Reform, Not Spending, Should Top Agenda

Posted on by Patrick Ishmael

As first appearing in the St. Louis Business Journal on January 24, 2014:

A year ago at this time, Missouri Gov. Jay Nixon railed against the state’s out-of-control, multi-billion dollar tax credit system, using 150 words and six paragraphs to stress his concerns. In this year’s “State of the State address,” delivered on Tuesday night, he devoted all of 18 words – one sentence – to the issue.

That is one unfortunate change. It is not the only one.

It seems the governor has had a change of heart regarding tax policy. After vetoing last year’s tax cuts for all businesses and individuals, Gov. Nixon led the charge to promise nearly $2 billion of new tax incentives to just one company, Boeing. That bid failed.

But if, as we often are told, Missouri is a “low-tax state,” why would we have to make Boeing’s taxes even lower? And why should the state support corporate handouts to one company, but actively deny them to the family businesses in our communities?

Second, the governor is promoting a costly expansion of Medicaid rather than what is really needed – which is substantial reform of the program. Not only is the current Medicaid program wasteful, but the access and quality of care available to Medicaid enrollees is deplorable. To make matters worse, a recent study found that expanding Medicaid may actually increase, not decrease, costly emergency room use, driving our health care costs even higher.

We should be reforming this multi-billion dollar program, not making it bigger.

Many of the other policy prescriptions of the State of the State address are beset by the same philosophical infirmities of the tax and health care plans.

For example, it is not how much money we spend on education that really matters; it is whether we are spending that money effectively and efficiently. Education funding has soared upward over the last few decades, and yet in terms of student achievement, our children remain stuck in the middle. Our kids deserve to have the best education, and one of the best ways to do that is through school choice and competition.

The governor’s address made no mention of such reforms – his focus was on simply spending more.

That is wrongheaded. Wide-ranging reform, not wide-ranging new spending, should lead the state’s agenda in 2014. I hope that is what we will see instead.

Patrick Ishmael is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

 

Streetcars Are Not Economic Development

Posted on by Patrick Tuohey

Over the weekend, KCPT’s current events program Rukus (starts at 4:33) quoted a Show-Me Institute blog post (Streetcars Will Waste Your Money and Your Time) which points out that there is no evidence that fixed rail removes cars from the road or drives development. It read:

We know from previous studies that rail transit does not remove cars from the road. And we know that it is not the rail lines themselves that drive economic development but rather the additional tax incentives that governments hand out along rail lines.

Kansas City Star editorial board member Yael Abouhalkah interrupted Woody Cozad’s comments on the quote to ask, “Proved by what?” For that, we refer him to the links above. Abouhalkah went on to say, “They just had two downtown without incentives.” He never explained what he was referring to, but we suspect it refers to two hotels that Abouhalkah wrote about in August:

Yes, it can be done: Someone can build a hotel in the Kansas City area without a taxpayer subsidy.

Hallelujah.

…It puts new development along the planned two-mile streetcar line, near the Kauffman Center for the Performing Arts, and near the Power Light District and Sprint Center.

First, we at the Show-Me Institute share Abouhalkah’s enthusiasm for anything built in Kansas City without taxpayer subsidies and we are pleased he is highlighting the matter. The problem in the piece is that this development has nothing to do with the streetcar, aside from possibly diverting it from another location in Kansas City. According to Abouhalkah’s own newspaper, the developers’ interest predated the streetcar (emphasis added):

Rob Schaedle said the firm’s first interest in Kansas City was in 2009 when it considered redeveloping the old 21-story Federal Reserve Bank of Kansas City building at 925 Grand Blvd. Though it admired the historic structure, the firm decided to pass on converting it into a hotel.

“But we liked the market,” Schaedle noted and in August of this year bought the property of its new project for $4.5 million.

Abouhalkah and other streetcar boosters are simply claiming credit for any development that occurs after plans to build a streetcar. This is the most basic of logical fallacies: post hoc ergo propter hoc. But this is not uncommon. In a study of economic development programs across Missouri, my colleague, David Stokes, quoted researchers who wrote:

“The best case is that incentives work about 10 percent of the time and are simply a waste of money the other 90 percent.” The authors then relate that, in their experience, “it is not unusual for public officials to attribute all new employment to incentive programs.”

Streetcars will not improve the economy of Kansas City. The economic development handouts, amounting to corporate welfare, will be the engine that drives any development, and even nine times out of 10, that is  “simply a waste.” As time goes on, it will be increasingly difficult to determine exactly what prompted development, but rest assured that everything will be credited to the streetcar.

Recording Public Hearings? Let The Sunshine In

Posted on by Patrick Ishmael

Former U.S. Supreme Court Justice Louis Brandeis once noted that “[p]ublicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.” Transparency, in other words, helps society avoid some of the social ills that could be promoted or concealed by obstruction and secrecy, and as a general matter, public policy should be decided with as many people watching as possible.

That is why I found this story so troubling.

The chair of the Senate General Laws Committee banned video coverage of the final debate and vote of his committee approving a bill that seeks to declare Missouri exempt from some federal gun laws.

Earlier, a reporter for an NBC affiliated television station had his camera physically removed by a Senate staffer from the committee on the second day of hearings on the bill.

The committee chair … had warned TV reporters the week before that he would ban cameras on tripods and restrict access to areas where it would be impossible to get a full view of anyone testifying before the committee.

Only the Senate’s official photographer was allowed to use a tripod at the committee hearing. One reporter holding a camera by hand behind the committee witnesses also was permitted to record video.

Seriously, does this look obstructive to you?

Briefly, as to the bill itself, my view on nullification is well-documented, so I won’t rehash it here. But suffice to say, it is highly problematic that the rules for covering a high-profile bill could reduce public exposure to shaky cam coverage like this.

Our democracy is better than that, and if our public bodies are not going to record these meetings themselves, they should be allowing far greater latitude for the public at large to record them in their stead. Let the sunshine in.

Brentwood Should Join Consolidated 9-1-1 System

Posted on by David Stokes

The heavily fragmented government system in Saint Louis County leads to higher costs on taxpayers, but NOT quite as high as one might assume. That is because the many cities and other governments within Saint Louis County do a better job of cooperating than people may realize. To give one example, almost every municipality contracts with Saint Louis County for some types of public works inspections. Here is the matrix of city governments that contract with the county for various things.

Another long-time example of shared services is emergency dispatch. We wrote a number of blog posts about the issue several years ago. Few cities have operated their own emergency call centers, which is a good thing. There are obvious economies of scale in sharing resources here, which is why so many cities have done it.

Brentwood is a particularly wealthy city due to the high level of shopping within the city, the high assessed valuation combined with limited government-service needs of Brentwood Forest, and more. So, it has been able to do something on its own that other cities have not been able to afford, such as operating its own emergency dispatch. There is nothing automatically wrong with that, but now officials are thinking about trying to save money by participating in the East Central Dispatch Service 9-1-1 center, which serves many other cities in mid-Saint Louis County.

I think this is a no-brainer “yes” decision for Brentwood. Even if the short-term savings are small, the long-term benefits of being in the larger system would be noticeable, primarily, greater access to a larger pool of resources (technology, employees, back-up systems, etc). Phone calls do not take longer to get to Olivette than they take to get to Brentwood. There are certain things cities do NOT have to do themselves, and emergency dispatch is at the top of the list.

Let’s be honest here. Opposition to this is about protecting public sector jobs in Brentwood, not about public safety. Brentwood should participate in the East Central Dispatch Service.

Do You Know The Pay In San Jose?

Posted on by Rik W. Hafer

In late December 2013 and early January 2014, the Employment Policies Institute (EPI) in Washington, D.C., conducted a telephone survey of restaurants in San Jose, Calif. San Jose was chosen because in March 2013, the city leaders enacted an immediate 25 percent increase in its minimum wage, from $8 to $10 per hour. EPI wanted to see how one group of affected businesses — fast food and table-service restaurants — respond to such a wage hike.

As always, we caution against putting too much weight on the outcome of one survey of one industry in one town. With that caveat in mind, what did the survey say?

In response to the higher minimum wage, two-thirds of the responding firms, the majority of which fall in the 10-49 employee size, will (or have) increase prices. More than 40 percent of the establishments plan to reduce employee hours and staffing levels. While 7 percent of the firms are now considering closing locations in San Jose, 30 percent are, after the wage increase, not likely to expand operations.

The EPI survey of food establishments in San Jose offers one observation supporting the predictions of basic economic theory; namely, that a higher minimum wage will lead to undesirable consequences, including higher product prices for consumers and, especially for those workers on the lower rungs of the job market, reduced income.

Missouri Conference On Transportation Report

Posted on by Joseph Miller

On Jan. 23, I attended the Missouri Conference on Transportation in Jefferson City. Much of the talk focused on needs: needs for roads, public transportation options, improved waterways, and most of all, more money. Unfortunately, the remedies put forward to solve the money problem abandon the principle of making the user pay and would keep Missouri’s transportation funding system on the road to unsustainability.

When Dave Nichols, director of the Missouri Department of Transportation (MoDOT), delivered the conference’s keynote address, he focused on his department’s impending financial Armageddon. He stated that from 2005 to 2011, MoDOT had a construction budget of $1.3 billion per year, but this year it has just half that amount. He also claimed that MoDOT requires $485 million simply to maintain the existing system. However, MoDOT will not have even that minimal amount by 2017. The decrease in funds is the result of the declining purchasing power of the state gas tax, decreasing federal support for transportation, and increasing bond payments. The director explained that the $1.3 billion budget had given Missouri better roads, new bridges, and increased safety measures. He pointed out that the department will no longer be able to make such improvements, and soon will be unable to maintain the current system.

The mismatch between MoDOT revenues and obligations did not appear overnight. Since the early 2000s, MoDOT has slowly seen its costs and obligations increase. At the same time, nothing has been done to increase user fees in the form of gas taxes (which has remained at 17 cents since 1996) or tolls. But instead of fixing the problem by raising user fees or controlling costs, MoDOT issued billions of dollars of debt and then relied on federal stimulus funding to improve and expand Missouri’s infrastructure. In effect, Missouri drivers got new roads and bridges without creating the tax base necessary to pay for them. With the bond money spent and the stimulus finished, MoDOT has to live within its means, which apparently it cannot do.

Once again, Missouri has an opportunity to set MoDOT funding on a sustainable, user-pay path. But instead of seizing the opportunity, some speakers at the conference called for a temporary 1-cent transportation sales tax to pay for transportation projects. I have written before that a sales tax is not a good way to pay for roads. Paying for highways based on how much people shop, and not how much they drive, encourages artificially high demand for roads. This increases road degradation, congestion, and sprawl beyond what would occur if drivers had to pay for their roads through gas taxes or tolls. Thus, it guarantees that when the “temporary” sales tax expires, Missourians will face the same funding problems they are facing today. Except then, it will be worse, because the user-generated revenue will be lower and road system maintenance requirements will be artificially higher.

The speakers at the Missouri Conference on Transportation accurately outlined the current condition of transportation funding in Missouri. Unfortunately, their policy solutions would create a system that is not bound by user demand and turns transportation spending into a subsidy slush fund.

Kansas City Star Calls For New MCI Plan, Airport Leadership

Posted on by Joseph Miller

On Wednesday, the Kansas City Star called for a complete re-think of the $1.2 billion new terminal plan at Kansas City International Airport (MCI). The article even suggested replacing Mark VanLoh, the current director of the Kansas City Aviation Department (KCAD), stating that he “does not have the public credibility to lead on this extremely crucial project.” While we could not agree more, it is important to point out how the Aviation Department’s policy decisions have tarnished its reputation. In truth, KCAD has lost public credibility because it produced self-serving cost estimates, did not seek input from airport users or the airlines, and failed to offer alternatives to its preferred plan.

As the article rightly points out, the aviation director initially supported an even more expensive South Terminal Plan. That approach lost favor with KCAD because the Missouri Department of Transportation (MoDOT) would not build the required highway alterations. When selecting a new design, KCAD gave the public three options: the South Terminal Plan (which it already knew it could not do), the current design, and a mirrored option of the current design. So much for alternatives. Even today, after months of Airport Advisory Group meetings, the Aviation Department has yet to create serious renovation alternatives to its desired plan.

The Star article does not point out how the department has repeatedly contradicted itself about cost estimates and construction timelines. First, the airport was going to cost a minimum of $1.2 billion, then it was $900 million, or $965 million. MCI repair costs are shown as less than $200 million in a bond report, but then KCAD claimed the amount is $600 million or even $700 million. The new terminal planning documents call for the new terminal to open by 2019, but the aviation director then claimed that construction will not happen until 2020. At what point should the public conclude that the Aviation Department will say whatever number they think will get a new terminal?

Although the Star article downplays it, the opposition of the airlines has done the most damage to KCAD’s credibility. Before their testimony, the Aviation Department said that critics were wrong: wrong that the debt could harm the airport financially, wrong about how much money a new terminal could generate, wrong that the airport could continue in its current form, even wrong about the convenience of MCI. However, since Southwest representatives essentially vindicated the critics and warned against the risks of the new terminal plan, KCAD’s position has become untenable.

Most residents know that the airlines understand the aviation industry and that if they do not support the new terminal, it is probably a bad idea. What most residents probably do not know is that the ability of MCI to finance the $1.2 billion terminal plan depends on the airlines signing a new contract that makes them responsible for paying the terminal’s immense debt. If the terminal is built and the airlines refuse to sign, then MCI will be in Sacramento International Airport’s current position, scrambling to cut costs and find new revenue sources as its debt payments mount. It seems impossible that KCAD devised a new terminal plan and took that plan public without ensuring that its tenets/source of financing actually wanted it. Yet that is what happened.

It is good to see the Star arguing for change in KCAD’s performance and a new plan for MCI. Whether or not the aviation director is replaced, Kansas City would be well served by an open discussion about the future of Kansas City International Airport.

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