Michael Highsmith appeared on ABC 30’s The Allman Report on Monday, November 21 to discuss public funding for a new MLS stadium in St. Louis. Click here to watch!
What Can City Leaders Do To Grow A City? Not Much
Wendell Cox recently wrote a paper for the Show Me Institute titled, “Kansas City—Genuinely World Class: A Competitive Analysis.” In it, Cox assesses our economic strengths and weaknesses so that we can develop better public policy.
In a recent interview on Missouri Viewpoints, Cox said
I’m a bit of a skeptic on how much difference it makes to have a great economic development department. People move where housing is affordable; where life is good—livable communities. And by livable I mean low cost of living, good traffic, a place where you can raise your family from before you have children to the point where you have children and move later.
This may be disheartening to policy wonks and anyone working in the economic development field, but Cox is not alone. In 2014, economist Enrico Moretti gave an interview to National Public Radio where he said the same thing about cities that had become innovation centers:
"[Interviewer] This is the unsettling part of your book: How do cities replicate these innovative job clusters?
"[Moretti] It's very tough, because if you look historically where the innovation clusters are located, almost none of them [were] created by some deliberate, explicit policy. It's really hard to engineer an innovation cluster. We talk about Seattle, but if you look at a lot of the clusters, they were all born in very random, often serendipitous, ways. So it's really hard for policymakers to engineer from scratch."
This is important because Kansas City leaders are already on the record talking about how they want to build a city for the future. But how likely is it that city officials will be able to legislate into reality an as-yet-imaginary Kansas City technology district. The takeaway from Cox’s research is that policymakers ought to understand Kansas City’s strengths and build on them rather than just imitate what other cities are doing.
Education Reform Should Be Top Priority for Missouri’s Leaders
On November 8, Missourians sent a clear message: We want change. Republicans won every major statewide office—all of which but one had been held by Democrats. The Missouri House and Senate retained Republican supermajorities. President-elect Trump won the state by 19 points.
Now it’s time to get to work. At the top of the to-do list should be education reform. Education reform has a proud tradition among conservatives, and reflects the core conservative values of free enterprise, entrepreneurship, and accountability for public dollars.
The need is great. Among the class of 2015, only 22 percent of Missouri students who took the ACT scored “college ready” in all four tested subjects. On the 2015 National Assessment for Educational Progress, only 31 percent of Missouri 8th-graders were deemed “proficient” in math and only 36% were found proficient in reading. The most recent AP Report to the Nation found that only 9.5% of Missouri’s students graduated high school having scored 3 or higher on an AP test, putting us in the bottom five states in the nation for AP performance.
There is no time to waste. Luckily, there are at least three steps policymakers can take to improve Missouri’s education system:
Expand charter schools statewide. Right now, charter schools are functionally limited to operating within the boundaries of the Kansas City and Saint Louis school districts. Within those constraints, they have created some incredible opportunities for students. Independent evaluators found that Kansas City’s Ewing Marion Kaufmann School produced a whopping 1.35 additional years of learning in Math and 1.29 years of learning in reading for students who attended the school for at least three years—all while serving a student population that is 86% free and reduced lunch eligible. Many students in Hickman Mills (whose performance data looks nearly indistinguishable from that of the Kansas City Public Schools) and other struggling districts across the state would jump at the chance to attend such a school.
Create a course access program. In the 2014–15 school year, 285 school districts in Missouri had zero students take an AP class. 255 districts didn’t have a single student take Calculus. 213 districts didn’t have a single student take Physics. In most cases, these are smaller rural districts that simply don’t have enough demand to justify hiring a full-time AP or advanced Math or Science teacher. Course access programs were created to address this very problem; they allow students to direct a portion of their annual per-pupil funding to approved course providers outside of their traditional public schools and to receive credit for classes they successfully pass. If, for example, a student’s school doesn’t offer calculus, or only offers Spanish and she wants to take Mandarin, she could head to the library and log into an online class. The cost for the class would be paid with the fraction of her state funding that would normally cover that class period.
Establish an education savings account program. Rather than sending a child’s yearly education funding to their local public or charter school, the state could put that money into a flexible-use spending account that parents could control. Parents could use the money in this account for private school tuition, tutoring, special education services, or any number of other approved expenses. This maximally flexible funding system would do the most to move our education system into the 21st century, allowing families to fully customize their child’s education.
Our children deserve a world-class education system. Gridlock, vetoes, or divided government can’t be an excuse. Let’s work together to give it to them.
Speakers Series on Economic Policy: The Success Academy Experience and Lessons Learned
Eva Moskowitz founded Success Academy Charter Schools in 2006. Over the past ten years, Success has become the largest network of public charter schools in New York City, and one of the highest-performing schools in the country. Success has proved many times over that, regardless of neighborhood, racial, ethnic, and socio-economic lines, children can attain the highest academic standards. Success Academy scholars, from primarily high-risk, low-income, inner-city neighborhoods, have achieved tremendous academic success, scoring in the top 1% in math and top 2% in English Language Arts among all New York State schools in 2016.
Ms. Moskowitz began her leadership in education reform with her service as a member of the New York City Council, and she served as chair of the Council’s Education Committee. She earned her B.A. at the University of Pennsylvania and her Ph.D. in American History at Johns Hopkins University, Ms. Moskowitz also taught civics at Prep for Prep, a program for gifted minority students.
Straight Talk on Kansas City’s Incentive Reform
In 2014, Mayor Sly James said that “Now is the time to start a conversation about the appropriate level of incentives we need to grant, especially considering the impact of declining property values felt by all taxing jurisdictions during the recent economic downturn.” At the time, he suggested that a 50% reduction in subsidies would be a “new normal”.
But very recently, when the City Council of Kansas City passed an incentive reform measure that lowers the level of subsidies that developers receive by 25%, the Mayor’s reaction was less than enthusiastic. He said that the reform could “once again put up a sign that says Kansas City is closed for business.” It’s disheartening that our leadership would reverse course on such an important issue, and it’s unfortunate that the Mayor would respond to sound policy changes with such overblown and misguided worries.
Councilman Quinton Lucas and others deserve credit for their efforts in passing reasonable and fair development incentive reform. Even the modest 25% reduction in subsidies can be waived if a project is determined to be “high-impact” or falls within an economically depressed area. The measure passed by the City Council is a first step in the right direction. The Mayor’s complaints—which defend the status-quo, crony-capitalist development scheme Kansas City has pushed for decades—seem to be a step backward.
The reform places a modest cap on development subsidies. Do developers truly need bigger tax breaks than the new cap allows for their projects to move forward? If so, then the real problem isn’t that the city is closed for business, but rather that its tax and regulatory climate make huge subsidies necessary. In any case, the bill contains provisions allowing high-impact projects to receive the pre-reform level of assistance, so any game-changing projects would be unaffected. In fact, some projects have already avoided the 75% cap.
In addition, proponents of development incentives like tax-increment financing (TIF) and tax abatements have been unable to provide solid evidence that such subsidies work; that is, they don’t create jobs or enliven our economy. Shiny new office towers and a handful of construction jobs are nice, but they won’t spark a new era of growth in one of Missouri’s slowest-growing cities. A comprehensive report on incentives in St. Louis, much like the one Kansas City officials intend to conduct, concluded that “[w]hile there may be disagreement about the value of some packages, it is clear that the City gains no net benefit from an extremely costly program with no real economic development impact.”
In short, we’re fooling ourselves if we think Kansas City’s economic engine is fueled solely or even substantially by incentives.
Over the past fifteen years, Kansas City’s tax base has been hollowed out by incentives like TIF and abatements. The schools, libraries, mental health funds, and local governments affected by Kansas City’s incentive policies have been shorted for the benefit of developers.
Incentive reforms like those championed by Councilman Lucas are welcome steps toward curbing incentive abuse, and toward restoring funding for essential government services—and with them, our faith in city government. Perhaps we wouldn’t need such reforms if local leaders would just say “No” to excessive taxpayer giveaways in the first place.
Wendell Cox and Crosby Kemper III on KCPT’s Ruckus
Wendell Cox discusses his recent essay on the competitive strengths and weaknesses of Kansas City. Crosby Kemper III also appears as a panelist and discusses budget shortfalls in Kansas and the wave of protests sweeping the nation since the presidential election.
Kansas City: Genuinely World Class
Today the Show-Me Institute is publishing Wendell Cox’s paper, “Kansas City—Genuinely World Class: A Competitive Analysis,” in which the author considers what makes Kansas City unique – and what makes it uniquely competitive. A link to the paper itself is available at the end of this post.
Cox comes to a number of very interesting conclusions.
For one, Kansas City’s housing is much more affordable relative to incomes than in any of the cities The Economist considers for their list of the 10 Most Livable Cities. The reason for this is that while cities were increasing land regulation through urban containment policies, Kansas City did not. For example, in 1990 Denver, Portland and Kansas City were all similar in the relation of housing prices to median income. Since then, due largely to excessive land use regulation, Denver and Portland housing prices have skyrocketed while incomes have not. Kansas City homes have remained as affordable as they were before.
Another one of Kansas City’s competitive advantages is commute times. Despite its sprawl, Kansas City has one of the shortest commute times in the world. Thanks to an impressive network of highways, traffic congestion is so slight that Kansas City had the least traffic congestion (tied with Richmond) in the 2015 Tom Tom Traffic Index. And lack of congestion isn’t due to public transit. Eighty-two percent of area residents commute to work alone in a car—including 76 percent of low-income workers. In fact, only 3 percent of low-income workers in Kansas City commute to work by transit. Kansas City (like virtually all US metropolitan areas) is an automobile-oriented city and doing just fine.
Understanding these advantages is imperative if Kansas City is going to build on our strengths. Policy makers are often lured into adopting programs based on the results in Portland, or Denver, or Dallas. But Kansas City is not any of those places, and there is little guarantee that such policies will work here. If we want Kansas City to succeed, we need to understand exactly what we have to offer. This paper seeks to start that discussion.
Funding the Foundry: Why Are Taxpayers Continually on the Hook?
When St. Louis public schools are underperforming and the water department is trying to get lead out of the water, one might think it isn’t the best time for public officials to grant tax subsidies to wealthy developers. After all, couldn’t the potential revenues from such taxes be spent in other, more effective ways—ways taxpayers might actually see a return on?
You might think so, but some city officials don’t see it that way. The Saint Louis City Tax-Increment Financing Commission, a public body that awards tax subsidies, recently granted $19.4 million to the developers of a mixed-use project in midtown St. Louis. The development, dubbed the “City Foundry”, would include office and retail space, residential buildings, and a food court. The Foundry would be a welcome addition to the area, but why should tax dollars go to fund it over, say, schools and basic infrastructure?
Officials haven’t addressed that question. And what’s worse is that even without the TIF subsidy, over 41% of the costs of the $134 million project will be shouldered by taxpayers. The chart below depicts the proposed funding sources for the project. Is the $19.4 million in tax increment financing, which represents forgone tax revenue, really necessary when so many other subsides are funding the project? Especially when the developers are also seeking tax abatement on top of all these other handouts!
|
City Foundry Funding by Source |
||
|
Funding Source |
Funding Amount |
% of Total Project Cost |
|
Federal Historic Tax Credit |
$14,917,000 |
11% |
|
State Historic Tax Credit |
$17,384,000 |
13% |
|
State Brownfields Tax Credit |
$5,075,000 |
4% |
|
CID/TDD Sales Tax Revenue |
$18,100,000 |
13.5% |
|
Tax-increment Financing (TIF) |
$19,400,000 |
14.5% |
|
Loan & Developer Fee |
$59,290,000 |
44% |
|
TOTAL FUNDING |
134,166,000 |
100% |
Source: City Foundry Application for Tax Increment Financing, assembled by author.
When our communities have so many needs but limited resources, leaders have an obligation to make every dollar count. Before the City signs off on this incentive package, they should think hard about whether this plan constitutes the most prudent use of public funds.
Kansas City Hires Fox to Watch Henhouse
According to the Kansas City Business Journal, the City of Kansas City has approved contracting with the Council of Development Finance Agencies (CDFA) to "conduct a comprehensive analysis of the city's historic use of incentives and the resulting impacts." Their report may be used to assess the effectiveness of economic development subsidies, but what do we know about this organization?
First of all, CDFA is not an accounting or financial auditing firm. According to their website, they are:
a national association dedicated to the advancement of development finance concerns and interests. CDFA is comprised of the nation’s leading and most knowledgeable members of the development finance community representing hundreds of public, private and non-profit development entities.
Their mission is “to promote the common interest of Development Finance Agencies with respect to public policies and programs,” which isn’t exactly what you’d expect from an independent, disinterested organization.
In short, we’ve agreed to pay up to $350,000 to an association that represents development financiers and their “interests” to evaluate the effectiveness of our development financing. How likely is it that CDFA will be critical and impartial? This is a legitimate concern, because Mayor James has already stated that “City Hall doesn’t do a good enough job of promoting how economic development benefits the city.” Are we paying for analysis, or for cheerleading?
To assess their own economic development programs, the Saint Louis Development Corporation hired The PFM Group, an independent public financing advisory company. Of themselves, PFM writes,
Founded April 11, 1975 on the principles of expert, unbiased advice, the PFM Group of companies also provides investment advisory and management/budget consulting services to clients across the country and are recognized as industry leaders.
For $180,000—roughly half of what Kansas City proposes to spend—PFM completed a substantive analysis of St. Louis economic programs and concluded that TIF and abatement are extremely costly and have little or no economic development impact. (We’ve reviewed their findings here.)
Other studies of economic development subsidies like TIF have been conducted by scholars at universities such as the University of North Carolina-Chapel Hill and Washburn University in Topeka. These studies, along with works published in the Journal of Urban Economics, and in Urban Studies have raised serious concerns regarding the impact of economic development subsidies. Other regions have found substantial costs associated with little economic benefit, so Kansas City should take its self-evaluation seriously.
States like California, which ended TIF in 2012, and cities like St. Louis should be applauded for facing the reality of their economic development policies. Not so in Kansas City. If our leaders are serious about promoting good policy, they need to be willing to seek out independent, disinterested research and make the appropriate changes.
