Two Must-Read Missouri Pension Pieces

Posted on by James V. Shuls

If you haven’t already, please read my colleague Mike McShane’s piece, “Teacher pensions have a math problem.” Mike does a terrific job of outlining the major problems with defined-benefit pension systems, particularly teacher pensions in Missouri. Then, I want you to read Dale Singer’s piece, “COLA fizzles: Retired Missouri teachers won’t get pension increase in 2017,” on St. Louis Public Radio’s website.

Mike gives you the context and outlines the underlying problems. Dale illustrates these problems by simply reporting on the current state of the Public School System of Missouri (PSRS).

Like most pension systems, PSRS assumes a relatively high rate of return—until recently, 8%—on its investments. Realizing they were probably being too optimistic (or maybe they read a few Show-Me Institute reports), they lowered their assumption to 7.5%. That simple change means the system needs more money to meet it current obligations to retirees.  On top of that, retirees are living longer—which increases the pension plans obligations—and actual investment returns are not hitting their targets.

As Mike said, “pension plans have a math problem.” To combat the problem, they either need more money or they need to reduce obligations.  To do this, they only have two mechanisms under their control. They can increase the contribution rates for teachers—who already pay 14.5% into the system, as do their school districts—or they can hold down payments to retirees by not providing a cost of living adjustment (COLA). Neither of these are long-term solutions for addressing the mounting unfunded liabilities.

 Give these two pieces a read. I think they make it pretty clear that it is time for a change. 

 

Not This Again

Posted on by Michael Q. McShane

As I scrolled through my twitter feed this morning, a tweet from NPR jumped out at me:

All I could think was, here we go again.

If you’ve followed education policy for any length of time this routine looks familiar. Researchers or policymakers visit some other country that performs better than we do on international assessments and then come back with the secret sauce that makes them do so well. The recommendations are so anodyne that that anyone with a passing knowledge of the education system will probably agree with them. The policy flavor of the month (national education standards, universal pre-K, etc.) is usually highlighted. Rinse and repeat.

For a while we were told to emulate Shanghai—until we learned that Shanghai systematically excludes disadvantaged students from its testing pool to juice its scores. Then it was Finland, at least until Finland’s scores dropped precipitously on the very test that ushered in its rise to prominence.

Here is the problem with this approach, and why it never actually yields the information we’re looking for: it violates the basic precepts of research design. If you want to know if a certain policy affects an outcome, you develop a hypothesis and test it. You follow children that are subject to the policy and children that aren’t—doing your best to make sure all other aspects of the two groups’ educational environments are identical—and you see what happens. If the children who were subject to the policy do better than those who weren’t, then you have reason to believe that the policy caused the improvement.

“Do what the best schools do” research does the exact opposite of that. It sees a result it likes and then tries to work backwards to the cause without isolating other variables that might also explain the outcome. That is not how science works. Are there places, for example, that do the very things that Finland or Shanghai or any of these other countries do that don’t meet with success?  Are there countries meeting with success that don’t do these things? As I’ve written before, the Netherlands is a very high-performing country that is marked by an incredible degree of school choice. So why does a universal voucher system always seem to be missing from the list of recommendations? In short, we have no idea whether the policies these folks advocate are really behind these countries’ successes.

I don’t want to say there’s nothing we can learn from other states or other countries about how to improve education here at home. However, if we are going to make claims that one policy or another causes a particular outcome, we need to back those claims up with research done the proper way. 

Evergreen Clauses: The Gift that Keeps on Giving

Posted on by Michael Highsmith

Back on January 1, 2011, the Monarch Fire Protection District (MFPD) and the International Association of Fire Fighters (IAFF) Local 2665 entered into a 3-year collective bargaining agreement.  Five and a half years later the original contract lives on, and a recent court ruling indicates that for those seeking reform, the devil is in the details.

The conflict between the district and the union lies in a short paragraph of the agreement that reads:

“The Agreement shall remain in effect during good faith negotiations and shall continue to remain in full force and effect until such time as a new Agreement is agreed upon”

In other words, until both parties agree on new provisions, the original contract stands.  The Circuit Court of Saint Louis County recently rejected the MFPD’s appeal against the contract’s perpetuity by saying that as long as both parties engage in ‘good faith negotiations’ then the agreement has a termination date and is legally sound.  Of course, if the parties can’t come to terms on something new, then that termination date will always be right around the corner.

Perpetual contracts such as this (nicknamed “evergreen clauses”) can create a situation where elected officials are powerless to change salaries and benefits captured in a union contract unless the union agrees to the change.  Where we would be today if U.S. legislation had been frozen centuries ago and couldn’t change regardless of who we elected into office?

Feeding Clayton’s Healthcare Giant

Posted on by Michael Highsmith

On Monday Clayton City Hall found itself filled to the brim with citizens hoping to attend a public hearing regarding the $147 million potential subsidy for Centene.  Upon arrival, I—along with dozens of others—was turned away due to a lack of space. It seems the massive development is raising eyebrows, and rightfully so. 

For those unfamiliar with the proposed project, Centene is seeking public subsidies to assist in the expansion of its headquarters in downtown Clayton.  The total expansion’s costs are estimated at $771.8, million and Clayco (the project’s developer) expects roughly a fifth of that to be covered through public subsidies. 

Centene’s proposal says it will bring 2,000 jobs to the area and that part of the new expansion will be leased out to third parties, as is occurring at the current headquarters.  It’s somewhat unsettling that the healthcare giant is leasing out roughly half of its current headquarters’ office space while at the same time claiming that expansions are necessary to house 2,000 new employees, and it seems that the company has no intention of changing this pattern. 

With Centene planning to lease office space, we should ask if subsidization is proper for this kind of business venture.  Why should tax dollars pay for leasing space that will simply bring more revenue back to Centene?  It’s a bad bargain, both for citizens and for competing lessors who would lack the competitive advantage of subsidization. 

If Centene wishes to move further into the leasing game, they certainly have the right to do so—on their own dime.  But it’s hard to see why taxpayers should foot the bill for a profitable investment in such a prime place for development.

Riding the Dream-Train to Development Bliss

Posted on by Graham Renz

We’re no real-estate experts, but what you see above (the Sunnen Station on the MetroLink Blue Line) clearly isn’t “beachfront property.” For some reason, rail boosters would disagree—according to them, this is what everybody in town wants.

A recent article in the Post-Dispatch insinuated the lifeblood of St. Louis was at stake in efforts to expand the MetroLink. Because MetroLink is such a successful (???) driver of mixed-use development, by not expanding it into depressed or underdeveloped areas, we’re letting the urban core languish. At least that's the story. Reality is quite different.

Here are some uncontroversial facts.

  • MetroLink has failed to significantly spur development (and especially the dense mixed-use development that planners dream of).
  • MetroLink is incredibly expensive and inefficient. As my former colleague Joseph Miller has pointed out, since 1992, MetroLink has cost St. Louis taxpayers $3 billion, and despite system expansion, MetroLink is at a decade low for ridership, with just 2.55 riders per revenue mile.
  • On top of this, MetroLink expansions—and rail projects in general—tend to go far over budget.

Despite all this, regional leaders and rail proponents continue to argue that expanding the MetroLink will catapult the region into some utopian age of livable-community bliss. Having vibrant, “walkable” communities is a noble goal, but if rail proponents really think they can just build a train and turn the region around, they’re woefully misunderstanding the fundamentals of economic and neighborhood development.

The fact is that driving sustainable development is hard. Neighborhoods like the Central West End and Soulard don't just pop up because politicians and planners put in rail lines. In reality, when development does occur around rail stations, those projects are, nearly without fail, accompanied by generous tax subsidies, relaxed zoning, and other government perks. To think rail is some development silver bullet is to confuse the powers of a whole subsidy package with just one of its constituent parts. If economic development really is the goal planners have in mind, they would do better by removing hurdles to business and growth and save the cost of expanding MetroLink.

The truth is that a $2.2 billion expansion of the MetroLink won’t spark a development frenzy, but it will create a massive new taxpayer burden. 

North-South MetroLink Expansion: Snake Oil for Saint Louis

Posted on by Joseph Miller

Mayor Slay and many—but not all—regional leaders are peddling a curious elixir: a $2 billion expansion of MetroLink. The expansion would create a new line running from north Saint Louis County, through downtown, to South County. But what condition is this elixir supposed to treat? Well that’s unclear, as the list of ailments that light rail allegedly cures is long and seems to change depending on the patient.

What is clear, though, is that the north–south MetroLink expansion isn’t the panacea advocates claim it is.

It isn’t a solution to automobile dependence. Saint Louis’s low population density and dispersed employment centers make the city a bad fit for light rail. Popular, cost-effective light rail systems require population densities upwards of 20,000 people per square mile, but Saint Louis City has fewer than 5,000 per square mile. And experience with existing MetroLink routes demonstrates our region’s preference for the car. Today, a lower percentage of Saint Louisans use transit than in 1990, before MetroLink even operated. Even more embarrassing, MetroLink has lower ridership today than it did in 2005, the year before the Shrewsbury line opened.

It isn’t a solution to poor transit service, either. Firstly, the proposed north-south line operates along a route already served by numerous bus routes. Secondly, the reason less than 4% of Saint Louisans commute on transit isn’t because they have trouble going from North City to downtown. It’s because the antiquated “hub and spoke” model Metro uses makes travelling from North City to employment centers in Central and West County a multi-transfer odyssey. If regional leaders truly want to improve mobility, they’d do better by advancing bus-rapid-transit (BRT) lines. BRT uses sleek, rail-like vehicles, well-appointed and generously-spaced stations, and exclusive rights-of-way to deliver service comparable to light rail. For just a fifth of the local cost of expanding MetroLink, the region could construct the five BRT lines in its long-range transportation plan.

Nor is MetroLink a cure for anemic urban development. Despite claims of rail advocates, the economic consensus is that light rail is not a catalyst for economic growth. Even putting aside the wildly inflated figures touted by rail advocates, we can see with our own two eyes that MetroLink has failed to spur development in Saint Louis. Far from rejuvenating depressed areas, MetroLink has even failed to prevent decline in areas that seemed to be on the rise in 1994 when the first lines opened, like Union Station and Laclede’s Landing. Nor did it ever bring the fantastically improbable golf course to East Saint Louis.

And MetroLink will not solve historic segregation or achieve the nebulous goal of “connectedness.” There simply is no evidence, save the endless, unfounded repetition of rail advocates, that light rail is a solution to economic, social, or racial segregation. (Just think: how might riding a train downtown, where so few jobs exist, make life better for an average North City resident?) And if “connectedness” means residents and visitors have the ability to travel from North or South County to downtown, then we’ve achieved it, as these areas are already connected by bus and bikes routes, streets, and sidewalks. No, these areas are not connected by rail—but if the argument is that we need rail because we don’t have rail, then advocates are running in circles.

Soon, the Mayor and rail proponents will stop begging the question and start begging for money. When they do, Saint Louisans should carefully consider what benefits could possibly justify a $2 billion MetroLink expansion, and whether or not it’s just an expensive “remedy” to treat problems for which we already have more sound solutions. 

20 for 2020: An Agenda for Missouri

Posted on by Show-Me Institute Staff

In 20 for 2020, Show-Me Institute analysts and researchers present 20 policy ideas covering a broad range of issues—from education to health care, and from tax policy to transportation. Together, they have the potential to move Missouri toward greater liberty and prosperity. Individually, each one represents an opportunity to make a meaningful, positive change for our state in the coming decade. Read the entire agenda by clicking on the link below. 

What’s a Nice TIF Like You Doing in a Place Like This?

Posted on by Michael Highsmith

Public subsidies have taken on an increasingly prominent role in new developments across the St. Louis region, and KP Development is looking for $57 million that would continue the cozy relationship between developers and the government. In this case taxpayer money would go toward redeveloping the retired Chrysler Plant in Fenton. While tax incentives can, in theory, help resolve problems of intractable poverty and underdevelopment, in practice they are often used for less noble purposes.

The project in question, known as the Fenton Logistics Park, would transform the former Chrysler Plant property that was demolished in 2011 into a mixed-use development with industrial, office, and retail space. KP Development estimates the total cost of restoring the land and improving surrounding streets at $17 million, and they’re requesting that it be paid for through the use of tax increment financing (TIF). In addition, the proposal asks for another $34.6 million from TIF and state subsidies to be put toward soft costs and professional fees.

But it’s worth asking whether incentives are required for this project. If the blighted area were restored to its condition from before the Chrysler Plant was constructed almost 60 years ago, the land would seem ripe for investment. Given its proximity to the interstate and railroad, the expansive land base located in a growing industrial market appears to be an excellent place to develop, with or without incentives. KP Development even admits that without TIF the site would generate a 4.92 percent return; however, with TIF the projected return jumps to 8.79 percent, which “developers are accustomed to on similar projects.”

That’s precisely the sort of revelation that should make policymakers leery. The idea that a profitable investment should become more profitable through the use of public tax dollars doesn’t make much sense. Nonetheless, last week the Saint Louis County TIF Commission voted in favor of the plan by a 9–1 margin. The beat goes on.

The government shouldn’t be in the business of guaranteeing bigger returns on investment for private actors. The Saint Louis County Council should reflect on the appropriateness of tax incentives when they make a final decision on subsidization.

Support Us

The work of the Show-Me Institute would not be possible without the generous support of people who are inspired by the vision of liberty and free enterprise. We hope you will join our efforts and become a Show-Me Institute sponsor.

Donate
Man on Horse Charging