Kansas City Streetcar District Fails To Win Support

Posted on by Joseph Miller

On Aug. 5, voters in downtown Kansas City rejected a Transportation Development District (TDD) that would have funded a half billion dollar streetcar expansion plan (60 percent to 40 percent). The city’s streetcar plan was expensive and had little transportation merit, making this result welcome news for those who support sound transportation policy in the Kansas City area.
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The Kansas City streetcar plan required the approval of a TDD to provide local funding. Because voters rejected the formation of the TDD, the project lacks local funds and, thus, cannot proceed. But this is unlikely to be the last we hear of plans to expand the streetcar. Some Kansas City officials have made it clear that they view this election as just a setback for their vision of an extended streetcar system. The mayor stated:

“It’s very possible either way, but we’re not going to just roll over and let it go…We’ve got to continue to look for options to get the job done.”

That might mean a newly drawn TDD or some other tax increase that will provide enough local funding to apply for federal grants.

However, for the time being, the election has halted any streetcar expansion plans. Let’s hope the ultimate result of the election is a renewed focus on efficient transportation policy for all of Kansas City.

Gas Taxes And Funding MoDOT

Posted on by Joseph Miller

In the aftermath of the transportation sales tax (Amendment 7) defeat, former supporters are still on a misinformation campaign. They claim that Missouri’s roads are in dire straits (they aren’t), and of course, that a sales tax was the only good option. They claim increasing a user fee such as Missouri’s gas tax, which is the sixth-lowest in the nation, is not possible. Bill McKenna, one of the principle supporters of Amendment 7, stated:

“You’ve got to realize how much money [the Missouri Department of Transportation] MoDOT needs,” he said. “You’re not talking 2 cents. You’re talking 16 to 20 cents.”

That’s a significant tax increase, but former Amendment 7 supporters seem to have different estimates. Missouri Sen. Mike Kehoe (R-Dist. 6), who introduced the Senate version of Amendment 7, said the gas tax would have to increase by 20 to 25 cents a gallon. Luckily for Missourians, these numbers appear to be disconnected from any real assessment of MoDOT’s needs.

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According to MoDOT Director Dave Nichols, MoDOT needs a $485 million construction budget to maintain Missouri’s highways. This year, MoDOT’s construction awards are greater than $720 million. MoDOT assumes that the federal government will scale back its support in the future, leaving MoDOT with less than $485 million by 2017. That scenario may not come to pass, but if it does, MoDOT’s construction budget would fall to $325 million, about $400 million less than today and $160 million less than the ability to maintain the roads. If the federal government continues to maintain current support, Missouri officials only need to ensure that the state has matching funds, necessitating less than $130 million in extra revenue.

The amount the Missouri fuel taxes would have to increase is nowhere near sales tax supporters’ claims. Last year, Missouri sold more than 3.9 billion gallons of fuel. Therefore, to raise $400 million, the state would have to raise the fuel taxes 11 cents. That maintains current spending ($300 million more than maintenance only) under dire circumstances. If the federal government does not reduce funding, a 5-cent increase likely would be sufficient to maintain matching funds. Missouri officials also could increase the diesel rate more than the regular gasoline rate, a practice in place nationally and in many states to account for the disproportionate damage trucks do to highways. McKenna’s 20-cent increase would raise $705 million for MoDOT and Kehoe’s 25-cent increase would raise $882 million (remember, Amendment 7 would have raised $397 million for the state highway system).

The defeated transportation sales tax proponents’ fuel tax estimates are exaggerated, much like their claims about the imminent collapse of the Missouri highway system.

Amendment 7 Defeated

Posted on by Joseph Miller

Yesterday, Missouri voters rejected Amendment 7, the proposed statewide transportation sales tax (59 percent to 41 percent). Using a sales tax to pay for highways and bridges is bad policy, and the state of Missouri is better off having rejected this unfair, economically unsound proposal.

Winners And Losers At A Glance The Votes County By County St. Louis Public Radio
From St. Louis Public Radio

However, this defeat of Amendment 7 is just the start of creating a sustainable funding source for the Missouri Department of Transportation (MoDOT). In the very near future, the department may not have enough funds to maintain the existing state highway system. A deteriorating highway system would be damaging for both residents and the state economy. It is time for policymakers and opinion leaders in the state to convince Missourians not just about the amount of money MoDOT needs, but also about the proper and most efficient way of raising revenue for those needs: user fees. Whether that means raising the gas tax or implementing tolling, the basis of good policy is an informed, not a frightened, electorate.

While these future challenges remain, yesterday was a defeat for poll-driven policy and a victory for Missouri.

Teacher Retirement System Demands Reform

Posted on by James V. Shuls

As first appearing in the Columbia Tribune:

If the lovable bear Winnie the Pooh has a downside, it is his insatiable desire for the sweet taste of honey. Time and again, his uncontrollable urge has ended with him getting his head stuck in the honey pot and needing to be bailed out by his friends. In many ways, Missouri lawmakers have encouraged the same kind of foolishness, continually sweetening the pension pot for public school teachers. If they do not change course — and soon — they will put future lawmakers into an impossible situation where they are forced to call on their friends — the taxpayers — for a major bailout.

Sweetening the pension honey pot for public employees is a very tempting proposition. Indeed, for lawmakers, there is almost no down side because pension promises often are not realized for many years. By improving pension benefits, politicians can please many voters with promises that they do not have to keep. These pension enhancements, however, are not free.

In a new Show-Me Institute case study, Robert Costrell, professor of education reform and economics at the University of Arkansas, detailed the impact of pension enhancements to Missouri’s largest pension system, the Public School Retirement System (PSRS). “Missouri repeatedly and considerably enhanced its pension benefit formula from 1975 to 2001, resulting in large increases in pension wealth, particularly for those retiring in their 50s with 25-30 years of service,” Costrell wrote.

Three essential numbers are used to calculate a teacher’s pension payment from PSRS: years of service, final average salary and a multiplier that allows PSRS to calculate reduced early retirement benefits. Lawmakers can sweeten the pension pot by inflating final average salary calculations, increasing the multiplier or allowing individuals to retire earlier without penalty. Over the past few decades, Missouri lawmakers have employed each of these tactics.

Costrell noted that in 1977, a teacher could retire with his or her full benefits at 55 with 30 years of service. In 1986, the benefit multiplier was increased from 2 percent to 2.1 percent; in 1991, full benefits were granted with 25 years of service; in 1994, the multiplier increased to 2.3 percent; in 1996, lawmakers added insurance benefits into the final average salary calculations; in 1998, they increased the multiplier to the current 2.5 percent; in 1999, they instituted a “Rule of 80,” which allows a teacher to retire with full benefits when his or her age plus experience equals 80. That same year, lawmakers reduced the years used for the final average salary calculation from five to three, a move that increased the final average salary of all retirees.

With all of these enhancements, a teacher in Jefferson City can now retire in his or her early 50s after 30 years in the classroom with a pension that is approximately the equivalent of a lump sum payment of $950,000. That is, the “cash value” of the pension at the time of retirement is close to $1 million.

To keep pace with the pension enhancements, the contribution rate for teachers and their public school employers has increased dramatically from a combined 16 percent in 1975 to 29 percent today. Even with these increases, PSRS has not been able to keep pace with the promised benefits. If we assume a 4 percent return on investment, PSRS has more than $31 billion in unfunded liabilities.

If they are as simple-minded as ol’ Pooh, policymakers might think they are helping create a secure retirement system for teachers when they enact these pension enhancements. But they are really making promises that they (or future lawmakers) cannot keep. If they want to create a secure retirement system for current and future public school teachers, they do not need further enhancements; rather, they should enact fundamental pension reform.

James V. Shuls, Ph.D., is the director of education policy at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The Kansas City Streetcar Expansion: Policy Breakdown

Posted on by Joseph Miller

Voters in a section of Kansas City will go to the polls on Aug. 5 to decide whether the city should form a Transportation Development District (TDD) to raise money for a $471 million streetcar project. The arguments for and against this project are as follows:

o   Opponents: The idea that streetcars create development is tenuous at best. Streetcars are nearly always coupled with subsidies to developers and corridor improvements that may be the prime factor for any development. In addition, that subsidized development might have been diverted from other areas in the city. Many examples of streetcar development in Kansas City are, on closer inspection, fatuous. For instance, a company (whose owner publicly supports the streetcar) moved from one part of the proposed streetcar line to another two blocks away, and this was counted as streetcar-induced development.

  • Proponents: Streetcars will increase transit usage. Most people prefer rail and fixed transit to buses, so the streetcar can expect high ridership. In addition, the streetcar’s improvements to the overall transit network will increase transit ridership across the city.

o   Opponents: Streetcars are among the most wasteful methods of boosting transit ridership. As their capacity and speed is not significantly better than a bus, even popular streetcar lines do not carry many riders. Furthermore, as the Kansas City streetcar will run on routes that multiple bus routes already serve, we can expect a good deal of streetcar riders to be former bus users, not new transit riders. The Kansas City streetcar will duplicate, rather than complement, the existing bus network. This means minimal system-wide mobility improvements, and hence, little new system-wide ridership. With a cost of more than $470 million (which could pay for more than 100 buses), the transportation benefits of streetcars are not worth the cost.

o   Opponents: Kansas City needs new jobs that will enrich the city, not jobs that act as a drain on the public purse and the taxpayer.

Put simply, streetcar proponents argue that streetcars drive economic development, improve public transportation, and create jobs, while opponents counter that development claims are unproven, that the costs of the project far outweigh any transportation benefits, and Kansas City needs jobs that bring money into, not extract money from, the city.

Show Me Better (Part 4): Certificate Of Need And Market Power

Posted on by Christien West

How far are you from the nearest hospital? Maybe you wonder why there is a single mega-hospital 10 miles away but aren’t any smaller ones nearby. Part of the explanation may be certificate of need (CON) regulations.

A 2004 report by the U.S. Department of Justice and Federal Trade Commission found that CON programs “pose serious anticompetitive risks that usually outweigh their purported economic benefits.” So far, I have written about how CON regulations can limit access to care and have been shown to not effectively control costs. CON regulations have the potential to stifle competition and grant existing hospitals monopolies over certain regions. Some existing hospitals may even attempt to use these regulations to prevent competition from entering the market.

How does this play out in Missouri?

In the past, any time a new hospital wanted to open up in Missouri, it had to apply for a CON – irrespective of its size and cost. A revision to Missouri’s CON rules changed the criteria for review from every new hospital to every new hospital whose cost is at least $1 million.

In April 2010, Patients First Community Hospital expressed its intent to build a small hospital in Saint Louis County that did not meet the new threshold for certificate of need review. Shortly thereafter, a regional rival, St. John’s Mercy Health System, filed a lawsuit against the Missouri Health Facilities Review Committee and Patients First. St. John’s challenged the legitimacy of the new $1 million amendment and construction of the new hospital. In 2012, the Missouri Supreme Court ruled that the new criteria for review was perfectly legal, thus giving Patient’s First the green light for the project.

Despite the ruling against St. John’s, this is an excellent example of a hospital using the legal system in an attempt to stomp out the competition, all under the pretense of CON regulation. It took about two years for Patients First to have its plan approved. These sorts of delays can deprive patients of new, much-needed medical facilities.

The state should not allow such an environment to exist.

Amendment 7: The Policy Breakdown

Posted on by Joseph Miller

As the vote on Missouri Amendment 7 approaches, proponents have gone to the newspapers, airwaves, and television screens to argue for the necessity of a 0.75 percent statewide transportation sales tax. Their main arguments, and opponents’ arguments in responses, are as follows:

The Missouri Department of Transportation (MoDOT) will not have enough money to maintain the current highway system by 2017, and the infrastructure is in immediate need of repair. Many of the state’s roads and bridges are currently in poor condition.

o   Opponent Argument: Missouri’s state highway system has specific needs, such as improving I-70 or replacing deficient bridges. However, the system is not crumbling. In fact, the Reason Foundation and the Chamber of Commerce Foundation have ranked Missouri’s highway system among the best in the nation. Missouri just completed a decade of unprecedented spending on the highway system, adding lanes, repairing bridges, and smoothing roads. The highway system is in better shape than it has been in decades and MoDOT’s funding problems are not evidence that the system is about to collapse.

  • Proponent Argument: A 0.75 percent statewide sales tax is a reasonable method of paying for roads and bridges.

We all benefit from transportation, so we should all pay. Many products are exempt from the sales tax, shielding the poor. In addition, gas taxes and tolling either cannot or are too unpopular to implement.

o   Opponent Argument: A statewide sales tax is an unfair, economically unsound way to pay for highways. Those who drive little will pay as much or more for new roads as truckers and people with long commutes. Using sales taxes to pay for roads subsidizes driving, which increase congestion and pollution. All Missouri consumers, even the poor, can expect to pay much higher taxes from this 17.75 percent state sales tax increase. Furthermore, user fees, such as higher gasoline taxes or tolls, can continue to provide adequate funding for MoDOT, as they have already done for decades. Spending more time educating Missourians about the best way to fund highways, and less time heralding the imminent collapse of Missouri’s roads and bridges, might demonstrate that gasoline taxes and tolls are more popular solutions.

Sales tax proponents essentially argue that Missouri’s transportation is in crisis and that a .75 percent statewide tax increase is the only reasonable and available solution to that crisis. However, skeptics of the proposed amendment counter that Missouri’s highway system is not in a crisis situation and there is time to select fair and economically sound policy solutions to MoDOT’s funding problem.

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