Arnold Wastewater Privatization: Don’t Waste the Opportunity

Posted on by Joseph Miller

There’s “gold in them thar hills,” to quote a popular expression, which dates back to Mark Twain and the California Gold Rush in 1849, “millions of dollars of it.”

Believe it or not, the same may be said of the sewers serving the 20,000-plus residents of Arnold, Missouri, located on the southern edge of the Saint Louis Metropolitan Area at the confluence of the Meramec and Mississippi rivers.

Missouri American Water has offered to purchase the Arnold sewer system for a total of $13.2 million. This is a win-win proposition for the city and its residents.

The deal not only would provide Arnold with the funds to pay off $8 million in sewer bonds, but it also would supply $5 million in additional revenue. At the same time, the arrangement with Missouri American Water would guarantee timely improvements to the sewer system and lower utility costs for residents.

Arnold currently operates its sewer system as a public utility and charges residents $24.33 per month for up to 5,000 gallons of wastewater. However, like many municipalities around the country, Arnold is not charging residents what it needs to keep the system up to date, especially with increasingly stringent EPA and Clean Water Act requirements coming into force. According to one report, by 2016 the city would need to charge $34.50 per month to provide the same services.

Facing very similar pressures, cities across the country have turned to partial or full privatization of their water and wastewater systems. Deals with private companies typically result in an upfront payment to the city, a commitment by the company to make investments in the water or sewer system, agreement on pricing, and often a stipulation that the private company must retain the existing utility staff. The vast majority of these privatizations have been successful, with more than 90 percent of cities renewing privatization contracts and 94 percent recommending privatization as a method of water and sewer system management.

To cite one example, the city of Florissant in Saint Louis County sold its municipal water utility to Missouri American Water for $14.5 million in 2002. The city spent part of the proceeds on immediate needs and put the rest in a reserve fund. More than a decade later, the privatization is still a success. The lesson from Florissant and other cities is clear: When governments set the standards and carefully manage the privatization process, private operators deliver better, cost-effective service.

If Arnold accepts the deal with Missouri American, it will reap other benefits as well. Public services, like the school district, will benefit from this proposal via the expansion of the property tax base when the assets of the sewer system go on the tax rolls after Missouri American takes control. Residents will benefit from low utility fees, as Missouri American Water has stated that they will not increase rates until 2016. Even after that date, they project they will only charge residents $30 a month, which is less than what the city is likely to charge absent privatization.

While privatization of the sewer system makes sense, Arnold must be cautious on how it crafts and implements a final deal. The city must hold Missouri American Water accountable for the quality of service and the implementation of agreed-upon improvements. Furthermore, Arnold would be wise to follow the example of Florissant by carefully spending its windfall profits.

As long as local officials perform their due diligence, Arnold has much to gain and little to lose from privatizing its sewer system. Come November, residents should not let this opportunity slip down the drain.

 

Uber Arrives in Columbia

Posted on by Joseph Miller

Last Thursday, Uber launched its service in Columbia, Missouri. The innovative and rapidly expanding ridesharing company will start by offering free rides to residents while the company works out regulatory issues with the city government.

Uber and other similar ridesharing companies have the potential to efficiently improve transportation options in midsize cities like Columbia. Low population densities and dispersed development can make it difficult to provide useful transit options without wasting public resources on underutilized routes. But with market-based ridesharing companies like Uber, Columbia residents will have more ways to get around without owning a car simply through the increased utilization of the cars they already own.

As we noted in a previous blog post, Columbia’s antiquated for-hire vehicle ordinances were written to deal with taxis, limousines, and buses; how Uber would be classified is difficult to determine, much as was the case in Saint Louis and Kansas City. But while regulators in Missouri’s two largest cities have fought tenaciously to make ridesharing expensive or illegal, Columbia’s government seems to be interested in carving out a place for Uber, with some stipulations. One city official stated:

My main concerns are the insurance that Uber drivers carry, background checks conducted by Uber and the condition of the vehicles. . . . We are going to include regulations about those aspects in the agreement.

The same official indicated that regulatory changes would be ready in November.

If Columbia’s government can limit its regulations to safety concerns, and not control pricing and entry, residents will be able to benefit from the increased transportation options Uber and other ridesharing companies can provide. Whether Columbia ultimately will follow through, and choose innovation over regulation, remains to be seen.

That’s Why We Need More School Choice

Posted on by James V. Shuls
Lorrine and Naomi Goodloe. Photo by Robert Cohen, rcohen@post-dispatch.com
Lorrine and Naomi Goodloe. Photo by Robert Cohen, [email protected]

As someone who studies the issue of education policy quite closely, I can tell you there are many compelling academic reasons for supporting school choice. Studies consistently show that school choice programs save taxpayers money. Moreover, students who utilize school choice programs tend to benefit academically. Although I have read tomes on the value and benefit of school choice, none have made the argument for school choice as clearly and succinctly as the recent St. Louis Post-Dispatch piece by Jessica Bock, “After Troubles at Normandy Middle, a Return to Francis Howell.”

Bock tells the story of Naomi Goodloe a seventh-grade student in the midst of the drama surrounding the interdistrict school choice program in the Normandy School District. Goodloe attended sixth grade in the Francis Howell School District. However, enabled by the State Board of Education, Francis Howell elected to not allow transfer students to return this year. Thus, Goodloe was relegated back to school in Normandy. As Bock writes:

Lorrine Goodloe believed it might be better in Normandy schools this year, and told her daughter so.

But barely two months into the school year, Naomi Goodloe has left Normandy again, bruised and now behind in her seventh-grade studies.

The path back to Francis Howell wasn’t easy. In fact, it only came as the result of a court order.

After weeks of asking to go back to Saeger [Middle School in Francis Howell], Lorrine Goodloe made phone calls and determined Naomi might still be able to get back to Francis Howell. Attorneys hired by the Children’s Education Alliance of Missouri, a school-choice organization financed by investment banker Rex Sinquefield, would go to court for Naomi’s right to return, as they have for others. The judge granted the orders based on his ruling in August that the state board had violated rules when they changed Normandy’s accreditation.

When Naomi returned to her Francis Howell school, she was greeted warmly by her friends. “Everybody gave me hugs, and they dragged me around the school, letting everyone know ‘Naomi’s back!’” she said. She is now receiving the education that she desires and the education that she deserves.

Families should not have to be passive consumers of whatever their local school is offering. Parents should be equipped to choose the school that is going to meet their needs. That is the beauty of school choice, and that is why we need to expand options for all of Missouri’s school children. If you haven’t already, read Bock’s entire piece.

 

Who Pays When a Private Toll Road Goes Bankrupt?

Posted on by Joseph Miller

We have written in support of financing highway improvements through public-private partnerships (PPPs) before, most recently in regard to the bankruptcy of the privately leased Indiana Toll Road. In that case, a private international consortium paid $3.8 billion in upfront lease payments to operate the Indiana Toll Road for 75 years. Although the company failed, it would be hard to argue that Indiana residents did not come out ahead.

However, many opponents of PPPs on toll roads point out that if the projects are funded through federal Transportation Infrastructure Finance and Innovation Act (TIFIA) loans, a bankruptcy means that federal taxpayers are on the hook. While this concern is legitimate, a broader view of TIFIA shows that it promotes limited government spending and is no argument against leasing toll roads.

TIFIA, originally passed in 1998, was designed to provide gap financing for large ($50 million-plus in most cases) transportation infrastructure projects that have a dedicated funding source but would have difficulty getting full financing without federal backing. The program allows projects to receive a line of credit of up to 33 percent or a loan of up to 50 percent of the project budget.

TIFIA provides partial financing only for infrastructure improvement projects. Typically, PPPs for highway improvements consist of multibillion-dollar construction plans that are financed through a mix of private equity, state highway funds, toll revenue bonds, and TIFIA loans. This means that the act of leasing a toll road (as was the case in Indiana) could not be financed through TIFIA.

However, the federal government takes on some risk; typically, 10 percent of all loaned money must be budgeted to cover possible default. However, this is not a situation of moving from no federal financing to massive federal financing, but rather from a situation in which the federal government is expected to provide 80-90 percent of all funding to a situation where it provides 50 percent or less of financing. That fact, coupled with the necessity that all non-TIFIA senior debt for a project be investment grade, means TIFIA encourages more economically sound highway projects with fewer taxpayer dollars.

Assume Missouri decides to rebuild I-70 (a $3 billion project) as a toll road, using TIFIA loans to finance a PPP. If I-70 generates sufficient toll revenue, the federal taxpayer dollars would not be used. If revenue falls short, private investors lose their investment and the federal government may lose some money in debt restructuring. But the alternative (I-70 were rebuild as freeway) requires the federal government to provide 80-90 percent of the funding, with the rest coming from state taxpayers. If such a project were funded at all, it would likely require tax increases in Missouri.

This thought experiment demonstrates that PPPs, financed in part through TIFIA, may provide more transportation infrastructure at much lower taxpayer cost.

A Lesson for Missouri: Indiana Toll Road Bankruptcy Highlights Privatization Advantages

Posted on by Joseph Miller

Policy Researcher Joseph Miller writes in the Columbia Tribune:

Here’s a story we’re familiar with in Missouri: Government officials propose a multimillion-dollar project. They sell the plan to taxpayers as a way to meet future needs and generate substantial economic growth. After the project gets built and the contractors get paid, it turns out rosy projections were dead wrong and the local residents are left holding the bag.

But what if the situation was reversed, so that when the project fails to meet expectations, the contractors are left holding the bag. Impossible? Well, it just happened in Indiana — thanks to privatization.

Recently, the Indiana Toll Road Concession Company (ITRCC), which operates the Indiana Toll Road, declared Chapter 11 bankruptcy. The ITRCC is a 50-50 partnership between Cintra SA (an international toll road operator) and Macquarie Infrastructure Group (an Australian investment bank). In 2005, those partners paid the state of Indiana $3.8 billion for the right to operate the Indiana toll road for 75 years. As part of the agreement, ITRCC had to make significant capital improvements to the toll road; from 2006 to the present the company invested $458 million.

ITRCC investors expected steadily rising highway traffic to generate returns that would exceed these upfront costs and justify the many stipulations under which the company had to operate the toll road. However, post-recession highway utilization has made the original traffic projections, and hence the debt repayment plan, untenable. This is what forced the company to declare bankruptcy.

While it is unfortunate to see any company fail, Indiana taxpayers have made out like highway robbers on the deal. The state invested its $3.8 billion windfall in a 10-year, statewide transportation improvement plan. The privatized toll road received $458 million in upgrades courtesy of ITRCC, making it a better road now than when Indiana privatized it. And even though ITRCC has declared bankruptcy and must be restructured, the investors, not the taxpayers, will take the hit for overly optimistic traffic projections.

When the highway was privatized in 2006, critics in Indiana and other states, including Missouri, were apprehensive of a foreign, private consortium buying state infrastructure. One Indiana legislator said that Cintra-Macquarie “got a heck of an unbelievable deal. We got a bad deal.” Now that it appears the results are exactly the opposite, infrastructure privatization critics argue that ITRCC’s bankruptcy shows privatization does not work.

But in reality, private toll companies already are succeeding in the United States and internationally, a prime example of which is the Chicago Skyway. Moreover, the important lesson for Missouri from this bankruptcy is not the inability of Cintra-Macquarie to recoup its investment, but rather that privatization can tap into significant capital for infrastructure improvements and transfer risk to the private sector.

In the case of Indiana, we can retrospectively say that the buyer overpaid, but that was (and still is) a risk investors are willing to make when there is a reasonable prospect of profit. Indiana residents did not share the investors’ risk, but they have benefited from more than $4 billion of investments to their transportation infrastructure. With the Missouri Department of Transportation (MoDOT) slowly running out of the money necessary to maintain the Missouri state highway system, the fate of Indiana’s highway privatization deal should not make Missourians wary. It should make them jealous.

 

Charter School Dropouts: Accountability Reform

Posted on by Brittany Wagner

beauty school

“To be successful with kids that come to you at 19 reading at a fifth-grade reading level, there are things you have to do differently,” said Ernie Silva to an audience at the Missouri Charter Public School Association (MCPSA) Conference on October 2.

Silva’s words reflect his experience with what he refers to as “reengaged students.” According to Silva, these students, who are between the ages of 16 and 22, require a school model that is structured differently from the system that currently exists. One component of that model is a change in accountability measures.

Students in public charter schools are currently held accountable for learning the same information as students in public schools. This includes charter schools that exclusively serve high school dropouts or at-risk students. Since schools are all judged by the same criteria, schools that actually benefit impoverished communities are forced to close because of academic underperformance.

DeLaSalle Charter School is the only remaining alternative high school in Missouri. In reality, there are a number of alternative high schools across the state, but students who attend these schools, in separate buildings, are often counted in the overall school district’s scores instead of judged separately. This is unfair, as alternative charter schools like DeLaSalle cannot so easily mask the performance of at-risk students because they only serve at-risk students.

In August, proponents of DeLaSalle were worried about the charter’s unsatisfactory state standardized test scores. But do End of Course (EOC) exams that measure one grade level’s worth of learning measure what a student at an alternative high school knows?

Not really. As Silva pointed out, a student at 19 who tests at a fifth-grade reading level requires something different. Such a student may go from a fifth-grade reading level to a ninth-grade reading level in one year, but a test that measures the student at an 11th-grade reading level would not capture this growth.

This is, yet again, another one-size-doesn’t-fit-all lesson for education. One accountability system does not fit all schools. For schools that serve dropouts and at-risk students, an accountability model that puts more of an emphasis on academic growth is a much better fit.

 

Tolls On I-70 Could Be Solution To Modot’s Funding Problems

Posted on by Joseph Miller

Show-Me Institute Policy Researcher Joseph Miller writes in the Columbia Missourian:

With the defeat of Amendment 7, officials are looking for ways to fund Missouri’s highway system. MoDOT needs adequate funding, not only to maintain existing highways, but also to fund future multibillion-dollar projects, principal among these is the reconstruction of I-70. One possible solution is to introduce tolls on I-70, which would allow those who benefit from the highway to pay for its improvement.

Those who directly benefit from I-70 are drivers, especially from companies that own commercial vehicles (interstate trucks). According to MoDOT, at least 25 percent of the traffic on I-70 is attributable to commercial vehicles (more than two axles). These vehicles also make up much of I-70’s cross-state traffic, with 70 percent of commercial vehicles passing straight through Missouri. If the state would toll I-70, both passenger and commercial vehicles would pay to use the interstate based on their size and distance traveled. In other states, commercial vehicles typically pay four to five times more than passenger vehicles. They pay extra to compensate for the extra damage they cause to the roadway. In fact, toll roads in other states generate much, if not most, of their revenue from commercial vehicles.

Toll Road System commercial vehicles as a % of total vehicles % miles on road from commercial vehicles % of toll revenue from commercial vehicles
Ohio Turnpike 21.00% 33.10% 55.69%
New York Thruway 11.02% 15.59% 47.10%
Pennsylvania Turnpike 12.88% 20.30% 42.62%
Oklahoma Turnpike 8.72% 18.18% 38.86%
Kansas Turnpike 11.60% 17.80% 36.88%
Illinois Tollway 11.71% – 34.01%
North Texas Tollway System 1.87% – 22.39%
Florida Turnpike System 3.95% 5.06% 19.12%

If Missourians decide to rebuild I-70 using toll revenue, it is likely that much, or even most, of that revenue would come from commercial vehicles. That’s a fair solution, because commercial trucking entities cause the most wear on highways and benefit the most from good roads. In fact, a well-maintained highway saves trucking companies money, because it reduces delays and vehicle damage. The failure of Amendment 7 doesn’t mean that Missourians want bad roads; it means they want good roads paid for in a sensible way. A sound tolling solution would allow drivers and interstate truckers alike to invest in the highway from which they so benefit.

The Sad State of Missouri’s Labor Force Participation

Posted on by Michael Rathbone

Like the Transformers, there is more to the standard unemployment rate than meets the eye. You might have heard that the national unemployment rate fell to 5.9 percent in September. On the surface, this is good news. However, the unemployment rate is determined by dividing two numbers. The first is the number of people unemployed (those out of work and actively seeking it). The second number is the labor force (the number of those working plus the number of those who are not working, but are actively seeking work). At AEI, James Pethokoukis explains how a smaller labor force can affect the unemployment rate.

According to data collected by The Liberty Foundation, Missouri’s Labor Force Participation Rate (labor force divided by population) has declined since 1999. The foundation’s figures also offer breakdowns by gender and race.

LF-99-13

This means that a lot of the drop in Missouri’s unemployment rate can be explained by the increasing number of people who have given up looking for a job. The two charts below show this phenomenon.

URMO-08-13

LFPR-08-13

I wanted to see what the unemployment rate would be in 2013 if these discouraged people continued looking for work at the same rate they did in 2008. According to my calculations, Missouri’s annual unemployment rate in 2013 would be 12.5 percent instead of the officially listed rate of 6.5 percent. That’s a big difference. If anybody out there is touting how well Missouri is recovering, show them this number. It might give them a moment of pause.

It’s been stated before: Missouri is not doing well economically. Since the recession ended, the Show-Me State has had trouble recovering. This decline in the labor force masks just how bad things have been from an employment standpoint. If Missouri is to get back on track, a lot needs to be done.

 

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