‘O’ My . . .

Posted on by Michael Rathbone

It appears that Ohio officials are trying to get in on the tax-cutting act. Good for them. Seriously, Ohio is one of the few states that has performed worse economically than Missouri over the past 14 years.

Ohio Gov. John Kasich has proposed a major tax overhaul for the state. Features of the plan include a phased-in individual income tax cut, which would reduce the top rate to 4.74 percent in 2015, and a 50 percent deduction for pass-through entity income that is less than $750,000. A detailed analysis of the plan is on the Tax Foundation website.

I keep harping on these developments in other states to underlie the importance for Missouri to reform its tax code. Show-Me Policy Analyst Patrick Ishmael also has blogged at length about the “American Growth Corridor” sprouting up around Missouri and the need for Missouri to keep up. Gov. Kasich’s plan is an indicator that some in Ohio are starting to recognize the importance of a competitive tax code.

Thankfully, the Missouri Legislature has made progress on some kind of tax cut. The Missouri Senate passed a bill last week that would cut the top rate by a .75 percentage point and also lower taxes on business income. The Missouri House also has good bills with potential to make some significant changes to the state’s tax environment. A lot of work needs to be completed, but there is room for optimism.

Just cutting taxes will not be enough to cure all of Missouri’s economic problems. However, it is a necessary step. Hopefully, the prospect of even more states cutting their taxes will spur Missouri to finally overcome the obstacles to serious tax reform.

Missouri Cities Should Open The Books

Posted on by Kacie Barnes (Galbraith)

How can Saint Louis catch up to Kansas City? Increasing transparency in government spending would be a good start. The state of Missouri was a leader in spending transparency, but many of our cities have not caught on.

Governments often grant public subsidies, tax breaks, and other incentives to powerful corporate interests and other groups at the expense of taxpayers. In Missouri cities, this type of information is not always easily available to the public. But our governments should readily share spending information. Otherwise, taxpayers may not even know when special interests gain unfair advantages through government spending. It is impossible to ensure that government decisions are efficient and reasonable unless information is publicly available.

A few weeks ago, I blogged about Saint Louis’ failing grade in the  U.S. Public Interest Research Group (PIRG) report on the largest cities’ spending transparency online.

Saint Louis has major improvements to make, with the 28th lowest ranking out of 30 cities. Kansas City ranked much higher, at 14th, but still only received a letter grade of “C.”

Kansas City has made a more visible effort to show residents how the city spends funds. The city allows residents to view checkbook level spending, which Saint Louis should allow, but does not. This transparency helps keep Kansas City accountable to taxpayers.

But Kansas City does have room to improve. Some other cities have created centralized transparency websites and provide comprehensive information on tax subsidies. New York City’s “Open Book” website is the perfect example of what Kansas City and Saint Louis should strive to implement.

Dear Affordable Care Act Supporters: You Call This ‘Saving Money’?

Posted on by Patrick Ishmael

Proponents of the Affordable Care Act (a.k.a. Obamacare) have long claimed that the law’s provisions would “bend the cost curve” of American health care. The argument was that the combination of exchanges, the Medicaid expansion, and the other provisions tucked away in the law’s thousands of pages would fix many of the structural problems that have driven health care costs in this country. Of course, the law did no such thing. As the Wall Street Journal reaffirmed today, health care costs are on the rise for families across the country — and are poised to increase especially rapidly next year. (Emphasis mine.)

Health insurers are privately warning brokers that premiums for many individuals and small businesses could increase sharply next year because of the health-care overhaul law, with the nation’s biggest firm projecting that rates could more than double for some consumers buying their own plans.

The projections, made in sessions with brokers and agents, provide some of the most concrete evidence yet of how much insurance companies might increase prices when major provisions of the law kick in next year — a subject of rigorous debate.

That is the personal cost. What about in the aggregate? The Manhattan Institute released a study on Tuesday about the health care “savings” we could expect under the law to provide clarity to this question.

And how much will Obamacare save Americans overall? The answer: nothing. Or more accurately, Americans can expect to pay more for health care in total because of “Obamacare” than if the law . . . was never enacted. (Emphasis mine.)

Today, Americans spend well over $2 trillion — close to 18 percent of GDP — on health care, and U.S. health-care costs have grown much faster than either income or GDP growth over the last several decades. However, despite the best intentions of its supporters, Obamacare will not make much of a dent in these trends. The Centers for Medicare and Medicaid Services (CMS) projects that between 2012 and 2021, America will spend $36.8 trillion on health care. Absent Obamacare, CMS estimates that spending would be $36.3 trillion — a difference of just $500 billion over ten years. In other words, without Obamacare, Americans would spend less on health care.

The chart:

Folks, our political betters actually bent the cost curve up, not down.

Why will costs rise? Because the ACA did not fix the cost problems; as I told the St. Louis Beacon in a story published this morning, the law doubled-down on them. Instead of applying market pressures to get the cost of care down, the law just shifted how we pay for care. From the Manhattan Institute (emphasis mine):

As noted earlier, the law shifts health-care costs from individuals to government, with the overarching goal of reducing the share of health-care spending borne by low- and middle-income uninsured consumers. The problem is that evidence strongly suggests that when out-of pocket spending is lower, health-care spending actually rises.

Why would anyone implement an “affordable care act” that was anything but?

Grundy County Shenanigans

Posted on by David Stokes

In conducting some research over the past year, we encountered a regrettable example of government keeping basic public information hidden. We asked for a breakdown of the total assessed value of each county by land and improvements. (Improvements are any structure on the land.) All we wanted was county totals, not individual parcel data. We did not think this was a complicated request, and all of this is public information.

Unfortunately, many counties do not track the land and improvement data separately in their software systems, so they were unable to provide us the requested info. (I think they should be required to track the data in that manner, but that is another issue.) Some counties that do track those valuations separately in their software quickly sent over the requested information for free. Other counties requested small amounts of money for the work. No problem there.

So far, so good. I was disappointed in the success rate of the information request, but at least every county was straight with us or sent us a reasonable estimated bill. Every county, that is, except Grundy.

The Grundy County Assessor demanded $9,000.

It was $9,382, to be exact. One dollar per parcel in that north central Missouri county, even though we did not want parcel data, just cumulative data. We pointed out to the assessor that we are a research institute and requested that he waive the fees. He declined and wrote, “I have a very large investment to protect.” And then it got good.

We noticed that most of the counties that provided us with the information used the same software, and the software company’s name was at the bottom of those replies. We went to that company’s website looking for public customer lists, etc. (This was not about Grundy County at this point. We realized that we needed to find all the counties that used this assessment software so we could make sure we at least had their assessment data.) The software company’s website lists client testimonials, and who do you think was listed among their clients? That’s right, Grundy County.

So, the Grundy County assessor was demanding more than $9,000 to provide us with public information that he could have gathered from their software in a matter of minutes, if not seconds.

About a dozen Missouri counties using this system provided us with the public information we requested quickly and at no charge. When we pointed this out to the assessor, and asked him to justify the demand for $9,382, he got angry and wrote, “I don’t want to do business with you anyway,” and added that we should “get the information you need somewhere else.” This, of course, ignored the fact that we are a charitable research organization, not a business, and that there is no place to get Grundy County assessment data except from the Grundy County assessor’s office. Also, just whose investment did the assessor think he was protecting?

Our initial request was on June 4, 2012. We filed a Sunshine Law violation complaint with the Missouri Attorney General’s office on July 2. Over the ensuing months, we heard some vague promises that we would get the information. To their credit, the AG’s office stayed on it. Finally, we received it, for free, on Tuesday — March 19, 2013. Even though the original project we wanted it for has been completed for a long time, the data is still helpful for another project I am working on. Plus, it was the principle of the thing . . .

It took more than nine months for us to receive a simple request of public information that probably took the office 2 minutes to send us once they realized they had no choice. The Sunshine Law is important. Keeping public information hidden by obscene fees is immoral and wrong. Apparently, Grundy County Assessor Don Stotts does not feel that way. Thankfully, however, he (or at least his assistant who sent us the data) finally changed his mind.

By the way, 25 percent of the assessed valuation in Grundy County is land, and 75 percent is improvements. This entire nine-month controversy was about us being able to write the preceding sentence.

Want to Help Science Start-ups? Cut Their Taxes. While We’re At It, Cut Everyone’s.

Posted on by Patrick Ishmael

Last year, I wrote about a Missouri circuit court’s finding that the Missouri Science and Innovation Reinvestment Act (MOSIRA) — a package of incentives for tech companies that the Missouri Legislature passed in 2011 — was unconstitutional as passed. On Tuesday, the Missouri Supreme Court agreed.

MOSIRA had strong support of St. Louis-area biotech groups, and it was the lone accomplishment of the fall 2011 legislative session that was devoted to economic development. But lawmakers voted to approve MOSIRA that fall contingent on passage of a broader tax credit reform measure, which never happened. That led to a lawsuit by Missouri Roundtable for Life – which is concerned that MOSIRA could lead state funds to be used for stem cell or cloning research – and the program’s being overturned before ever launching.

In their opinion Tuesday, the justices wrote that the 2011 bill’s contingency clause violated the “single subject provision” of state law, and that the contingency clause could not be severed from the larger legislation, as it likely would not have passed without that clause in place.

Trivia: Do you know the bill upon which MOSIRA’s implementation was contingent? The answer: A package of tax credit legislation that included . . . the highly controversial Aerotropolis project. As went Aerotropolis, so went the 2011 session . . . and now, MOSIRA. Which is to say, nowhere.

Of course, there is an easy solution to avoid court fights such as this. Why not eliminate business taxation for all of Missouri’s companies? Stop picking winners and losers and set up a system of tax collection that incentivizes all businesses to stay in or come to Missouri. If the state wants to diversify its “investments” and support existing and emerging industries, why not tell all businesses, here and elsewhere, “We want you to invest in Missouri”? If the state did that, Missouri would, for once, force other states to respond to our pro-growth taxing proposals, rather than the other way around.

Unfunded Pension Liabilities And Car Analogies

Posted on by James V. Shuls

At one point or another, we are all guilty of it . . . making bad analogies. This time, the bad analogy award goes to Gary Findlay, executive director of the Missouri State Employees Retirement System (MOSERS). According to the St. Louis Post-Dispatch’s David Nicklaus, Findlay believes using a risk-free discount rate to calculate the state’s unfunded pension liabilities is akin to taking a “zero-risk approach to traffic accidents — by banning cars.”

Findlay’s analogy was in response to a recent Show-Me Institute paper on Missouri’s unfunded pension liabilities. The author of the policy study, Andrew Biggs, demonstrates that Missouri’s unfunded pension liabilities are much higher than the state has reported when we accurately account for the risk of the investments.

Biggs, on the Show-Me Daily blog, and Jason Richwine, of the Heritage Foundation, have criticized Findlay’s remarks. In his post, Richwine states: “From an economist’s perspective on costs, Findlay is free to pursue whatever level of risk he wants with the Missouri pension fund. What he cannot do is pretend that more risk comes at no cost to the state’s taxpayers, who must make up for any funding shortfalls.”

I cannot help but heap more criticism on Findlay. His analogy would be accurate if Biggs had suggested we take a zero-risk approach to pensions by banning pensions. Of course, that is not what he suggests. Rather, Biggs argues that pension liabilities should be calculated with a low-risk discount rate. In non-economist speak, that means when you are gambling with taxpayer money, it is wise to hedge your bets.

If we want to stick with the car theme, a better analogy would be that calculating pension liabilities with a low-risk discount rate is akin to purchasing auto insurance. Like driving, our investments have risks embedded in them. I believe it is important for Missourians to adequately plan for that risk before we let our unfunded liabilities come back to rear-end us. (How is that for a car analogy?)

Trolleys, Trains, And Travails

Posted on by Patrick Tuohey

The past few days have delivered even more sobering news for trolley and train transit in Kansas City.

First, we learned that Kansas City Southern Railroad pulled its support from Jackson County Executive Mike Sanders’ commuter rail project. The Kansas City Star editorial board lamented this development, but it is noteworthy that a very successful railroad has looked at the proposal and found it lacking. At issue was how the commuter lines would come into Union Station; the railroad apparently wanted to use a track that is not suitable for such use.

But at least that line was to use Union Station. Plans for the streetcars indicate that they will run down the middle of Main Street just to the east of Union Station, and deposit riders into the middle of an intersection.

Meanwhile, on Monday, we learned that an actual streetcar system in Kansas City, the KC Strip, is closing operations because of lack of support from some larger and taxpayer-funded businesses.

So to recap, Kansas City’s never-ending train campaign continues to underwhelm. We wrote recently about how rail fails to take cars off the road and how it loots bus funds. Now it continues despite the experiences of people who run trains and trolleys for a living. If private companies do not support or cannot succeed with rail transit in Kansas City, why would anyone think a government bureaucracy would?

It is time for the Kansas City Area Transportation Authority (KCATA) and other agencies in Kansas City to give up on these train and trolley fantasies and focus on what they have done well for years, running a bus system that best serves the people who actually need and use transit in Kansas City.

All Systems Go!

Posted on by James V. Shuls

A while back, I met with a superintendent of a large school district in Missouri. He told me about the good work his school district is doing. He described it as a systems approach. Interestingly, I recently spoke with some people from the Recovery School District (RSD) in Louisiana who also described their work as a systems approach. The strange thing is that these two systems could not be more different.

After Hurricane Katrina, the RSD ramped up its operation in New Orleans. The district takes over failing schools, operates some schools directly, and authorizes others as charter schools. The system that one chief of staff described to me is one that allows schools autonomy in exchange for accountability. The RSD is actively working to put the structures in place for choice and competition to work, while ensuring students in poverty or with special needs are being served.

The system that the superintendent from Missouri described to me is very different. He views the system as being optimal when the district has sole control of all the public schools in the area. Rather than letting those schools be autonomous, he wants to develop the “best practices” and implement them throughout the entire district.

I believe the superintendent from Missouri has the best of intentions. He wants to make sure his system meets the needs of students, but I think his system has a fatal flaw in that it is built around a leader. When a good leader is in place, the system may work well; but when an ineffective leader is in place, the entire system can fail.

The RSD’s model builds the system by aligning incentives in the right direction. This includes giving school administrators the power to lead through autonomous schools and giving parents the power to choose. In this system, an individual school may fail, but the system as a whole moves ever forward because the incentives are aligned in the right direction.

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