John Cochrane, Senior Fellow at the Hoover Institution, discusses policies to spur economic growth in this Speakers Series presentation.
Patrick Tuohey Discusses Blighted Luxury Hotels on KCPT’s Ruckus
On Thursday, October 13, the Show-Me Institute’s Patrick Tuohey appeared on Kansas City Public Television’s Ruckus to discuss the stalled convention hotel project, CIDs for the InterContinental Hotel & Marriott, the proposed Swope Park Arts Festival, and other local issues. Click on the link to watch the entire show.
Public Pensions Hadn’t Planned for This
The last thing a soon-to-retire worker wants to hear is that his retirement plan is in financial trouble. And the last thing taxpayers want to hear is that they have to make up for any losses.
Last week Missouri’s State Auditor found that, as of plan year 2015, the City of Bridgeton’s Employee Retirement Plan was only 67% funded and had unfunded liabilities of nearly $14 million. Bridgeton’s defined benefit (DB) plan was retired in 2012, but insufficient contributions from the city and lower-than-expected investment returns coincided with a lack of government oversight (the Finance Commission did not hold a single meeting from 2012–2014) to create the perfect storm. The plan’s current funding trajectory apparently leaves Bridgeton with two options: reduce payments to retirees, or put future taxpayers on the hook for the $14 million gap.
Mayor Terry Briggs spoke of the funding crisis, saying “If you were guaranteed that pension, you’re going to get that pension. We will have to scrape and come up with other means which may be . . . to contribute more money into it.…” Defined benefit (DB) plans typically guarantee monthly payments for life, so any financial risk falls upon taxpayers. In Bridgton’s case there may be no legal obligation to pay benefits if the plan’s funds are insufficient, but a recent local hotel tax increase indicates that Bridgeton policymakers acknowledge their obligation to retirees.
Bridgeton is not the only city that has been confronted with unfunded liabilities. The Pew Charitable Trusts has valued the shortfall between promised pension benefits and available funding at nearly 1 trillion dollars nationwide.
One alternative that avoids any possibility of incurring this funding gap is a defined contribution (DC) plan. In a DC plan—think 401(k)—benefits are not paid out indefinitely to retiring employees. Instead, contributions are invested during an employee’s career; upon retirement the funds are made available to the employee.
DC plans can protect municipalities and future taxpayers from devastating budget shortfalls, and protect retirees from the possible bankruptcy of municipalities. Bridgeton moved to a DC plan in 2012 to curtail the growth of its potential liability; other cities in Missouri should consider doing the same.
Missouri and the Lukewarm, Tepid, So-So, Unexceptional Personal Income Growth
For the state of Missouri, every quarter seems to be an unremarkable quarter of personal income growth. And this latest quarter was just as plain-vanilla. U.S. Bureau of Economic Analysis (BEA) just released personal income growth estimates for the second quarter of 2016 and Missouri was middle of the road with a pedestrian 0.98% growth over last quarter. Missouri’s growth rate was just below that of the nation as a whole, and we ranked 28th out of the 50 states.
If you have a high-skill occupation, you’re probably doing better than the BEA data indicate at first glance. The largest contributor to growth came from professional, scientific, and technical jobs; management of companies; and health care and social assistance jobs. On the other hand, moderate- to low skilled jobs showed little or no growth (see Table 3a and Table 3b on the “Tables Only” link here). While it is understandable that every state can have an unimpressive quarter, those with a vested interest in the state’s economic environment shouldn’t be satisfied with a consistent mediocre performance.
Should The United States Be Importing Education Policy?
Why not bring the most successful education policies from around the world here to the United States? Because it isn't that simple. As we've discussed before, there are reasons why policies that are effective in one environment may not work so well in another. Check out the video above to learn more.
The TIF Tax
On the November ballot, many Clay, Jackson, and Platte County residents will be asked to increase their property tax levy by 8 cents to support the Mid-Continent Library system. We calculate that passage would result in an increase as high as $10 million per year. These counties already have high property taxes according to the Brookings Institution, so a further increase is worthy of examination.
The Mid-Continent Library system spends just short of $44 million each year. As far as we at the Show-Me Institute can tell, they appear to be managing their budgets well. The library itself makes an additional point:
In addition, tax incentives and abatements by local government have impacted the revenue that would generally result from the growth of the Library’s tax base. The Library’s budget has been essentially flat for the past 8 years.
It appears that the cost of those tax incentives and abatements given to private developers—which we’ve discussed elsewhere–amounts to about $7 million a year in lost income to the library. The levy will replace that lost income.
We don’t have a view on whether voters should approve the levy increase, but it is clear that municipal handouts to wealthy corporations such as Cerner and Burns & McDonnell are not free. (To add insult to injury, these same corporations won’t have to pay this increased rate, either.) A levy increase such as this, which seeks to recoup diverted funds, can rightly be described as a TIF tax.
Free to Ride and Free to Earn
I recently spoke to an Uber driver who was arrested and booked for dropping a customer off at Lambert International Airport. Unfortunately, more Uber drivers may suffer the same fate in the near future, and ridesharing could come to a screeching halt in St. Louis.
A forthcoming decision from a St. Louis County Court could restrict the ridesharing company Uber from operating in the region. The Metropolitan Taxi Commission (MTC) is seeking a restraining order against Uber, and Uber claims the MTC has breached anti-trust law. A decision could be issued this month.
In short, the MTC is trying to stifle competition. Firms like Uber and Lyft provide innovative services consumers overwhelmingly prefer to traditional taxis. In an effort to save their own skins, taxi companies are trying to impose on ridesharing firms the same outdated, burdensome regulations they comply with (rather than push for a reform of current regulations).
But the MTC and taxi companies aren’t alone. Some commentators claim firms like Uber (and others in the so-called ‘gig economy’) are bad for consumers and workers alike, threatening not just public safety, but also the financial well-being of ordinary workers. Despite the lack of evidence for either of these claims (see here and here, respectively), there is a more fundamental question these detractors ignore: Why shouldn’t people have the right to choose to ride or work with Uber?
And by the way, if Uber is dangerous, why are Missouri cities without it continually pressuring regulators to bring it to town? If Uber is bad for workers, why is the President of the Saint Louis NAACP urging the MTC to let it operate, so as to provide jobs for those with fewer economic opportunities? If Uber is so terrible that the MTC is trying to bar it from operating, why are consumers calling out for it?
Economists estimate that Uber produces nearly $7 billion in social value annually. It’s time regulators step out of the way and let riders and drivers in St. Louis get a piece of that pie.
The Consequences of Bad Policy
The Kansas City Star recently reported that Urban Summit activists have turned in petition signatures requiring a citywide vote for an additional sales tax to support development on the east side of town. While this effort is the logical conclusion of years of urban neglect and crony capitalism, it will likely do little to help the East Side.
The Show-Me Institute stands arm-in-arm with those decrying the decades of neglect suffered by the East Side. In fact, we authored the chapter that exposed the fact that city economic development policy favors wealthy developers in the Urban League’s “2015 State of Black Kansas City.” Kansas City leaders have for years turned a blind eye to the economic decline suffered by our urban core. Worse still, city leaders have actively pursued development policies that diverted important resources away from schools and libraries in that same community.
Just as Kansas City’s shameful past of red-lining and block-busting a generation ago aided and abetted racial segregation, subsidies for today’s wealthy developers have diverted property taxes away from important city services on the East Side and toward the millionaires and billionaires at Burns & McDonnell, Cerner, and VanTrust.
Kansas City has so hollowed out its tax base through these diversions that the city must borrow money to provide basic services like tearing down dangerous buildings and repairing roads. While Kansas City suffers a two-year spike in homicides, our cash-strapped police force has fewer uniformed officers than it had in 2011.
Desperate for the basic services that the city government should be providing, communities on the East Side have resorted to community improvement districts (CIDs). The Independence Avenue CID charges a one-percent sales tax in order to provide security and beautification—things residents feel they cannot get from the police or the parks department. As a result, families living in the urban core are paying a higher tax rate on food just to feel safe while they shop.
Vernon Howard Jr., senior pastor of St. Mark Union Church, was correct when he told the Star, “City, county, state and federal jurisdictions have not, to date, focused upon the inner city with the kind of zeal, investment, intentionality and creativity as have been vested within mostly white and wealthier neighborhoods and communities.”
I empathize with East Side leaders, but their solution may only make matters worse. Adding another sales tax means poorer residents will be forced to pay more out of their pockets to get services they should already be getting for their earnings taxes, property taxes, (already high) sales taxes, COMBAT taxes, and all the rest.
If Kansas City is to thrive, it needs to dramatically overhaul its taxing and spending policies. We need to limit our profligate spending on touristy frou-frou and focus on providing services quickly, efficiently, and compassionately; we need to stop subsidizing wealthy corporations and luxury high-rises; and we must focus on developing the things that make Kansas City great—rather than merely mimicking Portland or Denver or Dallas. Because as jobs and population numbers attest, we are losing that game.
Analyzing Amendment 3
On November 8, Missourians will be asked to vote on Amendment 3, an initiative that looks to increase tobacco taxes to pay for early childhood education.
At first glance, I can see why folks might want to support such an effort. Smoking is bad, so we should tax it. Preschool is good so we should provide it.
Oh, how I wish it were that simple!
In my new essay, Amendment 3: The Good, the Bad, and the Ugly, I break down all of the intricate issues involved in this proposed constitutional amendment. What is the impetus for this proposal? Is there really a need to be met here? Is pre-K as big of a deal as supporters say it is? Do tobacco taxes have any downside?
I hope that the essay will increase understanding about the possible consequences of this amendment (intended and unintended) and help Missourians cast more informed votes as a result.
