Taxpayer Dollars and All That Jazz

Posted on by Patrick Tuohey

The Kansas City Star reported over the weekend that the City Council will soon decide whether to spend more on the 18th and Vine District. The amount was originally $7 million in December, then quickly grew to $18 million before reaching the current $27 million mark. The Star’s piece tells us that that this last investment would allow the city to “declare victory once and for all,” but doesn’t specify how victory will be achieved.

This is the latest effort to spend millions of taxpayer dollars on a problem that stubbornly refuses to be solved. The original effort to build something at 18th and Vine corresponded to the release of Robert Altman’s 1996 movie, “Kansas City.” The movie was a flop, and the efforts since to return life to the so-called district haven’t been any more successful. As KCUR pointed out in 2011, the effort to return the area to its Pendergastian heyday has lasted longer than the heyday itself.

This is what we should expect when the government pushes something that the people do not want. Even former City Councilman Ed Ford recognized that no one supports the District. “The marketplace has not embraced 18th and Vine,” he told KCUR before saying that the city is committed to its success. “Committed to success” likely means that city leaders will continue throwing good money after bad. The Council voted Thursday to direct the City Manager to find a way to give the district $18 million more.

In two pieces for CityLab, a publication of The Atlantic, Brandon Reynolds argues that government will never succeed at propping up jazz, and he points to the success of Memphis’ Beale Street as an example. The man who made Beale Street a success, John Elkington, argued that only private investment will work. A 1998 Los Angeles Times piece compared Elkington’s reliance on private investment to former Kansas City Mayor Emmanuel Cleaver’s desire for public dollars:

Some black leaders point to Kansas City’s revival of its jazz district as a preferable alternative to Elkington’s Beale project—a community renovation project overseen by a black mayor and tied to public funding that guarantees a role for black businesses and opportunity for neighborhood residents. In fact, Elkington and Kansas City Mayor Cleaver have toured each others’ projects—and both men argue that theirs is the only way to restore blighted black business sectors.

Twenty years later, we have a clear and irrefutable conclusion: Cleaver was wrong. Beale Street is a success, and 18th and Vine is a failure. While some may point to past mismanagement or insufficient funding for 18th and Vine, the point is that jazz is not as popular today in Kansas City as we want to believe. Kansas City was the top market for the Women’s World Cup in 2015, but it didn’t make it into the top 10 markets for the PBS documentary “Jazz” by Ken Burns. We’re just not that into it. Kansas City isn’t alone. Jazz pianist and blogger Bill Anschell wrote that, “People who want to play jazz actually outnumber those who enjoy or even tolerate it, let alone pay to hear it.” The plan in Kansas City is to force people to pay for it.

The jazz heyday was a product of seedy bars, corrupt politics, segregation, and prohibition. Jazz musician and band leader David Basse said, 

You can’t start a string of bars and have them owned by the city or corporations and make them fun. You can’t do that. You’ll open one little corner dirty place and you sweep the floor and you start selling booze.

Despite the best intentions, it’s unlikely that the same city government that banned smoking in bars and restaurants, raised the age to buy tobacco products, and regularly closes down bars and restaurants for small violations is going to be able to fund a resurgence in speakeasy-era entertainment. We have 20 years of failure to make that point.

Pensions Are Taking on Riskier Investments and Putting Retirees’ Money In Jeopardy

Posted on by James V. Shuls

A year ago, the Show-Me Institute released “Betting on the Big Returns: How Missouri Teacher Pension Plans Have Shifted to Riskier Assets,” which I co-authored with Michael Rathbone. In the paper, we examined the investments of Missouri’s three teacher pension funds from 1992 to 2014. We saw a remarkable shift in pension investments. Over the fourteen-year period, all three pension funds have shifted to riskier investments. A piece in the Wall Street Journal this week helps explain why this shift is occurring.

Interest rates for bonds, which are considered low-risk investments, have dropped considerably. Pension systems set investment return goals. For the Public School Retirement System of Missouri (PSRS), the assumed rate of return is 8 percent. The low interest rate on bonds has forced PSRS and other pension systems to chase higher returns by taking on greater investment risk.  Timothy Martin of the Journal writes:

Thanks to rock-bottom interest rates in the U.S., negative rates in other parts of the world, and lackluster growth, investors are becoming increasingly creative—and embracing increasing risk—to bolster their performances.

To even come close these days to what is considered a reasonably strong return of 7.5%, pension funds and other large endowments are reaching ever further into riskier investments: adding big dollops of global stocks, real estate and private-equity investments to the once-standard investment of high-grade bonds. Two decades ago, it was possible to make that kind of return just by buying and holding investment-grade bonds, according to new research.

As Michael and I noted in our report, it doesn’t really matter why pension plans are taking on riskier assets; it simply matters that they are. The changing nature of investments has made pension plans riskier. It is incredibly important for pensioners and policymakers to be aware of this. As a safeguard, we suggest policymakers should increase transparency:

To improve transparency, lawmakers could require pension plans to forecast assets using multiple assumptions on investment returns. What would the funding ratio for each of these plans be if returns are 4 percent or 6 percent instead of 8 percent? This is something policymakers should know as it would allow them to choose the best way to structure contributions so that downside is minimized and that these plans can be adjusted to adapt to any unexpected downturns that may occur.

It is time to prepare ourselves for what might happen as a result of taking riskier assets. After all, it is the teachers and eventually the taxpayers who will be held responsible if these plans do not meet their expected rates of return.

 

The Streetcar’s Future Ridership

Posted on by Patrick Tuohey

Almost every story about the newly opened Kansas City streetcar tells us that ridership is higher than expected, and indeed it appears to be. Daily ridership estimates have ranged from 2,700 to 3,500 before the system was opened, and the Star recently reported that daily averages have been over 6,400. Expect these ridership numbers to be featured in the inevitable campaign to extend the streetcar to UMKC.

Why is ridership so high? The Star has at least twice ascribed it to the “novelty” of the new system, both in the story linked above and here. The Star is likely correct, considering the experiences in two other new streetcar markets. Atlanta, for example, was crowing about its better-than-expected ridership numbers last year, and proponents were urging the city to consider expansion,

With this early success and ridership exceeding expectations by more than 20 percent, it’s never too soon to look ahead to Atlanta’s future.

Yet a year later, the system is being threatened with closure due to a list of problems, not the least of which being a decline in ridership,

After offering free fares for a year, the streetcar started charging $1 in January. Ridership plummeted. About 91,000 people rode the street in the first three months of this year—48 percent less than the same period in 2015.

The same plight has befallen the streetcar system in Tucson, Arizona. Last March, the system was said to be carrying more riders than forecast 7 months after its launch. Yet last week, the Tucson streetcar announced it was curtailing its late night service in the name of “passenger efficiency.” The Tucson system is not free to ride either, charging $1.50 for a one-way fare.

The streetcar in Kansas City is free to ride, and for now it's a novelty. It may be months before ridership levels settle into their long-term levels as they have with older systems. Only once those numbers are known, and the impact of a fare is included, should policymakers decide if this is something worth extending to UMKC or beyond. Otherwise, the city risks wasting millions of dollars that could be better spent elsewhere.

The Negative Impacts of Development Subsidies

Posted on by Patrick Tuohey

The Kansas City Star’s Joe Robertson has written recently about the closure of the Kansas City office of the National Alliance on Mental Illness. Earlier in the month, Robertson had written about the support NAMI has provided KCPD’s Crisis Intervention Teams that often dealt with those afflicted with mental illness. But NAMI-KC has since closed its doors. Robertson writes:

The Kansas City office had been struggling with its finances, a difficult time made worse because key members of its small administrative staff were in ill physical health.

Nearly 30 percent of NAMI-KC’s revenue came from a share of the Jackson County Community Mental Health Fund tax levy.

Robertson does not mention that due to an extension of The Kansas City Star’s property tax abatement, the paper of record does not pay into the mental health fund levy. Nor does he mention that the Community Mental Health Fund did not receive over $891,000 in 2015 alone due to Tax Increment Financing (TIF) and tax abatements in Jackson County. (The Star’s 15-year extension is worth $245,000 alone!) Those funds are kept by property owners or diverted back to developers.

Defenders of Kansas City’s development policies respond that this money was never being collected in the first place, so it isn’t fair to say that it’s being taken away from schools, libraries, or the mental health fund. Once the TIF or abatement is ended, they say, those funds will be better off than before. But this ignores the specifics of the Star, which sought to extend a 10-year abatement for another 15 years.

Supporters of such subsidies also give too much credit to TIF policy for driving up property values. A study by the University of North Carolina at Chapel Hill looked at TIF policy in Chicago and found that

After controlling for potential selection bias in TIF assignment, this paper shows that TIF ultimately fails the “but-for” test and shows no evidence of increasing tangible economic development benefits for local residents.

Developers are reaping a windfall from development subsidies in Kansas City. That money is diverted from other worthy causes, notably schools and mental health services. When publicly funded organizations like NAMI-KC are forced to shut their doors, the blame lies largely at the feet of pro-development policymakers.

Making Sure Municipal Courts Are Not Tax Collectors

Posted on by Jonathan Brown

In recent sessions, the Missouri State Legislature has made great strides toward reducing the perverse incentives and effects of taxation by citation—the practice of using court-assessed fines and fees as a source of municipal operating revenue. Just last year the legislature passed, and Governor Nixon signed, SB 5, which strengthened and expanded protections against such practices.

However, last March a Cole County judge invalidated much of SB5, ruling that several of its most important provisions were unconstitutional. Although the decision will be appealed, it has jeopardized the protections that SB 5 had provided to Missourians.

Regardless of the fate of SB5, concern about court fines and fees should extend beyond traffic tickets and percentages of budgets. State Senator Eric Schmitt (the sponsor of SB5) sponsored legislation in the recently completed session to extend the protections against taxation by citation.

SB 572 (passed by the legislature this session) lowers and caps fines applicable to both municipal traffic and ordinance violations and adds municipal ordinance violations to the calculation of the 20% municipal revenue cap allowed to come from municipal fines and fees.

The use of taxation by citation in any form invites unpredictability and conflicts of interest among the courts and law enforcers. For the benefit of government and the people of Missouri, tax policies should be set so that revenue is reasonably stable and predictable.

The first step to solving any problem is admitting that one could exist. The legislature has recognized that funding municipalities using traffic fine collections, and now municipal ordinance violations, is bad policy—and that’s a great start. The next step is to fully address taxation by citation in all its forms.

Saint Louis’s Central Business District: The Heart of What?

Posted on by Joseph Miller

Last week, a murder a few blocks from the Saint Louis Convention Center turned attention toward both the safety and overall vitality of Saint Louis’s Central Business District (CBD), the borders of which can be found here. The public outcry against crime was immediate. Missy Kelly, head of Downtown STL (a quasi-governmental body that promotes the CBD), released a statement saying:

“The entire region should be outraged by this because what happens in the central business district, the economic engine and heart of the St. Louis region affects us all. It affects our national reputation. It affects what businesses consider St. Louis when exploring options for their headquarters. Most importantly, it affects each of our families. Downtown St. Louis is the region’s Downtown. We all own it. We all deserve to feel safe visiting the many assets that can only be found in the heart of our city.”

Of course, violent crime is nothing new to Saint Louis, and downtown is far from the most dangerous neighborhood in the city. However, safety problems in the CBD tend to generate much more response than similar crimes in other areas do. Saint Louis leaders are eager to defend the “heart” of Saint Louis, and to call on the whole region to support the downtown.

But what exactly is Saint Louis’s CBD the heart of? Certainly not the region’s population. As we’ve written before, Saint Louis’s downtown actually has a lower population density than areas farther away from the core, like the Central West End. Furthermore, the region’s population is extremely dispersed, with large sections of the population living more than 20 miles from city hall. The Saint Louis metropolitan area is region with more than 2.8 million residents, only a few thousand of whom live downtown:

What of the CBD’s status as the business heart, or the economic engine, of Saint Louis? Today, less than 1% of the region’s annual payroll comes from businesses in the CBD. If we look at the zip codes that contain Saint Louis’s CBD, we find that areas in Saint Louis County, specifically Chesterfield and Creve Coeur, contain more businesses, contain more employees, and generate higher payroll than downtown. Looking at the maps below, we don’t see an economically dominant CBD surrounded by bedroom communities; instead we find dispersed areas of high employment. These areas include a broad central corridor that contains the CBD (but also Clayton and the Central West End) and a highly productive corridor in West County along I-270 that has more businesses and higher payrolls. The Saint Louis economy is so geographically dispersed that it might be difficult for a person not familiar with the region to locate downtown from economic data alone:

What of culture? The Saint Louis CBD has the Arch grounds. It also has the Scottrade Center, museums, libraries, theatres, and a sculpture garden. And of course, it has Busch Stadium, home to the Saint Louis Cardinals. For decades, the Saint Louis region as whole has poured tax money into amenities downtown, from the Dome formerly known as Edward Jones to the Arch grounds. Even as population and business activity left downtown, very few publicly funded civic projects were considered for any area but downtown (Forest Park being a notable exception). If public monuments, sports stadiums, and astro-turfed urbanism are all there is to culture, certainly downtown is unrivaled.

Whether or not Saint Louis’s downtown is truly its cultural heart, the region is undeniably diverse and dispersed. People live all over and work all over the map. To look at the region realistically (and plan for it effectively), we have to understand that St. Louis’s CBD is just one neighborhood among many, and we need to stop pretending that it has the economic and demographic dominance it did at the turn of the 20th century. Whether the problem is crime or economic growth, we’re unlikely to find a way forward when we can’t admit where we are.

Evaluating the Kansas City Streetcar

Posted on by Patrick Tuohey

The Kansas City Streetcar opened to glowing and effusive praise from local media, some of it embarrassingly fawning. After all the media hoopla, supporters were eager to push for a $250 million streetcar expansion. Then came week three.

While the streetcar had problems in the first few days of ridership, none garnered as much media attention as its derailment on May 23. Two days later, service was halted due to electrical concerns. On May 26 the streetcar was hit by a car at an intersection, halting service. Even supporters admit it was a bad week.

What are we to make of it? What is a reasonable expectation of downtime for a streetcar system? According to the 2014 National Transit Database, streetcars run about 95 percent of their scheduled vehicle miles. That sounds impressive until you realize that it is the lowest performance percentage of any rail transit. Nationally, systems such as commuter rail, heavy rail, and light rail run at 105.2%, 97.3% and 98.9% of scheduled vehicle miles, respectively.

All totaled, metro buses run 102.8 percent of scheduled vehicle miles. In Kansas City, the KCATA runs 99.8 percent for both metro buses and bus rapid transit such as the MAX lines.

The difference between 95 percent for street cars and 102.8 percent for buses may seem small enough, until you consider the costs of each. My colleague Joe Miller wrote of the rejected 2014 streetcar expansion that Kansas City could buy 100 additional buses for the same cost of expanding the streetcar system 7.6 miles.

As Kansas Citians consider efforts to expand the streetcar line, hard data like transit costs and performance need to take precedence over feel-good puff pieces. That’s the only way to promote good public policy.

Session Notes: Ethics Reforms Get A Boost

Posted on by Patrick Ishmael

Despite a few flabbergasting legislative moments that threatened to blow it all up, Missouri's General Assembly eventually did pass a basket of important ethics reforms. Notably, a pair of the reforms dealt with the manner in which campaign funds could be spent by former legislators and the manner in which legislators could be campaign consultants for one another. Both of these proposals represented reasonable and substantive reforms, and I'm glad they passed.

But perhaps the most important ethics reform enacted this session was the legislator-to-lobbyist cooling off period, sometimes called the "revolving door" law. Similar to a non-compete agreement for elected officials, the law requires that legislators wait six months after their term ends before they can start lobbying their former colleagues on someone else's dime. Even if that general practice wasn't already the law in most states, it's simply good policy to make sure folks in public office have unambiguously undivided loyalty to their constituents. Forcing a break between a policymaker's public service and possible private lobbying helps to accomplish that end.

Congratulations to the General Assembly for making ethics reform a matter of primary importance in 2016… and following through on it. The legislature, and the state, will be all the better for it.

Some School Finance Common Sense from Deep in the Heart of Texas

Posted on by Michael Q. McShane

Last week, the Supreme Court of Texas handed down its decision in a case challenging the constitutionality of the Lone Star State’s school funding system. (I filed an Amicus Curae letter in the case that can be found here).

The Supreme Court unanimously ruled that the state’s funding system was, in fact, constitutional, and the decision, written by Chief Justice and twitter fiend Don Willet goes into great length explaining why. Giving the funding case pending in Kansas and the perpetual threats that are levied at Missouri’s funding system, Justice Willet’s opinion is well worth reading.

On page two, Chief Justice Willet writes (emphasis mine):

“But  our  judicial  responsibility  is  not  to  second-guess  or  micromanage  Texas  education  policy or  to  issue  edicts  from  on  high  increasing  financial  inputs  in  hopes  of  increasing  educational  outputs. There  doubtless  exist  innovative  reform  measures  to  make Texas  schools  more accountable  and efficient, both quantitatively and qualitatively. Judicial review, however, does not license second guessing the political branches’ policy choices, or substituting the wisdom of nine judges for that of 181 lawmakers. Our role is much more limited, as is our holding: Despite the imperfections of the current school funding regime, it meets minimum constitutional requirements.”

Advocates often want to replace the legislative process and the decisions of our duly elected representatives with the opinions of judges. They want the court to tell the legislature how much to spend and to force them to spend it. This is terribly problematic. If courts are going to tell the state how much money they have to spend per pupil, what is the point of even having a legislature?

Chief Justice Willet was just getting warmed up. He continues later (again, emphasis mine):

“Second,  the  trial  court’s  “fact”  findings  as  to  the  specific  amount  of  funding  needed  to achieve a general diffusion of knowledge are, we think, beyond the current state of science in this field. We have warned that in school finance cases where we must decide constitutional questions, the trial court’s findings play a “limited role.”   This case demonstrates why.  To determine as a matter of fact that specific funding levels are required to achieve the constitutional threshold of a general  diffusion  of  knowledge,  a  court  not  only  must find  that  a  cost-quality  relationship  exists,  but also must assign  specific  quantitative measures to  that  relationship…We have never sanctioned a trial court’s ordering the Legislature  to  spend  a  specific  amount of money  on the  schools  to  achieve  constitutional  adequacy, as  doing  so  would deprive  the  Legislature  of  the  broad  discretion  the  Constitution provides  for  such inherently political decisions.”

Even if we wanted to give judges the power to set spending levels, we do not know how much it costs to educate a child adequately—in Texas, in Missouri, or anywhere else.  There is absolutely no guarantee that spending X amount of dollars will yield Y level of student achievement.  As a result, we rely on our elected representatives to determine how much money we should spend on our schools, and how to spend it. They have to make the difficult tradeoffs between dollars going to schools and to healthcare, to roads and to prisons.

The Texas Supreme Court made the right decision. The legislature has the power to set funding levels where they think they should be and are empowered to make the difficult tradeoffs between the various causes that the state supports. Not everyone will agree with the decisions the legislature makes, but that’s why we have elections.

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