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.

The Ayes Have It: Volunteer Health Services Act Passes

Posted on by Patrick Ishmael

The Volunteer Health Services Act has passed in the Missouri Legislature. If the governor signs it into law, the legislation would allow out-of-state medical professionals to easily provide free, charitable care to Missouri’s neediest — an activity that Missouri license law currently complicates. It is an issue I have talked about a lot, both this year and last. I am glad the bill gained the legislature’s approval.

Some bills are legitimately tough calls, but the Volunteer Health Services Act is, I think, a no-brainer. Missouri should be letting people help people, and in this case, the helpers are highly trained for the purpose. The bill’s passage is a great call. Kudos, Missouri Legislature.

The Ayes Have It: Worker Speech Rights Bill Passes

Posted on by Patrick Ishmael

In April, I testified before the Missouri Legislature about the importance of reaffirming the free speech rights of government employees. Senate Bill 29, which changes how union dues are collected and are used for political purposes, just passed the Missouri House with an 85-69 vote. The legislation’s next stop is the governor’s desk.

Currently, Missouri requires public union employees to opt-out of having dues money removed from their paychecks that could be used for political objectives with which the employee may disagree. Under the reform, union members would presumptively keep those dollars unless they opt-in to paying for the union’s political activities. That is a better system that supports employees’ free speech rights.

I am glad to see it get through the legislature, and I look forward to seeing whether the governor agrees that union members’ money is their money first, not the union’s. Kudos, Missouri Legislature.

The Ayes Have It: Income Tax Cut Passes

Posted on by Patrick Ishmael

The Missouri Legislature has passed arguably the state’s biggest tax reform in years, the “Broad-Based Tax Relief Act of 2013,” and sent it to the governor for his signature. Today, the Missouri House passed the Senate Substitute for House Bill 253 with a 103-51 vote. The bill reduces the individual income tax slightly, but more importantly, it cuts the corporate income tax by almost half over the course of about 10 years and the tax on other businesses by half over five.

As we have discussed — especially in the past few months —  a state focus on business taxation reform is well-warranted, not only because taxes on businesses tend to negatively affect growth, but because Missouri risks being left behind by its pro-growth neighbors if it does not act. I expect Missouri Gov. Jay Nixon will sign the bill, but even if he vetoes it, there may be sufficient support in both the state House and Senate to override him. Whatever the path to its final enactment, this tax reform is the right thing for a state in need of an economic course change.

As the original HB 253 demonstrated, there was considerable support for deep business tax cuts for Missouri’s companies. That bill would have cut taxes in half for all businesses over about a five-year period, including the taxes on C-Corporations — an excellent, literature-responsive idea. To be clear, the corporate income tax reduction schedule the legislature passed should have matched that for pass-through entities at five years, not 10.

Yet, that should not take away from the fact that this tax relief measure is a good first step toward instituting even better tax policy in Missouri in the years ahead. Kudos to all who worked to get this over the finish line.

No Need To Throw Taxpayer Money Down The Well

Posted on by Michael Rathbone

Last year, at the height of the drought in Missouri, I wrote about Missouri Gov. Jay Nixon’s Executive Order authorizing government assistance for water sharing and distribution to farmers affected by the drought. I argued that the government should not be spending public money to assist those who already have (publicly subsidized) crop insurance.

Fast forward to today. One might think that due to the drought, farm incomes would be seriously hurt. However, that is not what happened. According to a recent survey (hat tip: St. Louis Post-Dispatch) that the St. Louis Federal Reserve released, farm income for the last quarter of 2012 was either on pace to match that of the previous year or even increase. A Kansas City Federal Reserve report had similar findings. The reason incomes did not fall: “Many bankers cited the effect of crop insurance in alleviating the expected negative impact of the drought.”

So, these farmers did not really need all that extra help last year. Their insurance was enough to cover their losses. I am glad that was the case. However, if many farmers are making more money after the drought than before it hit, couldn’t they afford to pay a bit more for their insurance premiums? Currently, taxpayers heavily subsidize crop insurance premiums.

I am not advocating eliminating crop insurance. However, cutting back on public support for crop insurance is a good idea. According to one Government Accountability Office report, a 10 percent reduction in government subsidies would have saved the taxpayers $1.2 billion in 2011. Buying insurance is meant to help prevent catastrophic losses, it is not meant to make you money. The government should reduce its commitment to paying for insurance subsidies; it seems the farmers can afford it.

Missouri Is 31st For Business Friendliness In CEO Survey

Posted on by Patrick Ishmael

Earlier this week, Chief Executive magazine issued its annual “Best & Worst States for Business” survey, which asked business leaders nationwide how they view states in key policies areas such as taxation, regulation, quality of workforce, and living environment. As with most surveys, your mileage will vary based on what you think of the survey’s methodology.

Yet, it is worth noting that the business leaders who responded to Chief Executive did not hold Missouri in especially high regard. The Show-Me State ranked 31st in business friendliness compared to the rest of the United States. Lucky for us, our neighbor Illinois came in at an abysmal 48th place; unlucky for us, Kansas came in at a comfortable 19th. (Incidentally, the Chief Executive survey results resemble the Kauffman Foundation’s findings last month on business friendliness.)

Houston, we have a problem.

Speaking of Texas, there is one other thing worth noting about Chief Executive‘s survey — what the states in the top five have in common. Three of the top five states — Texas (first place), Florida (second place), and Tennessee (fourth place) — do not have an individual income tax. Indiana (fifth place) just enacted legislation to cut its income tax; North Carolina (third place) is pushing hard to reduce its income taxes as well.

I have talked before about the Growth Corridor developing in the Midwest. Missouri should cut income taxes of all sorts, not only because they harm growth in a vacuum, but also because we are surrounded by neighbors who are enacting pro-growth policies in an effort to grow their states’ businesses . . . and to attract ours. Kansas may be the most visible example these days of a state’s tax policy posing a threat to Missouri’s economic future, but it is not just about Kansas. It is about the whole region.

We cannot wait any longer to start cutting these taxes. Missourians need tax relief, and they need it now.

Missouri Urban Assessments Need Greater Consistency

Posted on by David Stokes

Some of the land in the heart of the city of Saint Louis’ fashionable Central West End is worthless. Don’t believe me? Do you insist that the land upon which mansions, high-rise condos, and world-class hospitals sit must have some value? Well, it does not, and I can prove it. Check out 4256 Lindell on the city assessor’s online database. The land is valued at $0. That is right, $0 for the entire parcel of land. However, at 4512 West Pine (our offices), the parcel of land is appraised at $79,800. How does that happen for two similar parcels? It happens via inconsistent (and occasionally incomprehensible) land assessment procedures, and is a problem around the state.

At least the City of Saint Louis attempts to value its land (as does Saint Louis County). Many Missouri counties do not make any distinction between the land and the building or home on a piece of property. They should. Land and improvements are separate assets with different values and should be measured independently. Valuing the land and the improvement separately makes for both better assessments and a more fair and consistent tax system.

There is often a disconnect between good economics and smart politics. That is a prime reason why land taxes — property taxes on the value of land only — are so rare in the United States. Economists almost universally support land taxes because land is immobile and non-distortionary. You cannot move it and somebody is always going to own it. Furthermore, if you tax the land and not the improvement, you encourage people to invest in their property. If you add on to your home and expand your business, you are not punished with higher taxes under a land tax.

But land taxes made for bad politics. Missouri, like most states, established its tax system when it was (and, in our case, still is) an agrarian state. Guess who dislikes taxing land instead of buildings or homes? Farmers, not surprisingly. But now beneficiaries include urban condo owners who are often not assessed anything for the very valuable land they sit upon. This can be particularly troublesome when combined with tax subsidies. Some subsidy programs only apply to the building and not the land. Cities or counties that utilize those programs but do not assess the land separately risk turning what is supposed to be a partial abatement into a full abatement. That could reduce the tax base even more than intended, with corresponding higher marginal taxes on everyone else.

Land taxation has worked elsewhere, most notably in Pittsburgh. Unfortunately, the only city in Missouri that had it, Kansas City, recently eliminated it. Lawyers and politicians, not economists, recommended that terrible decision. Nevertheless, Missouri can obtain some of the benefits of land taxation simply by requiring counties to judge the value of the land in assessments. Having more taxable value in the land will encourage investment in your property, because the value of the land will not change if you, for example, build an addition.
Missouri needs greater consistency in appraisals and assessments. All county assessors should be required to break out the land and improvement values. Furthermore, they should be required to accurately reflect the difference, as opposed to haphazardly guessing. We should not have situations where one valuable urban parcel is set at $0, and another a short distance away is set at $79,800. If we are going to rely on a system of property taxes to fund local governments, we need to make it a more accurate system.

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

Don’t Like Common Core, Go Ahead And Leave

Posted on by James V. Shuls

Last week, the Missouri Department of Elementary and Secondary Education (DESE) hosted “information sessions” throughout the state about the new Common Core State Standards. I noted in my last blog post that citizens showed up to these meetings with questions. DESE officials, on the other hand, showed up with scripts and videos. They were not prepared or willing to field questions. If you do not believe me, check out this video from the meeting in Springfield, Mo.

The parents and community members in the video are polite and respectful as the DESE official drones on and on about the standards. I do not care what setting you are in, this is simply a poor presentation, and it happened this way throughout the state.

When people had enough and wanted to go off script, they were denied and told they could leave.

The DESE rep can be heard saying (emphasis mine):

All these questions need to be asked, but they need to be asked in a thoughtful way. So we can come and ask these questions at the end. What we cannot answer will go to the state department’s website and they will be answered there. . . . If you are unable to follow the way we are going to hold this meeting, you’re welcome to go ahead and leave.

Wouldn’t it be nice if we were allowed to “go ahead and leave” when we do not like other things DESE is doing?

Public schools cannot go ahead and leave Common Core.

And most parents do not have the ability to go ahead and leave public schools.

Essentially, DESE was telling concerned Missourians “It’s my way or the highway,” which is kind of fitting. After all, isn’t that what they are telling us by continually pushing these new standards despite mounting concern?

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