Missouri’s Ticking Pension Time Bomb

Posted on by Josh Smith

The front page article in today’s Post-Dispatch is about the underfunding of Missouri’s public employee pension programs. This is a serious issue that deserves more attention, and the Show-Me Institute is happy to oblige. Check out our full policy study on the matter, as well as this op-ed by Joe Haslag, who is quoted in the P-D article.

The main problem with Missouri’s public employee pension plans, as discussed in both the P-D article and our policy study, is that they use an outdated system of defined benefits. This plan is generally less expensive for the employees (who are likely concerned about retirement savings, at least somewhat) and more expensive for the employers (who have to pay the difference when the amount they set aside in anticipation of payouts turns out to be insufficient because of changes in valuation, such as stock market fluctuations).

The economics of this arrangement can be simplified as follows (pardon if this is too abecedarian): Employees accept a certain wage and benefit package when choosing between employers. It is common for employers to compete for employees by offering different combinations of wage and benefit packages. When viewed in context of the prevailing type of plan offered by employers, the Missouri public employee pension plans are more generous to the employee and more expensive for the employer. It may be the case that in order to attract the number and quality of employees that the various state agencies desire, a less attractive benefits package with a less generous pension plan would need to be balanced with increased salaries.

As I see it, this is a very good thing. The costs of retirement benefits are only fully realized in the future, when market fluctuations may cause a plan to become underfunded — a situation that is likely to happen only with defined benefit plans. One reason these plans are popular, however, is because the nature of political incentives means that politicians have a much greater chance of enacting a plan with benefits that can be realized today and costs that are paid for tomorrow. If government agencies in Missouri were forced to compete with private companies based on salary rather than benefits, this would lead to increased immediate costs for public employees, which would also mean higher taxes. I think that Missourians would be more likely to vote for less public spending if the spending had to be paid for here and now, rather than after the lifetime of the employee’s career.

As Richard Dreyfuss points out in his Show-Me Institute policy study, defined contribution plans would not only level the playing field between public and private employers pursuing potential employees, it would put the Missouri pension plans on firm ground, economically — defusing the time bomb of underfunded employee pensions.

“Buycott” for Organic Foods

Posted on by Caitlin Hartsell

When John Mackey, the CEO of Whole Foods, wrote an op-ed in the Wall Street Journal, he hardly could have imagined the backlash it would receive. But some of his regular customers, many of whom are interested in sustainable growing practices and organic foods, decided to boycott the store when they read that Mackey did not support the federal government’s proposed health reforms.

The Post-Dispatch reported that the St. Louis Tea Party Coalition, a group that also opposed Obama’s health care reform, has proposed a rather fecund idea to combat the boycott: a “buycott.” This involved coalition members going to buy a week’s worth of groceries at the Whole Foods in Town and Country. Many members of the coalition were not regular Whole Foods customers, but they were willing to show their support for Mackey’s free-market health care reform ideas — and his right to express them. Whole Foods has tried to distance itself as an organization from the personal views of its CEO through a forum on its site, but this seems to have had little effect.

Mackey exercised his right to free speech when he wrote his op-ed, and some of his company’s customers exercised theirs by boycotting. But the “buycotters” are arguably the most creative in this situation. By going out of their way to shop at Whole Foods, they are “voting with their dollars.” While it may well be difficult to replace the boycotters’ dollars, a “buycott” helps make up for some of it through positive reinforcement. And, who knows? Perhaps once the health reform hoopla has ended, Whole Foods will have a few new regular customers who might not have considered patronizing the store otherwise.

More on Local Food

Posted on by Sarah Brodsky

There’s nothing wrong with people voluntarily eating produce that was harvested nearby. However, the locavore movement’s claims need to be refuted when its activists lobby for taxpayer support — whether in the form of subsidies or purchasing mandates. This essay in Forbes by Elisabeth Eaves shows why we shouldn’t buy into the locavore argument. I love this part:

Most of the values the locavore movement claims to embrace–healthier food, environmentalism, good treatment of labor–actually have little to do with whether or not a producer is located in one’s own ZIP code. So why not just tackle the issues themselves, rather than using localism as a proxy?

And the next question is also relevant to the more general debate between free trade and protectionism:

Why this parochialism that only seeks prosperity for those in my immediate midst?

Going Above and Beyond

Posted on by Sarah Brodsky

The St. Louis Beacon has a recent report about the Missouri Supreme Court’s decision that the state’s education funding formula is constitutional. This is from a response to that ruling by the House Democratic Caucus:

The Missouri Supreme Court today ruled that the state’s method of funding local public schools meets the minimum constitutional requirements. The court, however, did not rule that the state is doing all it can to improve the quality of public education.

When would the court ever have occasion to make such a ruling? It’s not the judges’ job to give out E’s for effort. Nor would it be possible to determine that the state is “doing all it can” on any policy issue, because the state could always do a little extra or spend a bit more money.

The caucus’ statement is correct that we shouldn’t be complacent about public schools. We can stop wondering whether the funding formula is in accordance with the Constitution, and instead focus on new ideas for reform.

Cash for Clunkers Refuses to Go Away

Posted on by Sarah Brodsky

Like a phoenix rising from its ashes, Cash for Clunkers will return this fall in the form of a rebate program for household appliances. This new program promises to be as wasteful and short-lived as the original was.

A cause for worry is that the program is growing more specific with this latest incarnation. The rebates will apply only to models of the government’s choice. Cash for Clunkers gave out free money right and left; Cash for Appliances will be targeted, with politicians picking winners.

Tort Reform 2: Reform Schoolin’

Posted on by David Stokes

Today’s Kansas City Star has an excellent article about the debate over whether tort reform should be part of the health care changes imposed on us by the federal government. The article highlights the great success tort reform has had for Missouri: 

Since the 2005 reforms in Missouri, malpractice premiums at Hagen’s practice have fallen 24 percent — a decline he attributes to the reforms. Reintjes said his premiums have declined 30 percent.

Kansas has some of the strictest liability limits in the country, so medical malpractice costs are not much of a problem there. Illinois, which is not discussed in the Star‘s article, desperately needs tort reform — but I have no faith that they will see it enacted anytime soon. Every doctor in Southern Illinois will have moved to Missouri by the time they pass it.

As I said a few days ago, I support tort reform, but don’t necessarily want another example of the federal government taking over what has long been a state issue — tort and malpractive laws. I am not willing to go along with such an expansion in federal scope just because this might be one rare instance in which I’d agree in principle with the reforms the federal government were going to pass. This should remain a state issue. Missouri has properly addressed it, and can go further if need be.

Kansas has addressed the issue very successfully as well:

The report stated that, for the fiscal year ending June 30, 2008, there were 34 medical malpractice cases involving 41 health care providers that went to a jury (In Kansas). Only five resulted in damages awarded to the plaintiffs and only three required payouts by the fund, for a total of $1.73 million.

If Illinois refuses to deal with its legal system, then Illinois will pay the price for that.

Healthy Food Doesn’t Have to Be Locally Grown

Posted on by Sarah Brodsky

This New York Times article about school lunches and nutrition correctly points out that processed foods are not the best menu choice for kids. Then it conflates “healthy” with “local”:

Ann Cooper has made a career out of hammering on the poor quality of public school food. The School Nutrition Association, with 55,000 members, represents the people who prepare it.

Imagine Ms. Cooper’s surprise when she was invited to the association’s upcoming conference to discuss the Lunch Box, a system she developed to help school districts wean themselves from packaged, heavily processed food and begin cooking mostly local food from scratch.

Locally grown produce is healthier than processed snacks, but it isn’t the only alternative to junk food. Relying exclusively on local food sources is unwise because it restricts your options to those foods that are in season and that can be grown in your climate. This is obvious when you consider the fact that no fruits or vegetables are harvested in most of the United States during the winter, when children are in school.

Choice as a Motivator

Posted on by Sarah Brodsky

An article in the New York Times reports that choice in education can motivate students. The article is about eighth-graders choosing books to read in a public-school English class — a micro-level choice as compared with the selection of schools or classrooms, which usually have the spotlight in the debate over educational choice.

Some teachers find that allowing students to choose their own books inspires them to read more and to work harder. If a choice critic saw one of those students avidly reading, he might say, “That student would have excelled at reading any book.” That’s the accusation I often hear when I mention students who are doing well in the schools their families chose for them: “The child would have worked hard in any school.” And it’s hard to dispute this claim, because you can’t observe the same child in a hypothetical different situation to compare. When it comes to choosing books, though, you can make a comparison — a teacher can assign a book to an entire class and also give students the freedom to select books on their own.

Choice in literature programs is not directly analogous to choice between schools, so the success of one doesn’t imply that the other is always best. But it does suggest that, in some cases, people thrive under conditions of choice precisely because they get to choose.

Illinois’ Tax Is Missouri’s Gain

Posted on by Caitlin Hartsell

On Sept. 1, Illinois will significantly raise taxes on alcohol, a diktat that will hurt Illinois businesses while benefiting bordering stores in Missouri. From the Post-Dispatch:

Under the new structure, the tax on a gallon of beer would rise from the current 18.5 cents per gallon to 23.1 cents, which could add about a nickel to the price of a six-pack.

The hike for other drinks, though, will be higher. The tax on wine will jump from 73 cents per gallon to $1.39, adding more than a dime to the cost of a typical bottle. And distilled spirits will jump from $4.50 per gallon to $8.55, a 90-percent tax increase.

Missouri’s alcohol taxes already were lower than those in Illinois. Missouri taxes its beer at 6 cents per gallon, wine at 42 cents and spirits at $2.

Illinois officials plan to use the added revenue to fund a series of infrastructure projects. They will find, though, that passing such a large tax hike will not result in reaping the amount of revenue that they anticipate, as some potentially large marginal number of people move their activities elsewhere. The Illinois tax hike, combined with Missouri’s lower gas taxes, will cause businesses on the east side of the state border to see a stark decrease in sales as Illinoisans flock to Missouri to purchase gas and alcohol — as well as other items, like cigarettes and food, which will further augment Missouri’s tax revenue at the expense of Illinois.

A $6.55-per-gallon price difference for liquor is significant, and the availability of cheaper alternatives across the state line means that the tax hike is less likely to lead to a decrease in alcohol consumption than simply to provide Illinois residents with an incentive to stock up during their trips across the border.

At any rate, decreased sales in Illinois will benefit Missourians as the Show-Me State’s coffers capture Prairie State dollars.

Support Us

The work of the Show-Me Institute would not be possible without the generous support of people who are inspired by the vision of liberty and free enterprise. We hope you will join our efforts and become a Show-Me Institute sponsor.

Donate
Man on Horse Charging