A Tree Grows in Kansas City

I agree with this quote about urban farming from an article in the Pitch:

“I’m hoping for more availability and enthusiasm for local food in Kansas City — seeing a code that allows growers to sell and connect with potential buyers. Then local food will grow all on its own,” said Rachel Hogan, who recently completed a year-long internship on a series of organic farms in Missouri and is looking to help develop community gardens in Kansas City.

Farmers should be able to sell what they grow, regardless of whether they live on a rural farm or in a residential area or city. Get rid of the barriers to urban farming, and more people will pursue it.

Some people would be content if government just got out of the way, but other activists are asking the city of Kansas City to promote local gardening actively:

Residents suggested that new neighborhood trees planted by the city could be fruit or nut trees; land could be designated for agricultural purposes similar to park land; organic practices could be mandated for urban farms; and changes to the zoning code could provide guidance for would-be farmers.

Let’s look at those suggestions one at a time: I don’t see anything wrong with planting fruit trees, if the city is going to be planting trees anyway. It could be a problem if the fruit trees require more care than the trees Kansas City would normally plant, or if it’s cumbersome to remove the fruit that falls. Community gardening enthusiasts could probably come up with solutions to those issues.

I’m still opposed to designating public land for agriculture. That gives local agriculture an unfair advantage over other activities — cities don’t give out free land for bakeries or pharmacies. As for the argument that agriculture is special because everyone will depend on local food in the case of economic collapse, everyone would depend on local everything in that highly unlikely scenario. We couldn’t bring in bread from other places if disaster struck, so we might as well start subsidizing the bakeries. If you buy that argument for public farmland, you’re agreeing to local subsidies for every business.

Mandating organic practices is another policy that Kansas City would be wise not to pursue. When you want people to feel free to farm in the city, the last thing you should do is put a lot of extra requirements in their way.

And, finally, I don’t know what specific “guidance” activists want to impart through zoning code changes. Whatever it is, there is probably a less coercive way to guide farmers. People who want guidance usually ask for help or advice — not for an order from the city.

Large Counties Should Reduce Their Commercial Property Tax Surcharges

In 1985, Missouri changed the way that local governments tax commercial and industrial property. Voters approved eliminating the personal property tax on business merchandise and inventory, and replaced it with a surcharge on the value of commercial real estate. That year, every Missouri county and the city of Saint Louis calculated their new respective surcharges at a revenue-neutral level of replacement for the discontinued business property taxes. Among the reasons for the change was a desire to base the tax on the value of real estate, which is more consistent than ever-fluctuating inventories. The change, passed through an amendment to the state’s Constitution, was explicit that the replacement levy calculated by the counties could not be raised. However, the change also oddly mandated that only voters — not local elected officials — could reduce the tax. So, the commercial surcharge is at odds with the mechanics of other property taxes in Missouri, with rates that fall as assessed valuations rise.

The timing of this change is important. In 1985, the collar counties around Kansas City and Saint Louis were far smaller than today. At that time, the city of Saint Louis, Saint Louis County, and Jackson County drove the state’s economy more than they do now — although their role is still substantial. Collar counties such as Platte, Cass, and Clay in metro Kansas City, and Saint Charles, Jefferson, and Franklin in metro Saint Louis, had less business and industry than they do now. Consequently, when they set their commercial surcharge rates at the revenue replacement level, those rates were, and still are, substantially lower than in Jackson County and Saint Louis. Over time, various factors — including the population growth in the suburbs, and the prohibition on local councils lowering the surcharge rate — have combined to turn the high commercial surcharges into a competitive disadvantage for our largest counties.

Jackson County set its rate in 1985 at $1.44 per $100 of assessed commercial valuation. By comparison, Cass County’s rate is much lower, at $0.54, and Platte County’s is a mere $0.36. Only Clay County bucks the trend, with a surcharge of $1.59, likely attributable to the significant inventory taxes it received prior to 1985 from the Ford plant within the county. On the eastern side of the state, Saint Louis County set a rate of $1.70 per $100 of assessed commercial valuation. The city of Saint Louis set its at $1.64, while Saint Charles set a rate of just $0.53, and Franklin and Jefferson counties have rates even lower than that.

Assessed valuations have grown enormously since the tax was introduced. For example, the commercial assessments in Saint Louis County increased by 145 percent between 1985 and 2008, from $2.5 billion to $6.1 billion, although in Jackson County they increased 74 percent between 1997 and 2007.  The surcharge rates have never been reduced to offset that rise, as happens with other property taxes. Their lower commercial surcharges are one of the reasons that collar counties, such as Saint Charles, can take a harder line on issuing tax incentives than Jackson County or Saint Louis can — their tax rates are already low enough to serve as an incentive for businesses to locate there. The combination of a high tax rate, and the difficulty involved with reducing it, puts our largest urban counties at a competitive disadvantage with the rest of the state, and hurts business growth in our major metro areas.

This is a problem, but a problem without blame. These differences were probably not a big deal in 1985, when the tax alteration had a neutral effect for Missouri businesses, more of which were located in central business districts. But it is a major problem now. Reducing rates as commercial assessments rise is simply an issue of fairness. It would not lead to any tax revenue decreases, but would simply involve treating the commercial surcharge like other property taxes in Missouri.

Another issue with reducing the tax would be, perhaps, more complicated. Lowering the commercial surcharge rate could both spur economic activity in our largest counties and reduce the perceived need for tax incentives. Frankly, from a government revenue perspective, every dollar lost to the surcharge reduction could be replaced by a reduction in the tax incentives that have been given to select businesses. This would be revenue neutral for government, and still improve the overall economic environment. I believe that reducing the surcharge rate would lead to increased government revenue in a number of ways, but one does not have to assume a change in tax revenues in order to understand the benefits of this change.

The elected officials in the city of Saint Louis, Saint Louis County, and Jackson County should place surcharge tax reduction proposals on the ballot so that voters can have a say in making their region more economically competitive. The state legislature should then authorize a vote on changing the Constitution to allow the commercial surcharge to be reduced as assessments increase, like for other property taxes. These changes would help grow Missouri’s economy, and everyone benefits from that.

David Stokes is a policy analyst with the Show-Me Institute, a Missouri-based think tank.

 

Film Tax Credits Are Bad for States

The new George Clooney film, Up in the Air, premiered at the Tivoli in Saint Louis over the weekend. Many are using the event as an opportunity to promote film tax credits, to be used as a means to bring more film productions to Missouri. John Combest links to a video on KMOV about the subject.

I could support the film tax credits if they actually did attract money from outside of Missouri. But, as I have blogged previously, this just doesn’t happen; states tend to spend more attracting filmmakers with tax credits than the filmmakers generate in the state. I have not been able to find information about how much money Up in The Air generated for Missouri, but I would not be surprised if that number is less than the $4.5 million in tax credits that it was awarded. I will continue to look for this information.

Instead of film tax credit programs, Missouri should spend its money on programs that create jobs that are better-paying and longer-lasting. We see from the KMOV video that these film tax credits do not result in sustained job creation. Certainly, many St. Louis residents are cast as extras in these films, but these jobs are low-wage and temporary. According to the casting call for Up In the Air, extras were compensated only $7.05 per hour (before taxes) and they were asked to work for just one day. Aspiring actress Adrienne Lamping was quoted in the video saying that she got to work on set for a week, but discloses that she does not have an acting job lined up in the future.

I understand why states like Missouri want to attract filmmakers. Certainly, it’s exciting for the hoi polloi to recognize their local haunts on the big screen and to spot celebrities like George Clooney. Unfortunately, however, almost nobody discusses the sheer cost of these programs.

Contrary to Popular Opinion, Health Care Does Follow Free-Market Mechanisms

On Sunday, one of my favorite economists, Greg Mankiw, used basic economic concepts to describe how the government reimbursement system distorts the health care market:

If a government policy increases the demand for a service, the price of that service tends to rise. If the government prevents prices from rising, shortages develop. The quantity provided is then determined by supply and not demand. In the presence of such excess demand, the result could be a two-tier market structure.

Mankiw’s point is that, by failing to reimburse providers for the full cost of providing services, the government is creating an artificial shortage. Some health care providers will stop seeing Medicare and Medicaid patients because they lose money on the services that they provide to them. The Mayo Clinic is already doing this. Unless the government starts to reimburse fully for the services performed, more providers will follow Mayo’s example.

Mankiw continues. Here, he describes the aforementioned two tiers of the market:

Consumers who can somehow pay more than the government mandated price will be able to purchase the service, while those paying the controlled price may be unable to find a willing supplier.

In other words, patients who rely on government reimbursements (i.e., Medicare and Medicaid patients) will have difficulty accessing services, but those who pay out of pocket will not.

I have seen this happen in my professional experience. Before I started working at the Show-Me Institute, I worked as an analyst in the business strategy department at a major health care system. In our expansion, we deliberately avoided populations with high proportions of Medicare and Medicaid patients. Instead, we targeted populations that were concentrated with fee-for-service patients, because they would pay for their services in full.

Parenthetically, this government reimbursement system raises health care prices. Providers charge more to fee-for-service patients then they would in a non-distorted market. In order to stay in business, they have to make up for those patients who cannot afford to pay more than the government mandated price. It’s just like how retail stores increase their prices in order to compensate for losses due to shoplifting.

I like Mankiw’s post because it illustrates how, contrary to popular opinion, health care does follow free-market mechanisms. Health care is subject to the same laws of supply and of demand as any other market. When the government intervenes, it creates a price floor or a price ceiling, and a shortage or a surplus.

Another Way Teachers Would Benefit From a Competitive Education Market

Some teachers who want to sell lesson plans online are running into trouble with the districts that employ them, according to this New York Times article. The concept of mutual gains from trade is foreign to the education establishment:

Joseph McDonald, a professor at the Steinhardt School of Culture, Education and Human Development at New York University, said the online selling cheapens what teachers do and undermines efforts to build sites where educators freely exchange ideas and lesson plans.

“Teachers swapping ideas with one another, that’s a great thing,” he said. “But somebody asking 75 cents for a word puzzle reduces the power of the learning community and is ultimately destructive to the profession.”

If this were just one professor’s theory, it would be no big deal; what matters for teachers is that many districts use these ideas to justify forbidding the sale of lesson plans and curricula.

There are districts that allow teachers to sell their work online, and others that don’t yet have policies for or against it. In a competitive education market, those districts would be rewarded, because the best teachers would choose to work in schools where they could keep the rights to their lessons. Students, in turn, would flock to the schools with the best teachers, and money would follow.

Charters Can Earn Community Support as They Grow

An article in Time profiles Yinghua Academy, a Mandarin-immersion charter school in Minnesota. (And, yes, although equally innovative schools are cropping up in various sectors of the education market, this school really is a charter; someone in the Yinghua Academy office confirmed its status over the phone.)

Yinghua Academy started out with only 30 percent of students who were not Asian. That’s risen to 50 percent, and the entire student body has tripled. The school has attracted new students as more people see how successful the immersion program is.

If Yinghua Academy had been proposed in Oregon, it might have been turned down because it lacked broad support in the community. Districts could have argued that Mandarin language was a narrow subject that few people who are not Asian would want to learn. After all, when Yinghua Academy opened, it was a small school that served mostly Asian students.

States with restrictive policies toward charter schools can learn from Yinghua Academy’s example. When a proposed charter school is going through the application process, you don’t know for sure whether it will be a good school or a bad one. A charter’s full worth can’t be judged after just a few weeks or months, either. Only when parents have had time to evaluate the school can you see whether it meets a demand in the education market.

Of course, charter proposals that are incompetent or frivolous should be turned down from the start. But proposals whose drawbacks are that they’re specialized or ambitious should get a chance to prove themselves. Schools that satisfy parents can draw wider support after a few years.

Health Care Insurance Without a Public Option

A recurring concern within our national health care debate has been about insurance, and how to make it work for our friends that don’t want, or cannot afford, to participate. This led some of us to examine how that problem is solved elsewhere. One approach is seen in Switzerland. As many are aware, Switzerland is a country with a history of high-quality health care. It has 7.2 million people living in 26 cantons (states). The 1994 Swiss health insurance law requires everyone staying in that country for 90 days or more to purchase a basic health insurance policy.

Before 1994, health care insurance was not compulsory in Switzerland and premiums were risk-related. That older system was similar to what we have now in the United States. At that time, most people with jobs had some form of private health care insurance supplied by an employer. Members of the military and full-time government employees had health care insurance through a government-owned company. People outside of those categories were able to purchase insurance, and the rates varied over a wide range. A publicly discussed concern at that time was the fact that certain individuals, classed as high-risk because of chronic disease and age, found health insurance unaffordable. In response to the public outcry about that, the Swiss Federal Health Insurance Act was designed to help all the people without insurance and to promote competition between health insurers.

Now there are 91 Swiss health insurance companies that offer these compulsory policies through their “not-for-profit” divisions. Market forces are such that some companies have chosen to limit the cantons where they sell insurance. In each canton, as a result, there are about 50 companies competing in the health care insurance marketplace. The compulsory policy premiums are community-based, so everyone living within the same mail code is charged an identical fee, without regard to any previous medical problems. The competing insurers differentiate themselves and make their profits by selling extra benefits through complementary policies managed by the for-profit divisions of those companies. The extra benefits available through those insurers include things like dental care programs, hotel-quality single bed hospital rooms, “in-your-home” child care when a parent is ill, spa/gym memberships, etc.

The Swiss health plan purchasing process is designed to make consumers aware of their personal ownership of the insurance policies. A nationwide website guides people to the most appropriate plan to match their personal needs. Each policy must be bought by an individual, even though the government may reimburse a purchaser for part of the cost. The policy belongs to the purchaser, and goes with the purchaser when moving to a new job, because it is not a job benefit.

People that are indigent have health care insurance, too. In each canton, a “means test” determines how much the canton will reimburse an indigent resident, but that person gets to pick their own preferred private insurer just like everyone else. Then, the cantonal government issues a voucher that the recipient transfers to the insurance company. In 2001, the cantonal governments paid about 19 percent of the health care policy premiums.

Regulations there require a given insurer to charge the same fee to each purchaser for the basic policy, without regard to any preexisting health conditions. This results in a universalized program that provides for the treatment of illnesses, accidents, and pregnancies, and which includes the costs of all medical treatments, hospitalizations, and medications. However, at every interaction with the health care system, an individual must contribute something out-of-pocket. This is intended to make the purchaser acutely aware of the medical costs. These payments are not just nominal amounts of money, as seen in health insurance co-pays in this country; it is the full price of the interaction. In a typical Swiss policy, an individual pays a deductible, and the initial cost of all treatment and medications are paid out-of-pocket. Then, after the event, the patient is reimbursed by the insurer for almost 90 percent of the amount paid. However, to avoid any sudden economic calamities, the compulsory policies have a pre-set maximum out-of-pocket level, and all expenses beyond that are paid directly by the insurer.

The Swiss compulsory universal health insurance program was developed through a series of referendum elections in each canton. Significant improvement in health care access has been reported, because the system is intended to allow everyone to see a physician whenever necessary. Perhaps as a result, about five years ago Swiss life expectancy at birth was 79 years for men and 84 years for women. In comparison, U.S. life expectancy is just this year beginning to approach 78, and in Missouri, during the most recent year with accurate data, it was only 76.4.

Such care is not inexpensive, but it costs less than what we pay here. Implementation of the Swiss plan resulted in spending on health care representing only 11.5 percent of that country’s GDP, at a time when the health care spending in the United States approached 15.3 percent of our GDP. Although our country is not the same as theirs, maybe there is something we can learn from them.

To learn more about the Swiss and other health care systems, please see “The Grass is Not Always Greener: A Look at National Health Care Systems Around the World,” by Michael Tanner of the Cato Institute.

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