in October if Congress approves it, would eliminate the Transportation Investment Generating Economic Recovery (TIGER) grant program, a nearly $500 million grant program run by the U.S. Department of Transportation.

The streetcar expansion plan is reliant on federal support. According to a 4-page document put out by the Kansas City Regional Transit Alliance, $100 million of the $227 million expansion cost to expand the downtown streetcar line would be provided by the federal government through the Small Starts program. But that program is also facing a funding freeze:

The New Starts program, which helps fund local transportation projects costing over $300 million (a sister program, Small Starts, assists with projects under that threshold), would be frozen. New applications to the program, which currently has $2.3 billion to spend annually through 2020, would be outright rejected, limiting any new grants and placing the onus on local and state government to fund additional projects. [Emphasis added.]

This means the Kansas City request for streetcar money could be rejected outright. And that money is required for the extension to take place. According to the Kansas City Regional Transit Alliance,

The project will require federal grant funding, and the applicant and recipient would be the City just like with the starter line. If federal funds are secured, public involvement in the engineering and design is required.

The language from the court ruling allowing the new transportation development district (TDD) throws another wrench in streetcar advocates’ plans: no taxes or assessments can be collected from within the district until enough external funding—in this case federal funds—are available. The Trump administration has made the availability of federal funds highly unlikely. Congress could seek to continue federal New Starts funding, according to Rich Sampson of the Community Transportation Association of America, but it will be an uphill climb. And even if streetcar funding is provided by Congress, the administration may choose not to spend it.

Voters are being asked to take the risk of expanding the TDD and levying on themselves a special property tax assessment and a sales tax contingent on the Trump administration coughing up 40% of the total streetcar expansion cost. Laying aside the merits of the policy at hand, voters should be wary of approving something that is dependent on a funding source that may be little more than wishful thinking.

Missing: Credible Evidence that Stadiums Grow the Economy

Posted on by Graham Renz

What do leprechauns, ghosts, and economic benefits from sports stadiums all have in common? They lack any substantive evidence for their existence.

Would-be owners of a Saint Louis Major League Soccer team are trying to persuade the public to part with $60 million so they can build a new stadium just west of Union Station. In their effort to woo tens of millions of dollars away from an already over-burdened public, proponents and officials are promising a host of economic benefits if the stadium is built.

Unfortunately, the vast majority of economists can’t find any evidence that these promises will be kept—and Saint Louis is definitely the wrong place to start looking. Despite hundreds of millions of public dollars for the convention center and dome, downtown Saint Louis continues to languish. In fact, the areas adjacent to the dome are mostly empty, and development on Washington Avenue is propped up mostly by decades of subsidies through tax increment financing, abatement, and special sales tax districts. Why should Saint Louisans think that “investing” in a new stadium is anything but doubling down on the same-old, wrongheaded policies?

Stadium boosters often come armed with reports predicting their projects will deliver prosperity in a handbasket. These promotional studies completed by for-hire economists will be packed with predictions of new jobs, urban revitalization, and boosted tax revenue. But as economists Dennis Coates and Brad Humphreys explained in a 2008 Econ Journal Watch article on the topic, such promotional studies suffer from “a long list of methodological and theoretical problems.” And as far back as 2000, John Siegfried and Andrew Zimbalist wrote in the Journal of Economic Perspectives that studies cited by developers “inevitably adopt unrealistic assumptions regarding local value added, new spending, and associated [economic] multipliers.” In short, we should be suspicious of “studies” commissioned by stadiums proponents for stadium proponents.

The scenarios presented by stadium boosters aren’t just fanciful—they are in direct conflict with expert economic opinion. Eighty-five percent of economists are in favor of eliminating subsidies for stadiums, while only 5% are against jettisoning such handouts. Consensus like this exists virtually nowhere else in the economic literature. And why are economists all singing the same tune? Because the economic benefits touted by stadium proponents are as elusive as Bigfoot. As Coates and Humphreys put it, “No matter what cities or geographical areas are examined, no matter what estimators are used, no matter what model specifications are used, and no matter what variables are used, articles published in peer reviewed economics journals contain almost no evidence that professional sports franchises and facilities have a measurable economic impact on the economy.”

If your doctor tells you a medicine won’t cure your illness, you don’t go purchase five bottles of it. If your financial advisor warns that a company is far too risky for its potential payoff, you don’t buy a majority share in it. And if economists counsel against subsidizing a stadium in order to grow the economy . . . well, you see the pattern here. Before committing millions of taxpayer dollars to a new soccer stadium, Saint Louisans should demand something more compelling than “analysis” from the only people these stadiums have been shown to benefit—the developers themselves.

The Unlikely Promises of Questions 1, 2, 3, and 4

Posted on by Patrick Tuohey

Kansas City voters face four questions on the April 4 ballot that could commit them to years of higher taxes. All four are very unlikely to live up to their supporters’ claims.

City leaders have been speaking far and wide about the general obligation (GO) bond before voters (Questions 1, 2 and 3). Their presentations focus on what could be done with the money. But often overlooked are two important points: the city’s assumptions about cost, and how the City Council spends money.

At a public meeting in Waldo, Finance Department Director Randy Landes said, “the average impact to the property tax owner . . . is an $8 increase each year.” Other council members have said largely the same thing. A reasonable listener would conclude that the cost is only $8 per year. But that would be incorrect.

As detailed in the Star’s March 11 story, campaign literature understates the cost to taxpayers. The GO bond would saddle taxpayers with 40 years of debt. After the last bond payment was made in 2056, the owner of a $140,000 house and a $15,000 car would have paid $4,152.98. The owner of a $100,000 house and $15,000 car would have paid $3,154.24.

The city reaches their low numbers by doing two questionable things. First, they include in their estimates the existing bonds that will be paid off over the next 20 years. But those levy reductions will happen regardless; including them only serves to confuse the issue. Second, the city assumes that there will be no increases in the property tax. Current city leaders have no idea what subsequent councils will do, but it’s difficult to imagine the levy remaining the same for the next four decades. That assumption is misleading.

Another concern is whether the city will divert these taxes to pet projects. City leaders are quick to point out that the money raised by these bonds is required to go to streets and sidewalks. But that isn’t the case with general fund money that currently funds these needs. Councilman Lucas admitted in the meeting, “If we spend important dollars on this bond obligation, we’re able to free up funds to attack other vital issues.” If the bonds are passed, the city will be able to reallocate general funds to projects other than streets and sidewalks.

A more accountable and transparent approach would be to issue smaller bonds and be very explicit about how bond and general fund money will be spent. Voters could then assess each project before committing to a subsequent bond. On April 4, voters risk funding the same sort of misspending that put Kansas City in the mess we have now.

Also on the ballot is Question 4, a measure to increase the city-wide sales tax by one-eighth of one percent to fund economic development projects on the East Side.

No one can dispute that decades of neglect from City Hall—combined with the past ten years of generous taxpayer subsidies to wealthy developers to build in economically successful parts of town—have devastated Kansas City’s urban core. These subsidies not only help steer development away from the East Side, but they also divert resources from basic services such as public education, libraries, and health services that are vital to these communities.

While supporters of Question 4 are to be congratulated for wanting to address economic injustice, one more tax-funded subsidy will not solve the problem. In fact, one more increase in an already-high sales tax likely will do more harm.

Questions 1 through 4 seek quick fixes to serious financial challenges in Kansas City. Without substantive long-term solutions to the problems that got us here, voters risk spending more to get the same outcome we have in the past.

Criminal Justice Reform: Addressing the Costs of Incarceration

Posted on by Patrick Tuohey

Missouri has a criminal justice problem. While the spike in homicides in Kansas City captures a lot of attention, as it should, it isn’t our only challenge. Rates of property crime and violent crime in Missouri are higher than the national average, and our state has one of the highest incarceration rates in the country. Research suggests that Missouri can adopt policies that will reduce recidivism and prison costs.

According to the National Institute of Corrections, “The crime rate in Missouri (2015) is about 18% higher than the national average rate.” Missouri is also eighth in the nation in its incarceration rate, imprisoning 530 people per 100,000 population in 2015.

Then there is the cost. The Department of Corrections budget has grown from $580 million in 2006 to $710 million in 2016. In the last five years that growth has been driven chiefly by adult institutions. The only good news in Missouri’s prison data is that as of 2012, Missouri paid $22,350 each year per inmate, well below the national average of $32,142.

Missouri is not alone in struggling with crime and incarceration rates. High crime rates in the 1970s led many state legislatures to adopt harsh sentencing guidelines, including mandatory minimum sentences for various crimes. The states embarked on “throw the key away” crime control measures that increased the prison population at great public expense. But research has shown that there are diminishing returns to harsh sentences—they don’t always result in a reduction in crime. States have been reexamining their sentencing laws, and the results are promising. Early research from around the country suggests that some criminal justice reforms, such as those that address mandatory minimum sentencing, can reduce crime rates and save states money. The American Legislative Exchange Council (ALEC) has published an excellent paper on the matter.

According to the Missouri Department of Corrections’ just-released Profile of Institutional and Supervised Offender Population (page 33), of the 30,754 members of the prison population, 41 percent are there for either nonviolent crime (7,377 inmates) or for drug-related crimes (5,403 inmates). These two offender groups, incidentally, are the fastest-growing populations since 2011. Imagine how much Missouri could save if courts had the flexibility to sentence these nonviolent offenders to treatment programs or probationary periods prior to locking them up—while still retaining the ability to treat violent or habitual offenders harshly.

Furthermore, imagine the benefit in human capital if nonviolent and drug offenders were sentenced to treatment or probation instead of being warehoused in state institutions with few opportunities for self-improvement.

The model reforms ALEC recommends are known at the Justice Safety Valve Act, and have been introduced in the Missouri general assembly as HB1037 and HB1046. If these reforms can do what they have done elsewhere—protect Missourians while avoiding unnecessary sentencing and costs—they are well worth consideration.

Should Sales and Use Taxes Fund Interstate Improvements?

Posted on by Graham Renz

Missouri’s “Main Street,” Interstate 70, is in need of more than the usual, periodic repairs. The roadway is, in some places, 60 years old, and its foundation has deteriorated. Put simply, the massive piece of infrastructure needs to be rebuilt and many citizens also want it expanded. But, even with a strengthening economy, the Missouri Department of Transportation (MoDOT) doesn’t have the means to fund reconstruction and expansion of the roadway. So, how will the job get done?

A few proposals to fund I-70’s reconstruction have emerged in Jefferson City this legislative session. One bill, SJR 3, would raise fuel taxes by just a few cents (1.5 cents/gallon on gasoline, and 3.5 cents/gallon on diesel fuel) , and is estimated to generate $57M a year for MoDOT and $24.5M for local governments to spend on roads. Another bill, HB 155, would allow the Missouri Highways and Transportation Commission (MHTC, which oversees MoDOT), to receive proposals from the private sector on the rebuilding and eventual tolling of Interstate 70. Both proposals focus on increasing user fees, which directly tie the funding of roads to the consumption of roads.

Another bill, SB 457, takes a different approach. SB 457 would, for 10 years, divert 8% of state sales and use tax proceeds away from the general fund to a newly established “Interstate 70 Improvement Fund.” Most of those funds, averaging $250M a year, would go towards reconstructing and expanding I-70 to four lanes each direction. SB 457 would generate enough revenue to rebuild and expand I-70, but the question arises: Are sales and use taxes appropriate sources of revenue for transportation investments? The answer isn’t so clear.

For one thing, it isn’t necessarily fair to force people who don’t use I-70 to pay for it. Should a working-class family in Cape Girardeau have to pay for an interstate they’ll never drive on? Should someone who doesn’t drive at all pay for the interstate system? Moreover, basing highway funding on sales and use tax revenue could lead to unintended economic consequences. As former Show-Me Institute Policy Analyst Joseph Miller put it, “If people pay for roads and bridges based on how much they shop and not how much they drive, it will make driving look comparatively cheap, pushing people to drive more at any gasoline price, thereby increasing congestion, pollution, and urban sprawl.” In short, by socializing the cost of roadways through general taxation, people will drive more than they usually would, creating negative externalities that a user fee-based system could internalize.

It’s also worth asking whether diverting general revenue, which funds public safety, education and other important services, is the best policy option at a time when the state is making budget cuts. If general revenues are used to fund interstate improvements, could that mean services traditionally funded with general revenues will be scarcer? It’s hard to know, but policymakers would be wise to consider possible consequences before shifting funds away from other areas.

In 2014, Missourians soundly rejected a transportation sales tax hike. Perhaps that, if anything, is a signal that Missourians don’t want their shopping patterns dictating their roadway funding.

Raise the Age-and Save!

Posted on by Patrick Tuohey

We wrote recently of the opportunity to improve public safety in Missouri by “Raising the Age”—that is, keeping most 17-year olds out of the adult criminal justice system.

Part of the potential benefit is related to federal guidelines that require jailed and imprisoned youth under age 18 to be kept completely separate from the adult population. The guidelines, designed to prevent sexual and physical abuse of children, are expensive to comply with, and Raising the Age would reduce the number of youth who require this protection.

There are additional reasons to think that Raise the Age reforms would save money. Ninety-three percent of 17-year-olds arrested in Missouri are charged with nonviolent or misdemeanor offenses. In the current system they are charged, jailed, and imprisoned as adults. That is costly to taxpayers, and the Missouri Department of Corrections estimates that it would save $14 million each year if, as legislation now being considered in the Senate and the House proposes, most 17-year olds were prosecuted in juvenile court instead of the adult system.

The good news is that thanks to previous and largely successful reforms in Missouri’s juvenile criminal justice system, there are fewer children going through the system. In 2006, the Division of Youth Services (DYS) saw 1,214 commitments. In 2016, there were only 645—a reduction of nearly 50 percent.

But representatives of the Missouri Juvenile Justice Association (MJJA)—a trade association of “juvenile officers,” a class of court employee that works with youth in the juvenile justice system—testified against HB 274, a measure that would require that 17-year-olds be prosecuted under the juvenile justice system unless they have been certified as adults. The MJJA representatives claim the measure will increase workload, and they want passage to be contingent on more than $15 million in new spending for more juvenile officers. It’s natural to assume that an influx of new clients might justify hiring more officers, but consider two trends in Missouri’s juvenile justice population over the past decade or so:

  • Total referrals to juvenile court are down 28% since 2004. (Source: Missouri Juvenile & Family Division 2015 Annual Report, page 10)
  • Missouri already pays for over 20% more juvenile officers than it did in 2006, when nearly twice as many youth were arrested and passed through Missouri’s juvenile courts.

Raising the Age could be of great benefit to the children caught up in Missouri’s criminal justice system, and the opportunity to move them to the juvenile court system could also save taxpayers a lot of money. It would be unfortunate if this reform fell victim to state employees who demand more funding despite already having one-fifth more workers to handle just over half the cases they did 10 years ago. Where is the justice in that?

What Does It Mean for the State to “Underfund” Education?

Posted on by James V. Shuls

A new budget proposal from Rep. Scott Fitzpatrick (R-Shell Knob) would fully fund Missouri’s foundation formula for K-12 education for the first time in years. As I have noted in the past, there were some obvious reasons for why the formula has been underfunded. The formula had features that let it grow rapidly. When this happened, the state simply could not keep up with the obligations. Last year, legislators reinstituted a five percent cap on growth in the formula. That change makes fully funding the formula an actual possibility—one that could become reality as soon as next year.

The fact that Missouri has not fully funded the formula has been a rallying cry for more education spending. Indeed, educators across the state have claimed that we are “underfunding public education.” This new budget proposal has me wondering what will happen to those calls for increased spending when the state finally does fully fund the formula. Will they die down, or will they persist? To answer this question, it is important to define “underfunding” public education. Below, I explain three ways to think about education spending.

Constitutional Obligations

State constitutions vary in what they require in terms of education spending. Some state constitutions say very little. Others call education a “paramount duty” of the state. In Missouri, the constitution explicitly requires the state to spend 25 percent of state revenue on public education, which the state regularly does. The Missouri Supreme Court has upheld the funding system as recently as 2009.

Formula Obligations

The legislature is responsible for creating a formula to fund public schools. Missouri uses a foundation formula, which calculates exactly how much the state should spend on each student in the state. The Show-Me Institute recently released an updated version of my paper, “A Primer on Missouri’s Foundation Formula for K-12 Public Education,” which explains exactly how schools are funded by the state.

In creating the formula, the state creates what may be seen as another form of obligation—a stated obligation of adequacy. This obligation may be separate from a constitutional requirement, but it nevertheless creates an expectation among public school officials. They expect lawmakers to fully fund the formula they created. As we have seen failure to do so creates a useful talking point for advocates of higher education spending—we are underfunding the formula.

Now, it seems that argument may disappear.

Moral Obligations

What happens when Missouri fulfills its constitutional and formula obligations to fully fund public education? This will take some of the wind out of the sails of advocates for higher education spending, but it certainly will not end calls to increase funding. The truth is that individuals have their own views on education. These views may or may not be informed by research, but ultimately they flow from our own personal values, beliefs, and morals. I call this the moral obligation to fund schools. The level of this obligation is not universal; rather, it varies from individual to individual.

I applaud the legislature’s effort to fully satisfy both constitutional and formula obligations in funding Missouri’s schools. Nevertheless, we should anticipate continued calls for increased spending. Those calls, however, will be easier for lawmakers to address when they can point to a fully funded formula. 

Criminal Justice Reform: Mandatory Minimums

Posted on by Patrick Tuohey

Legislation has been introduced in Missouri that would relax the state’s rigid sentencing laws in favor of more flexible guidelines. Known as the Justice Safety Valve Act, the bill would offer a reprieve from inflexible one-size-fits-all sentencing and could save taxpayers a lot of money.

Under current law, sentencing courts are required to issue minimum prison terms based on several criteria including severity of the crime, previous convictions, and whether the infraction involved violence and/or firearms. The new legislation gives courts greater discretion.  In cases not involving serious physical force or abuse of a child, courts may:

depart from the applicable mandatory minimum sentence if the court finds substantial and compelling reasons on the record that, in giving due regard to the nature of the offense, the history and character of the defendant, and his or her chances of successful rehabilitation, imposition of the mandatory minimum sentence would result in substantial injustice to the defendant or the mandatory minimum sentence is not necessary for the protection of the public.

The opportunities presented by the Justice Safety Valve Act—cost savings for taxpayers, real rehabilitation for offenders, and reduction of recidivism—seem well worth the legislature’s consideration.

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