Video: Kansas City: Genuinely World Class

Posted on by Wendell Cox
The climate is so-so, there’s no nearby ocean or mountain range, and the metro area population has climbed only modestly over the past 3½ decades. But Kansas City appears to be better positioned than other comparably sized U.S. cities for future growth and prosperity.
 
Urban policy expert Wendell Cox counts the ways. Housing is affordable – in part, he says, because land-use restrictions are minimal – and the overall cost of living is low. With an extensive freeway and arterial system and relatively uncongested traffic, people can get around. KC consequently attracts more “domestic migrants” than it loses. Cox details all of this in his essay Kansas City—Genuinely World Class.
 
Cox, the principal of Demographia, a St. Louis-area public policy and demographics firm, walks through the advantages and what Kansas City needs to do to preserve them in this presentation.

When Kansas City Leaders Got It Right

Posted on by Patrick Tuohey

We often use this blog to criticize city leaders for their bad ideas. City leaders rush to spend public funds on airports and convention hotels and streetcars. They pursue economic development policies that enrich developers while diverting city funds away from important basic services.  But a new study from Wendell Cox suggests that the greatest thing Kansas City leaders ever did was… nothing.

More specifically, Kansas City leaders have not adopted land-use policies that have made cities like Portland and Denver so expensive. To demonstrate the impact of these regulations, Cox uses a “median multiple,” which he calculated by dividing the median house price by the median household income:

In 1990, the three metropolitan areas [Denver, Portland, and Kansas City] had similar housing affordability. The median multiple in both Denver and Portland was 2.4. Kansas City’s median multiple was 2.3. By 2015, the median multiples in Denver and Portland had more than doubled to 5.1. By comparison, the increase in the median multiple was much less in Kansas City, at 2.9.

Other cities also saw housing prices rise without a commensurate increase in median household income:

Sydney, Australia, which was among the earliest to adopt urban containment policy, now is among the least affordable housing markets internationally, with a median multiple of 12.2 in 2015, while San Jose and San Francisco have median multiples of 9.7 and 9.4, respectively. In these metropolitan areas, which had median multiples of under 3.0 before adopting strong land-use regulation, residents now face median multiples that are more than three times as large as those in Kansas City.

Kansas Citians are constantly told that we need to be like Portland and Denver by streetcar aficionados,  Dallas for folks who want a new airport, or Indianapolis by people pushing a new convention hotel. But Kansas City is not those places, thankfully. And our greatest strength—housing affordability and the cost of living it allows—exists exactly because we didn’t follow their lead on land use regulation.

Kansas City needs to be Kansas City, and Cox’s paper is required reading for anyone who wants to understand how we can promote ourselves to the world.

State Audit Reveals Transparency Problems

Posted on by Michael Highsmith

When it comes to the workings of the government, the more transparency the better.  Missouri’s Sunshine Law is intended to help citizens keep their government accountable and see how tax dollars are being used.  In reality, the law is not working.  

In November, Missouri’s State Auditor’s office ran a test.  It randomly delivered 309 letters to political subdivisions in its database.  Each of these public entities (cities, school districts, special taxing districts, etc.) was sent a very simple, anonymous sunshine request, and the responses were then monitored.  The results were dismal.  More than two-thirds of public entities failed to fully comply, and roughly one in six failed to respond at all. 

A few political subdivisions even refused to provide information unless they were told who was requesting it, even though nothing in the Sunshine Law requires that proof of identity accompany a request for information. 

The point of the exercise was to learn what the average citizen deals with when checking on a public body, and the results show that the process is often overly burdensome.  Some responses asked for payments as high as $80 for easily attainable documents like minutes from 2015 meetings. Show-Me Institute analysts have submitted our fair share of sunshine requests and have at times been met with outrageous demands.

It’s possible that some of these failures come from a lack of understanding of the law. If this is the case, then public servants need to be brought up to speed on their duty to the public. When government entities aren’t open to public scrutiny, there is reason for concern.  There’s nothing unreasonable about demanding that public information be public.

Parking Fees Alone Cannot Fund MetroLink Expansion

Posted on by Graham Renz

Saint Louis City Mayor Francis Slay wants to spend $2.2 billion on a new north–south MetroLink line, originally reported at 17 miles long and now coming in at a whopping 31 miles. The Mayor has been enthusiastically pushing the expensive project, but the plan is light on funding details. The plan assumes the federal government will contribute $800 million, but local taxpayers will still need to come up with $1.4 billion for the project to move forward. For context, the Saint Louis Cardinals were valued at $1.4 billion last year.

So far, Mayor Slay has mentioned raising the city’s parking fees to fund the expansion. While this suggestion may appeal to transit activists, parking fees won’t be nearly enough to pay for 31 miles of new MetroLink track. The city’s entire parking division collected just over $16 million in revenue last fiscal year. But the City and County dish out more than $120 million a year just to keep MetroLink running. Even if parking division revenues doubled (or tripled, or quadrupled), expanding MetroLink would still be far out of reach.

The math on parking fees is indisputable, and points to the possibility that the city will be counting on the rest of the region to make the MetroLink expansion happen. The city is looking to Saint Louis County taxpayers, and perhaps others around the region and state, to help pay for the expansion. In fact, the expansion likely cannot move forward unless county taxpayers pay more. But much of the north–south route is far from many county residents, and the county already contributes roughly four times [see p. 67] what the city does in terms of transit funding.

What will it take to expand MetroLink? Assuming Metro, Saint Louis’s transit agency, issues 30-year bonds at current interest rates, expanding MetroLink will require roughly $60 million each year (not including increased operating expenses). To come up with that much money, the city would need to increase parking fees, and both the city and the county would need to impose an additional sales tax, likely of 0.5%. Such an increase would put many local sales tax rates far above 10%. While the mayor and rail proponents may not want to mention such large taxes increases, it’s difficult to see how Metrolink expansion can move forward without them.

As the City pushes big transit plans, taxpayers throughout the region should ask themselves if expanding MetroLink is really worth the cost. Despite the unfounded claims of transit activists, MetroLink has failed to spur development, create jobs, or turn our region into a magnet for the “creative class.” Can we really afford another $1.4 billion?

Subsidies in St. Louis, Part 4: Accountability and Clawbacks

Posted on by Michael Highsmith

Supporters and opponents of tax subsidies disagree over one key question: Do the jobs and economic activity generated by a development justify the tax subsidies awarded to the developer? Answering that question requires accurate reporting of job creation/retention, so taxpayers can see what they’re getting for their money. Unfortunately, in Saint Louis that reporting is hard to obtain.

A recent study commissioned by the St. Louis Development Corporation (SLDC) found that the lack of aggregate information available from developers has made analysis of projects difficult. The study was intended to measure the impact subsidies have had on job creation, but the researchers found that no data was available regarding payroll information. The SLDC subsequently recommended additional reporting from incentive recipients.

Currently, municipalities must submit project details to the Missouri Department of Revenue every year or face losing TIF privileges, but municipalities get their information directly from developers (who self-report), and often reports are incomplete or inaccurate.  In a few cases, such as the construction of a seven-story multi-use building on Tucker Blvd., developers have even listed their anticipated project costs at $0! (see “Nadira’s Place”).

Inaccurate reporting is also an obstacle to accountability, allowing developers to receive taxpayer dollars without being held to the promises they made regarding job creation. When projects fail, there are no consequences. Worse yet, without information about what (or how badly) things went wrong, we can’t learn from the failure and be more selective about future subsidies.

Increased accountability would not limit the use of subsidies where they may be appropriate, but it could help us make better decisions about how they should be used. The SLDC report contains several policy proposals, including the use of “claw back” provisions that would require developers to pay back money they received as incentive for developments that failed to produce their promised job-creation or revitalization outcomes. Given that the story of development subsidies in Saint Louis has hardly been a tale of rousing success, area leaders would do well to take note of the SLDC report and consider its recommendations.

Kansas City and “Fraudulent” Crony Capitalism

Posted on by Patrick Tuohey

President-elect Trump has talked a great deal about the need for massive and widespread infrastructure spending. Many people agree that there is a need for such investment, and furthermore that it is a proper role of government to make such investments. Laura Bliss over at CityLab reminds us of Trump’s nondescript plans, writing,

Trump has said some traditionally infrastructure-y words when he talks about this. “We’re talking about a very large-scale infrastructure bill,” the president-elect said in a long-ranging interview with the New York Times published Wednesday. “… [a]nd we’re going to make sure it is spent on infrastructure and roads and highways.” A proposal to privatize infrastructure projects released by Trump’s economic advisors describes the “complex network of airports, bridges, highways, ports, tunnels, and waterways” that underpins private sector growth.

Bliss worries that Trump will be more inclined toward “major new property development,” rather than infrastructure. She even cites Paul Krugman’s column, where such spending is often boosted, in The New York Times where he writes,

And we already know enough about [Trump’s] infrastructure plan to suggest, strongly, that it’s basically fraudulent, that it would enrich a few well-connected people at taxpayers’ expense while doing very little to cure our investment shortfall. Progressives should not associate themselves with this exercise in crony capitalism.

The President Elect’s infrastructure plan may or may not amount to crony capitalism. As my colleague Patrick Ishmael recently wrote, the Carrier deal in Indiana invites the accusation. Yet this is exactly the sort of crony capitalism that progressives seem to love in Kansas City and St. Louis. Recall that we’ve redirected hundreds of millions of tax revenue into property developments for wealthy corporations such as Cordish, Burns & McDonnell, Cerner, and H&R Block.

Meanwhile, important infrastructure spending (read: roads, bridges, sewers, etc.) is squeezed, because the city cannot afford it. We’ve heard that the city wants to borrow $800 million for such spending—but we have as much detail about where that money will go as Trump has given on his plans. Hopefully, those funds won’t go toward  “fraudulent” infrastructure projects instead of those truly necessary for the public good.

Policy debate on infrastructure is welcome, as is skepticism toward government spending. But if you want to be critical of fraudulent public programs that appear only to enrich the well-connected, you don’t need to travel to Washington to find it—or even leave Kansas City.

Of Underfunding and Overpromising

Posted on by Michael Highsmith

Planning for retirement is no small task, and when news comes that a public pension plan is in financial trouble, both plan employees and local taxpayers should be concerned, because one of the two is going to have to pick up the tab.

Missouri’s State Auditor recently released an audit on the City of Bridgeton’s Employee Retirement Plan, and the picture painted was bleak. In addition to finding that the city’s Finance Commission failed to meet even once from 2012 to 2014, the report says the plan is only 67% funded and that the unfunded liability is approximately $14 million. The plan’s current funds will not be able to pay the benefits that retirees have been promised. The combination of insufficient contributions and lackluster investment returns has brought put the existing plan in its current condition.

Defined-benefit plans like Bridgeton’s typically involve a commitment to make monthly payments to employees for the remainder of their lives. In order to sufficiently fund the promised benefits, plans assume a rate of return on the contributions that they invest. Those assumptions are often too rosy; Bridgeton’s assumed rate has been 7.5%, while over the past ten years the time-weighted return has only been 4.16%.

Over time, the funding gap widens and the result is a large gap between the amount the city has promised retiring employees and the amount the city has set aside for that purpose. In Bridgeton’s case, no payments have been withheld from retirees, but in order for the city to meet its future obligations, contributions have to increase. Either funds must be allocated away from other public services, or taxes must go up.

This is exactly what has happened. In April 2015, Bridgeton increased its hotel service occupation tax from $0.85 to $3.00 per day. A portion of the additional revenue goes toward increasing the plan’s contributions by $200,000 each year.

Bridgeton is not alone. The Pew Charitable Trusts reports the shortfall between state-run promised pension benefits and available funding is nearly 1 trillion dollars nationwide. Defined-benefit plans are often legally binding, so when investment returns fall short of what was predicted for the plan years ago, taxpayers can be forced to foot the bill.

The good news is that Bridgeton’s defined-benefit plan was closed to future employees in 2012 and replaced with a defined-contribution plan. In a defined-contribution plan – think 401(k) – benefits are not paid out indefinitely to employees. Rather, upon retirement the funds that have been accrued are made available to the employee. The key difference between the two is that a defined-benefit plan makes a promise it may not be able to keep without taxpayer assistance, while a defined-contribution plan, by definition, cannot incur a funding gap.

Defined-contribution plans can protect taxpayers, municipalities, and employees from having to worry about underfunded pension plans or budget shortfalls. Bridgeton took the leap to defined-contribution in 2012 to avoid exacerbating its current funding problems; other defined-benefit plans in Missouri should consider doing the same.

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