Does Merit Pay Get a Passing Grade?

Posted on by Abhi Sivasailam

From USA Today, “Merit pay study: Teacher bonuses don’t raise student test scores”:

Offering middle-school math teachers bonuses up to $15,000 did not produce gains in student test scores, Vanderbilt University researchers reported Tuesday in what they said was the first scientifically rigorous test of merit pay.

Some 296 middle-school math teachers — two-thirds of the district’s middle-school math teachers — volunteered to participate in the experiment. Half were placed randomly in a control group, while the rest were eligible for bonuses of $5,000, $10,000 or $15,000 if their pupils scored significantly higher than expected on the statewide exam known as the Tennessee Comprehensive Assessment Program.

Except for some temporary gains for fifth-graders, though, their students progressed no faster than those in classes taught by the 146 other teachers.

The PDF for the study is available online.

As a merit pay advocate, I’d love to disparage these results as the product of some unsound methodology, but I can’t, in good faith, do that. This seems like a relatively clean experiment. Yet merit pay supporters need not abandon their cause. The study provides good answers, but the questions may be too narrow to be fully relevant. For example, in evaluating the responsiveness of teachers to potential performance bonuses, the study approximates what a labor economist would call elasticity of effort but not elasticity of labor supply. Put differently, the study suggests that the performance of existing teachers may not change in the presence of performance incentives but the study does not consider the dynamic changes in the overall teaching pool that may result from implementation of merit pay programs. More research must be conducted to evaluate whether merit pay attracts a better pool of educators who, in turn, have positive impacts on student performance.

New Michigan Study: Film Tax Credit Program Does Not Pay for Itself

Posted on by Christine Harbin

Supporters of film tax credit programs argue that these programs generate more revenue than they cost. Over at Mound City Money last week, David Nicklaus highlights a study recently released by the Senate Fiscal Agency in Michigan that provides evidence to the contrary. It concludes that the film tax credit program in Michigan does not pay for itself.

The following is an excerpt from the study (emphasis mine):

Significant confusion appears to exist regarding the public and private costs and benefits of the credits. Statements in the press regarding the benefits of the Media Production Credit typically highlight the increases in private sector activity and measure them against the public sector cost (often without accounting for the impact of lowering other public expenditures to offset the lost revenue from the credit). This comparison creates confusion about the impact of the credit on the budget. The nature of the credit and the resulting activity is such that under current (and any realistic) tax rate the State will never be able to make the credit “pay for itself” from a State revenue standpoint, even when the credit generates additional private activity that would not have otherwise occurred.

Public discussion of the Media Production Credit also has confused the nature of the credit, often leaving taxpayers with the impression that the credit represents foregone revenue that the State would not have otherwise received. The amount of the Media Production Credit, however, is unrelated to a taxpayer’s liability. The credit represents a subsidy for production activity and is unrelated to any provisions in law that impose liability on the taxpayer. Because the credit is refundable, the State not only foregoes the revenue it would have otherwise received but also pays additional money to offset the costs of the production.

The study includes some striking statistics:

  • In 2009, each job created by the film tax credit program in Michigan cost taxpayers between $44,561 to $193,333.

  • in FY10–11, Michigan will spend $125 million on film credits, and this will generate merely $13.5 million in new tax receipts. This equals a net fiscal cost of $111.5 million.

Nicklaus linked to an article by Josh Barro discussing the study, which is also worth reading.

After my testimony before the Missouri Tax Credit Review Commission on Wednesday, co-chair Steve Stogel asked me which specific programs I would cut. Although I believe that Missourians would be better off if all development tax credit programs were eliminated, I realize that we live in a world of second-best solutions and that eliminating them all may not be politically feasible. If I had to choose which programs to eliminate, the film tax credit program would be among the very first. (This is unsurprising; by my count, I have written 18 blog posts about the specific subject of film tax credit programs on Show-Me Daily, not to mention an editorial.)

Policymakers often look to the economic development strategies used in other states and try to emulate them. It just so happens that Wisconsin recently scaled back its film tax program, and Iowa decided to eliminate its program, too. When will Missouri face the facts and do the same?

Who Can Revoke a Liquor License?

Posted on by Mary Chism

There has been a controversy during recent months surrounding three downtown Saint Louis night clubs whose rowdy patrons have been accused of causing repeated disturbances and arrests, including multiple shootings. All three clubs were threatened with losing their liquor licenses, but two of the clubs have cleared their hearings, and a third, Lure, continues to face the possibility of losing its liquor license. Some of the controversy springs from conflicting accounts of whether or not rowdy brawlers actually came out of Lure, while many insist that Lure is being unfairly targeted because of its African-American customers on the establishment’s hip-hop-themed Thursday nights.

One group that is fighting to close down Lure is the Partnership for Downtown St. Louis, headed by Maggie Campbell. According to downtown Saint Louis business owner Bob Ray in his letter to the editor printed in the St. Louis Post-Dispatch, the Partnership for Downtown St. Louis is trying to overstep its rightful authority as a civilian group. From his letter:

The Partnership for Downtown St. Louis is seeking to participate in the approval and revocation of liquor licenses downtown.
[…]
I am shocked by the subjective nature of the Partnership’s process. The Partnership does not have an official policy detailing the criteria or evidence required to trigger the revocation process. When asked whether a nongovernmental membership organization with no public accountability should have the right to oversee the revocation and issuance of liquor licenses, Ms. Campbell said that the Partnership considers closing down a business to be its right under the First Amendment.

David Stokes has discussed in this blog the unlawfulness of revoking liquor licenses as punishment for unrelated infractions, such as customers smoking cigarettes in areas where they are banned. The Partnership for Downtown St. Louis seeks to take this a step further, by placing the power to grant or revoke a license into the hands of one group of civilians. There is already an established legal process for dealing with dangerous businesses or persons who disturb the peace. If a particular business makes it through this process with its liquor license intact, it is not the job of the Partnership for Downtown St. Louis to take that license away.

Planners Save Missouri!

Posted on by David Stokes

“There are few things as important as effective government planning,” I said to myself the other day while enjoying a leisurely stroll through St. Louis Center. But this post isn’t actually about urban planning. It is about the Missouri Strategic Initiative for Economic Growth, which began the other day as part of a series of discussions around Missouri. (Combest today links to a number of stories about the meetings held around the state.)

Unlike the ongoing tax credit review commission, which is stacked with supporters of tax credits, I don’t have any animus toward this initiative. It seems to me that the people involved probably believe they have good ideas for Missouri, and that they are not participating in this project for personal gain. The politicians and the other participants involved just buy into the notion that if a number of smart and dedicated people work together to come up with a plan for Missouri’s economy, they can do great things for our state. That belief is neither malevolent nor corrupt. It is just wrong.

The governor laid it out plainly in Kirksville (emphasis added):

“We can’t go down every road,” Nixon said. “We need to act, not react, and in order to do that we need a plan.”

No, we don’t need a plan. Missouri’s economy of the future will be shaped by individual people taking risks and seizing opportunity. The government has absolutely no idea what the economy of the future will — or, more importantly, should — look like. Committees like this (as common as they have been in our history) buy into the idea (intentionally or not) that the government should be involved in crafting the elements of our economy. That is a frightening notion, and one filled with enough examples of failures using public dollars that I would have thought the idea would have been disposed of by now.

My favorite example is the 1947 St. Louis plan that called for the destruction of Soulard often mentioned by Bill McClellan. (You can read about Bill’s column from a blog post by someone who considers himself a libertarian but supports Paul McKee’s grand plans for the north side of St. Louis. Crazy, eh?)

Here’s a realistic plan for actual growth: Perform the core functions of government as efficiently as you can, and reduce the tax and regulatory system as much as you can within the constraints of democracy (i.e., I recognize that other people want the government to do more things than I want it to do). Then sit back and let individuals and companies succeed or fail based on market interactions and their own efforts. That is the only plan we need for our economy.

O’Fallon Updates Its Water Meters – Why Not St. Louis?

Posted on by David Stokes

O’Fallon (which, if it continues to grow like it has during the past decade, will soon be the largest city in North America) is replacing its water meters with updated, more accurate versions. Good for O’Fallon. The changes will give water users more information about their usage, and allow them to adjust accordingly:

The new meters use radio signals to provide real-time readings accessible to customers online, which means residents should be able to spot potential problems or abnormalities in their average monthly water use.

Easier access to better information is always a good combination. But the best part of the article is not about O’Fallon. The best part is that it gives us a very good estimate of what it would cost the city of St. Louis to install water meters in the first place. If you frequent this blog you are probably aware that the city of St. Louis does not use water meters for home water use. In my opinion, that is insane.

If it costs O’Fallon $5.8 million to replace 15,000 meters, we can estimate it would cost the city of St. Louis $34 million to install water meters for its 87,000 residential customers without meters. That is approximately $390 per residential customer, and that number ignores the likelihood that the cost per unit would likely be lower for an order six times larger. Residents would then be able to adjust to higher water rates by using less water, something that businesses in the city are already doing.

Of course, I think the entire water division should be privatized in St. Louis, as well as in Kansas City, Springfield, Kirkwood, and Columbia. But at least those other cities make use of water meters. Privatized or not, the city and its water customers should expend the necessary funds to install and operate water meters.

The Definition of a Conflict of Interest

Posted on by Christine Harbin

The Missouri Tax Credit Commission meeting in Saint Louis on Sept. 22, 2010 - Photo credit: Thomas Duda
Photo credit: Thomas Duda

The Tax Credit Review Commission held its regional meeting in a veritable monument to the tax credit programs they review: the Old Post Office building in downtown Saint Louis. It’s borderline poetic. From an article by Brian Hook in the Missouri Watchdog:

The DESCO Group and DFC Group developed a plan, using tax credits, to restore the [Old Post Office] building in 2000. The Missouri Court of Appeals, Eastern District, moved into the building in 2006.

Steve Stogel, co-chair of the Tax Credit Review Commission, is president of DFC Group in St. Louis.

Additionally, some individuals cited in their testimonies a recent study from Saint Louis University that evaluates the historic preservation tax credit program. After I delivered my testimony, co-chair Chuck Gross even handed me a paper copy.

The SLU study has a peculiar list of financial supporters:

DFC Group
Downtown Council of Kansas City
Kansas City Port Authority
Missouri Growth Association
Missouri Municipal League
Partnership for Downtown St. Louis
Urban District Alliance of Springfield

Listed first is DFC Group, which is co-chair Stogel’s company. The other organizations are groups that receive direct, concentrated benefits from tax credit programs. The Missouri Growth Association, for instance, is a trade association of commercial property owners, managers and developers. Also well represented in this list are city bureaucrats, a group with incentives to grow the size of government.

Isn’t this the very definition of a conflict of interest? How can the Tax Credit Commission evaluate the effectiveness of these programs objectively and fairly if its leadership uses tax credits to earn a living? How can the commission have sound judgment if it bases its decisions on studies for which the leadership paid?

Testimony Before the Missouri Tax Credit Review Commission

Posted on by Christine Harbin

The Missouri Tax Credit Commission held a regional meeting in Saint Louis yesterday, and I delivered testimony that tax credit programs are a terrible strategy for economic development. Unfortunately, but unsurprisingly, I was the sole person to argue this point. Every other person who spoke before the commission lobbied in support of at least one tax credit program.

Show-Me Institute Research Analyst Christine Harbin testifies before the Missouri Tax Credit Commission in Saint Louis on Sept. 22, 2010 - Photo credit: Thomas Duda
Photo credit: Thomas Duda

This is an unfortunate consequence of the concentrated benefits and diffused costs of these tax credit programs. As I have discussed previously on Show-Me Daily, the negatively affected group (i.e., taxpayers) has less of an incentive to testify at these meetings because their individual losses are small in comparison to the favored group (i.e., private developers, social service agencies, women’s shelters, construction contractors, etc.).

The full text of my testimony is available online.

New Farm Subsidy Database

Posted on by David Stokes

Combest today links to a great piece from KMOV Channel 4 about who gets farm subsidies in St. Louis. I can honestly say that I think our national and state farm subsidy and tax credit programs are the single worst government programs (at any level). The only thing they accomplish is to make us pay more for the food we buy. And ethanol is the single worst use of that worst program, but I digress.

Really, all I want to do here is let you — our beloved readers — know of this excellent database from the Environmental Working Group. Have some fun with it. Check out your own zip code. Put in the names of politicians or former spouses. There is no end to the potential enjoyment! (Finally, I assure you that the David Stokes from Missouri in the database is a different David Stokes.)

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