“It’s Hotel/Motel Time!”

Posted on by David Stokes

There was a terrific editorial in Friday’s St. Louis Business Journal about proposals in Clayton and Richmond Heights to institute a local hotel tax on top of the regional convention and tourism tax. I agree with every word in it regarding the hotel tax proposals. (I have a tiny quibble with how they relate the Centene story; I think Clayton and the city of St. Louis were both equally at fault there.)

Here are two outstanding points made by the Business Journal:

There’s an incentive for doing business in the city. The Ritz, located in Clayton, might just turn its marketing program over to the Four Seasons downtown or the Chase in the Central West End.

For Clayton to claim it will spend the additional tax on tourist-related activities, such as the Clayton Art Fair, is backward logic. We’re going to spend money to woo out-of-towners so we can gouge them? There’s a marketing plan.

You may not be able to see the full story online because of the subscriber paywall, but you should definitely check out the entire piece this week if you have access. There is a name for this type of taxation policy: “Welcome, Stranger.” It is poor policy to balance city general budgets via selective tax increases instead of through spending reductions.

P.S. — There are only about 20 people in the world who might understand the reference in the title of this blog entry, but half of them read this blog, so I figured I’d go for it.

Mmmm, Free Federal Money

Posted on by Christine Harbin

The Springfield News-Leader published a letter to the editor on the subject of federal expenditures in Missouri (link via John Combest, emphasis added):

I asked a state representative how the Missouri Department of Transportation arrived at the decision to place mile markers every two-tenths of a mile along Interstate 44. His reply was that this was federal money and not state money that was the funding source for this project. In other words, no cost to taxpayers.

The view that federal money doesn’t cost the taxpayer anything is completely false. As I have argued before, there is no such thing as a free lunch. Even if it’s dispensed by the federal government, all public expenditures come out of the pockets of taxpayers — not out of thin air. From an economic perspective, the only way that federal spending differs from state spending is the fact that the costs are further diffused, and the benefits are further concentrated. The money that is spent on mile markers in Missouri may be paid for by taxpayers in other states — but, simultaneously, taxpayers in Missouri are paying for similar projects in other states.

Later in the letter, the writer asks:

How many communities, counties and states in our United States are celebrating this “free” money?

This is a great question. When people perceive that they are spending “other people’s money,” they are less likely to spend it efficiently than they would if they perceived it to be their own. As Milton Friedman observed, individuals are better at spending their own money than somebody else’s money. If people in all 50 states view federal money as “free money,” they’ll spend, spend, spend, and their collective tax burden will skyrocket as a consequence.

Higher Taxes Don’t Need to Be the Only Choice for Roads

Posted on by David Stokes

Yesterday’s Hannibal Courier-Post had a story about the recent MoDOT Board of Commissioners meeting in Shelbina. (Hat tip to Combest.) The central point of the story is the general agreement that future major road projects will more likely occur in areas that are willing to supplement state money with local money, through the use of a local transportation development district or general transportation sales tax, for instance. From the story:

Whether they like it or not, many agree Missourians probably will have to raise taxes, as they’ve done in the past when shown specifics about how the money will be used.

I am not automatically opposed to that. There is something to be said for the residents of an area paying a larger share for transportation projects within that area. My main problem with the assertions in the story is they seem to totally discount or ignore the use of tolls and private financing for roads and bridges. Higher taxes, be they local sales taxes or state gas taxes, don’t have to be our only option. The voters and elected officials of the state could easily allow expanded tolling options if they chose to do so. It is an option that needs to continue to be included in these discussions.

Missouri’s only toll road has worked well for the Ozarks, and the option also needs to be considered elsewhere, as an alternative to higher taxes. Although I understand — and can sometimes support — the use of local sales taxes to fund local transportation improvements, a higher gas tax is preferable to a general transportation sales tax as statewide policy (if you don’t use tolling). I will never support any policy that makes walkers or bicyclists pay for highways at the same rate as SUV drivers with extended commutes.

The Next Time I Watch Braveheart, I’m Gonna Root for England

Posted on by David Stokes

Even at his worst, I doubt Longshanks would ever have done something as horrible as impose minimum alchohol prices throughout Scotland! Not only is this the nanny state at its stupidest, but it is bad economics, as well. How does the government have any idea what the minimum price for alcohol in Scotland should be? Markets, not governments, set correct prices. The Scottish health secretary said:

“Getting the price right is vital for minimum pricing to work — too low and it will simply be ineffective. After careful consideration, we believe that 45p per unit is the right price.”

The chances that the government set the “right” price are zero. There is no such thing as a “right” price set by government. The “right” price for alcohol, and everything else, is set by the interaction of constantly changing supply and demand curves. The “right” price is different for different people at different times, whether buyers or sellers. In fact, we just produced a video about the dynamics of market pricing — and I can assure that the video in no way involved any alcohol.

The Scottish policy is ostensibly being implemented for health reasons. I won’t get into the antitrust, anti-dumping implications of the regulation of minimum prices. I believe that is a separate issue, albeit related.

Disincorporation an Option for Struggling Cities

Posted on by David Stokes

A story out of California discusses how municipal disincorporation is being considered by California cities under financial duress. Thankfully, Missouri is generally in much better fiscal shape than California or our neighbor to the east, but disincorporation is still a rarely considered option for small Missouri towns. There are a number of small towns in St. Louis County that contract for the county to perform many town services. The cities tax the residents, and use those revenues to pay the county to provide specific services. That is certainly more efficient than every small city providing every service themselves, but the kicker is that the county would provide these services to town residents anyway, out of their general county taxes, if the town didn’t exist as a political jurisdiction in the first place. In many instances, tiny cities exist only as middle-men for many public services, which the residents would receive from the county anyway if the town didn’t exist as an intermediary — and they’d have lower tax bills.

You may be asking, “Wouldn’t the county have to increase taxes to fund services to more people if the city disincorpoarated?” In many Missouri counties, the answer is “maybe.” But in St. Louis County, it is “no.” This is because of the county’s sales tax pool. If smaller cities disincorporated, the sales tax money that previously went to the cities would be redivided. The county’s share is based on its unincorporated population, which would rise if cities disincorporated, so the county would get more money from existing tax payments, and probably not have to raise other taxes.

I don’t want any state or county laws changed in a way that would mandate disincorporation. I just want the residents of smaller towns in Missouri, and especially in St. Louis County, to know that it is an option worth considering as cities face budget difficulties.

Seven Principles of Sound Public Policy

Posted on by Lawrence Reed

On Jan. 20, 2006, the Show-Me Institute sponsored a luncheon featuring this presentation of "Seven Principles of Sound Public Policy." In this talk, Lawrence Reed, then the president of the Mackinac Center for Public Policy and currently the president of the Foundation for Economic Education, explains a set of principles that aid in the evaluation of public policy. He includes a number of historical examples to bring life and focus to his discussion. Show-Me Institute President Rex Sinquefield introduced Reed.

$218,398 … Or More!

Posted on by Audrey Spalding

On Sunday, Jessica Bock of the Post-Dispatch reported that the superintendent of the Ferguson-Florissant school district was awarded health insurance for life as an incentive to get him to stay at the district for an extra year. This is incredibly rare, if not unprecedented. In my study of Missouri superintendent pay, I did not see any other Missouri school district award its superintendent perpetual health insurance.

According to his contract, the superintendent, Jeffery Spiegel, will begin to receive free health coverage for both himself and his dependents after June 30, 2011, until the end of Spiegel’s life. The superintendent and his dependents will not have to pay any premiums for this coverage after June 30.

This is pricey. According to Bock’s article, district officials estimates the cost of the lifelong health insurance to be more than $200,000.

A more typical health insurance benefit for superintendents at larger school districts is to provide health insurance to a superintendent and his or her family while the superintendent works at the district. (The Pleasant Hill superintendent’s contract is a good example).

If the Ferguson-Florrisant school board members were having a difficult time persuading Spiegel to stay at the district, they could have awarded him an increase in salary for that year, or an increased annuity payment — something that other school districts occasionally do. The health insurance that Spiegel was awarded is an unknown expense. It is impossible to know how long he and his dependents will use the benefit. Estimates, such as the $218,398 figure calculated by district officials, are only estimates.

Really, why would the Ferguson-Florissant school board, which oversees the district’s budget, prefer to award a benefit with an unknown cost to one that can easily be budgeted for? If board members thought Spiegel was worth an additional $218,398, the board members could have increased his salary by that amount. That approach would result in Spiegel’s salary increasing to $430,051. Of course, if the school board had taken that approach, the additional compensation would have been awarded in a much more transparent manner.

School districts report their superintendent’s salary each year to the Department of Elementary and Secondary Education. But districts do not report the non-salary benefits, such as annuity payments, car allowances, or, in this case, health insurance for life. So, Spiegel’s additional compensation cannot be found by looking at state data. Additionally, if an education reporter or interested district resident were to request Spiegel’s employment contract, which is where you can find information about non-salary benefits, they would only see that he was awarded health insurance for life — not the monetary value of that benefit. It took diligent reporting to suss out the $218,398 figure.

It is impossible to tell whether school board members thought that they could obscure the enormous sum of money awarded Spiegel by providing lifelong health insurance to its superintendent and his dependents. But, regardless of the intention, that is the end result. I’m glad the Post-Dispatch caught it.

Incidentally, the next Ferguson-Florissant school board meets next on Sept. 8.

Knowledge Is Power – But Only When You Have Choices

Posted on by John Payne

Apropos of my blog post about charter schools in New Orleans from last week, Katherine Mangu-Ward has an article in Reason today about the Los Angeles Times publication of extensive information on nearly 6,000 Los Angeles public school teachers. This information is something of a hot button issue in Los Angeles right now, with the teacher unions calling for a boycott of the Los Angeles Times and school reformers hoping that any knowledge about which teachers perform well and which do not can lead to better academic outcomes.

Mangu-Ward, however, is skeptical that there will be any revolutionary changes in the school system without an expansion of parental choices to accompany the newly public information:

Even if parents know who the good teachers are—and they often do already—it often doesn’t matter, since kids are randomly assigned. They’re allocated to a district, a school, a schedule, and a classroom, all without any input from students or parents. The biggest decision public school parents get to make about their child’s primary education is where they choose to live. Short of staging a mini-sit in at the guidance counselor’s office (something my parents were known to do from time to time) there’s not much you can do once the die has been cast. And if you’re a parent who doesn’t have the luxury of taking a day off from work to spend fighting the school bureaucracy, your kid is stuck wherever he was randomly assigned, no matter what. Teacher data doesn’t do a lick of good if you don’t have input about which teacher you wind up with.

Instituting a small degree of teacher choice wouldn’t be overwhelmingly difficult. Schools at all levels could opt for the kind of first-come, first-served lottery that large colleges use. It’s not an ideal system, but it’s an improvement. Again, computers these days, they can do amazing stuff. Once a system is in place, this kind of limited choice would be neither time consuming nor expensive. But it would create one outcome that teachers unions will do almost anything to stop: It would quickly become obvious which teachers aren’t desirable. The teachers with the half-empty classrooms would be ripe for firing. And that’s the scenario that makes teachers unions (and to a lesser degree school boards and other education bureaucracies) fear a flood of data, especially if it’s accompanied by even a little choice.

Such a reform would even avoid the common complaint against charters, vouchers, and educational tax credits, that they take money away from the public schools. We can simply introduce competition within the schools themselves. I doubt this will turn a failing school system around, but it should improve the situation at the margin.

Now Open, but So What?

Posted on by Thomas Duda

For advocates of free markets, St. Louis city presents a disturbing environment for the conduct of business. Indeed, the fact that so few construction projects occur here in the absence of subsidy necessarily makes the rare market-based development a news item in its own right. But what about projects that do not make the news?

1818 Washington - Now Open

Pictured above in August 2010 is the 1818 Washington Ave. Building in downtown St. Louis. Paired main entry doors punctuate the center of the building’s primary facade, while four ground-level storefront bays are at right. A pizza restaurant occupies this retail space, displaying a bright red-on-white background “Now Open” sign, in addition to handsome neon signs for Bud Light and Bud Light Lime.

2001 Olive boarded

Two blocks to the southwest, at 2001 Olive St., a one-story building features plywood boards over the entirety of its glazed area. Permanent signage for the pizza place remains atop this building, while a banner reading “We Will be Relocating to 1818 Washington Ave. July 1st, 2010,” with red lettering on a white background, hangs from a ground-level storefront bay at left.

In a truly competitive free market, the story would end here: A business moved from one building to another. So what?

As this business relocation occurred in St. Louis city, however, legislated market distortion and an administrative exercise in symbolic violence likely contributed to the outcome pictured above.

On the legislative front:

Ordinances 67319, 67462 and 67463 designated 1818 Washington Ave. as a redevelopment area, executed a redevelopment agreement between the developer and the city of St. Louis, and authorized “$2,380,000 Plus Issuance Costs” in Tax Increment Financing (TIF) notes for the construction of 1818 Washington and another nearby project.

On the administrative front:

In addition to TIF, the 1818 Washington project stands to utilize “Federal and State Historic Tax Credit programs.” Combined, they could yield up to 45 percent of the project’s costs in tax credits for the developer — 20 percent for the federal credit; 25 percent for the state credit. (The building is a contributing resource in the “Lucas Avenue Industrial Historic District (Boundary Increase),” after all.)

In a free market, favorable lease terms or a street address on the vaunted Washington Avenue could prove enticements enough for a business to relocate. In St. Louis city, we are instead left to ask what role public monies are playing in a business location decision, and whether associated municipally approved TIF legislation is actually legal.

Missouri TIF law states the following in §92.805(4), RSM0:

For redevelopment projects or redevelopment plans approved after December 23, 1997, if a retail establishment relocates within one year from one facility to another facility within the same county and the governing body of the municipality finds that the relocation is a direct beneficiary of tax increment financing, then for purposes of this definition, the economic activity taxes generated by the retail establishment shall equal the total additional revenues from economic activity taxes which are imposed by a municipality or other taxing district over the amount of economic activity taxes generated by the retail establishment in the calendar year prior to its relocation to the redevelopment area;

If the pizza restaurant succeeds at growing its revenues dramatically at its new location, the rehabilitated building’s developer will prosper as government loses funds that it would receive were the restaurant not in a TIF district. Had the rehabilitated building attracted a business truly new to St. Louis city, government would receive a greater share of the TIF project’s associated revenues.

Subsidizing projects that displace economic activities from one site to another is a losing proposition for cities and their residents. In St. Louis city, the elimination of TIF would allow our community to awake from its current nightmare of ever-increasing taxes and instead move us toward broadly shared prosperity, courtesy of the free market.

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