False Pride: Missouri’s Governor Shouldn’t Be Boasting About “Low” Unemployment

Posted on by Andrew B. Wilson

As first appearing in the Weekly Standard on July 7th, 2013 (a slightly different version ran in the July 14th Columbia Tribune):

It is perhaps the best known of all of Mark Twain’s quotes – “There are lies, damned lies, and statistics.” It would be hard to find a better illustration of that line than the misuse of unemployment statistics in Twain’s home state of Missouri.

After peaking at 9.6 percent in July of 2009, Missouri’s unemployment rate fell three full percentage points—to 6.6 percent—at the end of 2012. That compares to a 1.7 percentage point decrease in the national unemployment rate.

To hear Missouri Gov. Jay Nixon talk, you might think that Missouri’s economy is booming. “Missouri families and businesses are reaping the benefits as our economy continues to grow,” Nixon said in early June, citing 44 consecutive months in which the state’s unemployment rate has been at or below the national average. “In every corner of our state, businesses large and small are deciding to invest and expand.” Though Missouri’s unemployment has ticked back to 6.8 percent, it remains below the national average of 7.6 percent.

But Missouri is not blazing a path for other states to follow. To the contrary, it ranks near the bottom of all states in job creation. In this regard, the Show-Me State serves as a textbook example of the fallacy of thinking that a large drop in the unemployment rate must be synonymous with a corresponding increase in business activity and employment.

From 2010 through 2012, total employment in Missouri grew a trifling 1.8 percent, compared to 4.1 percent for the nation as a whole. Thus, Missouri considerably underperformed the rest of the nation in job growth—even as it seemingly excelled in dealing with the scourge of high unemployment.

You will not find any stories in Missouri newspapers trumpeting the state’s economic performance. Whatever the governor might say, most Missourians are well aware of the state’s inability to keep pace with its neighbors in business and job creation. In the past three calendar years, Missouri ranked dead last among Midwestern states (counting Missouri and the neighboring states of Kansas, Nebraska, Iowa, Illinois, Tennessee, Kentucky, Arkansas, and Oklahoma) in growth of both employment and GDP.

So why the disconnect between the good numbers on unemployment and the bad numbers on GDP growth and employment? The answer lies in a far-from-vibrant workforce. This goes beyond the fact (and it is a fact) that job growth in Missouri has failed to keep pace with population growth. Over the past three years, tens of thousands of Missourians have quietly exited the labor market. And that has had the effect of lowering the state’s unemployment rate.

In the Bureau of Labor Statistics way of calculating unemployment, able-bodied people without jobs are not counted as unemployed if they have stopped looking for work. What the BLS calls the “labor force” is the sum of total employment and total unemployment, and people who are eligible for employment but do not seek it are neither fish nor fowl—neither employed, nor unemployed.

From July 2009 to April 2013, the number of unemployed people in Missouri fell by 96,000. But the number of employed people rose by only 26,000—which means that some 70,000 people (the difference between the two numbers) dropped off the grid—in neither working nor actively seeking work.

Who are these dropouts? I can easily think of a dozen of them in my own circle of friends and family members. They include non-working sons and daughters of affluent parents who have discovered they, too, qualify for food stamps and other forms of welfare, extended by the government or their own parents. They include doctors, lawyers, and other business or professional people who have retired or quit working earlier than they might otherwise have done—as a result of the combination of unhappiness at their former jobs and seeing no possibility of finding other, better employment.

In the previously mentioned time period, the labor force participation rate in Missouri (the labor force divided by the labor-eligible population) fell from 66.6 percent to 64.0 percent—a drop of 2.6 percentage points. That compares with a 2.2 percentage point drop in the participation rate nationally over the same time.

The disappearance of 2.6 percent of the workforce is no small thing. Without it, Missouri’s unemployment rate, instead of falling three points, would have increased 0.7 points to 10.3 percent.

The Show-Me State did not, in any real sense, add jobs to bring down what counts officially as the unemployment rate. Rather, it shed workers. And that is nothing to cheer about. It is a sorry reflection on the large number of people who have given up hope of finding a job.

Andrew Wilson is the resident fellow and senior writer at the Show-Me Institute, which promotes market solutions for Missouri public policy.


No Soup For You: Nixon Wants ‘Project-by-Project’ Tax Cuts, Not Tax Cuts For All

Posted on by Patrick Ishmael

It’s always remarkable to see politicians who are against general tax relief exalt the arrival of businesses attracted . . . by tax incentives. After all, a tax break is just a tax cut, albeit for some extra-special, often politically connected individual or industry.

And that’s precisely what happened yesterday in Kansas City, when Missouri Gov. Jay Nixon — who recently vetoed the Broad-Based Tax Relief Act — was on hand to celebrate the opening of Freightquote’s new office in south Kansas City. Freightquote, as you may remember, was attracted from Kansas to Missouri with more than $60 million in state and local tax incentives, which begs the question: If Freightquote can get crazy tax breaks like that to move from Lenexa, Kan., a short, leisurely drive down I-435, why can’t we all get a little tax relief?

The short answer: we’re not special enough.

Tax cuts should be pursued on a “specific project-by-project basis,” [Nixon] said. “We need to come at this in an overall thoughtful way, not just throw darts.”

Giving tax cuts to everyone is “throwing darts,” but picking a few projects for special tax breaks is . . . “thoughtful”? What is this, newspeak? How is giving special, targeted tax breaks not “throwing darts”? And what makes the governor think the government’s more thoughtful and better at throwing darts than the marketplace, where poor decisions are rewarded with foreclosures and bankruptcies, not press conferences and ribbon cuttings?

He then rejected tax cuts for all Missouri residents, or what he called an “across the board tax experiment.”

Catch that? Tax breaks are OK, but they have to be government-approved tax breaks for special tax-break recipients. Tax breaks for the rest of us, the hoi polloi in the market, are an “experiment.” We apparently throw darts; the government is “thoughtful.”

Amazing to hear this sort of stuff in, of all places, the Show-Me State. You deserve better than this.

School Transfers, Follow The Money (Part 2)

Posted on by James V. Shuls

Right now, there are so many unknowns when it comes to the issue of student transfers from unaccredited school districts. How many students will leave Riverview Gardens and Normandy? What schools will they attend? How much tuition will the districts pay? Etc., etc., etc. The one thing we know for sure is that the two districts the unaccredited districts will be providing transportation to — Francis Howell and Mehlville — do not seem excited to have been selected.

Many are still asking why these two unlikely districts were chosen. In my last post, I pointed to the most obvious reason — money. The unaccredited districts have to pay tuition to the accredited districts that accept their students. Therefore, they have every incentive to persuade their transferring students to attend a district that spends less than they spend in their own district.

Some question whether money could really explain the unaccredited district’s rationale and encouraged me to look at academics. For that reason, I present the table below. In this table, I present the percentage of students who scored proficient or advanced on state exams in English language arts and mathematics. Once again, I provide the current expenditure per pupil.

STL area schools panda2012

As you can see, the Mehlville and Francis Howell school districts clearly perform better than the two unaccredited districts. However, they are far from standouts in this regard. In fact, eight school districts outperform Francis Howell and 11 (including Francis Howell) outperform Mehlville. Of those higher performing districts, none spends less than Mehlville and only two spend less than Francis Howell.

I certainly cannot rule out academics as one of the deciding factors in determining where to provide transportation, but it seems clear that it was not the deciding factor.

Budget Action In Search Of A Crisis

Posted on by Patrick Ishmael

Three weeks ago, Missouri Gov. Jay Nixon announced that he would withhold slightly more than $400 million from the state’s 2014 budget. His action was supposedly due to the “significant costs” of the Broad-Based Tax Relief Act (BBTRA), which he recently vetoed and the legislature may try to override this fall. The governor’s full restriction list is here. It includes more than $66 million carved from the Department of Elementary and Secondary Education, more than $43 million from the Department of Higher Education, and more than $17 million from the state park system. The governor has also sought out a road map to eliminate 1,000 state positions if the tax cut is resurrected.

It seems the governor wants as many people to know about, and feel, these cutbacks as possible. However, the budget facts paint a far less dire picture than the one the governor has sketched out, and to which he is presumably reacting. As the Associated Press‘s David Lieb noted:

. . . Nixon announced more than $400 million of spending restrictions for education, building projects and other government services, even though Missouri began its fiscal year July 1 with a cash balance of around $450 million.

The state apparently has more money in the bank than Nixon has set aside from the budget to supposedly avert a budget deficit. And that’s before we even start talking about the BBTRA, which the governor claims is the driving factor behind his cutbacks. Indeed, with all impacts on the budget included, the fiscal note on the cost of the BBTRA suggests the tax cut would decrease state revenue by about $200 million in 2014 — which is far short of the $400 million the governor withheld.

The state’s education system and other programs are the ones that get hit hard because of the withholding, for seemingly no good reason. The money in the bank doesn’t justify it, and the price tag of the tax cut doesn’t justify it. I’m not so sure Missouri’s schools appreciate their funding being held hostage in the governor’s fight with the legislature, especially when the facts don’t justify the cutbacks.

‘This Is What Airports Do,’ Part 2

Posted on by Patrick Tuohey

The chart below documents the estimated amount of tax dollars lost because of Kansas City International Airport (MCI) acting like a private property developer.

We know that government departments such as the airport do not pay taxes. This is also true for tenants on airport land. According to Karbank Real Estate Co.,  which competes against the taxpayer-subsidized airport, the assessed value of the Blount International facility on airport land is slightly more than $7 million, or one-third the appraised value. As a result, the affected tax districts have lost almost $650,000 in annual tax revenue. The Park Hill School District alone is denied $380,000; Kansas City proper loses slightly more than $107,000; Mid-Continent library loses $22,000.

Of course reading this, you might think that officials in Platte County — the county in which the airport is located — are up in arms about this deal because they are losing thousands of tax dollars to an airport that undercuts private taxpaying developers. But you’d be wrong. The Platte County Economic Development Council not only supports the airport in the past deal, but also in the current plan for a new terminal. Heck, Alicia Stephens, executive director of the Platte County EDC, supports the new terminal project and the mayor appointed her to the Airport Task Force!

But don’t worry about Stephens losing her job for supporting deals that cost Platte County dearly. Her boss, the chairman of the Platte County EDC, is none other than Mark Van Loh — the head of the Kansas City Aviation Department, whose developments are robbing Platte County of tax dollars.

Reasonable people are left with two compelling questions: How can Stephens credibly serve on a task force in which she will be asked to pass judgment on a proposal by her boss? And why does Platte County tolerate its EDC chairman having such a clear and significant conflict of interest?

Here is a table Karbank compiled that provides a breakdown of tax revenue NOT being paid on property that the airport developed:

TAX DISTRICT LEVY PER $100 TOTAL
State Blind Pension Fund 0.0300 $2,105
County 0.0200 $1,403
Health 0.0800 $5,613
Board of Services for Handicapped 0.1299 $9,114
Mental Health 0.1000 $7,016
Mid-Continent Library 0.3200 $22,451
Senior Citizen Levy 0.0500 $3,508
Park Hill School District 5.4133 $379,797
Platte City Special Road District 0.2150 $15,084
Kansas City 1.5294 $107,303
Kansas City Community College 0.2329 $16,340
M&M Replacement Tax 0.3600 $25,258
Kansas City Traffic Way 0.2500 $17,540
Kansas City Parkway 0.5000 $35,080
TOTAL $647,612

Not satisfied with giving away the house on rent and taxes, the Aviation Department signed a lease agreement that stipulated, (emphasis added):

In the event that ad valorem real property taxes are assessed against the Premises, the bonus value of this Lease, the Infrastructure Improvements or any component of the Premises or the leasehold estate created by this Lease (“Taxes”) and paid by Lessee, City shall either pay Lessee an amount equal to such Taxes or credit such amount against Rent owed to City by Lessee.

In other words, Kansas City is on the hook for any taxes owed on the property should the abatement end. And it might. Karbank is suing the airport over the matter, alleging that the agreement, which they claim is effectively 100 percent abatement  in perpetuity, is unconstitutional. Whatever the results of the lawsuit, MCI needs to act like an airport, not Donald Trump.

‘This Is What Airports Do,’ Part 1

Posted on by Patrick Tuohey

As part of Kansas City officials’ effort to convince voters that we need a new airport terminal, Mayor Sly James appointed a task force. At the Airport Terminal Advisory Group’s June 18 meeting, Kansas City Aviation Department Administrator Mark Van Loh gave a presentation about airport operations.

During his talk, Van Loh mentioned that the airport hired a company called Trammel Crow Co. to develop a portion of the land not used for aviation and that the airport now has a tenant, Blount International. According to Van Loh, Blount moved to Kansas City from Colorado. “This is what airports do,” he said, to increase their revenue.

It may be what airports do, but it is having very negative effects on the Kansas City area. First, Blount International did not move into the airport space from Colorado. It moved there from the East Bottoms, where it had, for decades, rented considerable space  from Karbank Real Estate Company LLP, a successful Kansas City-based property developer.

This is a bad deal for the region in at least two ways. As the Aviation Department is part of city government, it can develop property at a small fraction of the cost that private companies pay. It does not have to conduct the myriad of impact assessments such as traffic impact fees and platting fees, as do private companies, nor does it have to pay things such as city utility taxes. The government can therefore undercut private businesses and charge much less for rent. The city’s tenants pay no taxes, which depresses the market rates, which in turn decreases values across the city, having a huge negative effect on property values city-wide and certainly to the airport sub-market.

The Aviation Department has made it clear that it will continue to operate as a property developer and landlord to offset its own deficits. In effect, the airport is cannibalizing the city’s tax base and creating hardships for private developers.

Kansas City Charter Changes

Posted on by David Stokes

Kansas City is going through a charter review process. The Show-Me Institute recently submitted testimony about the charter. My points are simple: keep the mayoral veto, do not expand the size of the current city council (at least not by much — going from 13 to 14 would not matter), and, most importantly, make the at-large officials truly at-large. Having at-large officials represent districts at the same time reduces the benefits of at-large elections in the first place. That primary benefit is that every decision an at-large official makes has both benefits and costs to the same group of people. In wards, a.k.a. districts, many events can have concentrated benefits but dispersed costs. That leads to greater spending levels as ward officials consistently seek to secure more benefits for their individual wards.

Some groups want to get rid of the at-large system entirely in the name of greater minority representation. The thinking is that more, and thereby, smaller, wards, will make it easier for concentrated minority groups to elect members of that group to the city council. Leaving aside the assumption that only a person from a certain group can represent that certain group, there is some basic truth to those arguments. It probably would make it easier to elect more minority politicians in an all-ward system. But it does not have to be that way.At the recent hearing of the Kansas City Charter Review Commission, supporters of more wards offered a chart to back up their points.

Charter evidence by race

However, from their own chart, the example of Cincinnati demonstrates that their arguments are shaky. Cincinnati has an all at-large system that has resulted in more minority members of its city council than would be expected from simple population totals.

Demographics are important, but they are not destiny. At-large systems can effectively represent minority citizens just as well as ward systems can.

KCI’s Overly Optimistic Estimates – Part 1

Posted on by Joseph Miller

The determination of some Kansas City officials to construct a new $1.2 billion terminal at Kansas City International Airport (MCI) is based on optimistic projections. Not only do their projections fly in the face of aviation industry trends in the last decade, they don’t even conform with the airport’s own 2012 financial report.

The Kansas City Aviation Department originally used 2006 baseline estimates to justify new terminal specifications. Back then, they predicted 2.8 percent growth in enplanements (the number of people boarding the airplane) from 2006 onward. But they were wrong, and eventually had to revise the projected growth down to 1.9 percent. The growth of passengers in the last decade has fallen even further, to 0.01 percent. This slide in growth started before the financial crisis. Even including the booming 1990s, total growth averaged a meager 1.9 percent from 1991 to 2012.

MCI’s passenger traffic peaked at 6 million in 2000, when the airport still handled 1 million transfers per year. This subsequent decline in passengers is the result of airline consolidation and transfer centralization in large hubs. It is affecting all airports, not just Kansas City’s. The airlines’ strategy has meant that fewer airlines operate out of MCI than any time in the last two decades. This trend is unlikely to reverse, making a repeat of the growth rate in the 1990s an unlikely scenario.

According to the planning documents for the new terminal, the Aviation Department claims that takeoffs and landings will increase at 1 percent per year. In reality, the number of aircraft operating out of MCI fell and then stayed flat in the last decade, with little evidence of any future increase, much less at a rate greater than 1 percent. As airlines focus on filling every flight to capacity, they require fewer flights per passenger. If we assume that passenger growth remains low or flat, total flights will grow even slower.

Gas Taxes And Tolls Are A Better Way To Fund Missouri Transportation

Posted on by David Stokes

As first run by the Columbia Missourian:

Missouri needs to invest more in transportation infrastructure. Our
state has long been a critical transportation junction. However, the way
we pay for that investment is important. We should not pay for a
necessary investment via inappropriate taxes any more than we should use
efficient taxes to pay for unnecessary public services (e.g., tourist
taxes paying for sports stadiums).

In the recent Missouri legislative session, there was a major proposal to fund new transportation investment by enacting a general transportation sales tax. This is a perfect example of doing the right thing the wrong way. A sales tax is a poor way to fund statewide transportation needs. General taxes should fund things that are, well, general (e.g., public safety). Everyone benefits from public safety and it would be extremely difficult — and unethical — to fund it via specific taxes or fees. It would be absurd to levy a tax on someone for calling 9-1-1, and it would be immoral to tax people living in higher-crime areas more for safety than other people.

Highways are different. A dedicated and targeted tax, namely, the gas tax, can properly fund highways. Besides the gas tax, many other states further pay for highways and bridges with tolling. There is nothing improper or complicated about having the people who use transportation assets pay for them directly. I believe the new Route 47 bridge in Washington is one project that tolls instead of taxes should have funded . Tolling is an excellent way to fund the projects we need because tolling does a great job of making funders separate “needs” from “wants.”

Reports of the demise of gas tax efficiency are overstated. In time, we will have to adjust the gas tax and vehicle registration system to make sure that drivers of high gas mileage vehicles such as hybrids are paying for their road usage. That said, the most efficient way (other than tolls) to pay for roads now and for the next decade is through gas taxes, not general sales taxes.

People who walk to work, live on the family farm, or have short commutes should not pay the same for highway improvements as truckers and long-distance commuters. That is precisely what would result from a statewide transportation sales tax increase. Not everyone has the same transportation needs, and not everyone should be forced to pay the same thing for it.

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

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