Kansas City’s Continuing Fight for Pension Sustainability

Posted on by Greg Aubuchon

Kansas City continues its mighty struggle to save its children and future offspring from the possible ravages of  pension-induced bankruptcy. The city has commissioned, for this purpose, its Pension System Task Force. In a recent Kansas City Star editorial, the paper notes, with healthy skepticism, the appearance of defined benefit proponent Hank Kim before the task force. According to the authors, Mr. Kim strikes a rather glib pose when addressing the issue:

While many states and cities are altering their defined benefit plans because of money woes, Kim doesn’t sound that worried.

•Kansas City task force chairman Herb Kohn has said the city should aim to have its pension systems funded at 90 to 100 percent. As of 2010, though, three systems were under 80 percent, a far cry from the 96 percent average in 2002.

Kim isn’t nearly that aggressive.

In May, when talking about the 78 percent funding average for state pension plans, Kim said that “78 percent is a number we’re very comfortable with.” In fact, he has indicated that a 70 percent level is fine, too, because Fitch Ratings considers that adequate.

Counterpoint: The Government Accountability Office calls for at least an 80 percent funding level. So do many pension managers.

Kansas City taxpayers deserve honest answers to a host of questions, not least of which is whether the city’s pension managers have adopted a reasonable discount rate in determining the current funding levels needed to sustain future payouts to retirees and their families. In today’s uncertain financial environment, is an 80 percent funded level benchmark reasonable? Should the pension systems continue to assume historical market return averages of 8 percent when determining current funding levels? If one were to substitute a more reasonable rate, given market performance over the last decade, of say 4 percent, then the degree to which the systems are currently underfunded grows.

Our children deserve our immediate attention to this matter. Missouri currently has approximately 130 state and local public pension plans.  What assurances are there that these are solvent in the mid- to long-term? Of course, one may counter, the systems are audited under the law. But so was Enron!

You may trust, but first verify.

China Hub Document: “We need someone, not a government agency, to make things happen”

Posted on by Patrick Ishmael

The quote comes from notes the NCBE made from a meeting with Jens Tubbesing, “the lead person for Aerostrata to develop airfreight feasibility study for China.” We’ve already revealed that Aerostrata’s preliminary report showed warehouse space at Lambert is already sufficient to sustain the sort of cargo activity contemplated by the China Hub. But as it turns out, the “Aerotropolis” project was indeed lacking in one important aspect: critical private sector interest.

The document, in its entirety, follows.


We must create the demand, political and economic timetables are not the same, need private business to take the lead, like a Ross Perot and his business now employing 27,000 in Dallas. We need someone, not a government agency, to make things happen.

As Mr. Tubbesing notes, “it’s all about demand.” Where’s the entrepreneur that would drive the Aerotropolis project forward and make it a success?

An Aerotropolis Intensity Gap?

Posted on by Patrick Ishmael

Here is a fun graph from a (non-scientific) online poll on Aerotropolis from the St. Louis Business Journal, which not too long ago endorsed the Aerotropolis project. Presumably, the readers voting here reflect, broadly speaking, the business community in the region, and yet the sentiment of the more than 1,700 voters seems solidly opposed to the project.

That’s not a good breakdown for Aerotropolis supporters.

Do online polls always offer an impeccable snapshot of the electorate? Not generally, so sufficient salt-graining is required here. That said, if legislators think that it’s inevitable the law will quietly pass without anyone noticing, they may want to rethink that impression.

‘Aerotropolis’ Bill: A Giant Step Backwards in Public Policy

Posted on by Crosby Kemper III

For many years, I have worked to promote free-market solutions to a broad range of public policy issues in the state of Missouri. Indeed, Rex Sinquefield, Michael Podgursky and I founded the Show-Me Institute in 2005 because of our shared conviction that nothing would be more effective in promoting faster economic growth than a renewed appreciation of, and commitment to, free enterprise — and a concomitant rejection of the notion that our elected political officials should engage themselves in trying to pick our future economic winners and losers.

I thought that we as a state were making steady progress toward that end. As I see it, there have been a number of real pluses:

  • Over the past couple years, the Missouri legislature responded to a challenging fiscal environment with responsible spending cuts, as opposed to harmful tax increases;
  • Missouri is home to a robust Tea Party movement; and
  • Missouri fielded a bumper crop of candidates espousing strong free-market principles during the November 2010 mid-term elections.

But now I am wondering how much progress we have really made — given what seems to me the complete abandonment of principle by some self-described conservatives in the legislature. These so-called conservatives have thrown their support behind the proposed bill to grant $360 million in tax credits for the supposed purpose of creating a “China Midwest Hub” or “Aerotropolis” at Lambert-St. Louis International Airport.

This legislation — which may be considered at a special session of the legislature in September — would spawn the largest tax credit subsidy in Missouri history.

The proposed bill is also the epitome of bad public policy. Let me count some of the ways that it fails the test of serving the public good:

  • It would take from the many (basically, all Missourians who pay income taxes, as individuals or businesses owners) and give to the few (mostly to owners or developers of warehouses and real estate in designated areas near the airport, some of whom have already received or are in line to receive substantial tax credits);
  • The legislation is being rushed to a vote in the absence of anything resembling a serious cost-benefit analysis — and in the absence of any proof the Chinese government or ANY major air carrier is committed to a plan to turn Lambert into a major air cargo hub;
  • It therefore represents a huge (and completely misplaced) leap of faith in the ability of our legislators to outsmart and outthink the marketplace in putting taxpayers’ money at risk.

In a positive development earlier this year, top business leaders in the Kansas City metropolitan area called on the governors of Missouri and Kansas to declare an armistice in a senseless “border war” over the use of economic development incentives to poach jobs from one side of the state line to the other. The two-way traffic of companies chasing tax credits has depleted tax revenues in both states without a net increase in wealth or employment. We should all give thanks for this outbreak of common sense.

Now, however, supporters of the Aerotropolis legislation would have us believe that it will create thousands of jobs in the Saint Louis metropolitan area and generate nearly $34 billion in economic activity over a 20-year period — paying back the original investment in taxpayers’ money more than 100 times over. Why, then, is the smart money (private capital) staying on the sidelines? Why hasn’t it acted on its own — given the supposedly fabulous returns cited by supporters?

The answer is clear: The underlying economics is not there. Heavily promoted “investment opportunities” predicated on tax credits or other subsidies are almost always accidents waiting to happen.

A dozen or so years ago, we were told that subsidizing a new runway at Lambert would bring new traffic, and it didn’t. We were also told the Mid-America Airport — deeply subsidized on the Illinois side — would bring huge traffic. Now there is just one subsidized cargo flight a week out of the entire airport.

Karl Marx (not normally someone I quote) said that history repeats itself, “first as tragedy, then as farce.” Let’s hope that history is not about to repeat itself with the misconceived and hugely expensive Aerotropolis legislation.

R. Crosby Kemper III is chairman of the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

Aerotropolis: The Wrong Way to Get-It-Done

Posted on by Andrew B. Wilson

At his July 21 press conference at the Danforth Plant Science Center in Saint Louis, Gov. Jay Nixon did his best imitation of Larry the Cable Guy, the stand-up comic with the signature line “Git-R-Done!”

In officially joining the “Aerotropolis” bandwagon and calling for a special session of the Missouri Legislature in September, Nixon used the phrase “Let’s get it done” several times in a twenty-minute speech. That was his way of endorsing the much-talked-about bill to support the development of an air cargo hub at Lambert-Saint Louis International Airport.

The bill would pass out $360 million in tax credits – with $300 million going to support the development of additional warehousing space and the rest going as an inducement to freight forwarders to send additional cargo through Lambert.

But if the goal is to transform Lambert into the world’s next great cargo hub, will this legislation be enough to “get it done”? Will it succeed in creating thousands of new jobs and providing a major boost to the region and state?

There is no reason to suppose it will.

As policy analysts at the Show-Me Institute have pointed out in a number of papers and commentaries, there are acres and acres of unused warehousing space in and around Lambert. If setting up a Midwestern cargo hub at Lambert is such a great idea, why has the sensible money stayed on the sidelines? Why does the hub need tax credits or other government guarantees to attract investments for upgrades, retrofits, or new construction for refrigeration?

After months of discussion, supporters of the Aerotropolis legislation have yet to produce a serious cost-benefit analysis of what Missouri taxpayers should expect in return for a substantial investment in the project.

The St. Louis Regional Chamber and Growth Association (RCGA) produced an eight-page statement making the claim that $300 million in public incentives for new warehousing would lead to $34 billion in private economic activity over the next two decades. That is an economic multiplier of more than 100. Perhaps suggesting the lack of a sound basis, the RCGA has yet to identify the assumptions used in reaching this astounding conclusion.

At the same time, no group supporting the proposed legislation has produced a shred of evidence that the Chinese government or even a single international carrier is committed to turning Saint Louis into a major air cargo hub.

Greg Lindsay, who co-wrote the book Aerotropolis: The Way We’ll live Next, has publicly scoffed at the pending legislation. He has called the proposed investment both “too much” – in representing an egregious waste of taxpayers’ money – and “too little” – as billions of dollars of additional investment would be required to enable Lambert to compete with established powerhouses such as Dallas Fort Worth and Chicago O’Hare International Airports.

It is not surprising that supporters of the Aerotropolis legislation are anxious to stop talking and swing into action in passing a bill. Even they must know the economic case behind the legislation does not survive close scrutiny.

In his press conference in Saint Louis, Governor Nixon engaged in the kind of chest-thumping that often accompanies large job creation schemes, calling for “decisive” action by the public sector. “We need a bold spirit and competitive vision again,” Nixon proclaimed. “We are competing against the world.”

But if business generation is the real goal, you don’t start by slaying the great Goliath of global competition. Instead, you begin by providing a better product or service that someone else will want to pay for – at a price that will provide a decent profit.

That kind of thinking is alien to glory-seeking and intervention-minded politicians. It is also alien to rent-seeking business people – business people, that is, who would rather lobby for special favors from government than compete in the open market; business people who would rather drop the real risk of capital investment at the feet of taxpayers rather than lift it onto their own shoulders.

Over the past several years, we have seen many examples of much touted job creation and pump-priming economic schemes, at the federal as well as the state level – everything from “cash for clunkers” to the massive $787 billion stimulus bill.

What they all have in common is simply this: They don’t “Git-R-Done.”

The Mayor, the County Executive, and the RCGA All Likely Have Vested Interests in the Aerotropolis Legislation: It Could Enhance Their Power

Posted on by Audrey Spalding

If the Missouri legislature calls a special session and passes the so-called “Aerotropolis” legislation, it will award a great deal of power to the St. Louis Mayor and the nearby county executives. It should come as small surprise that some of the strongest voices arguing for the Aerotropolis legislation come from the very individuals who stand to benefit from it.

The Aerotropolis bill would give the mayor of St. Louis or the executive officers of nearby counties the power to designate “gateway zones.” While this power sounds innocuous, it has important ramifications.

First, those chief executives would become gatekeepers in the distribution of millions of taxpayer dollars. The Aerotropolis legislation would create $300 million in tax credits that would subsidize warehouse construction. That tax credit money could be awarded only to warehouses built in gateway zones.

Even if motives are pure, the ability to pick what areas could be eligible for hundreds of millions in tax credits would be an incredible power. The legislation does not say anything about monitoring such designations. Nothing in the legislation would prevent one of these chief executives from using such power as an indirect way to acquire campaign contributions or other untoward benefits.

A simple way to stop any such potential abuse of power would be to take the city and county chief executives out of the equation. If the state, despite a lack of substantive empirical evidence that these tax credits will do any economic good, really wants to subsidize warehouse construction, then all vacant land owners should be able to compete equally for the tax credits. There is no need to give special powers to city and county executives.

Second, this legislation would allow city and county executives appoint a three-person board to oversee millions in special tax revenues.

That board could impose a special tax on the warehouses receiving the Aerotropolis subsidies, and then oversee how those tax revenues are spent. Of those special tax revenues, 50 percent would go to the St. Louis airport. But the other 50 percent would be given to a “tax-exempt regional economic development association or associations….” The three-person board would select which associations would receive the money.

This, too, represents increased political power. The chief executives of St. Louis and nearby counties will be in a position to appoint people to determine what agency gets part of those special tax revenues. Nothing will prevent them from appointing individuals who have a vested interest in where those special tax revenues go.

Interestingly, it seems that the St. Louis Regional Chamber and Growth Association (RCGA), the organization that pushed hard for the Aerotropolis tax credits, is a “tax-exempt regional economic development association.” There are others, such as the St. Louis County Economic Council. It appears that these organizations could qualify for the Aerotropolis special tax revenues. Awarding a steady stream of tax revenue to organizations that argued for the legislation that created that tax revenue is exceptionally poor public policy.

There’s a simple answer to all of these problems. Remove the possibility, however remote, of using the Aerotropolis subsidies and tax revenue as a political tool. There doesn’t seem to be a practical reason to include these mechanisms in the Aerotropolis legislation. They do, however, invite corruption into the process. The economic merits of the Aerotropolis tax credits are highly questionable, but if the legislature insists on enacting them, it should not allow that money to be controlled by political figures.

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