The Bureau of Economic Analysis recently released state real GDP data. Show-Me Institute Chief Economist Joseph Haslag updated his analysis of Missouri’s real GDP performance compared to the other forty-nine states in the union. While we did improve, our gains were disappointing.
Moving Missourians from Welfare to Work
If most Missourians receiving Temporary Assistance for Needy Families (TANF) benefits are required to take part in work-related activities, but fewer than 20 percent actually do so, do we have a problem? The provisions of recently passed SB 607—a measure to stop payments to those no longer eligible for benefits due to death, moving out of state, or incarceration—are a necessary step toward welfare reform, but what about those receiving benefits while not meeting the work requirements?
“Work-related activities” include both paid employment and things like job training and public-service work. The chart below shows participation rates among TANF recipients, and Missouri is dead last in the nation at 17%. (For clarity, the chart shows only 18 states, but the participation rates of all the omitted states fall between Missouri and Idaho.)
Idaho has the highest participation rate (87.9%). Why is Idaho’s rate over four times higher than Missouri’s? Part of the reason might be in how the two states explain the eligibility requirements to recipients. Missouri and Idaho each have websites set up for this purpose. Idaho’s website provides a clear list of acceptable work activities:
- Unsubsidized employment
- Subsidized private sector employment
- Subsidized public sector employment
- Job search and job readiness (limited to not more than 6 weeks in a federal fiscal year with not more than 4 weeks consecutive).
- Community service
- Work experience
- On-the-job training
- Vocational educational training (limited to 12 months for an individual)
- Caring for a child of a recipient in community service Supplemental Activities
- Job skills training directly related to employment
- Education directly related to employment (for those without a high school or equivalent degree)
- Completion of a secondary school program
Missouri has only an explanation of how many hours per month that an aid recipient needs to devote to work-related activity but no information about what that activity entails:
- The required average employment and training activities for a federal month for a single-parent household are:
- 20 hours if the children are under age 6
- 30 hours if the children are over age 6
- The required average employment and training activities for a federal month for a two-parent household are:
- 35 hours if the children are under age 6 and the household is not receiving federally funded childcare on the household members, and
- 55 hours for all other recipients
There is a link to the Missouri Work Assistance Program website, but even that site lacks specifics about what is expected of aid recipients.
When recipients in Missouri don’t engage in required work activities, benefits are supposed to be halved and then stopped. This rule should be enforced for people who aren’t making any effort, but our real goal is to stop paying benefits to people because they have jobs and can support themselves without government aid. Clear guidelines about required work-related activities for aid recipients might help—they seem to be working in Idaho.
What’s $65 Billion between Friends?
We teach kids the value of properly saving when they’re young, but when it comes to public pensions, retirement funds might not be quite what we once thought. In June the Mercatus Center published the 2016 edition of its annual “Ranking the States by Fiscal Condition” report. Missouri ranked 14th overall, but the red flag from this report regards nationwide pension plan funding (or lack thereof).
For those unfamiliar with the current pension debate, here’s a crash course: A pension plan’s funding ratio is the value of its assets (contributions to date) divided by the present value of its liabilities (discounted sum of its future payments). Between today and when the future payments are due, contributions will be put in and investment returns will be realized on the plan’s assets. Of course, the future contributions necessary to ensure a fully funded plan depend on the returns that are realized. In other words, if a plan’s returns fall short then contributions will have to fill in the gap. Current General Accounting Standards Board practices allow a pension fund to discount its future payments at the rate that fund managers expect returns to achieve, but in recent years economists have argued against valuing a plan’s funding ratio this way due to the simple fact that while investments might reach the expected goal, the funds for retiring employees must be paid.
Many economists note that current estimations don’t guarantee goals will be met, and that the safer way to estimate how well-funded a plan is involves discounting future payments as if they came from risk-free investments (i.e., treasury bonds). Mercatus listed each state’s funding status, first according to the state’s assumed investment return rate and then according to the risk-free rate, revealing a staggering gap. The graph below shows the difference between the ratios using the assumed rate and the risk-free rate for each state.
When determining a state’s funding ratio, the two methods produce an average difference of 34%. Missouri’s funding ratio drops 38%, with a difference of 64.84 billion (yes, that’s billion with a B). To be clear, this chart does not mean taxpayers will have to make up all or part of the difference, but the discrepancy in valuation shows the drastic potential costs taxpayers could be burdened with if investment returns don’t live up to their current expectations.
The types of investments that pension plans hold are up to the discretion of their managers, but these numbers are no small chunk of change. If states are going to guarantee retirement funds, they may want to consider a risk free measurement system that will ensure they are prepared to pay employees what is promised.
Making Strides toward Welfare Reform
It’s only fair to insist that for someone to receive welfare benefits in Missouri, they should at least be alive, actually reside in the state, and not be in prison. Missouri SB 607, which takes effect on August 28, is intended to help the state enforce these basic requirements. It requires the Department of Social Services (DSS) to contract out verification of Missourians’ eligibility for welfare benefits such as the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and MO HealthNet, to a private firm by January 1, 2017. Both DSS and the contractor will have to file an annual report with the Governor concerning eligibility data. This system should help ensure that those receiving benefits are actually entitled to them, a topic we have written on before.
While DSS retains final authority, the contractor will evaluate recipients’ eligibility more often than DSS has previously. SB 607 requires the contractor to evaluate welfare eligibility based on “income, resources, and assets” at least quarterly and “identify on a monthly basis any program participants who have died, moved out of state, or have been incarcerated longer than 90 days.” SB 607 is patterned after a law Illinois adopted that, once implemented, has removed 120,000 people thus far who should not have been on the welfare rolls.
Currently, DSS only determines eligibility annually. Thus someone could move to another state between eligibility checks and could continue receiving benefits for up to a year. As of 2014, Missouri had a large percentage of the adult population on welfare compared to other states, ranking twelfth in participation rates (see the chart above).
Supporters believe this measure could save taxpayers as much as $25 million by 2019. Maybe we should use the money we will save to experiment with successful welfare-to-work programs that other states have implemented.
North Kansas City Proposes A “No Tax Increase” Bond Issue
The North Kansas City School District is asking voters to approve the issuance of a $114 million bond for the construction of new facilities to meet the needs of a growing population. The Show-Me Institute has no position on whether the district ought to take this project on; we just quibble with the misleading argument in favor of it.
The Kansas City Star editorial board, not entirely surprisingly, supports the bond, and concludes its editorial with:
The district’s current debt service levy of $1.29 per $100 of assessed valuation won’t retire for about 20 years. Approving the bond issue in August would extend the debt levy 10 more years. Because of the extension, taxes that residents and businesses pay to the school district will neither go up nor down whether the measure passes or fails, officials say.
Two years ago, my colleague James Shuls addressed this very argument. He wrote,
Bonds work in much the same way and school districts can “refinance” to extend the term of the bond. They market this to the public as a “no tax increase” bond issue and claim that your payment will not go down or up whether the issue passes or not. Your tax payment will not change, but you will be paying for a longer period of time.
The bond issuance may be the exact right idea to meet North Kansas City’s needs. Shuls suggests calling such efforts “no tax levy increases” because, in fact, the new bonds will require the expenditure of more tax dollars. Proponents know better, and would be more credible if they just leveled with voters rather than spin fanciful yarns.
Will TIF Reform Slow Development in Maryland Heights?
Developers, including Stan Kroenke, are seeking millions in TIF to build a vast retail, commercial, and residential district in a Maryland Heights flood plain, but with new TIF reform laws on the books will this project dry up?
Financial Literacy in Missouri Needs Improvement
Do you know what compound interest is and how it works? What about interest payments on a 15 and 30-year mortgage? If you’re unsure of your answers, you are not alone.
The recently released National Financial Capability Study (NFCS) indicates that the average individual in the United States is not very financially literate. Based on responses to a six-question quiz on basic financial concepts (take it here), the average adult scored a whopping 3.16 correct answers. Some good news is that adults in Missouri are slightly less financially illiterate: We answered an average of 3.25 questions correct.
The financial literacy quiz is designed to see how well adults understand basic financial relationships, such as the role that interest rates play in making savings decisions, how interest rates and inflation are related, and how mortgage payments work. As pointed out in the Council for Economic Education’s 2016 “Survey of the States, not knowing how your money grows when put into savings increases the chances that you will not save enough for the future. And if you do not know the relationship between interest rates and inflation, you are more likely to make poor investment decisions that could cost you dearly in the long run.
Studies find that financial literacy education outside the home improves scoring on the quiz. In Missouri, unlike many other states, K-12 students are exposed to personal finance education, especially in high school coursework. While the most recent results indicate a lot of ground to make up in financial literacy, at least Missouri is headed down the correct path.
If you are curious how Missouri’s score compare to others, the table below reports the survey results for the nation, Missouri, and its neighboring states. Though most of the scores are pretty close (and low), Missouri did better than the national average and five of its neighbors.
Results of 2015 Financial Literacy Quiz
|
|
Average Responses (out of six) |
||
|
|
Correct |
Incorrect |
Don’t Know |
|
United States |
3.16 |
1.25 |
1.54 |
|
Missouri |
3.25 |
1.23 |
1.49 |
|
Arkansas |
3.06 |
1.33 |
1.53 |
|
Illinois |
3.17 |
1.26 |
1.50 |
|
Iowa |
3.56 |
1.13 |
1.30 |
|
Kansas |
3.33 |
1.19 |
1.38 |
|
Kentucky |
3.04 |
1.29 |
1.63 |
|
Nebraska |
3.47 |
1.11 |
1.37 |
|
Oklahoma |
3.10 |
1.25 |
1.58 |
|
Tennessee |
3.13 |
1.30 |
1.54 |
Source: National Financial Capability Study.
Next Generation Networking Event in Kansas City
Registration and event details coming soon.
A Common Definition of Public Education
In the pages of the St. Louis Post-Dispatch, I recently made the claim that the same opportunities given to public schools should also be given to parents. Public schools partner with private organizations to provide services to children—they outsource. As I argue in the piece, school choice is a similar arrangement:
Time and again we see benefits from outsourcing public services to private companies. Yet, many fail to see how private school choice programs, such as vouchers or tax credit scholarships, could yield the same benefits. Indeed, the same principles apply to both situations
After my piece ran in the paper, I received an email from a former public school teacher who didn’t much care for what I had to say. In his email, he asked me an important question: “What is the purpose of public education here in Missouri?”
In response, I had to ask him a question: Can you define public education for me?
Before we can begin to discuss the purpose of public education, we have to know what public education is. Our words have to have the same meaning. My suspicion is that the gentleman who emailed me would define public education as synonymous with public school districts. As I wrote in my piece “Redefining Public Education” a few years ago, that is not the case. School districts are not public education; they are a delivery method. Public education is simply an idea, that everyone has a right to an education financed at public expense. How we deliver that education can vary.
A school choice system, in which parents get to direct public dollars to the school that they want their child to attend, is perfectly in line with this definition of public education.
