State and Local Government Employment and Payroll Data in Missouri Follows National Trend

This month, the Cato Institute published a bulletin titled “Employee Compensation in State and Local Governments,” in which the author examines state and local compensation costs:

State and local governments face large budget deficits as revenues have stagnated and spending has remained at high levels.

I used the Show-Me Institute’s newest web tool, Interactive Database for Economic Analysis by State, to isolate state and local government employment and payroll data from U.S. Census. Next, I used this inflation calculator from the Bureau of Labor Statistics to adjust the data to 2008 dollars.

The following graph shows this information for all states for 2008. Wyoming has the highest number of public employees per capita, at 927, and Nevada had the lowest, at 437. Missouri was in the middle — it was ranked the 29th highest (alternatively, the 23rd lowest) in this category:

2008 State Rankings

Click to enlarge.

The data for Missouri reflect the general growth in the size of government described in the Cato bulletin. From 1993 to 2008, the number of total employees grew by 29 percent, the number of full-time employees grew by 27 percent, and the number of part-time employees grew by 44 percent.

The data also show that payroll is growing at a faster rate than the number of employees. From 1993 to 2008, after adjusting for inflation, total monthly payroll grew by31 percent, full-time payroll grew by 30 percent, and part-time payroll grew by 55 percent:

Payroll 1993-2008

 

FTE&PTE_Number

Click to enlarge.

Given this rate of growth in monthly payroll and number of employees, Missouri’s present budgetary problems are no surprise to me.

Dreadful Assessment Lawsuit in Platte County

A simply atrocious lawsuit has been filed in Platte County (which includes part of Kansas City), according to the St. Joseph News-Press, regarding the assessment of a power plant there. You might think, from the opposition, that the power plant had received a tax exemption, or a TIF, or a CID, but no. People are complaining — and suing — because the new plants were assessed at a reduced rate while they were under construction.

If you go out and build your dream home with a worth of $500,000, should your county begin taxing you at a rate based on a half-million dollar property as soon as you lay the cornerstone, or wait until the house is completed and you move in? I have to believe that every single person reading this (which is a very large number of people, I trust), thinks the full assessment should start when the house is complete. In Missouri, in fact, that is exactly how it works. The full assessment applies according to the date of the final passing inspection / occupancy permit / utility hookup, and the annual taxes are prorated for that year. (Unlike cars or boats, which are taxed as of Jan. 1, real estate can be prorated for taxes; also, the land would have been fully taxable during contruction.) Presumably, the land for the power plants was fully assessed during the construction, and the building was assessed at 50 percent (the article does not make a distinction). That seems perfectly reasonable to me. Now that the project is finished, the company is paying taxes based on its full assessment. Anyway, the final decision should rest with the voters who elect, or unelect, the assessor — not on a lawsuit.

The single silliest (putting it nicely) statement in the article belongs to one of the lawyers in the case:  

“It’s been difficult for school districts to have a voice in the assessment process,”

I will gladly stand corrected if anyone can show me one place anywhere in Missouri law that says school districts are supposed to have a voice in assessments — or any taxing district of any type, for that matter. TIF commissions and tax exemptions are not an answer to this challenge; they deal with rates and abatements, not assessments. Assessors are supposed to be independent, so that they can set market assessments as fairly as possible, from which various taxing districts can set their rates. School districts are in no way, shape, or form supposed to have a voice in those valuation decisions. It is just an unbelievable statement.

Monopolies Seek Further Rate Hike Legislation

The St. Louis Post-Dispatch editorial board wrote a piece yesterday about a number of bills in the legislature that would allow utility companies to request rate hikes every six months, as opposed to the current policy that limits a change to every 11 months. The Public Service Commission regulates the rates of investor-owned utilities, like Ameren electric and Laclede gas.

From the article:

Under the proposed new law, rate hike cases could last no more than six months, meaning utilities could file two requests each year.

That’s not just two rate hike cases for each electric company, including AmerenUE. It also means extra rate cases for water companies, including Missouri American Water, which is seeking a 21 percent rate hike, and for gas companies, including Laclede Gas, which has a $52.6 million rate hike request before utility regulators.

Last year, when AmerenUE raised its rates by 8 percent after a 12.1-percent increase the previous year, the utility’s president justified it in order to continue “maintaining reliable electric service.” He also said:

“Much of the increase covers the costs of projects initiated to improve the reliability of our electric system, the costs of environmental and efficiency improvements at our generating plants, and the costs of fuel for those plants.”

It is hard to evaluate the validity of these claims without a field of competitors providing greater incentives for efficiency and cost reduction. That competition doesn’t exist, though, because utilities are generally viewed as a natural monopoly, an industry that requires economies of scale so large that it is most efficient to have a single supplier. As a result, municipalities generally restrict entry into utility markets. In The Concise Encyclopedia of Economics, economist David Henderson pointed out that this restriction is probably unnecessary:

Economists tend to oppose regulating entry. The reason is as follows: If the industry really is a natural monopoly, then preventing new competitors from entering is unnecessary because no competitor would want to enter anyway. If, on the other hand, the industry is not a natural monopoly, then preventing competition is undesirable. Either way, preventing entry does not make sense.

In “The Myth of the Natural Monopoly,” Loyola University economics professor Thomas J. DiLorenzo cited economist Walter J. Primeaux’s findings from more than 20 years of studying electrical utilities and competition:

  • Contrary to natural monopoly theory, costs are actually lower where there are two firms operating;
  • Contrary to natural monopoly theory, there is no more excess capacity under competition than under monopoly in the electric utility industry;
  • The theory of natural monopoly fails on every count: competition exists, price wars are not “serious,” there is better consumer service and lower prices with competition, competition persists for very long periods of time, and consumers themselves prefer competition to regulated monopoly;

If a utility is providing the lowest price, a competitor’s challenge will not be a serious threat. Competition itself — or the potential for competition — can keep prices low. Regulatory boards, on the other hand, historically have not been successful in lowering prices, as DiLorenzo noted:

In one of the first statistical studies of the effects of rate regulation in the electric utilities industry, published in 1962, George Stigler and Claire Friedland found no significant differences in prices and profits of utilities with and without regulatory commissions from 1917 to 1932. Early rate regulators did not benefit the consumer, but were rather “captured” by the industry, as happened in so many other industries, from trucking to airlines to cable television.

If barriers to entry are low enough, the potential for competition can increase efficiency and cost reduction in existing utilities. Instead of a focus on how often a utility company can change its rates, Missouri residents would benefit more from lowered regulatory barriers to entry in utility markets. In that case, future rate increases — like the recent decision to increase rates by 3 percent in order to promote energy efficiency — will be weighed against the possibility of a competitor attracting market share through lower prices.

A Place That Puts Some Fun Into Life

The Wall Street Journal ran an article over the weekend about Saint Louis’ beloved City Museum, its potential hazards, and the lawsuits they sometimes generate. The museum is privately owned — few government agencies would ever make something as quirky and fun as the City Museum — by Bob Cassilly, who emerges from the article as a heroic if offbeat businessman fighting to keep his dream alive against tiresome safety scolds:

“We like to be the devil’s advocate for society,” says Bob Cassilly, the museum’s 60-year-old founder, a self-described “idiot savant” with wild gray hair. “When you have millions of people do something, something’s going to happen no matter what you do.”

The City Museum, housed in 10-story brick building, shows none of the restraint or quiet typical of museums. A cross between a playground and a theme park, it recycles St. Louis’ industrial past into such attractions as slides made from assembly-line rollers. Just about everything can be touched or climbed, including dozens of Mr. Cassilly’s sculptures, among them a walk-through whale on the first floor.

Despite the whiff of danger, or perhaps because of it, the City Museum is one of St. Louis’s most popular attractions. Its 700,000 annual attendance is roughly twice the population of St. Louis and dwarfs the turnout at refined destinations such as the St. Louis Art Museum.

The injuries and lawsuits put the City Museum at the center of an enduring argument over the line between liability and personal responsibility. Some of the injured and their lawyers say the museum is deceptively dangerous and doesn’t do enough to publicize its risks through signs or other warnings.

Mr. Cassilly counters that it is as safe as it can be without being a bore. “They [lawyers] are taking the fun out of life.”

How very true. There are numerous warnings throughout the museum to avoid certain activities and that everything done there is at your own risk, but apparently that’s not enough for people who think life should be risk free. The City Museum is essentially a giant playground for children and adults alike, and like all playgrounds, the players occasionally get injured. That’s unfortunate, but it’s no reason to sue playgrounds out of existence.

Should Florissant Keep Its Strong Mayor System?

This weekend’s Post-Dispatch had an interesting article on Florissant Mayor Robert Lowery. The article discussed at length the political difficulties and fights he is engaged in, but that is not my focus here. I will, however, briefly comment on one aspect of that — the criticism of his work schedule:

Lowery sets his own work schedule, often not getting to City Hall until midafternoon.

I think I have to side with the mayor, here, and not just because I’d like that schedule, too. I have been active in local politics, and I have no doubt that the mayor goes to innumerable nightly meetings of neighborhood associations, community groups, etc. I also believe him when he says that many of his lunch meetings are work-related. His job involves city management, various methods of civic boosterism, and sometimes just returning a bunch of phone calls. If he can do the job successfully from home, work, and the car, then I really don’t think the amount of time he spends in the office is an important measure.

Without going into detail, I think the article’s criticisms of using city workers for campaign purposes are much more valid. But onto the system debate.

Most cities like Florissant have a city manager. There are only two really comparable cities to Florissant in St. Louis County: Chesterfield and University City (where I live). Both of them use a full-time city manager or administrator. If Florissant were to choose such a system, the mayor could focus on the civic and political leadership aspect of the mayor’s office, a set of responsibilities that he is very good at performing, according to everything I have heard.

If the people of Florissant want the mayor to keep some role in daily city operations, they could choose the city administrator form of local government. If they want the mayor to have a very limited role in daily operations, they could choose the city manager form. In both instances, though, the role of the hired professional is to manage day-to-day government operations. The mayor would become more focused on the leadership aspects of the job, and less on the management aspects.

Obviously, the salary of the mayor would likely be cut significantly if either of those options were chosen, but the city manager form of government might be the proper compromise for Florissant. It would entail a limited role in daily operations for the mayor, and — considering the experience he has had as mayor and a police chief — the people might want to continue making use of that value. Here is the Missouri Municipal League’s description of the city administrator position:

The city administrator is employed by the governing body with the approval of the mayor. The administrator serves as the chief administrative assistant to the mayor and has general superintending control of the administration and management of city business and municipal employees, subject to the direction and supervision of the mayor. When the governing body adopts a city administrator ordinance, they may provide that all other officers and employees of the city, except elected officers, may be appointed and discharged by the city administrator, subject to reasonable rules and regulations of the governing body. However, the ordinance may provide that such powers are to be retained by the mayor.

Florissant is a charter city, so it has some latitute in establishing a government that works best for its residents. I think that the city administrator form might be a good compromise for Florissant.

A Self-Defeating Proposal

Writing in the St. Louis Beacon, Washington University professor of Earth and planetary sciences Bob Criss argues that raising the Missouri gas tax could solve a number of environmental and social ills. Although I’m opposed to pretty much all taxes, I’m somewhat amenable to Criss’ argument. If we have to tax something, it is far better to tax something no one wants, like pollution, than to tax something everyone wants, like income (or general consumption, for that matter).

However, the Missouri Constitution makes implementing Criss’ proposal somewhat problematic. The state Constitution requires that funds generated by the gas tax be dedicated to building and repairing roads, bridges, and highways. The goal of a higher gas tax for Criss is that people would use less gasoline by driving less or using more fuel-efficient vehicles, but more and better roads will at least marginally increase people’s incentive to drive by allowing them to reach more destinations more quickly and comfortably. Increased roadwork would also generate a fair amount of air pollution. Those effects probably would not completely eliminate the environmental gains of a higher gas tax, but they are worth considering.

Furthermore, if people drive less but there are more gas tax revenues to spend, we will end up wasting that money on underused roads and highways. In short, while Criss’ proposal is not without merit, implementing it properly would involve a much greater challenge than simply raising the gas tax.

Tax Loophole Analysis Sinks in Its Own Metaphor

Initially, when I saw the title of this piece from the Missouri Budget Project, “Missouri should close tax loopholes,” I expected to agree with the article’s arguments. After all, tax credits and loopholes are inefficient and counterproductive for economic growth. But the piece goes on to call for increasing state revenue as the solution to Missouri’s budget issues.

The author emphasizes the problems with Missouri’s budget by repeatedly comparing it to a “sinking ship.” She calls for tax credit transparency, but taxpayers would benefit even more from tax credit limits or reductions, as the governor has suggested.

The author also suggests raising taxes. At any point, but especially during a recession, taxes impinge on further economic growth because an increase in the tax burden decreases compensation for additional time spent working. The decision to work or not work is a marginal trade-off; the lower per-hour compensation makes other activities — like leisure or spending time with family — more appealing. Economists have shown that economic growth occurs when production increases, but taxes decrease the incentive to work and save.  A recent study released by the Show-Me Institute demonstrates this inverse relationship with taxes and economic growth. Spending cuts are better for Missouri’s overall fiscal health than tax increases because they promote growth and allow money that would have gone toward government spending to instead flow toward generally more efficient market uses.

The 2011 budget relies on $7.22 billion in tax revenue, which is lower than the $8 billion collected before the recession, in fiscal year 2008, but still higher than the $6.97 collected in fiscal year 2010. Within that budget is room to pay for the vital services the author calls for, like schools, roads and health care for the elderly. It is a matter of prioritizing and “rearranging the deck chairs.” If tax credits are not the most efficient expenditure of resources, as the higher education system is currently contending, as the recent audit suggests, and as Show-Me Institute scholars have repeatedly pointed out, then it makes sense for Missouri to place more stringent limits on tax credits. In any case, Missouri’s present and future economy would benefit the most from lower taxation and spending rates, which would promote future growth and higher living standards for the state’s residents.

Friday Night Live

If you don’t have any other plans tonight, come out to the Plaza Frontenac Cinema to see The Cartel, a new documentary discussing the troubles facing public schools in New Jersey. The main showing will begin at 6:45 p.m., after which yours truly will open up the floor for a brief Q&A session about the ideas contained in the film and how they might make a difference for Missouri. Hope to see you there!

Farm Subsidies Are Not an Energy Policy

The big news in Missouri today is President Barack Obama’s visit to an ethanol plant in Macon, so I thought it would be worth briefly rehashing the airtight case against ethanol subsidies, as we have done here so many times in the past.

Most obviously, ethanol costs more than gasoline, so consumers have to pay more for energy to run their vehicles. However, because ethanol diverts foods like corn from their more traditional use as energy for humans and farm animals, food prices are driven up by greater ethanol use. Ethanol backers like to claim that such costs are justified by the environmental benefits of ethanol, but those benefits appear to be completely illusory. From the abstract of a 2008 study on biofuels:

Most prior studies have found that substituting biofuels for gasoline will reduce greenhouse gases because biofuels sequester carbon through the growth of the feedstock. These analyses have failed to count the carbon emissions that occur as farmers worldwide respond to higher prices and convert forest and grassland to new cropland to replace the grain (or cropland) diverted to biofuels. By using a worldwide agricultural model to estimate emissions from land-use change, we found that corn-based ethanol, instead of producing a 20% savings, nearly doubles greenhouse emissions over 30 years and increases greenhouse gases for 167 years.

Research has repeatedly confirmed that ethanol subsidies only drive price inflation for both energy and food without cutting greenhouse gas emissions, and it is long past time for politicians to admit that such programs are nothing more than a means for buying favor with voters in agricultural states.

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