Columbia Feeling “Blue” About IBM’s Job Numbers

Posted on by Michael Rathbone

The silver lining in this recent report regarding the continued underperformance of the IBM call center in Columbia is that taxpayers could have lost a lot more money than they already have.

Back in 2010, in an effort to spur job creation in Columbia, the city and state combined to award a $31.2 million incentive package to IBM so that it would place a new call center in the town. In return, IBM promised to create 600 jobs at the new center by 2013.                

Fast forward to March of 2015. Instead of 600 jobs, IBM had only created 453, far short of the number promised. Since then, things at the call center have deteriorated even further. Employment now stands at 388. This has prompted the state to withhold $800,000 in additional funding for the call center.

                Again, it’s good that the city and state didn’t give away the whole $31.2 million to IBM, but they’ve already have spent a lot of money (at least $10 million) on this project. Probably the most egregious part of the incentive package is the fact that the city of Columbia actually owns the building where the call center is located. This building cost the city $3 million and IBM’s rent is a miniscule $1 every year.

We were bearish on this plan when it was first enacted, and unfortunately for taxpayers, we were proven right. Tax credits are not a good economic investment, and their failure is not isolated to Columbia.

What is happening in Columbia is just another example of the consequences that occur when government picks winners and losers. If policymakers want to create economic growth, they should work to create a business environment that is welcoming to everybody and not just Big Blue. 

Cato Study Shows that Federal Employees Make More than Private Sector; Government Unions Furious

Posted on by John Wright

Underlying the American Federation of Government Employee’s (AFGE) claims that their members deserve higher salaries and more lavish benefits is the assumption that private sector workers are better compensated than government workers. Many people buy into this assumption and figure that government employees make up for the compensation gap with increased job security and a more relaxed workload.

A new study from the Cato Institute shows that average federal compensation is nearly double average private sector compensation. Do you think AFGE took this study in stride?

“Bogus!” cries AFGE in a recent release. Rather than acknowledging the fact that, yes, federal employees are very well compensated and enjoy generous health and pension benefits, AFGE resorts to name-calling,  describing the study as “a shameful piece of propaganda.” Ouch.

AFGE argues that it can be misleading to compare the entire private sector to federal employees because there’s so much diversity across job classifications. True, you need to be careful about the conclusions you draw from an average that lumps physicians in with custodians. Especially if the private sector employs many more unskilled workers than the federal government.

AFGE makes this argument, but you have to get through a lot of angry rhetoric and name calling to get to it. And the Cato authors deal with this objection in the study:

Some people argue that the government has a unique high-end workforce that deserves to be paid handsomely. But you can flip through the federal budget and find mundane bureaus where workers are paid highly for normal bureaucratic jobs. For example, average compensation in the Department of Commerce's Economic Development Administration—an agency that hands out business subsidies—is about $140,000. And average compensation in the Department of Agriculture's Office of Chief Economist is about $174,000. So it is not just rocket scientists that earn high wages and benefits, it is also federal workers in regular white-collar jobs.

The bottom line here is that we’ve got to bust this myth of the underpaid government worker. Yes, we want government employees to be well paid, but compensation should be reasonable. The government does not need to be the highest paid industry in our economy.

Expansive Commitments Drain MoDOT Dollars

Posted on by Joseph Miller

As we’ve discussed many times before, the Missouri Department of Transportation (MoDOT) faces a serious budget shortfall in the next few years. Specifically, the department will soon no longer have the funds to maintain, much less improve, the existing state highway system. While we’ve pointed out that the major contributing factor to this predicament is stagnation in the user-funding base, there’s a spending side to the equation as well: it’s clear that the sheer size of Missouri’s state highway system is putting undue strain on MoDOT.

As state officials are quick to point out (in arguing for increasing MoDOT funding), Missouri has the seventh-largest state highway system in the country by total miles. However, what they are less likely to point out is that Missouri’s state highways include many small and little-used routes that would be handled by cities and counties in most other states. For instance, despite the fact that Illinois’s highway system is less than half the size of Missouri’s, total traffic in that state is one-third greater than in Missouri.

Unfortunately for MoDOT, low traffic levels do not mean low costs. The mileage alone (~24,000) of Missouri’s least-used highways results in significant annual capital and maintenance spending. In 2013, for example, nearly 30% of the state’s total highway spending ($414 million) went toward work on routes that primarily serve short-distance, intra-county travel. Most states only set aside between 1% and 5% of total spending maintaining smaller roads, but because of our high number of local roads, Missouri uses about 16% of its funds maintaining these types of routes. That MoDOT is forced to spend so much on maintaining smaller local routes is especially difficult, because federal aid is much harder to acquire both for maintenance spending and ancillary routes (which are not part of the National Highway System).

Missouri’s abnormally extensive state highway system is the result of decades of state policy, with programs like “Get Missouri Out of the Mud” (starting in the 1920s), the creation of “Farm-to-Market” roads, and many other ad hoc decisions constantly expanding MoDOT’s responsibilities. While MoDOT officials have talked about stopping state highway growth, the percentage of MoDOT spending that goes towards maintaining Missouri’s smallest state highways has greatly increased in the last 20 years:

Year

1995

2000

2005

2013

% MoDOT Spending on Small Highway Maintenance

9.3%

10.8%

13.0%

16.0%

Given MoDOT’s financial constraints and the skepticism with which Missouri residents view any tax increase for the state highway system, it may be time for state policy makers to reevaluate the scope of Missouri’s state highway system. Returning routes that are local in character to local governments might both relieve much of MoDOT’s funding problem and give local residents the autonomy in prioritizing their own transportation needs. 

Helping Charter Schools Get Buildings

Posted on by Michael Q. McShane

The Citizens of the World charter school, slated to open next school year in Kansas City, is generating interest in education circles. Unlike top-down efforts to open schools, in this case a group of parents got together and issued a request for proposals from different charter school operators from around the country to find the school model that would best serve their kids.

The parents eventually settled on Citizens of the World, a network that started in California and focuses on purposely building a diverse student body and preparing children for both academic success and engaged citizenship.  If it ends up working as they hope it will, it will be the stuff of charter schooling dreams.

To date, one key detail is missing—a building. 

Unfortunately, Citizens of the World is not alone. All across the state, charter schools have struggled to find facilities, and particularly facilities they can get at a reasonable cost. Charter schools do not get a budgetary line item for facilities like traditional public schools do, and because they are only authorized for 5 years at a time, their borrowing rates are often quite high as lending institutions see them as risky investments.

But it doesn’t have to stay that way.  In fact, the Local Initiatives Support Corporation has identified strategies that states have used to help schools find facilities. 

According to LISC’s report:

1.       Eleven states make district facilities available to charter schools by requiring districts to provide space to charter schools, requiring districts to publish a list of unused facilities for charter schools to access, or by offering right of first refusal to charter schools to lease or purchase district buildings. Missouri is not one of those states, even though, as SMI has highlighted in the past, the state is rife with empty school buildings.

2.       Thirteen states currently fund a per-pupil line item similar to the one that public schools get specifically for facilities. Missouri is not one of those states.

3.       Eleven states currently appropriate funds for some form of capital grant funding for charter school facilities. Missouri is not one of those states.

4.       Four states allow charter schools to tap into local taxing authority through mill levy (a type of property tax) provisions. Missouri is not one of those states.

5.       Ten states have authorized and active publicly-funded loan programs. Missouri is not one of those states.

6.       Nine states offer some form of credit enhancement program, including moral obligation provisions or statewide credit enhancement programs. Missouri is not one of those states.

On the other hand, Missouri does offer two forms of support that LISC recognizes as helpful for schools seeking facilities funding.

1.       Thirty-six states allow charter schools to access tax exempt debt through conduit issuers. Missouri is one of those states.  But, to date, only three schools have taken advantage of this.

2.       Thirty-nine states allow charter schools to participate in one of their Q-Bond Programs (bond programs run through the federal Treasury Department). Missouri is one of those states. However, to date, only one charter school has taken advantage of it.

If we want more charter schools, and charter schools that are community-driven, we have to make it easier for them to access facilities.  The six policies above that Missouri does not utilize are a great place to start.

Under Pressure from SB 5, Charlack May Disband Police Force

Posted on by Joseph Miller

For many years, the small north Saint Louis County municipality of Charlack (population 1,366), has relied heavily on traffic fines to run its city government. The micro-city has used its position along busy Interstate 170 to pull in millions of dollars in traffic fines over the years. Its questionable policing practices have long drawn the ire of regional residents, including former Show-Me Institute intern David Stokes, who wrote in 2010:

“The Post-Dispatch reports today that the city of Charlack is installing speed cameras along I-170 in near-north St. Louis County. The city is installing the camera on a state-owned bridge to give tickets for speeding on a federal/state highway. . . . The idea that the city will phase out the cameras once people drive more slowly is perhaps the most unbelievable statement I've heard a politician say in a long time. And who cares if they passed a budget that did not count on camera fines? All that means is that they can spend the money however they want once it starts flowing in.”

As of 2014, Charlack collected more than 20% of its total revenue from fines and fees.

But with the passage of SB 5, which caps Saint Louis County municipalities' fine revenue to 12.5% of general revenue, Charlack is in trouble. In fact, the Post-Dispatch recently reported that the city’s police force was on the verge of disbanding. The city council plans to vote on joining the North County Police Cooperative (with Vinita Terrace, Vinita Park, and Wellston).

Charlack is not alone in its predicament. As of 2014, 24 of Saint Louis County’s 90 municipalities collected more than 12.5% of their general revenue from fines and fees. And while some can continue to provide services despite the reduction in fine revenue, many cannot. They will have to combine services such as policing in order to survive.

The good news is that sharing policing and other public services among cities is far from unprecedented in Saint Louis County. An example of pooling services is the aforementioned North County Police Cooperative. But in addition to that group, 17 municipalities contract with Saint Louis County, and a further 16 contract with another city for police, as shown in the map above.

When municipalities combine police services (especially with the County government), they can save money, improve services, and reduce incentives to use policing as a method of generating revenue. Charlack’s move towards disbanding may be long overdue, but it is another sign of the positive impact SB 5’s reforms are having. As the Charlack’s mayor put it:

“With Sentate Bill 5 passing, we knew it was going to be inevitable, and instead of it taking the next six months to figure out, we said, ‘Let’s just do it now and everybody can have a Merry Christmas…’ ”

Let’s hope that other municipalities follow Charlack’s example—because the more, the merrier.

Even Krueger Agrees: $15 Minimum Wage Too High

Posted on by Rik W. Hafer

Alan Krueger, professor of economics at Princeton, has weighed in on the minimum wage debate.  Writing in the New York Times, Krueger fears that a $15 minimum wage “would put us in uncharted waters, and risk undesirable and unintended consequences.”  

Why is his opinion important?  Because he is the author of one of the most influential studies touted by those promoting an increase in the minimum wage.

Together with David Card of the University of California–Berkeley, Krueger analyzed the impact of an increase in the minimum wage on employment in fast-food restaurants. In 1992 New Jersey raised its minimum wage from $4.25 to $5.05 while Pennsylvania did not.  Their analysis found that fast-food restaurant employment growth in New Jersey was not adversely affected by the change.  This isolated case study from several decades ago has become, even though it is much criticized, the go-to piece of research touted by minimum wage advocates ever since. 

A proponent of raising the minimum wage, even Krueger recognizes that increasing it to $15 would likely do more damage to workers than good.  Especially to those workers at the low end of the pay scale.  Especially to those workers who live in a city like St. Louis, which is not a high-wage/high-cost city.  Increasing the minimum wage to $15 in St. Louis, as some have proposed, would devastate low-income workers in two ways.  First, some businesses would decamp to surrounding areas with lower minimum wages. And of the businesses that stayed in Saint Louis city, many would cut employees or reduce hours in order to control their labor costs. The trade-off for increasing the minimum wage to $15 is just too great to be sensible.

Krueger recognizes that there is a viable alternative to a minimum wage hike: the earned-income tax credit.  This tonic to the plight of the low-income family has been recommended by those on the left and the right as a better solution to the poverty problem than the use of a blunt tool like the minimum wage.  Christina Romer, another University of California–Berkeley professor and one-time chair of president Obama’s Council of Economic Advisors wrote in The New York Times in 2013 that the earned-income income tax credit “is very well targeted—the subsidy goes only to poor families—and could easily be made more generous.”

Krueger warns that the possibility of negatively affecting employment for low-income workers by raising the minimum wage to $15 “is likely to become more severe, and the risk greater.”  If proponents will not listen to the warnings of free-market economists, will they at least consider Krueger’s counsel before acting rashly?

You will be made to care: Sex Ed Edition

Posted on by Michael Q. McShane

Conservative columnist and radio host Erick Erickson coined the phrase “you will be made to care” to describe the tendency of big government supporters to assume that all people should adopt their world view.

The Star’s “letter of the week,” titled “Sensible Sex Education Works,” provided a perfect example of this concept. In it, a retired healthcare executive from Johnson County, Kansas, implored the state to take action on preventing unwanted pregnancies.  Given that unwanted pregnancies are by definition unwanted, trying to decrease them seems like a good idea.

But he goes off the rails in his second recommendation when he argues that the state should “develop comprehensive sex education in our schools, with no opt-outs.”

No opt-outs.  Your children will be made to care.

Now, I don’t want to make a mountain out of a molehill here—it’s not clear that the author has any particular sway with any local education system.  Nor am I opposed to schools teaching sex education. But I am bothered by the principle that schools should be able to force certain value-laced information on children, parental preferences be damned.  

Kansas City would not be the first place where such a battle might be fought. In Fairfax County, Virginia, it took huge parental outcry to get an opt-out provision in the district’s sex education curriculum. Our friendly neighbors to the north have created mandatory sex education programs.  It’s not far-fetched to think that some school might try that here.

In 1925, the US Supreme Court ruled in Pierce v. Society of Sisters that children are “not mere creatures of the state.” Just because someone believes that a certain sex education program would decrease unwanted pregnancies, that doesn’t trump a parent’s right to shape their child’s education.  If that means opting students out of sex education class, so be it. 

But more than this, it should mean that parents have the right to opt out of the traditional public system entirely, and send their children to the charter or private school of their choice. 

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