Selling the Sewers: The Sweet Smell of Success

Posted on by Bruce Stahl

Officials for the city of Arnold, Mo., are studying the possibility of privatizing the city’s sewer system. This would be a positive development for several reasons.

First, the city could raise a large amount of money through the sale of its sewer system — possibly millions of dollars. This could be used to pay down debt, invest in needed public services, or lower taxes. The city of Florissant used the revenue from the 2002 sale of its water utility to finance several public improvements and establish a $10 million reserve fund.

Second, privatization would turn the sewers into a taxable asset. This means additional revenue for the municipality, possibly easing the tax burden on existing residents and businesses.

Third, privatization often results in lower costs, higher efficiency, and better service. For instance, Oklahoma City partnered with Veolia Water for wastewater treatment in 1984, and by 2001 had reduced treatment plant costs from $14 million to $11 million dollars. As long as efficiency gains such as those in Oklahoma City are passed on to consumers, lower costs can lead to customer savings. And although government regulations tend to erode efficiency gains over time, the immediate benefits should not be ignored. 

Make no mistake: Arnold’s wastewater system is aged and in need of extensive overhaul and repair. Privatization will not change that. Over the next few years, a significant portion of the sewer system will reach the end of its usable life. When this happens, significant costs will be incurred to renovate the system. These costs will occur whether or not the sewer system is privatized, but privatization could help keep renovation costs as low as possible. Sewer user-fees have gone up twice in the last three years – and that is with government ownership of the system. 

Private utility ownership is common throughout Missouri. In neighboring Saint Louis County, almost every resident purchases water, gas, and electricity from private companies. Although sewer privatization is less common, it is not unheard of; Missouri American Water, for instance, has several thousand sewer system customers throughout the state. 

The possibility of public repossession of the sewer system is an important option to remember. In the sale contract, Arnold can reserve the right to take the sewers back if certain standards are not met. Such a provision can protect residents from the danger of quality degradation and monopolistic fees. Another protection is the Missouri Public Service Commission, which regulates fees charged by private utility companies.

Arnold’s privatization option appears to be an opportunity for comparatively lower sewer rates and additional city revenue. The city will have more money, sewer costs will be handled more efficiently, and any concern about the quality and price of service can be addressed in the sale contract. Selling the sewers appears to be a situation where both the government and the people it serves can benefit.

Bruce Stahl is a research assistant at the Show-Me Institute, which promotes market solutions for Missouri public policy.

Standstill Part Two?

Posted on by Josh Smith

Show-Me Institute Policy Analyst Audrey Spalding is in Jefferson City today to give testimony about land banks.

The state legislature is currently considering legislation that would create a land bank in Kansas City with much the same power and authority as the Saint Louis land bank, the Land Reutilization Authority (LRA). Audrey’s policy study on the LRA, “Standstill: Is Saint Louis Hindering Development by Waiting for Large-Scale Miracles?” (published last April) provides important insight into the potential pitfalls of a land bank with expansive authority to acquire and hold property.

The lessons of the LRA are well worth considering for any proposed land bank. Lofty public policy dreams often run afoul of the law of unintended consequences, and the long history of the LRA may serve better as a cautionary tale than an achievement to be repeated.

Left Behind

Posted on by Michael Rathbone

A recent Wall Street Journal article notes the increasing push from state governments to eliminate or reduce personal income taxes. This article reinforces a previous point the Show-Me Institute made that a state’s tax environment does not occur in a vacuum. A state’s position regarding taxes can decline compared to its neighbors, even if it keeps its tax rates the same. Missouri recently eliminated the corporate franchise tax and yet it still risks falling behind other states who are taking even bigger steps toward lowering their tax rates.

Missouri Gov. Jay Nixon takes great pride in not raising taxes to close the state’s budget shortfalls. However, where is the big push for income tax reform in the governor’s agenda? In the Executive Budget for fiscal year 2013, Nixon does propose, among other things, $4 million to provide loans or other investment tools to help high-tech businesses create jobs through the Missouri Science and Innovation Reinvestment Act (MOSIRA) and $10 million for the State Small Business Credit Initiative to increase the amount of private capital made available to small businesses. Yet, there is no push to cut taxes across the board and these spending initiatives sound like the same tired and retread policies the state has taken when it comes to economic development (they also are not very successful; Missouri ranks 49th out of 50 states in job creation).

Kansas is looking to cut taxes, so is Oklahoma, while Tennessee has no personal income tax. These states are making the RIGHT moves to be more competitive and business-friendly. The governor should follow suit.

Failing State Experiments: Taxing Their Way Into Poverty

Posted on by Joseph Haslag

Early in the morning of February 8, 2012, Jonathan Williams of the American Legislative and Exchange Council (ALEC) and Joseph Haslag, University of Missouri Professor of Economics, presented their thoughts and findings relating to the current and potential future of Missouri's economy to an enthusiastic audience in the Show-Me Institute's office in the Central West End of Saint Louis. Among the topics discussed were the impact of tax rates and regulation on economic growth and investor uncertainty. An in-depth audience Q&A followed the presentations.

Jonathan Williams' PowerPoint

Joseph Haslag's PowerPoint

The Missouri Compromise — An essay on comparative tax rates and economic performance among states by Dr. Arthur Laffer

Will Missouri Impose One Mandate As It Fights Another?

Posted on by Patrick Ishmael

Regarding health care, Missouri’s legislature is getting it right on at least one front. On the one hand, it is working to close legal loopholes that could allow a health insurance exchange to be implemented unilaterally in the state capitol, either by administrative or gubernatorial fiat. There are lots of reasons to oppose implementing an Obamacare exchange in the state, but there should be little dispute that if it is going to be implemented, it needs to go through the proper legislative channels.

What should raise concerns, however, is whether state legislation that mandates optometrist eye exams for incoming kindergartners is right for Missouri. At least one state commission does not think so, which does not even begin to address the philosophical consistency question implicit in the move. The St. Louis Post-Dispatch reports (emphasis mine):

Calling the law ineffective and a financial burden on families, a state commission recommended that legislators drop the exam and instead beef up vision screenings by school nurses. The state’s eye physicians and surgeons embraced that approach.

Optometrists, however, are mounting a big push to get the Legislature to renew the exam requirement, which is slated to expire this June. The Missouri Optometric Association has hired 11 lobbyists. More important, they have a key ally: House Speaker Steve Tilley, an optometrist.

Tilley, R-Perryville, put the optometrists’ bill on a fast track — it is headed to the House floor after a packed committee hearing last week — while he bottled up the alternative, the school nurse bill, by not referring it to a committee.

Caught in the political crossfire are families who may have to shell out $100 for a child’s eye exam, because private medical insurance generally won’t cover it.

The chair of the Children’s Vision Commission, Oscar Cruz, is not impressed about the merits of the current law. “It’s a political process, unfortunately,” he said. And then there is the fiscal note.

The fiscal note on the optometrists’ bill suggests the state could use a $99,000 appropriation earmarked for blindness screening and treatment to pay for exams for about 6,637 uninsured kindergartners and first-graders in districts without kindergarten.

But that would average out to only $15 an exam. Mickey Wilson, director of the Legislature’s Oversight Division, said the analysis assumes that some optometrists would do the tests for free, or at a reduced cost.

That sounds like an awfully big assumption, and it does not even answer concerns for insured children whose plans would not cover the exams, the cost of which would fall to Missouri’s parents. The commission notes that outfitting school nurses to perform eye care screenings makes more sense.

Cruz said screenings by school nurses catch about 95 to 97 percent of eye problems that can damage vision on a long-term basis. Forcing 65,000 kindergartners a year to get comprehensive eye exams, he said, is “an incredible waste of resources.”

Only two other states — Kentucky and Illinois — have similar eye exam mandates. Is imposing an onerous mandate on Missouri families really the right course, especially as the legislature (very publicly) fights the onerous Obamacare mandate? The inconsistency should cause some pause.

Missouri: Where the Women Are Strong, the Men Are Good Looking, And Every Teacher is Above Average?

Posted on by Audrey Spalding

Last week, Ben Barnes, a Show-Me Institute intern, wrote about the teacher tenure reform bill that Missouri legislators are considering. Reforming teacher tenure may seem like an abstract concept, but the consequences of our current law are very real.

Eric Hanushek, of Stanford University, found that a good teacher can help a student learn one and a half years of material during a single academic year while a bad teacher might only be able to help a student learn half a year’s worth of material. In other words, a good teacher can help a student achieve three times as much educational growth as a bad teacher. A push for teacher tenure reform is not just about holding teachers accountable, it is about creating a way for school districts to get rid of ineffective teachers in order to help students learn more and from better teachers.

It appears that teaching is one of the most secure jobs in the state of Missouri. According to national data, few Missouri teachers are terminated in a given year.

But, I am curious about specific school districts, not just an estimated average across numerous schools. For school districts throughout the state, what number of teachers were terminated during the past 10 years? Are most dismissed teachers new to the profession (and have not yet achieved tenure), with very few being dismissed after achieving tenure? We are still doing research on this issue, but the preliminary data looks like teaching has an extraordinary level of job security.

Consider the following:

  • In the past 10 years, the Cape Girardeau School District, which employs approximately 350 teachers, has terminated just two tenured teachers.

  • During the same time, the Parkway School District, which employs more than 1,200 teachers, has terminated five.

  • The Springfield School District, which has more than 1,600 teachers, has terminated fewer than 10 teachers in the past five years.

  • The Van Buren School District, in its response to a Sunshine Law request, noted that “no teachers …were asked to leave, were terminated, or were fired by the district” during the past 10 years.

  • The Shelby County R-IV School District has not terminated any teachers during the past 10 years.

  • The last time the Gilman City R-IV School District terminated any teachers was during the 2002-03 school year. That year, two teachers were terminated.

Perhaps Missouri is inundated with high-quality teachers to the point that, over a 10-year period, some school districts have termination rates of as little as 0.4 percent. But, the case may be that poor teachers continue to teach at school districts that cannot (or will not) terminate them for performance reasons. And this means that some Missouri students will continue to receive a low-quality education.

Instead of keeping on the best and the worst teachers, it is time let school districts encourage the worst teachers to find new jobs, while rewarding the best teachers with pay boosts. Missouri House Bill 1526 is certainly a step in the right direction.

Is Franklin County Violating The State’s Blaine Amendment?

Posted on by Brennan Connor

A recent article on emissourian.com questioned whether a Franklin County program violates the Missouri Constitution.

Franklin County has and continues to violate the state’s Constitution by allocating hundreds of thousands of taxpayer dollars annually to fund counseling and antibullying programs in area private schools.

That’s according to Tony Rothert, legal director for the American Civil Liberties Union of Eastern Missouri.

The Blaine Amendment of the Missouri Constitution prohibits the use of public funds to support or sustain any school controlled by any religious creed, church, or sectarian denomination. The Missouri Supreme Court previously struck down statutes requiring that bus services and textbooks be provided to private school students. 

Annie Schulte, executive director of the Franklin County Children and Families Community Resource Board (FCCRB), raised a number of arguments detailing why the program does not violate the Missouri Constitution; unfortunately, none of them are very persuasive. The use of public funds to support a sectarian school is unconstitutional, whether the funds are paid directly to the school or indirectly support the school. The Franklin County program is also not analogous to Title I. Title I grants bypass the state and local agencies and go directly to independent contractors. Because no state or local agency ever controls the funds, they are not “public funds.” The FCCRB, on the other hand, is a local agency and does control the funds. 

The fact that the Franklin County program seemingly is unconstitutional is an illustration of how the Blaine Amendment currently stands as an obstacle to the freedom of school choice for students in failing districts, such as Saint Louis and Kansas City. As University of Missouri-Columbia Professor Michael Podgursky argued, the rigidity of the Blaine Amendment is keeping students stuck in unaccredited schools following the Missouri Supreme Court’s Turner decision. While the Supreme Court of the United States held that a voucher program for students to attend a private sectarian school does not violate the federal constitution, it is clear that a similar program would be struck down in Missouri. If the state cannot provide private school students with books, buses, and (probably) counseling services, a voucher program stands no chance of passing constitutional muster.

It is unfortunate that students at private sectarian schools likely cannot receive counseling services from the Franklin County program, but students who are stuck in unaccredited, failing schools is a much bigger issue. Given accredited public schools’ unwillingness to accept students from failing districts, these students may remain stuck until the Blaine Amendment is repealed.

Dough for the Dome

Posted on by Michael Rathbone

The St. Louis Convention & Visitors Commission (CVC) just released its proposal (estimated price tag: $124 million, with the St. Louis Rams football team paying $64 million) on how it will transform the Edward Jones Dome into a “first-tier” stadium. If it fails to reach an agreement with the St. Louis Rams, the Rams will have the option to break their lease with the city and relocate.

For those who may be wondering what exactly “first-tier” means, the Edward Jones Dome must be in the top 25 percent of all NFL facilities regarding some established criteria, such as: Fan amenities (box suites, club seats, lounges, etc.), technical areas (scoreboards, lighting, sound, etc.), and revenue-generating facilities (shops and concession stands). Considering that stadiums qualifying as top-tier include the newly-built Cowboys Stadium (price tag: $1.2 billion, with the Dallas Cowboys football team paying $875 million) and MetLife Stadium (price tag: $1.6 billion), the Edward Jones Dome has a long way to go to qualify. In fact, according to Patrick Rishe of Webster University, the cost of upgrading the Dome to “first-tier” status would be, at a minimum, $200 million-300 million (the cost of construction for the Edward Jones Dome was $280,000,000 in 1992 dollars). That is significantly more than the estimated $124 million in the CVC’s proposal.

Thus, officials for Saint Louis City, Saint Louis County, and Missouri have a decision on whether to pay up or face the prospect of the Rams leaving Saint Louis. I would urge the city, county, and state to forgo the use of any public money for upgrades to the Dome for several reasons. The first reason is on principle; the Rams are privately-owned and yet want public money for one of their facilities. If the Rams want a first-tier stadium, they should make a first-tier investment (and put a first-rate team on the field).

Second, even if city, county, and state officials wanted to pay for the upgrades, where are they going to get the money? The state is not exactly awash in cash, and the situation in the county is not much better. Both Missouri Gov. Jay Nixon and the state legislature have ruled out tax increases to help close the budget gap and I highly doubt they will go back on that in order to keep the Rams in Saint Louis. The city, county, and state could issue bonds (the state, at least, has a great credit rating), but they are still paying off ($12 million for the state and $6 million each for the city and county every year until 2021) the bonds issued to build the Edward Jones Dome. Does it make sense for the city, county, and/or state to go further into debt to keep the Rams in Saint Louis for another 10 years? Besides, when Kansas City and Jackson County helped fund renovations to Arrowhead Stadium, Jackson County struggled to keep up with the debt payments. Why put Saint Louis City and/or Saint Louis County in that kind of risky position?

Finally, even if the city, state, and/or county had the money, the use of public funds for sports stadiums does not generate much economic activity. According to a St. Louis Federal Reserve publication, the weight of economic evidence shows that the taxpayers do not get much of a return on their investment. In fact, the Federal Reserve study referred to another study:

Baade found that of the 30 metro areas where the stadium or arena was built or refurbished in the previous 10 years, only three areas showed a significant relationship between the presence of a stadium and real per-capita personal income growth. And in all three cases—St. Louis, San Francisco/Oakland and Washington, D.C.—the relationship was negative.

Considering these reasons, what justification can officials for the city, county, and/or state give for further expenditures on behalf of the Edward Jones Dome?

Retired Missouri Supreme Court Justice: Decline Tax Credit Redemptions for a Year (or More?)

Posted on by Patrick Ishmael

There have been numerous suggestions on how to cure Missouri’s budget deficit this year. Last month, the St. Louis Post-Dispatch’s editorial board suggested that one of the best ways to close the gap is for the state to decline to redeem — that is, decline to apply against a taxpayer’s tax burden — tax credits presented to the state. Holders of tax credits would have to wait until the next year, or possibly beyond, to use their certificates. At the time, I was skeptical of the move, mostly because it was not clear that such a decision is, in fact, legal.

But now former Missouri Supreme Court Justice Mike Wolff is lending some credence to the idea, writing in the Post-Dispatch that not only would the move be legal, it would be preferable to cutting other state programs:

If the governor or the Legislature declared a holiday on accepting tax-credit coupons in payment of taxes, the state would not be reneging on its promise to accept tax credit coupons to pay taxes. The state simply would be saying, “wait until next year.”

Should the state pay interest on tax credits that are on holiday for a year (or more, perhaps)? For example, when a taxpayer eventually is allowed to use its $10 million in tax-credit coupons, which the taxpayer bought for the discounted amount of about $9 million, perhaps the state should pay interest because the tax-credit owner has had to wait. Because these tax credit certificates are bought and sold through banks, perhaps the passbook savings account rate should apply. At the current generous rates, that might cost the state 1 percent or less per year.

But what if the taxpayer does not want to spend cash to pay its taxes because it needs the $10 million to rebuild its jet plane’s engines or to refurbish the yacht? Not a big problem, actually, because remember, the tax credits can be sold. But can these $10 million in tax credits be sold for the taxpayer’s original price of $9 million? Well, probably not, there could be a further discount; markets work, even markets for tax credits.

If Justice Wolff’s idea was implemented, it might help Missouri’s budget problem for a year, but it would not solve the underlying problem: tax credit issuances run amok. In fact, declining to redeem tax credits could actually compound budget problems in future years if other reforms are not implemented to reduce the state’s forthcoming and outstanding tax credit liabilities; tax credits that have been authorized or issued but not yet redeemed constitute a multi-billion dollar (that’s “billion” with a “b”) liability that the state will have to pay in coming years. Preventing budget cuts to favored programs — for Justice Wolff, education — does not seem to be a compelling reason to embark solely on his plan. It is almost like trying to get a hamburger today for $1 tomorrow . . . at some point, you have to pay for the hamburger. Tax credits are a recurring problem, the reduction of which could cure other recurring parts of the budget (for example, reducing taxes on all corporations with the savings, rather than picking and choosing winners and losers.)

Keeping all of that in mind, if done in concert with a moratorium on tax credit issuances (ideally including caps, sunsets, and other permanent changes), Justice Wolff’s idea might be workable as part of a larger reform program; over the long haul, such a multi-pronged approach may actually make a real dent in the state’s looming tax credit liabilities, and ultimately save the state money.

Missouri officials cannot just treat the symptoms of the state’s tax credit excesses and defer cuts for later; it must also treat the underlying disease. Trimming tax credits and reducing taxes is a better, forward-thinking solution, and would provide the foundation for a healthier economy and a more stable budget.

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