The EDC Gets It Wrong

Last week we published a blog post in which we explained how Kansas City’s Economic Development Corporation (EDC) benefits from the TIF projects it administers. In the piece, we asserted,

The potential for conflicts of interest here is obvious. The EDC doesn’t just have financial relationships with the organizations they regulate—they depend on those relationships for over half of their budget. Worse yet, the more subsidies that are awarded, the more money they collect in fees. While TIF Commissioners—who make the final determination on the awarding of subsidies—are appointed by the mayor and are themselves unpaid, they rely on recommendations from EDC staff.

Then we issued a press release bringing attention to the post. Rob Roberts of The Kansas City Business Journal received our release and wrote about it. But apparently neither he nor EDC CEO Bob Langenkamp, who was quoted in his piece, clicked on the link in the email or read the actual post to which the release referred. That’s a shame, because Langenkamp was made to look foolish. For example, Roberts wrote,

As EDC CEO Bob Langenkamp pointed out, the Tax Increment Financing Commission of Kansas City recommends approval of TIF projects to the City Council, which makes the final decisions.

This is exactly what we assert in our post, as cited above. Roberts also wrote,

Langenkamp also corrected Tuohey’s claim that the majority of the EDC’s funding comes from administrative fees associated with TIF projects.

“If you look at the current EDC budget, you’ll see we’re not receiving any administrative fees,” Langenkamp said. “They’re collected by the city.”

Yet in an August 23 email to me, Langenkamp wrote that $3 million of the EDC budget is from “the annual admin fee on active/approved TIF projects.” Langenkamp may respond that his email refers to previous years and not the current budget, but the distinction is largely meaningless. Due to the TIF Commission’s dissatisfaction with the quality of financial management by the EDC, the TIF fees now go to City Hall, which assesses a fee for outside bookkeeping and then channels the remaining funds back to the EDC. The City is merely a pass-through; the EDC still gets funds generated from TIF fees. If anything, this makes the process more questionable because now the city administration also gets a cut.

The Show-Me Institute is not the only one to question the nature of EDC funding. In 2010, one outlet published a piece that included this passage:

Among the options the EDC executive committee has explored are consolidating boards that deal with tax incentives—the Tax Increment Financing Commission, Land Clearance for Redevelopment Authority and others—and having the city finance the agency to remove the potential for conflict that exists because the EDC is partly financed by revenue and fees from development projects.

The author of that piece? Rob Roberts of The Kansas City Business Journal. The difference now is that the portion of the EDC funding generated by fees has grown immensely—even if it is filtered through City Hall along the way.

Mizzou’s Loss Is Other Schools’ Gain

2,373 students. That is the difference between last fall’s and this fall’s enrollment at Mizzou.  It is worse than what was projected in March, when the university said that it expected around 1,500 fewer students this year. On top of that, as the Columbia Daily-Tribune reports, this drop is particularly acute for high-performing students. Mizzou reports 19% fewer students who scored higher than 30 on the ACT, and 13.9% fewer Bright Flight scholarship recipients.

At the same time, every other public university in Missouri is reporting enrollment growth.

Just a few weeks ago, I highlighted research on the effects of scandals on universities. We’re seeing it play out right in front of us.

So what is to be done?

On one level, this is a case of reaping what has been sown. You can’t un-ring a bell (and you can’t un-mix a metaphor, either). The leadership of the university patently failed at dealing with unrest on campus, and they have tarnished the school’s brand. That is something they simply have to live with now.

But on another level, this shows the necessity of improving Mizzou. If changes aren’t made, there is serious risk that Mizzou will continue to decline in stature both within the state and across the region and nation. Seeing that the best and brightest are choosing other schools (quite possibly outside of Missouri) to attend raises serious concerns about brain drain and the long-term economic and social health of the state.

Finally, while I don’t think we’re there yet, a conversation about Mizzou’s role as the state’s flagship might not be as far over the horizon as we might think. If students decide to vote with their feet and attend other universities, moving to a Kansas- or Iowa-like model of twin flagships might be in our future.

We’ll be watching these enrollment trends closely and offering some ideas for reform. Stay tuned!

A Labor-Day Salute to the Missouri Mule

Everyone knows the expression “stubborn as a mule.” More than a tired cliché, however, that is a doltish misperception, foisted upon us by the least adept of mule-handlers. In the words of a real expert, it is “a classic example of man ascribing stupidity to the beast instead of to himself.”

On this Labor Day weekend, think of the great labor that Missouri’s official state animal—the plucky, hard-working mule (not to be confused with the donkey, the symbol of the Democratic Party)—performed for our nation in the opening of the west.

Setting out in covered wagons from Saint Joseph, Independence, and other Missouri cities, more than 400,000 pioneers made their way to the Pacific during the 1840s and 50s. Most people have a mental picture of horses pulling the load. But mules did most of the work, even if horses got most of the credit, thanks to later Hollywood westerns. Movie-makers repeated the mistake in their depiction of stagecoach travel in the 1860s and 70s. In reality, once again, the indefatigable mule, not the more fragile and easily tired horse, was the draft animal of choice.

The above-quoted Rinker Buck tells these stories (and many more) in his book The Oregon Trail: A New American Journey. In 2011, Rinker and his brother Nick stopped in Jamesport, Missouri, to purchase three Missouri mules. Having also acquired a rig (a genuine prairie schooner), they then hit the trail—travelling the whole 2,100-mile length of the Oregon Trail from St. Joe to the Willamette Valley. The two brothers were the first in more than a century to complete the journey.

Just over the Kansas border into Nebraska, a fierce storm forced the brothers to camp in the equipment shed of an abandoned farm. In a book filled with hair-raising (and often hilarious) adventures, this was a fairly commonplace occurrence. It might have gone unremarked except that the same storm system that passed over their heads levelled Joplin, Missouri, a few hours later.

I have my own tenuous connection with mules. In his 16th summer, my brother Harry worked in the Bootheel—driving a team of mules in clearing tree stumps from a field. He was mule-struck upon returning home . . . telling stories that filled me, the younger brother, with a mixture of envy and awe. For his 71st birthday this June, I gave Harry the Oregon trail book. He returned it to me no more than a week later—saying it was wonderful. He wanted to be sure that I read it as well.

A cross between a female horse (mare) and a donkey (jack), mules combine the greater size and strength of the mother with the lighter weight, agility, and more feral instincts of the father. Mules require only half the feed of horses. They can travel long distances without water. Most of all, as Rinker Buck writes, “They love to work.”

With a keen sense of smell, they are uncommonly alert to danger. On the trail they saved countless lives in picking up the scent of buffalo herds and packs of coyotes long before they became visible to people. At the approach of predators, mules sounded the alarm, perking their long ears forward, staring in the direction of the threat.

As for their supposedly difficult behavior, or “mulishness,” that too, is a product of superior instincts. Unlike the happy dog or the pliant horse, the clever and independent-minded mule will not plunge willy-nilly into a rushing stream. It prompts the muleteer to show that the next step is safe by riding a horse across or wading in himself. “Mules ponder matters a lot,” Buck writes.

This Labor Day, let’s thank the mule for its super-human (and super-smart) efforts on our behalf. It played a critical role in uniting our country from sea to shining sea.

CEO Defends Centene Clayton Expansion

Last week Clayco CEO Bob Clark made a guest appearance on KTRS to discuss the Centene expansion being proposed in downtown Clayton.  The discussion touched on zoning and planning issues between the Fortune 500 Company and local residents, but the heart of the broadcast explored the reasons that Centene should receive tax incentives for the project.  To pull a few quotes from Clark:

“Incentives are kind of a funny thing to get your head around…we don’t get a check, we actually get a small increment, a small discount on the overall taxes that we pay.”

The small discount mentioned is quoted at $78 million from property tax abatement and another $35 million off of income tax bills.  There may not be a check in the mail, but public funds would go towards the development’s costs all the same.

“Centene has shareholders; they have a responsibility to be responsible with their dollars and with their investment.”

I absolutely agree, and it seems that the company is doing an excellent job of growing and increasing revenue, but the City of Clayton also has “shareholders” (aka taxpayers) and a responsibility to be responsible with public dollars.  If an expansion might take place anyways, then does it make sense to spend tax dollars on attracting it to an already successful business environment?

“This is a company that is growing really, really rapidly, and so in the long term it’s highly likely and most possible that Centene will occupy these buildings completely”

In 2015 Centene was named the 4th fastest growing corporation in America, and it’s great to hear that the company is interested in such an extensive expansion in the Clayton community.  However if the plan is to occupy their buildings completely, then why is there a proposed expansion on the table while the current headquarters still leases out about half of its office space?

“There’s very, very low vacancy in the market right now, the market has done extremely well.”

Clayton has been a very successful city when it comes to attracting developments.  The area has recently been referred to as the St. Louis region’s new downtown.  Still the question is posed that if the area is successful and is experiencing a low vacancy rate, is spending millions to subsidize a large development really the healthiest use of taxpayer dollars?

The Ballooning Cost of Streetcars

Last summer, the Kansas City Star tried to defend the city from the charge that it overpaid for its 2.2-mile downtown streetcar line. They compared the costs of Kansas City’s streetcar to similar projects in other cities and concluded the City paid an average price. Kansas City’s expensive streetcar was not as expensive as other expensive streetcar systems—great, right?

It looks like the city’s “frugality” will be overshadowed by the massive costs of a proposed expansion that would extend the current line 3.75 miles south from Union Station to the Plaza and UMKC.

The projected construction costs for the extension are estimated at $227M (in 2019 dollars), and the downtown line cost $102M (in 2014 dollars) to build. After adjusting for inflation, on a per-mile basis, that makes Kansas City’s proposed expansion one of the most expensive streetcar projects in the nation.

 

Kansas City – Expansion

Kansas City -Downtown

Portland

Seattle

Tucson

Cincinnati

St. Louis Loop Trolley

Salt Lake City

Year Opened

Proposed – 2021

2016

2001

2007

2014

2015

2016

2013

Length

3.75

2.2

4.6

1.3

3.9

3.6

2.2

2

Total Construction Cost

$211M

$102

$76M

$64M

$196M

$148M

$43M

$57.2M

Cost per Mile

$56.3M

$46.4M

$16.5M

$49.2M

$50.2M

$41.1M

$19.5M

$28.6M

 

All figures in 2014 dollars

As the chart above shows, the cost per mile of the proposed expansion is over 20% greater than that of the downtown starter line. Even if the city got a good deal—if we can call it that—on the downtown line, it surely won’t if expansion occurs.

The only streetcar more expensive than Kansas City’s proposed expansion is Washington D.C.’s 2.4 mile H-St. line, which cost over $200M to build. But besting D.C.’s line isn’t much to brag about—it’s been described as one of the most poorly handled streetcar projects in the nation. 

So as efforts mount to expand the streetcar beyond downtown, Kansas Citians should ask themselves: Are we willing to pay higher sales and property taxes to fund one of the most expensive streetcar projects in the country?

Although the rail boosters hope to garner a $100M grant from the feds, the city itself will be on the hook for $130M. More on the financial breakdown of the proposed expansion in my next blog!

Note: Figures adjusted to 2014 dollars with CPI deflator, assuming 2% annual inflation 2017-19. 

Do Our Universities Need “Thought Leaders” at the Helm?

File this under the grass isn’t always greener.

The San Francisco Chronicle revealed last week that the University of California–Berkeley paid consultants $200,000 to shape public opinion of Chancellor Nicolas Dirks as a “key thought leader” in order to “increase exposure and awareness” of his “vision for higher education.” This appeared to be done as a sop to potential donors, who might be more likely to give to a university with a visionary at the helm. But given the fact that Dirks decided to step down this week, it’s left the university with egg on its face.

All schadenfreude aside, this incident does raise a bigger question: Who do we want at the helm of our flagship public universities?  Do we want noted academics who might have particular insight on how to best educate students or conduct research? Do we want politicians who can navigate the complex web of state and federal government and their often-conflicting mandates for the university? Do we want businesspeople who have experience running the multi-billion-dollar organizations that these institutions have become? Do we want visionary thought leaders (whatever that is) who can chart a new course for higher education in the state?

To be totally honest, I don’t have a good answer to these questions. However, as the state takes the next several months to review how the University of Missouri system is functioning and the essential role that leadership plays in the four campuses that comprise it, deciding who we want at the helm will be important and necessary step.

Where There’s Smoke . . .

Missouri has the lowest cigarette tax in the nation, but with two ballot initiatives coming up this November, that might change. Rather than considering the issue by comparing ourselves to our neighbors, shouldn’t we evaluate any tax increase according to the impact it will have on Missouri’s well-being? I think so.

Proposition A and Constitutional Amendment 3 propose to raise the state’s cigarette tax by 23 cents and 60 cents, respectively.  The first of these initiatives would use tax revenues to fund transportation infrastructure, while revenue from the second primarily would fund childhood education programs.

This sounds like a win–win; smoking would likely be reduced due to higher costs, and more funds arguably would be available for other important priorities. But as you dig deeper into the details of these proposal, some important questions immediately come to mind. For example, no more than 25% of the revenue generated from Constitutional Amendment 3 may be used for health care facilities and smoking prevention programs, a restriction that is difficult to understand. If smoking is so harmful that taxation is going to be used to discourage it, doesn’t it make sense to use the resulting revenue to help people quit or keep them from starting? 

We know that cigarette taxes are regressive by nature and tend to have larger impacts on low-income households.  The prevalence of smoking is almost twice as high among people below the poverty level than among the rest of the population, so a disproportionate amount of the tax will be collected from those least able to afford it. 

If the health risks associated with smoking are serious enough to warrant a sin tax, shouldn’t the resulting revenue be put toward services like smoking prevention programs or addiction treatment?  On the other hand, if smoking isn’t enough of a problem that the government needs to help people quit, then why should smokers be singled out for a tax to fund expenditures that benefit all Missourians?

Secret Streetcar Plans Unveiled, Raise Concerns

At a City Council meeting last Thursday (8/18), a group of rail activists presented what were once secret plans for expanding the Kansas City streetcar line south along Main St. to UMKC. The rail proponents outlined timelines, costs, and new taxing districts to pay for the $227M, 3.75-mile project. But even with all the supposed “success” the $102M downtown streetcar has had, the proposal met with resistance from the council.

For one thing, councilmembers are concerned that it’s too early to know if expanding the streetcar system is a prudent investment. It’s true that the tentatively scheduled election wouldn’t be held until summer 2017, but the downtown starter line only started carrying passengers in May. If Kansas City’s streetcar is anything like other modern streetcars, ridership might drastically drop in the coming year.

Katheryn Shields, at-large 4th-district councilwoman, was concerned about streetcar expansion in generalShe was keen on pointing out the streetcar vote would be on the same ballot as a city-wide infrastructure ballot question. The bond proceeds from the latter measure (should it pass) would pay for sidewalks, roads, bridges and other basic infrastructure. Other councilmembers, including Councilwoman Canady and Councilman Fowler, seconded Shields’s worry.

So, as rail advocates try to convince Kansas Citians to invest their hard-earned money in a slow, inefficient rail project—in a corridor already served by bus rapid transit—they should ask themselves: Which is the better use of limited municipal resources: basic infrastructure that ensures the safe and efficient travel of residents, or outdated rail projects that cost over $60M per mile?

“For It Is in Giving That We Receive.”

The quotation above, attributed to Saint Francis of Assisi, might make a good motto for Kansas City’s Economic Development Corporation (EDC)—but not necessarily in the sense that Italy’s patron saint intended.

The EDC oversees, among other groups, the city’s Tax Increment Financing (TIF) Commission. This places them in the middle of the debate over how and to what degree Kansas City subsidizes development. Ideally, the EDC would be structured to facilitate the judicious use of city resources to promote economic development. However, the way the EDC is funded seems far from ideal. Since 2000, the EDC budget has doubled. That may or may not be warranted, but what should concern taxpayers is the growing percentage of their revenue that comes from fees associated with the TIF projects they oversee.

In 2015, for example, $1 million dollars of the EDC’s $5-million organizational budget was funded through the Kansas City general fund; but $3 million came from fees the EDC received from the TIFs it approved. So the EDC is getting three times more money from TIF recipients than from the general fund.

The potential for conflicts of interest here is obvious. The EDC doesn’t just have financial relationships with the organizations they regulate—they depend on those relationships for over half of their budget. Worse yet, the more subsidies that are awarded, the more money they collect in fees. While TIF Commissioners—who make the final determination on the awarding of subsidies—are appointed by the mayor and are themselves unpaid, they rely on recommendations from EDC staff. That arrangement may not be working so well.

Last year the TIF Commission considered leaving the EDC, “as a result of board members' concerns with the level of financial information and professional services they are receiving for their money.” Since then the EDC’s financial reporting and auditing functions have been contracted out to a private firm through City Hall.

Although this is a step in the right direction, it doesn’t resolve the conflict inherent in having the EDC benefit financially from every TIF project approved. While TIF Commissioners may be dissatisfied with the quality of reporting from EDC staff, there is no other place for them to go; they do not seek out second opinions. Taxpayers are displeased with the frequency and degree to which Kansas City doles out subsidies; but without EDC funding reform, prospects for improvement seem dim.

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