The Illusory Goal of a Fully Funded K-12 Formula

Posted on by James V. Shuls

If you’ve ever seen it, there is something funny about a dog chasing a car. At first it seems as if the dog may grab hold of a tire, but inevitably, right when the dog is about to catch it, the car speeds up, leaving the dog behind. Bless poor Fido’s heart, but it is an exercise in futility. In many ways, funding for Missouri’s public schools is the same way—just when you think you can catch it, it accelerates out of reach.

It’s hard to read a story about education in Missouri without seeing that public schools are “underfunded.” What they are really saying is the legislature is not fully funding the formula that determines how much each school is supposed to receive—the Foundation Formula. Some suggest the shortfall comes from the economic downturn of a few years ago. Others say taxes aren’t high enough to generate sufficient revenue to fully fund the formula. Both theories imply something is wrong with the dog—either he’s too sluggish, or we aren’t feeding him enough.

Here is another explanation: Fully funding the formula is difficult because the funding formula continues stepping on the gas.

The Foundation Formula is designed to continually increase. How much schools should receive from the state is determined by something called the “state adequacy target.” The target is recalculated bi-annually and, by law, can never go down.

Now, follow me here for a minute. The target is based on how much Missouri’s successful school districts spend per pupil. Setting aside whether that is a good idea in and of itself, let’s imagine the legislature appropriates an extra $400 million dollars to the funding formula. What would happen to spending in these districts? It would go up, of course. Subsequently, when the state adequacy target is recalculated the target would go up again. . . and so on.

We already see this happening. From the 2015-16 school year to the 2016-17 school year, the state adequacy target will increase $230 per student. The goal of fully funding public schools just went up another $203 million.

Despite the continually growing requirements of the formula, the state does not adjust “local effort”—the amount the state expects districts to raise locally. Right now, the Department of Elementary and Secondary Education uses assessed property values that are over a decade old. Property values, and taxes, have gone up in the meantime. Yet, the formula doesn’t capture these changes.

Try as they might, lawmakers will have a tough time ever fully funding the system, because the very act of increasing funding leads to the requirement of another increase in the formula amount for the next year. Just like Fido, they’ll always be looking into an exhaust pipe.

This isn’t to say that Missouri should or should not spend more on K-12 education. Rather, these illustrations demonstrate the need to restructure the formula so it is more dynamic and attuned to the changing demographics of school districts. 

No Surprise: Health Care Spending Accelerated in 2014

Posted on by Patrick Ishmael

One of the most ballyhooed promises of Obamacare was the law's supposed effect on Americans' health care spending. Frequent talk of the law "bending the cost curve down" was intended to allay concerns on both sides of the aisle that the Affordable Care Act would actually make health care more expensive for individuals in the private market and the government itself.

Supporters of the law claimed this wouldn't be the case, but data released late last year by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) show very clearly that, again, they were wrong.

Although the ACA was enacted in 2010, its most significant provisions went into effect in 2014. The expansion of Medicaid eligibility, as well as health insurance premium tax credits and cost-sharing subsidies paid by the federal government, contributed to federal government health care spending growth of 11.7 percent in 2014 — 8.2 percentage points faster than in 2013. Correspondingly, the federal government’s share of health care spending increased from 26.0 percent in 2013 to 28.0 percent in 2014.
 
Other provisions of the ACA that took effect prior to 2014 continued to affect overall health spending — including changes to Medicare and Medicaid provider payments, increased Medicaid prescription drug rebates, reductions to the size of the Medicare Part D coverage gap, prescription drug industry fees, and implementation of the medical loss ratio requirement for private insurers.
 
For regular readers of our work, CMS's findings will come as no surprise. In our paper on direct primary care, released last year, we detailed how health care costs for both the government and for private individuals were going up in all sorts of ways: through mandated coverage, higher premiums, bigger deductibles, less-generous copays, and other cost-transferring practices. From the very beginning, the mechanics of Obamacare clearly pointed to significantly increased, not decreased, health care spending in the United States; the results since its passage bear out that very straightforward reality.

With Riverfront Stadium Dead, City Leaders Back Other Expensive Projects

Posted on by Joseph Miller

When the Rams decided to move to Los Angeles, it meant the end of plans to spend $400 million on a new stadium in downtown Saint Louis. Well, probably. But like cutting off the head of the Hydra, the decapitation of one spending proposal seems to spawn two more. Thus, it comes as little surprise that even with the autopsy of Rams move still in newspapers, new hundred-million-dollar-plus plans for stadiums and convention centers are gathering steam.

According to the Saint Louis Convention and Visitors Commission (CVC), the Scottrade Center, the America Center, and the Edward Jones Dome are in need of expensive renovations. The suggestion is that the Scottrade Center requires $100 million in upgrades, the America Center needs $120 million to remain competitive, and as for Dome, the head of CVC didn’t even have estimate. If the Post-Dispatch is to be believed, the Dome will need $64 million just to maintain its current condition. The price tag for any major changes is likely to be much higher. Altogether, the cost of renovations to just these three facilities would come to more than $280 million.

So who will pay for these renovations? With the convention center and dome, it will almost certainly come from the public, and probably from Saint Louis City. The Scottrade Center was mainly a privately funded enterprise, but there is no guarantee that renovations would be handled in the same manner.

If the city is forced to shoulder the burden of these upgrades, it could be backbreaking. The city’s outstanding debt on the convention center, dome, and Scottrade Center is about $420 million already, requiring more than $20 million in annual debt service. The city also spends an additional $5.7 million on conventions and tourism, most of which goes to convention center operations. These costs far outstrip the total revenue of the city’s hotel and restaurant taxes ($13.5 million in 2014), which were set up to support the convention center.  If the city were to take on the debt necessary to fund the renovations above, its yearly convention/stadium spending would increase to about $46 million per year. For comparison, in 2014 the city spent $49 million on health and welfare and $70 million on streets. 

Spending hundreds of millions of public dollars and tying up the city in debt for decades to compete in the increasingly cutthroat convention center arms race is questionable policy. But what should be galling to city residents is the fact that, whatever had happened with the Rams, these upgrades would still be thought necessary. They would still cost hundreds of millions of dollars and still be public liabilities. If the Rams had been forced to remain in Saint Louis, city residents would have been committed to spending $150 million on a new stadium, only to be told that the city’s old stadiums needed $300 million themselves.

Sound policy would be to make sure we can afford what we have before we try to build something new. Regional leadership is taking the opposite approach. 

Study Finds Health Care Price Transparency Should Be a Top Policy Priority

Posted on by Patrick Ishmael

We have talked many times about market-based reforms that would help to bend down the cost curve of health care in this country. One important reform is the promotion of price transparency to make it easier for health care purchasers to compare prices for and save money on routine health care procedures. Transparent health care pricing helps keep health care costs down, and this fact was made clear in an important study published just last year.

For years, hospital executives have defended these prices saying it’s about quality, or that they see sicker patients, or lots of folks on Medicare.

“That’s just not true,” said co-author Yale economist Zack Cooper.

Cooper said the team, including John Van Reenen from the London School of Economics and the University of Pennsylvania’s Stuart Craig, controlled for all those factors. And Cooper said market power matters more than the rest….

Change starts, says Cooper, when people who buy the MRIs and the C-sections can simply see real prices. And change may happen when those same people negotiate next year’s deals knowing what they know now.

You can find the full report here. Its implications are straightforward. For one, a hospital that holds and can maintain monopoly control over a health care in its region can charge higher prices than if it had competition. For another, concealing the prices of health care services serves to fatten providers' wallets. Without readily available prices, it is harder for patients to determine whether they're being overcharged. That was true before Obamacare was passed… and has continued long after Obamacare was implemented. The problem in health care is not the free market. The problem is the lack of a free market in health care.

Market reforms like price transparency are important tools to make health care in this country better, less expensive, and more accessible. Rather than go farther down the hole of failed government-run health care, we need to move toward freeing our health care system to make sure that patients' needs—both their health needs and their financial needs—are in the center of the system. Price transparency would be a step in the right direction after far too many steps in the wrong.

Ethics Bills Top List of Legislative Movers Early in Session

Posted on by Patrick Ishmael
For many years now our General Assembly has failed to deal with one of the greatest threats to good governance in Missouri—the state's unnecessarily lax ethics rules. These days it's not unusual for legislators to leave public service mid-term, only to begin lobbying their former colleagues on behalf of special interests immediately after leaving office. And that practice accentuates a host of other questionable campaign and gift conventions that have taken root in Jefferson City. There should be no question about who has the allegiance of our legislators at the Capitol. Missouri's political culture is overdue for a pivot toward good governance and away from self-serving cronyism.
 
Fortunately, it appears the legislature is on track to make real progress in the realm of ethics this year. The menu of reforms is diverse, too. Limits to gifts from lobbyists to legislators appear to be squarely on the table. The chambers also appear on track to put a door stop in the revolving door of legislators turned lobbyists so that our elected officials aren't trading on their public service—both while they serve and immediately after they've left. Other campaign finance changes and transparency measures promise to ensure that the line between public service and private gain is bright and unambiguous. Indeed, for taxpayers to have trust in their government, it is important that they have confidence in their own elected officials; clearly circumscribing what the appropriate behavior is while they're in office serves both the trust interests of the public and the long-term professional interests of those elected to serve in public office.
 
Kudos to the legislators from both sides of the aisle who are involved in this effort. I look forward to the debates.

Empowerment Scholarship Accounts Would Be a Boon to Missourians.

Posted on by James V. Shuls

Children with special needs can be extremely challenging, and costly, to educate. Often, they require aides, therapists, counselors, and other accommodations.  Try as they might, public schools often struggle to educate some of the neediest children. Meanwhile, parents often feel as if they are grasping for straws trying to get their children the services they need. This isn’t a criticism of the many dedicated professionals and educators who serve special-needs children; this is a criticism of the system itself. It’s an asymmetrical arrangement: the school system has complete power over the educational resources even though the parents are the ones who best understand how those resources should be used for their own children.

Empowerment Scholarship Accounts, otherwise known as Education Savings Accounts (ESAs), have the ability to change this. They allow parents to direct the funds toward the services that they believe will meet the needs of their children.

ESA bills have been introduced in both the Missouri House and Senate, but have yet to receive a hearing. In previous posts, Brittany Wagner explained how ESAs work and how parents could spend the funds. In numerous other posts, I and others have highlighted how school choice programs could improve educational options for students. Here I want to demonstrate how this type of program is a financial boon for Missouri.

In the proposed Senate Bill, which would cover special-needs students only, a tax credit of 75 percent would be granted to individuals who donate to a scholarship organization. That means a donation of $100 would count as a $75 payment towards your taxes. In other words, the scholarship organization is getting $100 from the donation and the state is still collecting $25 in taxes. As I explained in further detail in my paper, “Available Seats?,” this tax credit feature increases the amount of available funds for education.

That is not the only way savings accrue. Special-needs students who are eligible for the program could receive an ESA worth the “State Adequacy Target.” For the 2016-2017 school year, this will be $6,808. This is roughly $2,500 less than the amount of local and state dollars spent per pupil in 2015, and I can assure you that this is less than most schools spend on special-needs students. 

Every special-needs student who uses an ESA in this program will essentially be giving Missouri taxpayers and public schools a cost-savings.

In total, more than 6,800 scholarships of the full amount could be awarded under the proposed bill.  If we assume that each of these students would have attended a public school (this is not a stretch, since it is stipulated in the bill), then the cost-savings could be in excess of $14 million.

Number of Scholarship Students

Average State and Local Spending Per-Pupil

Total State and Local Spending

(Column 1 X Column 2)

Total Tax Credits

Savings for the State

(Column 3 – Column 4)

6,854

$9,340

$64,016,360

$50,000,000

$ 14,016,360

 Special needs students may be difficult to educate, but it is not difficult to see that ESAs would be a boon for Missourians.  

 

Kansas City’s Earnings Tax Ignorance

Posted on by Patrick Tuohey

Brace yourself: Kansas City leaders are preparing a campaign to scare you into voting for the earnings tax. On Monday morning, Kansas City Mayor Sly James gathered with the usual suspects to decry efforts to end the earnings tax. According to The Kansas City Star:

James said that if the tax is phased out, the city would have to drastically increase property or sales taxes to replace that revenue, but Kansas City doesn’t have authority to raise those taxes to that degree.

James said losing that money could mean laying off 810 uniformed police officers and 550 firefighters over 10 years.

City Hall has known this earnings tax vote was coming for years, and yet they have apparently done nothing to prepare for it. There appears to be no contingency plan. As a result, City leaders do nothing but offer doom and gloom scenarios of public safety cuts and increased taxes.

Almost exactly five years ago, City Hall leaders also came out to oppose the first effort to end the earnings tax. They said the same things Sly James is saying now. Just like Mayor James, Jan Marcason said that if the earnings tax were defeated at the ballot, the city would have to cut benefits and services. Thankfully, I was at the press conference to ask some questions:

Tuohey: Jan [Marcason], you said in your comment that if this passed that the City Council would have to increase property taxes or cut services. Are you saying now that you would vote to cut services to seniors or vote to increase property taxes and vote to increase income taxes?

Marcason: No. I just think we need a plan. If these cuts were to come about, we need a plan to replace that money.

Tuohey: Does the City Council have a plan?

Marcason: The City Council is looking to its leadership…

Cindy Circo: We passed a resolution to…

Tuohey: To what?

Circo: We passed a resolution to look at all the options, but there's no turn off on the light switch. There's no way to do this overnight.

(The rest of the video is entertaining. Dave Helling of The Star pushes back on the idea that the City cannot make cuts and then-Councilman Russ Johnson argues with him over the shoulder of a clearly uncomfortable Jason Kander.)

I am not aware of any contingency plans the city has made if the earnings tax is defeated. Instead they prefer to complain like a petulant student who has not studied for finals, and make threats based on their own unpreparedness.

Full Steam Ahead for Transportation Funding in Missouri

Posted on by Joseph Miller

Before Missouri’s legislative session started a couple weeks ago, we wrote about how one of the main focuses for the body would be the state’s transportation funding issue. Quick action on fuel tax bills in the Senate has confirmed this position.

For instance, SB 623, a bill that would increase the fuel tax by 1.5 cents for regular fuel and 3.5 cents for diesel fuel, has already been voted out of the Senate’s transportation committee (unanimously). A similar bill last year (SB 540) did not even have a hearing until March 18th. SB 623 is not the only transportation bill that has seen a concerted push. SJR 18, which would not only increase the fuel tax but also transfer many of the state’s smaller highways to the control of local governments, has also been assigned to the transportation committee and will likely have a hearing soon.

Measures similar to those going forward in the Senate are making their way through the Missouri House of Representatives (HB 2032, 1581, and 1381), although not at such a breakneck pace. In addition, the legislature has yet to propose any infrastructure-related public–private partnership (P3) bill, which was introduced in last year’s session and would be essential for any efforts to use tolling to fund I-70’s reconstruction. Such a bill might never be introduced, but it is worth noting that the last year’s attempt at P3 legislation came late in the legislative session as an amendment to SB 540.

We’ll keep track of all these bills as they make their way through the legislative process. 

State of the State Address Strikes Happy Notes, But Forgets Opportunities Lost

Posted on by Patrick Ishmael

Last week Missouri Governor Jay Nixon delivered his eighth and final State of the State address to the Missouri legislature. You can find the full text of his speech here. In contrast to previous years, the Governor struck a much less antagonistic tone toward supporters of free market policies, focusing instead on a host of priorities he claims were successes during his tenure. The Governor deserves credit for the positivity in his speech.

But sadly, the Governor's positivity doesn't bring back the missed opportunities of the last seven years. In Jefferson City we have seen hostility to substantive income tax cuts, opposition to serious education reforms, the promotion of a long line of tax incentive boondoggles, and the rejection of reasonable reforms to the state's labor policies. This year's priorities also leave something to be desired; for instance, "keeping tuition low" at Mizzou, a key plank from last week's speech, is probably a misplaced priority while the University fights to earn back the trust of the taxpayers who fund it. 

A few months remain for the Governor and the Legislature to make real progress on a host of important policy matters, and I expect that there will be some forward movement on ethics reform before he leaves office. That is a great thing. I worry, however, that that's where the progress will end. Let's hope not.

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