Kansas City Citizens’ Commission: One Step Forward, Two Steps Back?

Posted on by David Stokes

If you were trying to break a gambling problem, would you want your intervention team
to consist of a bunch of guys you know from the blackjack tables? Probably not. In some
situations, taking advice from people outside of your circle is a good idea. You should not count
on the people who helped put you into a problem situation to help get you out of it.

A Kansas City citizens’ commission that the mayor appointed recently released a draft
report on changes to the city’s municipal revenue structure. Not surprisingly, this commission
that is stacked with former city and county employees avoids anything substantive or radical in
its report. When you load up a finance commission with lawyers — and do not put one
economist on it — this is what you are going to get. However, not all of the Citizens’
Commission on Municipal Revenue’s (CCMR) recommendations are bad. Indeed, there are
several good ones in the report.

Kansas City’s business and occupational license system is very complicated. The system
is unfair to businesses and city government alike. Collection costs are higher for this tax than
others because it is so complicated. The CCMR has decided to continue its work with a singular
focus on simplifying and improving the license system. It has identified the problem, and seems
serious about a solution. Kansas City would greatly benefit from these changes that would treat
businesses equally and require less work to administer.

Dedicated taxes with sunset provisions are good things. They let taxpayers know exactly
what they are voting on, and give taxpayers a chance to judge results. However, it is possible to
go too far with dedicated taxes, as Kansas City has done. For example, Kansas City previously,
and unnecessarily, chose to dedicate its entire 1 percent baseline sales tax to capital
improvements. The committee is right to suggest that Kansas City loosen the requirements for
that tax so that it can be used for more general purposes.

One of the major disappointments in the report is the refusal to take on Tax Increment
Financing (TIF). It is difficult to see how a commission tasked with reviewing municipal
revenues could overlook TIF beyond a meekly-worded warning that Kansas City carefully
evaluate future TIF projects. TIF has been abused in Kansas City and throughout Missouri. A
true analysis of municipal revenues would encourage its elimination, not gloss over it.

One of the most audacious suggestions was to tax income from non-residents earned
outside the city. Essentially, the city wants to tax the income of people who do not live in Kansas
City for work they did not do in Kansas City. To be fair, this was not included among the final
recommendations. The fact that the commission even considered ways to keep tax money it does
not have a moral or legal right to is disturbing.

One tax idea that has widespread agreement among economists is the benefit of land
taxation to fund local governments. Land taxation is fair, consistent, has very limited economic
distortion, encourages investment, and is easy to collect. Kansas City is the only local
government authorized to collect a land tax in Missouri. So, what does the CCMR want to do
with the single-best tax Kansas City enacts? Get rid of it, of course, and replace it with higher
sales taxes.

Kansas City has a tax that other cities in Missouri should envy, and economists would
almost universally encourage. And this is what the CCMR wants to eliminate. When you load up
a commission on taxation with lawyers and bureaucrats, this is what you are going to get.

The mayor wishes to enact the recommended changes by putting them on the ballot later
this year. He wants voters to approve higher sales and property taxes while removing certain
taxes. I hope the city council thinks twice before replacing effective taxes like the land tax with
higher and more harmful substitutes.

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

The Media’s Take on the Missouri Legislature 2012

Posted on by Mike Ferguson

Mike Ferguson — formerly of the Eagle in Columbia, currently director of
Missouri News Horizon — spoke on the topic of the 2012 Missouri
Legislative Session at the most recent Show-Me Forum in Columbia, MO.
The speaker gave a media perspective on what did and did not happen, and
why. One focus of the talk was the republicans, who control the
legislature, not wishing to rock the boat during an election year, and
thus being unwilling to discuss or move forward on important issues to
the state, such as roads, education, and tax credits.

Ameren: A Boost For Nuclear Energy?

Posted on by Daniel Ritter

For years, Ameren Missouri officials have worked to reform Missouri’s construction-work-in-progress (CWIP) law that prohibits utilities from billing customers for expenses during a construction phase.  There is room for debate on whether this anti-CWIP legislation has been good for consumers or harmful to economic growth, but there is no denying it has impeded the expansion of energy resources in Missouri. As the U.S. Environmental Protection Agency (EPA) imposes more greenhouse emission regulations on coal-fired power plants, Missouri officials must seek alternative sources of energy. Unfortunately, Missouri’s CWIP law prevents nuclear power expansion in the state; such an expansion would provide the state with more power, cleaner energy, and potentially lower rates over the long run.

However, Ameren Missouri officials may have found a solution to the dilemma: the U.S. Department of Energy’s competitive federal cost-share investment funds. Ameren Missouri and Westinghouse Electric Company recently announced that they are seeking competitive federal cost-share investment funds from the Department of Energy, which would be used to manufacture Small Modular Nuclear Reactors. If Ameren receives the funds, Ameren would then expand the nuclear power plant in Callaway County without the need for reforms to Missouri’s CWIP law. This would help Missouri generate more alternative energy without unnecessary mandates. Making this deal even sweeter is the potential for the partnership between Ameren Missouri and Westinghouse Electric Company to create thousands of jobs for the engineering, manufacturing, and operation of the Small Modular Nuclear Reactors. Finally, because portions of the electricity produced in Missouri will be shared around the nation via the electric grid, some level of federal investment is legitimate here. It makes sense that Missouri customers will not pay every penny for something that benefits more than just Missouri.

This is an exciting project that has potentially great benefits for Missourians.

A Smaller And Smaller Piece Of The (Tax) Pie

Posted on by Michael Rathbone

The state coffers are filling up faster than anticipated. At an education forum on June 7, Linda Luebbering, the state budget director, said that state officials expect revenue growth to continue, but revenue will not reach the point where it was before the recession. At that time, net general revenues topped $8 billion.

“We really need above-typical growth to get where we used to be,” Luebbering said.

Unfortunately, Missouri’s growth is far below what is typical. Last week, my colleague, Show-Me Institute Policy Analyst Patrick Ishmael, blogged about how Missouri is lagging behind other states in terms of economic growth. According to the U.S. Commerce Department, Missouri ranked 43rd in economic growth last year. In fact, Missouri grew by just .04 percent. Forget about getting above-typical growth; that is barely any growth.

Missouri can do better. For instance, Missouri can eliminate its corporate income tax to make the state more attractive for business. As taxes go, taxes on corporate income are among the most economically harmful. The corporate income tax only makes up 4 percent of general revenues, yet its removal would have a positive impact on the economy. Eliminating economic development tax credits, which should be done anyway, can offset all of that lost tax money for the state. This change would, in the short term,  be revenue-neutral at worst, but its long-term benefits for our state would be tremendous.

If Missouri wants to get going again, it cannot keep doing what it has been doing. Eliminating the corporate income tax would be a positive step toward increased economic growth and as a side effect, revenues will grow as well.

We Will Take It!

Posted on by James V. Shuls

Over the years, I have competed in a number of team sports, particularly soccer. There were times when my team barely squeaked out a win; though it may not have been pretty, the response often was “We’ll take it!” For school choice supporters, Missouri Senate Bill 576 may be one of those moments. If the governor signs the bill into law, charter schools could open in more areas of the state; in turn, charter schools and their authorizers would face increased accountability. Though the bill falls short of ensuring high-quality educational options for all Missouri students, it is a small victory for school choice.

Currently, charter schools operate in Saint Louis and Kansas City. SB 576 would allow charters to open in unaccredited districts and districts that have been provisionally accredited for three years. School districts would also have the power to authorize charter schools, however, in this case, the charter school would still be under the jurisdiction of the local school district. Currently, Riverview Gardens is the only unaccredited school district in which charter schools do not exist. There are nine provisionally accredited districts. Combined, these 10 districts have fewer than 17,000 students. This means less than 2 percent of Missouri school children currently attending a traditional public school might benefit in the coming year from expanded school choice that is outside of district control. Of course, this number could grow if more districts fall into the provisionally accredited category in coming years.

Assuming charter schools open in each of these districts, charter schools would be available for less than 7 percent of students in traditional public schools statewide.

This expansion comes at a cost to charter autonomy. For the bill to pass, a compromise was worked out: Expansion of charter schools for increased accountability of charters and their authorizers. For example, charter authorizers must develop policies for review of charter schools, including a method of rigorous evaluation. Additionally, they must lay out how they will intervene if a charter school fails to meet the standards the authorizer has set. While it is important for failing schools to close, and these regulations seem reasonable, they will lead to increased paperwork. Indeed, some authorizers may need to add to their management staff in order to comply. The increased regulatory burden on authorizers may limit the expansion of new charter schools and may inhibit other colleges and universities from joining the ranks of authorizers.

Though we applaud this expansion of charter schools, we believe students throughout Missouri would benefit from a greater proliferation of school choice. According to data from the Missouri Department of Elementary and Secondary Education, 195 of the 530-plus districts had fewer than 50 percent of their students score proficient or advanced on the state’s mathematics exam for grades three through eight in 2011. In communication arts, the number was 246. In these districts, as well as higher-performing districts, there are many parents who are unsatisfied.

SB 576 expands school choice to a limited number of students, while possibly decreasing the likelihood of additional charters being approved. Though this is a narrow win, it is a win and many students will benefit from this piece of legislation. We will take it.

James V. Shuls is an education policy consultant for the Show-Me Institute, which promotes market solutions for Missouri public policy, and a Doctoral Academy Fellow at the University of Arkansas.

Missouri Employees To Receive Same Raise, Regardless Of Performance

Posted on by Audrey Spalding

The St. Louis Post-Dispatch reports that state employees earning less than $70,000 per year will receive a 2 percent raise, starting in July. About 54,500 state employees will get the increase, and the total impact on the state budget is estimated at $45.5 million.

The narrative being used to sell this raise is that most Missouri employees have not received a raise for years. After reviewing state employee data posted on the Missouri Accountability Portal, I agree. It is true that some employees really have had exactly the same salary for years.

But awarding tens of thousands of employees the same pay increase, without considering performance or whether those employees have been some of the lucky few to receive raises, is irresponsible. Though some have not had a raise, many employees have received raises in recent years. Many of these wage increases (some associated with promotions) are larger than the touted 2 percent raise.

A better move would have been for Missouri legislators to award each state department a lump sum to use on employee pay as needed. If the department is having trouble motivating or retaining its employees, outstanding employees could be given more substantial raises. If the department desperately needs another employee, the money could be used to hire someone.

Furthermore, it can be quite difficult to fire public employees. It is likely that some of the employees among the 54,500 should not be awarded a raise, even a small one of 2 percent.

Employees should be rewarded for performance, instead of being awarded a small pay boost because legislators feel sympathetic.

Kansas City Water Privatization Still a Hot Topic

Posted on by David Stokes

The Kansas City Star’s Yael Abouhalkah has a solid piece today on the state of water and sewer privatization in Kansas City. Or, rather, the hopeful event of water and sewer privatization in Kansas City. Saint Louis County has almost a million people who are served by private water utilities. If it works here — and it does — it can work in Kansas City.

We have written plenty on Kansas City water privatization before. Like Saint Louis sewer customers, Kansas City residents are going to face fairly large water and sewer bill increases whether privatization happens or not. They can pay a private company to fix the problems and manage the system, or they can pay the government more to fix the problems and manage the system — the same government whose management put them in this situation in the first place. (To be fair, not all of the cost issues can be blamed on Kansas City management. Many of the sewer issues are substantially the fault of over-regulation by the EPA.)

Privatizing the entire system would have many benefits for Kansas City. It would get a large amount of money from the sale which it could use in a variety of ways. It would expand the tax base by putting the water company assets on the tax rolls. The city would capitalize on all the engineering expertise right there in Kansas City. It would take the choices on rates out of the hands of politicians, who often under-price municipal utilities for political gains. There are plenty of other benefits as well. I hope Kansas City continues to seriously consider this idea.

It Is Time To Increase Public School Transparency

Posted on by Audrey Spalding

In the past three years, the Missouri State Auditor has chastised public school districts for irresponsible spending, excessive pay for administrators, awarding a no-bid contract to a school board member, failing to collect on a real estate deal, and awarding a hefty car allowance to a district superintendent.

Given that state and local property taxpayers spend billions on Missouri’s public education system every year, taking a closer look at how school districts spend money is certainly warranted.

One way to do this could be to set up a transparency site like the Missouri Accountability Portal (MAP). MAP is a site where anyone can look at (or download) recent data for state tax credit issuances, state employee pay, and state spending. The general public can use it to learn how state money is being spent, reporters can use the data to find material for an article, and policy analysts can even use it to examine the amount of tax credits issued under a certain program over time. In fact, one school board member is trying to set up a school district transparency site that would follow this model.

Posting detailed school district expenditure data, even if only for Missouri’s largest districts, could help ensure that the general public has better information to monitor how public education dollars are spent. This provides more detailed information about a district’s spending than the school-level and district-level data that the Missouri Department of Elementary and Secondary Education posts.

In 2011, the state auditor suggested that the Kansas City Metropolitan School District reconsider its $800 per month car allowance for its superintendent. But the Kansas City district is not alone.

In my study of Missouri school superintendent compensation, I found that 26.1 percent of districts surveyed provided superintendents with a car allowance, a car, or an annuity. Indeed, 17 school superintendents in Missouri received a car allowance of more than $500 per month, with a few school districts providing more than $800 each month to superintendents for their vehicles. Years later, there are likely other school districts paying $800 or more for superintendent car allowances.

With a transparency portal, reporters or the general public could find information like that easily, and before an audit is warranted. Transparency might discourage board members and administrators from awarding outsize benefits or spending frivolously.

With better technology, making it easier every day to share information online, school district transparency portals are something to consider.

Good News: Missouri Behind Only 42 Other States in Economic Growth Last Year

Posted on by Patrick Ishmael

This week, the U.S. Commerce Department reported that Missouri’s economic growth placed the state 43rd in the country last year. It is a variation on that eternal question: Is Missouri’s development glass partly full, or mostly empty?

Empty. Definitely empty.

The Commerce Department says Missouri’s economy grew much more slowly last year than the rest of the nation. Department figures rank Missouri 43rd in economic growth last year with an economy that grew by less than one percent. The National average was 1.5 percent. The department studies show almost every sector of the state’s economy grew more slowly than the average or shrank.

New reports today paint a clearer picture of how “less than 1 percent” Missouri’s growth really was .04 percent. Not .4 percent, but .04 percent. For all intents and purposes, that is zero. Throw in Missouri Journal’s report that the state’s new jobless claims increased to the third highest level in the country last month and it is clear Missouri is headed in the wrong direction, at about 80 mph.

Last month, I talked at length about how poorly Missouri has done economically over the last five years, and according to Rich States, Poor States, the state has been stuck around 40th in economic performance for basically the entirety of that period. Not much has changed legislatively in those intervening years to change Missouri’s fate – tax credits are still running amok, income taxes still dominate as sources of revenue, and local “economic development” plans are still off kilter – so the Commerce Department’s findings are not surprising (which is frustrating on its own terms.)

Missouri can do better, and the Show-Me Institute has offered a number of proposals in the last year that would make the state more competitive. Extinguish failing economic development tax credit programs. Eliminate the growth-dampening corporate income tax with the savings gained through tax credit elimination. Fix Tax Increment Financing (TIF). Cut wasteful spending.

It is time for a change.

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