Policy Breakfast: Government Privatization in Missouri: Successes, Risks, and Opportunities

Posted on by David Stokes

Show-Me Institute Director of Local Government Policy David Stokes recently released a case study about privatization efforts in Missouri. The study documents the variety of ways in which counties, cities, and towns can engage the private sector to effectively provide many public services. Examples of areas that can experience cost savings and service improvements through privatization include trash pick-up, ambulance service, swimming pool and golf course management, animal control, fleet management, government pharmacy services, and much more.

Read the full case study: .

Bloodletting In Clayton

Posted on by David Stokes

For centuries until approximately 200 years ago, bloodletting was a common treatment for illness. If you were sick, you would go get a nice bleeding. We finally learned what should have been obvious: with the exception of one or two illnesses, bleeding was a terrible idea that did more harm than good. The Missouri local tax equivalent to bloodletting is the economic development sales tax.

Government does a terrible job planning the economy, whether it is a Soviet five-year plan or retail TIFs (tax increment financing) in Saint Louis County. Municipal government can improve the local economy by doing the things it needs to do well: police, fire, local roads, etc. It does not need to “develop” our economy, especially because “economic development” in Missouri is synonymous with taxpayer subsidies and corporate welfare.

Clayton, the Saint Louis County seat and the region’s other downtown, is considering an economic development sales tax, along with three other tax increases, on the April ballot. Doing four tax increases at once (four!) is crazy, but the point of this post is just the economic development sales tax.

Clayton has been careful in its use of tax incentives and other economic development tools in comparison to other Saint Louis County municipalities, which admittedly is a very low bar. Clayton deserves credit for that. So I can’t understand why it would propose raising a tax to do more of something it should not do in the first place: government planning of the local economy.

Clayton officials likely would claim that the intention for the new tax funds is not more use of subsidies or more local planning, but a continued focus on business recruitment, retention, etc. I believe them, and in the short run, I am sure that would be true. But, in my opinion, the increased use of, and funding for, government economic development activities will almost certainly be followed by heavier use of various subsidies and tax incentives. Cities such as Clayton should be moving in the opposite direction with less or zero use of these types of programs, not increasing taxes to do things they should skip from the start.

More to come on these four tax increase proposals next week.

Mayor James’ Corporate Welfare Handouts

Posted on by Patrick Tuohey

The Kansas City Star reported that Burns & McDonnell, the successful architectural and engineering firm headquartered in Kansas City, is considering the purchase of an available plot of land immediately adjacent to its main offices.

The company, which intends to request incentives for the project, plans to tear down the synagogue building and redevelop the property with a phased, 450,000-square-foot office development and 800-space garage.

No one can blame Burns & McDonnell for asking for taxpayer handouts such as tax abatements or Tax Increment Financing (TIF). After all, these businesses answer to their owners and/or shareholders who want to maximize profits. Companies almost always will ask, and they almost always will make the case that they need taxpayer subsidies. What is disappointing is that cities are so eager to give away the shop in these circumstances.

Kansas City is no exception when it comes to giving away unnecessary incentives just to be shortchanged on the back end. The same Star piece included this:

Kansas City Mayor Sly James described Burns & McDonnell as the “quintessential hometown entrepreneurial success story and a tremendous corporate citizen.”

“We welcome their expansion and the new jobs it will bring,” the mayor said in a statement.

City cooperation will be essential if the project is to move forward.

Essential? Really? That is doubtful.

Purchasing the land is likely very attractive to Burns & Mac, as it is known. The land is adjacent to office buildings it currently operates — so the company cannot credibly threaten to run to Kansas if it doesn’t get its way. Furthermore, Greg Graves, the chairman and CEO, has deep roots in Kansas City and has been active in local life — he isn’t moving to Kansas. Here is a perfect opportunity for Kansas City to hold its ground and hold on to taxpayer dollars.

When a city abates property taxes, it freezes the income of other jurisdictions such as the library and schools, which are funded through those taxes. Mayor James talks a lot about how he is concerned about education in Kansas City, but says his hands are tied. Yet here is an opportunity for him to support education funding and he seems to be ready to cave in before the company has even asked.

This should be no surprise. As the Star’s Yael Abouhalkah wrote in December:

Like most politicians, Kansas City Mayor Sly James has been willing to support corporate tax breaks that lower the tax rates for powerful companies but essentially increase the tax burden on others who can’t sweet-talk City Hall…

Indeed, as he and others know all too well, the city has passed numerous public subsidies in the past that have sucked money away from school districts, libraries, counties and other taxing jurisdictions.

Every business will claim poverty if they think they can benefit from it. It’s our hope that Mayor James and the city smarten up and stop making foolish deals that weaken the city’s — and others’ — funding base.

Where Are The Metro Buses We Paid For? (Part 2)

Posted on by Joseph Miller

My last post about the Metro bus system in Saint Louis detailed how Metro’s focus on maintaining low-passenger bus routes reduces resources for popular routes. This post focuses on the actual purchase of buses. News stories about the overcrowding of the popular 70-Grand Ave. route wondered why Metro’s tax increases have not paid for new buses. As a Fox News affiliate put it, “after all, you paid for them.”

It turns out that Saint Louis residents do not, in fact, pay for new buses through local tax increases. When it comes to funding capital expenditures for transit, like new buses, the federal government provides most of the money. In a three-year period around the time of the most recent tax increase, the federal government paid approximately 77 percent of Metro’s capital expenditures, and even 10 percent of operating costs. After the last tax increase allowed Metro to continue service on some routes, Metro did buy 10 new buses. However, a federal grant paid for most of the buses.

Cap_met

If Metro wants new, larger buses for the 70-Grand route without making major changes to the system, the most obvious options are to receive a federal grant or raise taxes further.

This underlines the point that more than 90 percent of local taxes for Metro busses go to the operation of the system and not new vehicles. And unfortunately for Saint Louis area taxpayers, the cost of operating the Metro bus system continues to rise. Over the last 20 years, Metro’s bus fleet has been cut in half, ridership has fallen, and total passenger miles have decreased. However, the cost of operating the bus system has increased at an average of 4 percent per year. In fact, the annual operating cost per available Metro bus seat has risen from $2,869 per seat in 1991 to $9,360 per seat in 2012.  This represents a 6 percent increase per year, much higher than inflation and even increases in fuel prices.

In the last decade, Metro has failed to control costs, despite significant federal aid in capital expenditures. Metro therefore required tax increases to maintain the underutilized routes that go to low-population density areas. These factors mean Metro requires higher taxes and more federal dollars to buy larger buses to increase service on the city’s busiest routes.

What Metro needs most of all is greater flexibility to address cost issues and still provide a base level of service to outer areas.

Hospital Price Transparency Bill A Bold And Necessary Reform

Posted on by Patrick Ishmael

In the coming days, the Show-Me Institute will release a policy brief about what Missouri can do to improve access, cost, and quality of care for Medicaid patients. Authored by yours truly, the paper outlines five serious reform ideas, and one of those ideas focuses on price transparency from hospitals.

One of the biggest obstacles to greater competition and lower prices in the health care arena is the absence of readily accessible and easily comparable pricing information for common medical procedures. For as many things as the Affordable Care Act got wrong, it got right its requirements for greater price transparency. A review of the data last year by the U.S. Department of Health and Human Services hammers this point home.

For example, average inpatient charges for services a hospital may provide in connection with a joint replacement range from a low of $5,300 at a hospital in Ada, Okla., to a high of $223,000 at a hospital in Monterey Park, Calif.

Even within the same geographic area, hospital charges for similar services can vary significantly. For example, average inpatient hospital charges for services that may be provided to treat heart failure range from a low of $21,000 to a high of $46,000 in Denver, Colo., and from a low of $9,000 to a high of $51,000 in Jackson, Miss.

There are numerous reasons costs can vary wildly from hospital to hospital, and quality of care is almost certainly a component. But if you’re from California and could travel to Oklahoma instead to pay less than 3 percent of the cost of a joint replacement, wouldn’t you want to know that? If you could travel across town to another hospital to pay one-fifth the cost for a procedure, wouldn’t it be important to have that information? With few exceptions, state transparency requirements for hospital pricing are pretty awful nationwide, and consumers are hurt when that information is effectively withheld.

That is why I am very much a fan of Missouri Senate Bill 684, sponsored by Missouri Sen. Jason Holsman (D-Jackson County), which would help deliver precisely that sort of information. Coincidentally, the bill will be heard in a Senate committee later this week — right about the time we release my policy brief. I intend to submit testimony on the bill.

SB 684 would be a great stride forward for Missouri health care consumers. I hope Sen. Holsman’s colleagues take the proposal very seriously.

State Audit Recommends Sunset Of Low-Income Housing Tax Credit

Posted on by Patrick Ishmael

A new state audit recommends a sunset of the state’s low-income housing tax credit. It’s a great recommendation that we have supported in the past. You can find the full audit here and the “citizen summary” here. The audit highlights a broad set of problems with the current program — not the least of which being that nearly $1.5 billion worth of Low-Income Housing Tax Credits (LIHTC) are outstanding and have not been redeemed. This paragraph from the auditor’s press release is indispensable (emphasis mine):

Currently, only 42 cents of every dollar issued actually goes toward the construction of low income housing; the remainder goes to the federal government in the form of increased federal income taxes, to syndication firms, and to investors. State law allows claiming the same project costs under two or more tax credit programs. This “stacking” of tax credits can be lucrative for developers, but it generates no additional economic activity or state benefit.

To reiterate: Less than half of the money spent through the LIHTC program… actually goes toward the building of low-income housing. Page 16 of the audit goes through all of the auditor’s recommendations, including the idea of adding substantive spending caps to the LIHTC. That’s an excellent idea. When you have a billion-dollar budget-buster like this sitting out there, a strong cap is an obvious and common sense reform, though the Missouri House’s track record on tax credit reform issues has been abysmal.

Either way, the auditor’s report recognizes the need for reform to the LIHTC. It’s an open question whether the legislature will also recognize the problem.

Where Are The Metro Buses We Paid For?

Posted on by Joseph Miller

Local news outlets recently reported about the lack of spaces on buses in Saint Louis, specifically pointing out overcrowding on the 70-Grand Ave. line. Commenters decried the situation, stating that a tax increase three years ago should have handled the issue. One report asked why the last tax increase did not get the city new buses for busy routes, stating “after all, you paid for them.”

But what did Saint Louis area residents pay for? According to data from Metro, they did not pay for more buses on Grand Ave.

As of October 2013, Metro operated 73 bus routes, of which 70-Grand Ave. was the busiest, with 9,256 passengers on an average day. It is also Metro’s best-performing bus route financially, with 80 percent of the operating costs coming from fares (for comparison, fares pay for 27 percent of the Metrolink lines).

To deal with the demand for this route, at peak periods, Metro devoted 12 buses. Those buses make 127 daily trips. But what are those numbers in perspective? Metro runs many other routes as well, some of a magnitude less popular than 70-Grand. In fact, 70-Grand has as many passengers per day as 31 of Metro’s poorer-performing bus routes. The resources designated for those routes? Seventy-eight buses at any peak period and a total of 1,203 daily bus trips. As for money, most of these routes make back less 20 percent of their operating costs in fares and some make less than 5 percent. Those buses need far more financial support than 70-Grand. While 70-Grand requires approximately $2,500 per day in subsidies to cover its operating expenses, the least-frequented 31 routes require a combined $54,000 per day.

Saint Louis area residents did not pay more to improve 70-Grand, they paid higher taxes to operate an entire bus system. While buses are crowded in the high population centers in the city, most of the tax dollars and buses in the Metro system are needed to maintain underutilized service in Saint Louis and St. Clair Counties. The bright yellow lines represent those low-passenger routes on the map below.MT

Maintaining those routes, not pushing more buses onto high demand routes (in blue), was the main purpose of the tax increase.

If Saint Louis area residents want to improve service for crowded bus routes without raising taxes further, they need to re-think Metro’s priorities. Metro’s policy to maintain underutilized routes throughout the Saint Louis region hampers its ability to provide frequent service on high-demand routes.

To be fair, those residents of underutilized transit areas in Saint Louis County pay just as much in taxes to support Metro as city residents do. (St. Clair County funds transit differently, so we will leave them aside for now.) I understand the need to keep offering some transit services to areas that do not use it very much, but Metro needs far greater flexibility to offer that service in a more cost-effective way. More on that to come.

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