KC Convention Hotel Estimates Are Notoriously Wrong

Posted on by Patrick Tuohey

Right now, leaders in Kansas City, Missouri, are eager to build a convention hotel downtown. But there is precious little information available. We know that the city has been negotiating for years with developers to build a $300 million 800-room hotel. It appears to be a 50-50 split, with $150 million coming from private investors and the remaining half will be supported by city outlays, tax abatements, and other subsides.

While we wait for hotel cost estimates and earnings projections, it is worth reflecting on previous convention hotel efforts in and around downtown. Hotel consultants have provided inflated estimates in the past.

Overland Park: Projections for their convention hotel were off by about 40 percent. A June 2010 issue of The Pitch published:

Original projections called for Overland Park’s convention hotel to earn more than $110 per available room. Actual number: $67.50.

Kansas City, MO: In 2009, when Kansas City was considering a convention hotel, the hired consultant, HVS, estimated that the average daily rate (ADR) for hotels in Kansas City in 2016 was going to be $162.72. Today it is $121.37, far short of the projection.

Kansas City, KS: The Pitch also reported on the money pit that is the Hilton Garden Inn:

The [Unified Government] hired a consultant to project how much money the hotel would make when it applied for the HUD loan in 1999. The consultant predicted that by 2005 the Hilton Garden Inn would hit $3 million from room revenues alone. Actual financial records show that the hotel has stooped below that $3 million figure. In 2006, the hotel reported only $2.2 million in room revenues. The hotel itself has always operated at a loss, and every independent audit of the hotel project since 2006 has sounded the same warning: The Hilton Garden Inn is a money loser and can’t stay afloat without subsidies from its owners.

It appears earnings projections run about 25-40 percent higher than reality. That is quite a margin of error. As we consider a downtown convention hotel, we must keep in mind that projections are rarely met.

Minimum Wage Increases Not Effective at Fighting Poverty

Posted on by Patrick Tuohey

Should Kansas City double the minimum wage from $7.50 to $15 an hour? Local politicians all seem to think so. Councilman Jermaine Reed introduced an ordinance to that effect, and Mayor Sly James has attended a rally in support of the higher wages. Though so far, there is no plan to actually vote on the matter. This is an important issue, and it’s reasonable to look at the likely impacts of the policy before jumping in.

Despite intentions, increases to the minimum wage do not necessarily help the poor. Even Christina Romer, who led President Obama’s Council of Economic Advisors, openly conceded there were questions about “whether a higher minimum wage will achieve better outcomes for the economy and reduce poverty.”

The reasons why are simple. First, most minimum wage earners don’t actually live in poverty. Two-thirds come from households making at or above 150 percent of the poverty line; 44 percent live in households whose income is three times the poverty level. From the viewpoint of earners, raising the minimum wage is a clumsy tool and is more likely to benefit the non-poor than the poor.

Second, the number of people paid the minimum is not especially high. Today, less than 5 percent of hourly workers are paid minimum wage. Among all U.S. workers, minimum wage employees constitute just 3 percent of the American workforce. Not only are relatively few people being paid the minimum technically living in poverty, but relatively few people are being paid the minimum at all. Targeting low-wage workers is not the same as helping low-income families.

Third, and most important, there is a wealth of economic analysis that shows minimum wage laws punish the very people they are supposed to help—making it harder for people with few skills or work experience to find entry-level jobs. The Congressional Budget Office estimated that a national minimum wage increase to $10 per hour would reduce available jobs by 500,000. Doubling the minimum wage in Kansas City from $7.50 to $15 would have even more dramatic results here. The reason for this is simple: As labor costs rise, employers may turn to cheaper technological substitutes, cut employees, or have employees work fewer hours. This trend is already occurring in grocery stores and restaurants.

As workers have to compete for fewer entry-level jobs, those with the fewest skills are left behind. A study by the University of California, San Diego found that increasing the minimum wage reduced the earnings potential of low-skilled workers whom the higher minimum wage was meant to help by limiting job opportunities. These workers need entry-level jobs that enable them to develop skills and gain experience.

As a compassionate people, we are eager to promote policies that help alleviate poverty. We do not succeed by making jobs more scarce, which is what would happen if Kansas City enacted a “living wage.”

 

Highway Funding: “When You Start Talking $160 Million, There’s an Incentive to Do Something”

Posted on by Joseph Miller

State Senators Bob Onder and Joseph Keaveny discussed the results of the 2015 legislative session at a recent Show-Me Institute Policy Breakfast. Highway funding in Missouri was a major topic. The senators expressed a couple of views that are fortunately becoming more and more the consensus among policymakers: 1. Something will have to be done soon, and probably next year; 2. The solution will likely be some type of fuel tax increase or tolling.

Watch the senators handle questions on transportation funding in the video below:

Light Rail Light on Riders in Saint Louis

Posted on by Joseph Miller

With Saint Louis County spending $1 million to study possible MetroLink expansion, light rail proponents are out trying to gin up support for new routes. We’ve been skeptical of light rail expansion in the past, especially given the large (in this case billion-dollar) price tag. But light rail proponents are undaunted by cost and argue that MetroLink is worth every penny. How do they argue this, when MetroLink loses nearly four dollars (not counting capital costs) for every passenger that steps on board? According to proponents, MetroLink is one of the best light rail systems out there. As the Post-Dispatch reported:

[Executive Director of Citizens for Modern Transit Kimberly] Cella cites studies that name MetroLink percentage-wise among the most utilized light rail corridors in the U.S.

Calling MetroLink one of the most utilized light rail lines could be considered damning with faint praise. However, the compliment itself does not appear to be correct. A quick look at data from the National Transit Database contradicts the idea that MetroLink is a particularly successful light rail line.

Of 21 reporting light rail systems, MetroLink ranked ninth in terms of passenger trips in 2013. Of course, those systems vary in their total mileage and level of service, so a better measure of utilization is passenger miles or passenger trips divided by total vehicle revenue miles (VRM), a proxy for total service provided. By those measures, MetroLink ranks eighth for passenger mile per VRM (24.6) and 19th for passenger trips per VRM (2.7).

mlr_ut1

mlrut2

From this data, we can see that large, dense cities tend to have the highest rate of ridership given the level of service provided. The best term to describe MetroLink utilization is middling.

Interestingly, utilization was much higher before MetroLink expanded in the early and mid-2000s.

mlrusttime

When MetroLink only had the initial line from the airport to just across the river, it may have been true that the system had among the highest utilization rates of any light rail system. But after MetroLink expanded further into Illinois and again to Shrewsbury, utilization rates fell substantially. The reason for this is obvious: The route with the highest ridership potential was built first, with secondary options being built secondarily. Later routes, with fewer riders at a given level of service, drag down the entire system’s average.

In reality, MetroLink does not stand out among light rail systems in terms of ridership. Furthermore, adding new lines in Saint Louis County are likely to have even less ridership potential than existing routes, due to lower population density and higher car ownership. And since fewer people per train means higher subsidies per train, new lines will likely require higher subsidies and carry fewer riders. Residents should think carefully about whether Metro should, or even can, take on the extra burden.

Saint Louis to Spend $1 Million on MetroLink Expansion Study

Posted on by Joseph Miller

metroRecently, Saint Louis County announced that it would spend around $1 million to “study” whether the region should commit money toward an expansion of the MetroLink system. The money for this study comes primarily from Proposition A, the primary purpose of which was to raise money to keep buses running in Saint Louis County. The study will look at three possible corridors, one running from Clayton to Westport, one running from Lambert Airport to Florissant, and one running from Shrewsbury to Butler Hill. Given the recent push to build a North-South MetroLink line from Florissant to Butler Hill (running through downtown), it appears that the end goal could be a giant light rail loop around the Saint Louis area.

Unfortunately, expanding MetroLink in this way will easily exceed a billion dollars, and when one considers that a billion-dollar North-South MetroLink line will likely precede these county-specific projects (and need to precede routes to Florissant and Butler Hill), we are talking multibillion-dollar funding requirements.

But too often, costs like these do not daunt regional planners. The results most often conclude that any rail expansion plan would have positive benefits; just some routes are more positive than others and should be built first. We should not be surprised if that is the case with this study as well. However, as so much money is being spent, I propose the following questions the study could address:

  1. How might the bus system in Saint Louis City and County be improved for $1 billion to $2 billion? How much money are we proposing to spend per new transit user?
  2. Given the higher-than-expected costs and lower-than-expected usage of the Shrewsbury MetroLink line, does it make sense to extend the MetroLink into areas of the county that predict for even less demand for public transportation?
  3. Do planners expect transit-spurred economic development, given the distinct lack of economic development surrounding most existing MetroLink stations in Saint Louis?

And last . . .

  1. How exactly will $1 million be spent on this study? Itemization is encouraged.

Branson Firefighters Unionize

Posted on by John Wright

Last week, Branson firefighters voted 17-7 in favor of unionizing. After the State Board of Mediation finalizes the results, the union is expected to begin negotiating with the city in the hopes of winning an agreement that will set fire department policies, such as compensation and work rules. This may be good news for the 17 firefighters who chose the union to act as their representative, but how this affects the people of Branson remains to be seen.

The city of Branson has a choice in how it will conduct negotiations with the firefighters union: It can keep the citizens of Branson in the dark and meet with the union in closed-door sessions, or it can open the doors to its collective bargaining sessions and allow citizens and the media access to these meetings.

Open meetings like this are important because taxpayers and people who depend on city services need to be informed about what their government is doing. The transparency of open meetings leads to accountability. However, when the public is kept from meetings between government officials and government unions, government often acts in a way to benefit itself to the detriment of the taxpayer.

If Branson decides to hold collective bargaining sessions in open meetings, it will be in good company. Both the Monarch Fire Protection District and Columbia Public Schools already hold open collective bargaining sessions with their employees.

To put it simply: Branson citizens have a right to know how their city and fire department operate and where their tax money is being spent. When the city of Branson and the firefighters union begin negotiating a labor agreement, the city should keep the doors open. This will help ensure that citizens of Branson are well served by their newly unionized fire department.

Support Us

The work of the Show-Me Institute would not be possible without the generous support of people who are inspired by the vision of liberty and free enterprise. We hope you will join our efforts and become a Show-Me Institute sponsor.

Donate
Man on Horse Charging