The Fiscal Effects of School Choice with Marty Lueken

Posted on by Susan Pendergrass

Susan Pendergrass speaks with Martin F. Lueken, director of the Fiscal Research and Education Center at EdChoice, about the findings of his report Fiscal Effects of School Choice: The Costs and Savings of Private School Choice Programs in America through FY 2022.

Marty shares insights into how school choice programs have financially impacted state and local budgets across the United States. He explains the methods used to estimate both short- and long-run savings from these programs and discusses the disparities in per-student funding between public and choice program students. Lueken also addresses the funding context and long-term fiscal implications of choice programs for K–12 education systems, shedding light on common misconceptions and more.

Read the full report here.

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Produced by Show-Me Opportunity

A Fork in the Road in Kirkwood

Posted on by David Stokes

On November 5, Kirkwood residents will vote on Proposition T, which, if passed, will create a citywide transportation development district (TDD). While Kirkwood officials deserve credit for several aspects of this proposal, sales taxes are nonetheless a questionable method of funding transportation needs.

TDDs are often abused by private developers as a means to expand corporate welfare under the pretext of “infrastructure improvements.” Most TDDs are created simply by the signatures of the property owners (often just one developer) who want to establish them. The TDDs are then governed by a board (affiliated with the property owner) that treats the tax funds as private money rather than public tax dollars. Missouri state auditors have consistently documented problems with TDDs for the past two decades.

Kirkwood city leaders deserve credit for putting this TDD to a vote of the entire city. They also made the right choice by ensuring that city leaders will have primary control of the future funds. Kirkwood residents can be confident that the taxes raised would be properly accounted for and spent on public needs, not private wants.

The main argument against this TDD is that sales taxes are not, generally speaking, the preferred way to fund transportation projects. Kirkwood should consider a local gas tax (which is allowed, yet admittedly rare in Missouri) before it commits to a sales tax for its roads. And, while nobody wants to hear it, property taxes are a better way to fund sidewalks in a community. General sales taxes are a way to push local costs onto visitors instead of having local people pay for the public services in their own neighborhoods.

Kirkwood voters face a tough decision tomorrow, but whatever the result of the vote, residents will benefit because the most harmful aspects of TDDs have been properly addressed by the city.

Short-Term Rental Regulation May Again Be Changing in The City of St. Louis

Posted on by Avery Frank

On November 5, residents of the City of St. Louis will have the opportunity to vote on a new tax on short-term rentals (STRs). Proposition S, if passed, would require people who stay in an STR to pay an additional 3% per night on top of existing lodging taxes. The revenue raised would go toward building affordable housing units in the city and toward other expenses, such as providing attorneys for renters in eviction proceedings.

Why Is This Proposition Being Brought to Voters?

This proposition is intended to address concerns about STRs affecting housing affordability. In fact, a St. Louis City alderman had this to say about Proposition S:

As we’ve seen a proliferation of short-term rentals, we’ve also seen rents and mortgage rates also climb as a result of that. . . . This [Prop S] is kind of a drop in the bucket to try and offset some of that.

Concerns about the effect of STRs on the housing market are not unreasonable, as some studies have indicated that STRs drive up housing costs by decreasing the supply of owner-occupied housing stock and long-term rental units. However, other studies have found that STRs bring increased tax revenue, supplemental income, residential renovation, business growth, and tourism to underdeveloped areas.

The City’s Previous Efforts on Short-Term Rentals

Last year, concerns with STRs arose following numerous horror stories of out-of-control parties. A slew of regulations (some reasonable and some harmful) were enacted through Board Bills 33 and 34, on which my colleague David Stokes and I testified.

Here is a list of the regulations added to STRs in the City of St. Louis last year:

  • Annually, STR Agents must acquire an STR permit, with a $150 fee.
  • Minimum stay of 2 nights.
  • No STRs in a place benefited by tax-increment financing or tax abatements.
  • In structures between 5 and 23 units, no more than 25% of units can be STRs.
  • In structures with 24+ units, no more than 12.5% of units can be STRs.
  • No single owner can receive a permit for more than 4 units.
  • The owner must be a natural person.
  • An STR Agent must be physically present at the address within one hour if required.
  • Three-strikes rule for bad conduct within 24 months (suspension can last for one year).

Adding a new tax on top of the numerous regulations from Board Bills 33 and 34 is likely to make things more difficult for the STR industry, which could in turn make it harder for the city to bring in substantial tax revenue from STRs. Alleviating rising housing costs is a worthy goal, but is this approach the right solution? It also raises the question of whether STRs should be taxed more than hotels in the City of St. Louis. These are issues for voters to consider as they decide on Proposition S.

K.C. Subsidies Stop Making Sense

Posted on by Patrick Tuohey

I’m reminded of the Talking Heads song Once in a Lifetime when reading about yet another scheme to subsidize more luxury high rises in downtown Kansas City. With apologies to Talking Heads, I have found myself reading about developer subsidies. I have found myself again wondering how all this public spending on downtown is benefitting taxpayers. I have asked myself, “How did we get here?”

It is, alas, same as it ever was. Cordish Cos. is again pushing Kansas City for more taxpayer-funded subsidies. This time, it’s for its $156 million, 24-story Four Light luxury apartment tower. And it is already laying the groundwork for a fifth (Four Light would be the fourth luxury apartment for Cordish Cos.). The catch? Cordish Cos. wants to declare part of the Power & Light District an “undeveloped industrial area” to qualify for incentives—an absurd claim for property it controls.

These developer handouts are draining the city of the resources it needs to provide basic public services. This isn’t about revitalizing a struggling neighborhood—it’s about maximizing profits for wealthy and well-connected developers at the public’s expense.

Kansas City needs to end this cycle. If Cordish believes there’s demand for Four Light, let it fund it privately. If the city thinks there is too much regulation or taxation, leaders should reduce it for everyone, not a select few.

Good News for Men’s Hair in the City of St. Louis

Posted on by Grace Hearne

You are not alone if you are unaware that there was a law on the books in the City of St. Louis prohibiting barbershops from remaining open past 6:30 p.m. from Monday to Saturday, as well as requiring them to remain closed on Sundays and certain holidays. Meanwhile, salons in the city are at liberty to operate during the hours the owner sees fit.

The origins of these restrictions date back to the Progressive Era of American history, a time when occupational licensing was implemented to prevent the spread of barber’s itch (a contagious staph infection of the hair follicles). At the time, it was believed that the additional step of a license to operate a barbershop, emphasizing standards such as sterilization and sanitation, would combat the spread of barber’s itch. Then, in the 1940s, more restrictions were placed on barbers, resulting in a law that restricted the hours of operation.

Despite the good intentions behind requiring barbers to obtain an occupational license, a multitude of studies suggest that occupational licensing laws have a minute effect on quality and simultaneously eliminate cheaper options for consumers. Additionally, restrictions on hours of operation prevent barbers from servicing all their clients. As Beverly Smith, owner of Artichely Hair Academy, noted:

And the reason why is because it would not allow us to do as many clients as we need to, because people work from nine to five. . . . And we can’t fit all the clients in on a Saturday.

Thankfully, the St. Louis Board of Aldermen passed Board Bill 103 12–0, repealing the mandatory 6:30 closing time and the prohibition on operating on Sundays and certain holidays.

While the bill does not repeal statewide occupational licensing for barbers (nor does the city have that power), it is a significant step in the right direction. If the board of aldermen chooses to pursue this path further, it should consider reviewing the licensing requirements for other occupations too and evaluate whether the local occupational regulations genuinely serves as a quality marker, given that studies indicate otherwise. As is often the case, the market is better at ensuring the quality of a shave or haircut or signaling the appropriate hours of operation for barbers. By continuing to reevaluate these regulations, the city can foster a more competitive environment that benefits both barbers and consumers alike.

St. Louis Has Better Options Than Buying Nine New Mustangs for the City’s Fleet

Posted on by David Stokes

Unless Steve McQueen is coming to work as a cop for the City of St. Louis—or using film tax credits to shoot “The Great St. Louis Bank Robbery Two: Twice as Heist”—I really don’t see the need for St. Louis to buy nine new Ford Mustangs for the city’s vehicle fleet.

This does not pass the smell test, as nice as that burnout tire smell can be. I don’t doubt that certain city employees may need cars, but new Ford Mustangs should not be on the menu. In fact, no new cars bought by the city should be under consideration.

Contracting Out for Fleet Management

The City of St. Louis owns lots of vehicles—3,400 to be exact. Many of these are specialized vehicles, such as police cars, ambulances, trash trucks, and fire trucks. But it also owns many normal cars, like the Mustangs it just bought.

What St. Louis should do with its regular car fleet—as other local governments have done—is contract with a rental car company to provide and maintain the city’s fleet. If only there were a major rental car company nearby. . . .

Local governments need cars for some of their employees to drive. If you have an inspector driving to appointments all day, that mileage reimbursement cost is going to add up quickly on taxpayers. But that does not mean a city, county, school district, etc., must own its own cars. Enterprise, or whichever company won such a bid process, could provide the local government with the vehicles it needs while saving taxpayers money.

How Do Cities Save Money with Outsourcing?

As one article on the fleet outsourcing topic described it:

Perhaps the most obvious benefit of outsourcing is that municipalities can save both money and stress in an extended fiscal period by not having to worry about the employment of drivers in some cases, vehicle repairs and upkeep.

Allentown, Pennsylvania outsourced its fleet management several years ago to save money, just as local governments around the country have done.

Look, I get it. It would be fun to be a St. Louis city employee driving around in a new Mustang. But taxpayers should not have to fund “cool.” Cities need cars, but contracting for them is a better option than buying dozens, or hundreds, of them outright.

How to Reduce Medicare Fraud with Charles M. Silver and David Hyman

Posted on by Susan Pendergrass

Susan Pendergrass speaks with Charles M. Silver, professor at the University of Texas at Austin School of Law, and David Hyman, professor at Georgetown Law, about their proposal for reforming Medicare by giving money directly to patients instead of providers. They explain how fraudulent practices like ‘upcoding’ are draining taxpayer dollars, driving up healthcare costs, and offer solutions to reduce fraud and improve efficiency.

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Produced by Show-Me Opportunity

Senior Citizen Property Tax Freezes in Stone and Webster Counties Are Not Sound Public Policy

Posted on by David Stokes

A version of this commentary appeared in the Springfield Business Journal.

 

Several years ago, my colleagues and I were debating what the worst possible tax policy change could be. We settled on “exempting lottery winnings from income taxes.” While it may not be quite that bad, the ongoing effort to exempt senior citizens from property tax increases around the state are a similarly misguided attempt at tax reform that will have harmful effects on the counties where it becomes law. This includes Greene County, which passed the plan in 2023, and may include Stone (the county question) and Webster (Proposition 1) counties, each of which has the proposal on the November ballot.

State legislation passed in 2023 and amended in 2024 authorized any county to freeze the real property taxes of the primary homes for senior citizens who meet certain qualifications. Their property taxes would stay at the same amount they were when they become eligible for the plan, which for most people would be when they turn 62. The purpose of the bill is to help senior citizens stay in their homes as they age, but there are several major problems with this proposal.

This proposal is harmful simply because it reduces the property tax base. A major tenet of good tax policy is that the base should be as broad as possible so that the necessary rate can be as low as possible. Unless local governments cut services in response to the enactment of a tax freeze for seniors, it will almost certainly lead to higher tax rates on those property owners not eligible for the freeze. A senior tax freeze is every bit as much of a tax increase on non–senior citizens as it is tax relief for some senior citizens.

People who live in homes of similar value with similar public services should pay similar property taxes. The young couple who has lived in their Marshfield home for a year should not pay higher property taxes than their neighbor just because their neighbor has lived there for two decades.

Passage of this bill would also lead to the problematic situation in which people vote on property tax increases that they themselves will not personally pay. In Stone County, the Village of Indian Point has a sizable property tax increase also on the November ballot. Indian Point seniors can vote for the proposition knowing that they may not have to pay the increased taxes if the tax freeze also passes. That’s not good government. The single best aspect of property taxation is that it imposes the costs of local services on the people who use those services, unlike sales or local income taxes that are exported in part to visitors, commuters, and others. Instituting a system in which people vote on property taxes they won’t pay breaks that beneficial connection.

For a cautionary tale about the dangers of property tax subsidies and alterations, consider California’s infamous Proposition 13, which was passed in 1978. Prop 13 limited the increases in property assessments and taxes for homeowners. The measure has certainly had its intended effect of keeping property taxes low for longtime California homeowners. However, it has also reduced mobility, dramatically increased alternative taxes, limited homeownership opportunities, and caused substantial tax disparities between similar properties. This is not what the people of Southwest Missouri need.

According to data from the Federal Reserve, people aged 65 to 74 have the highest net worth of any age group. So why, if we were to pick any age group for tax exemption, would we pick the wealthiest among us? (People over 75 have less wealth than those 65–74 or 55–64, but they have a higher net worth than any age grouping under 55.) We shouldn’t be handing out property tax exemptions to anyone, whether those exemptions take the form of corporate subsidies, developer abatements, or senior citizen tax freezes.

While passage of these propositions in Stone and Webster counties would benefit some senior citizens, it would alter the property tax and assessment system in a myriad of harmful and biased ways. Property taxes work best when the assessments are accurate, the base is wide, and the rates are low. Senior property tax freezes do not move Stone County or Webster County in that direction.

What’s So Great about Performance Districts?

Posted on by Susan Pendergrass

The state of Missouri provides almost half of the funding for public education (the rest comes from the federal government and local effort). In its latest budget request for Fiscal Year (FY) 2026, the Department of Elementary and Secondary Education (DESE) has requested almost $10 billion. With a new governor set to take office, it might be wise to dig into some of the details of this request.

This year’s request includes an increase of nearly $350 million for the Foundation Formula, due to an increase in the base amount that the state considers “adequate” to educate a child. This amount had been $6,375 for four years, from FY 2020 through FY 2024. The FY 2025 budget included a request to increase the amount to $7,145, phased in over two years. Why the increase? Well, that’s a bit confusing. Please follow along.

Technically, the amount reflects the current expenditures per student in Missouri’s highest-performing districts, referred to as Performance Districts. The thinking is that what these districts spent should be adequate. But what does it take to be a Performance District?

The way the law has been interpreted is that Performance Districts are those that receive at least 90 percent of possible points on their Annual Performance Report (APR) under Missouri’s accountability system, after removing the outliers at the top and bottom of the list. The accountability system, also known as MSIP 6, gives districts points based on a rubric of items considered important to DESE and the state Board of Education—although some items are only loosely related to performance.

For example, districts can earn up to 52 points for attendance, having 8th graders fill out an Individual Career and Academic Plan, administering a Kindergarten Entry Assessment to incoming kindergartners, submitting their required financial reports on time, conducting a Climate and Culture Survey, and submitting a Continuous Improvement Plan. All 28 of the Performance Districts received 52 out of 52 points in these categories. Eight of the districts had only 114 possible points—so there’s almost half of them.

One of the Performance Districts was Gasconade C-4, a rural K-8 district with just 100 students. Last year, 37 percent of its students performed on grade level in English/language arts (ELA) and 27 percent did so in math—both below statewide averages. Another Performance District, Hudson R-IX, with just 39 students in grades K-8, had only one in four students on grade level in ELA and just three in ten in math. Mind you, this district has fewer than 10 students per grade.

The problem is that weak accountability systems reward weak performance. In the case of Missouri, that consequence bleeds over to funding. More than half of the Performance Districts are very small, with fewer than 300 students in the entire district. Spending tends to be higher in these districts because there are few economies of scale. That higher spending leads to hundreds of more dollars for all 850,000 students in the state and adds up to almost $350 million in state spending.

Are we sure this is the best system we can come up with?

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