Taxpayers Deserve Better Than This Shabby Treatment

Posted on by Patrick Ishmael

The Missouri Legislature has embarrassed itself once again on the tax credit issue, and this year’s failure to protect taxpayers from out-of-control tax credit spending was particularly excruciating. After the House and Senate conferenced and produced a suboptimal, but passable, tax credit compromise last Thursday, the legislation fell to a filibuster in the Senate on Friday — the last day of the session. The bill had both good and bad elements to it, capping and eliminating some credits (the good) while creating and extending others (the bad). In the net, it would have been an important first round of tax credit reform, albeit a small step.

But even that couldn’t get through the legislature. Like a college sophomore starting an essay the night before it’s due, the legislature produced tax credit legislation at the latest possible moment with the smallest margin for error available. In school, you don’t get a passing grade for “I started late and my computer crashed!” or “My dog ate my homework!” You don’t get an “A” for “effort.” You get an “F” for “failure.”

Missouri’s heavy use of tax credits encourages government to pick winners and losers in our economy, leading to rampant abuse, distorted economic priorities, and tightening budgetary realities. It’s maddening that practically nothing has gotten done on tax credits that have sapped the state’s coffers in recent years — and whose consequences led to more than $400 million in economic development tax credit issuances in fiscal year 2012 alone. Let’s be blunt here: the legislative dysfunction on the tax credit issue is an unmitigated state disgrace. This year I was hopeful that the legislature had finally gotten past its dark tax credit days, whose depths were deeply plumbed with 2011’s Aerotropolis boondoggle.

But apparently not. As someone who takes notes on the floor debates in the state House and Senate, I cannot tell you how many times I heard a legislator say “I don’t agree with tax credits, but . . .,” and then go on to explain why their pet tax credit needed to be extended or created. (This is especially common in the House.) Bona fide tax credit reform supporters and opponents can disagree civilly, but I have little tolerance or patience for policymakers who are all hat and no cattle on this issue — happy to carve out special tax credits for their special groups as they blithely gore other credits. That’s the worst kind of hypocrisy. Sen. Jolie Justus, a tax credit supporter, was right on Friday to criticize such behavior from the floor of the Senate, and I’ve independently noted the same sort of behavior Justus observed.

The legislative intransigence on tax credits is stomach churning. Coupled with the governor’s leadership void on basically every issue, the legislature’s inaction on tax credit reform is a shameful low note of the session. Taxpayers deserve better than this shabby treatment.

Let’s Not Follow Cincinnati’s Lead On Airports

Posted on by Patrick Tuohey

The Kansas City Business Journal recently published an article about the effort to tear down Kansas City International Airport (MCI) and rebuild it as a single terminal. In the piece, Austin Alonzo relies on Mark Perryman, the COO of Landrum & Brown Inc., “a Cincinnati airport consulting firm that helped the Kansas City Aviation Department develop the single-terminal proposal.” As expected, the firm that earns money building new airports thinks that Kansas City should build a new airport. According to Perryman, at least one business picked up and left Cincinnati, Ohio, and moved to Charlotte, N.C., because the latter had a new airport.

Perryman said that declining traffic and air service out of Cincinnati/Northern Kentucky International Airport (Code: CVG) and recent upgrades at Charlotte/Douglas International Airport (Code: CLT) played a role in Chiquita’s relocation in 2011, which took several hundred white-collar jobs with it.

Aside from relying on Perryman, Alonzo quoted some leaders of economic development groups, who, as can be expected, support building a new airport. But not all is well at Cincinnati’s airport since its $500 million renovation in 1994. According to the Manhattan Institute of New York’s City Journal:

You can see those extra charges reflected in the sky-high fares at Cincinnati/Northern Kentucky International Airport, a Delta hub and winner of the top spot in Forbes’s 2009 list of “rip-off airports.” Last year, an average ticket out of the airport cost $526, compared with $372 in nearby Dayton, Ohio, and $387 in Indianapolis. International flights averaged $1,408, 36 percent more than the national average. Is the airport really a reason to relocate to the area, as businesses often claim? The Cincinnati Business Courier found that three-quarters of the Cincinnati firms it surveyed were flying employees out of the Dayton airport, more than an hour away by car. “Unless you’re suffering from delusion, you realize that the Cincinnati airport is now really in Dayton,” aviation expert Darryl Jenkins told the Cincinnati Enquirer. Similarly, a 2006 study found that nearly one-fifth of local fliers drove to other airports to avoid the hub’s high prices. Delta is now reducing flights from Cincinnati/Northern Kentucky, and passenger traffic at the airport is down 65 percent since 2005.

So there you have it. The cost of building a new airport has contributed to making travel to and from there more expensive, so travelers seek other venues in neighboring cities. A new airport does not attract business, as proponents claim — quite the opposite. (Proponents of building a new terminal at MCI already complain about losing market share to neighboring airports. This would only make it worse.) Remember, Chiquita left Cincinnati seven years after their airport renovation and partly because of reduced air service.

Now Cincinnati airport consultants want to do to Kansas City what has been done to Cincinnati.

No thanks.

Ishmael on KWMU: Raising the Minimum Wage

Posted on by Patrick Ishmael

Show Me Institute Policy Analyst Patrick Ishmael joins host Don Marsh of KWMU and and Jack Strauss, Director of the Simon Center for Regional Forecasting at Saint Louis University to talk about the pros and cons of raising the minimum wage.

Hundreds of thousands of American workers are paid the minimum wage. It’s $7.25 nationally and $7.35 in St. Louis. While the perception may be that minimum and low wage jobs are mostly held by teens, the vast majority, 75 percent, are adults over the age of 20.

Recent local news reports have highlighted protests by minimum wage earners. They are demanding that their pay be nearly doubled. The campaign is called “St. Louis Can’t Survive on $7.35.”

Host Don Marsh talked with Martin Rafanan, a Lutheran minister, activist and director of the St. Louis Can’t Survive on $7.35 campaign. Angela Harrison, a local 33-year-old McDonald’s employee who makes $7.75 an hour also joined the program to talk about the challenges she faces with making just above the minimum wage.

In the second half of the program Jack Strauss, Director of the Simon Center for Regional Forecasting at Saint Louis University, and Patrick Ishmael, Policy Analyst at the Show Me Institute, joined Marsh to talk about the pros and cons of raising the minimum wage.

Lee’s Summit EEZ: A Solution In Search Of A Problem

Posted on by David Stokes

As published in Lee’s Summit Journal:

In 2006 and again in 2010, Money Magazine cited Lee’s Summit as one of the 100 Best Cities in the United States. The Lee’s Summit Chamber of Commerce boasts on its website: “Lee’s Summit is an ideal place to live and work, providing a desirable lifestyle that everyone can enjoy — high-quality, affordable housing in safe neighborhoods endowed with fine schools and excellent health care facilities.”

So why in the world is the Lee’s Summit City Council rushing to adopt an economic development program aimed at blighting large swaths of the city?

There is only one possible answer: The city council has been bitten by the same parasitical EEZ bug (Enhanced Enterprise Zone) that has attached itself to other cities and counties across Missouri.

In fact, almost a third of our state has been officially declared “blighted” as a result of the widespread use of EEZs, TIFs (Tax Increment Financing), TDDs (Transportation Development Districts), and other such programs that combine local subsidies for commercial development with the use of eminent domain — enabling developers to force residents out of their homes and small business owners out of their shops and offices.

On April 11, we presented testimony to the city council on the efficacy — or, more accurately, the inefficacy — of Enterprise Zones in Missouri. The Show-Me Institute had recently conducted a study comparing the economic performance of two groups: (1) eight Missouri counties that employed Enterprise Zones, and (2) 12 neighboring and economically similar counties that did not. We found that economic growth in the two groups was almost identical.

In other words, there was no evidence that Enterprise Zones had any positive impact on economic growth or employment. They seemed to be a waste of time and money.

Our statements to the Lee’s Summit City Council made this perfectly clear, and none of the economic development officials, city staff, or consultants at the meeting made an effort to argue otherwise.

Yet it was a clear that most members of the city council, along with the consultants and development staff, had already made up their minds: They wanted to move ahead as quickly as possible in setting up an EEZ.

One reason for the rush is the fear that the 2010 Census numbers, which are still being finalized, will show that poverty and unemployment rates in Lee’s Summit have dropped since the previous Census — which could have the effect of making Lee’s Summit ineligible for the subsidies from the Missouri Department of Economic Development (DED).

Not that Lee’s Summit was any kind of an economic basket case 10 years earlier. Based on the 2000 Census, the median income for a family in Lee’s Summit was $70,702, or close to double the median family income for the state as a whole.

Nor does Lee’s Summit suffer from a lack of growth. Between 2000 and 2010, the population of Lee’s Summit grew from 70,700 people to 91,364 — an increase of 29 percent.

But neither prosperity nor rapid growth has dampened the enthusiasm of some city council members at the thought of spending some easy money.

On the night that we testified, one member of the city council argued that because the DED is giving the money away, Lee’s Summit might just as well take it. The proposed EEZ for Lee’s Summit is a particularly egregious example of throwing away taxpayer money for no good cause — in promoting a solution for a problem that does not exist.

Patrick Tuohey is the western Missouri field manager and David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

Standards And Students Thrive In A Free Market

Posted on by James V. Shuls

Last night, I conducted an experiment to test the impact of the Common Core State Standards. When my kids were asleep, I placed a copy of the standards under their pillows. I was hopeful that they would be “college- and career-ready” when they woke up, but to my dismay, they had not learned anything from the standards.

You might not be too surprised about the results of my experiment because you know, as do I, that standards do not teach kids; parents and teachers teach kids. That is part of the reason that state and national standards have had very little effect in improving student achievement.

For standards to have any effect, they have to change the behavior of teachers. The only way to accomplish that is with heavy-handed government coercion and intrusion into school systems through test-based accountability. These accountability systems restrict the freedom of local schools and teachers to effectively meet the needs of their unique students.

It is not that we should not have standards, it is that one set of standards centrally imposed does more harm than good. Absent state or national standards, there would still be rigorous content standards for students. As Neal McCluskey of the Cato Institute writes, “standards are ubiquitous in free markets.”

Proponents of state or national standards might say “math is math, it shouldn’t matter where you learn it.” That is true in the sense that 2 + 2 always equals 4. But it is not true in the sense that we have discovered the exact right sequence or method of teaching math. On this, there is considerable disagreement.

In a free market, schools would still have standards; officials would just have more latitude to choose the standards for their school. Parents would also have more options in a free market to choose the school that they believe is the best fit for them. Choice is the best method of accountability.

McCluskey sums up the argument very well: “Only a free market can produce the mix of high standards, accountability, and flexibility that is essential to achieving optimal educational outcomes.”

We need to stop trying to standardize education and start trying to personalize education.

MIT Study Cautions Small Community Airport Expansion

Posted on by Kacie Barnes (Galbraith)

Columbia and Kansas City have been busy planning airport expansions and hoping to attract new service to their cities. A new study by the MIT International Center for Air Transportation suggests this might not be such a great idea.

The headline? The near future of all air service is looking grim. Airlines continue to consolidate service at their largest hubs, consolidate with each other, and will continue further reductions at small community airports.

Columbia has felt this decline over the past several months, and the final Frontier Airlines flight from Columbia took off for Orlando, Fla., on Monday. Columbia is not alone. Data in the MIT study shows that Missouri airports, along with almost every other airport in the country, have lost service over the past five years.

This data shows us that the fate of air travel is not dependent on how shiny your airport is. Airlines have shifted away from capacity expansion because it was not a profitable strategy. They will continue to seek ways to maximize profits; unfortunately, small- and medium-sized airports are disproportionally affected in the process.

Standards-Based Reform Lacks Evidence

Posted on by James V. Shuls

This past weekend, I was featured prominently in a story by Elisa Crouch of the St. Louis Post-Dispatch about the Common Core State Standards.

Crouch summarized my position on content standards like this: “Shuls of the Show-Me Institute would prefer parents and schools to set their own standards, rather than states.” She also quoted me as saying, “Ultimately, there’s absolutely no evidence that content standards improve education.” Both of these are true, but they deserve a little more explanation. In this post, I will address the evidence on content standards.

Proponents of national standards often point to some of the top-performing countries and note that they have national standards. These proponents often fail to point out that some countries that perform better than us do not have national standards and many who perform worse than us do have national standards. We could just as easily point to those countries at the bottom and say, “look, national standards don’t work.”

Even at the state level, the evidence that rigorous standards improve student achievement is very weak. The Fordham Institute, one of the biggest supporters of the Common Core, has issued grades for state standards for some time now. Using these grades, the Brookings Institution examined the correlation between the rigor of each state’s standards and performance on the National Assessment of Educational Progress (NAEP). The authors concluded that there is no relationship between standards and performance. Moreover, they predict that the Common Core will have very little impact on student achievement:

What effect will the Common Core have on national achievement? The analysis presented here suggests very little impact. The quality of the Common Core standards is currently being hotly debated, but the quality of past curriculum standards has been unrelated to achievement. The rigor of performance standards — how high the bar is set for proficiency — has also been unrelated to achievement.

Believing that rigorous standards will increase student achievement may be a fine theory, but it simply has not panned out in practice. There are several reasons for this, which I will address in my next post. I will also explain why I think parents and schools could do a better job of setting standards than the government.

Tax Rates: How Missouri Really Stacks Up

Posted on by Michael Rathbone

With the passage of the “Broad-Based Tax Relief Act of 2013,” opponents of tax cuts are wasting no time blasting it. One of their chief claims is that if tax rates are so important to economic growth, then Missouri should be booming because of our already (supposedly) low tax rates.

Does Missouri really have low tax rates? The truth is, it kind of depends. Missouri has higher tax rates than its neighbors in some areas and lower rates in others. This matters because not all taxes have an equal impact on a state’s economic growth. Income taxes harm an economy more than a sales tax does. Thus, all other things being equal, a 7 percent sales tax rate would be less damaging to a state’s economy than a 7 percent top income tax rate. Missouri has a higher individual income tax rate than most of its neighbors. On the other hand, its state  sales tax rate is lower than most of its neighbors.

Tax cuts are not everything. With Missouri’s income tax rates higher than most of its neighbors, there is a real need for it to stay competitive. Missouri cannot afford to do nothing. The “Broad-Based Tax Relief Act of 2013” is not perfect, but it is a step in the right direction, and contrary to what its opponents say, it is necessary.

Kansas City’s Power And Flight District

Posted on by Patrick Tuohey

Think voters in Kansas City will get a say on whether the city issues billions in bonds to build a new airport terminal? Think again, and be prepared to foot the bill.

Kansas City’s recent past is full of rosy development projects that did not pan out; KCP&L (Kansas City Power & Light) is chief among them. As a result, the city — and the taxpayers who fund city operations — are on the hook for about $13 million each year. Funds used to support the project are being diverted from other worthy causes.

Aviation Department Administrator Mark VanLoh says: “One common misconception the city must overcome: People think Kansas City will have to raise taxes to pay for a new terminal. It will not.” Maybe, maybe not.

Let’s review airport revenue. Dave Helling wrote in the Kansas City Star about how a new terminal would struggle to raise revenue:

There aren’t a lot of ways airport users could generate that kind of revenue. Ticket sales are already taxed, and air travel here is slumping. The airlines could pay more in rent, but other airports would pounce if the cost at KCI gets too high.

Indeed, VanLoh has admitted in press interviews that airports in Branson, Mo., and Wichita, Kan., are already taking market share from Kansas City because they are paying airlines to land there. Increasing rents or landing fees are not a realistic option.

If the airport is unlikely to be able to generate the revenue needed to support those bonds, can’t we turn to the federal government for help? VanLoh says “no,” telling the Star that large-scale federal participation in the project faces headwinds.

If the city were to issue $1.5 billion in revenue bonds in order to pay for the new terminal, it certainly would require a vote of the people. (Note that the $1.5 billion they are now considering is already a 25 percent increase over where we started, at $1.2 billion.) But what of Kansas City’s 2nd District City Councilman Ed Ford’s assertion in November that the project is “going to happen regardless of whether our citizens want it to happen”?

It turns out that not all bonds require voter approval. These bonds, known as Special Obligation Bonds, are not considered debt in the same way as other bonds and therefore require no public vote. Kansas City uses them all the time, and in fact is preparing to issue some this year to pay for the streetcar. Special Obligation Bonds were created to address a city’s immediate need — say, a broken water main — when it does not have the resources to fix it or the time to seek a vote. Kansas City issued two such bonds in 2012 amounting to $75 million that funded computer upgrades for the city’s revenue collectors, garages, and the refinancing of the ill-fated Citadel Plaza project.

Unlike revenue bonds, which do require a public vote, these bonds are normally secured by property. In this case, the Aviation Department may secure the $1.5 billion debt with the airport itself. While the city may not have to raise taxes, as VanLoh says, it is well within reason that the city will have to cover those bond payments from the general fund just like we cover KCP&L.

Welcome to the Kansas City Power and Flight District.

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