The Future of Highway Funding

Posted on by Abhi Sivasailam

The Kansas City Star reports on the increasing support for a plan to scrap and replace the fuel tax. The article cites rising public concern that the current revenue stream for highway and transportation projects, structured around fuel taxes, is unsustainable.

In recent years, public highway funds have been shriveling. In response to concerns about environmental impact and personal budget costs, the public’s automobile preferences are slowly and surely shifting toward increasingly efficient cars with higher gas mileages, or cars that bypass gasoline fuel altogether. Is implementation of a mileage tax the best way to confront these trends?

On the state level, Oregon has experimented with this idea, with some degree of success and enthusiasm by the trial participants. Adam Stein of Grist explains how the system worked:

A small GPS receiver in participants’ cars tracked miles driven. When participants went to the gas station to fill up, a wireless scanner at the pump detected the GPS receiver and recorded the car’s current mileage, which was then sent to a central database to determine miles driven since the last payment. No specific location data was transmitted. The payment system at the gas station applied either the standard gas tax (for cars that didn’t have a GPS system) or the mileage tax (for participating cars). The experiment was designed to be revenue neutral, so fees were about the same in either case.

The Oregon experiment produced high satisfaction (91 percent of participants preferred the system to a fuel tax), and curbed both congestion and average driving times.

On the national level, Transportation Secretary Ray Lahood is a vocal supporter of phasing in a mileage tax system, a view which has been shot down by the Obama administration.

Problems abound with mileage tax systems, including — but certainly not limited to — high compliance costs (imagine retrofitting thousands of old cars with GPS transmitters!), interference of privacy rights, and ineffective distortion of driving behavior. Further, as economist Mike Moffatt notes, by removing incentives for purchasing fuel-efficient cars, mileage taxes feature all of the drawbacks of the fuel tax (regressive, decreasing travel, increasing prices of transported goods), while sharing none of its virtues. His solution? Make up for lost revenue by raising the fuel tax even higher.

In Missouri, revenues have been facing downward pressure for the past few years and have been falling at an average rate of 3 percent. The state’s highway budget is hobbling on, despite inflows of stimulus money. Missouri needs to act. Should Missouri join the ranks of other states like Ohio, Pennsylvania, Florida, Colorado, North Carolina, Oregon, Idaho, and Minnesota by experimenting with a mileage tax system? Should we raise fuel taxes? Should we stand by and do nothing, allow the system to die, and replace it with a private one? Your thoughts, please!

Puppy Mills Are Terrible, But Is Licensing the Solution?

Posted on by David Stokes

The attorney general’s office has recently announced a crackdown of sorts on unlicensed dog breeders in Missouri, commonly referred to as puppy mill operators. Combest has linked to a number of the stories.

This is a tough call. I love dogs, but I dislike licensure, and the question is whether the benefit of regulation in this case would outweigh the government intrusion into private commerce. It very well might. I don’t want to be seen for one second as defending puppy mills, which can be a heartbreaking industry. We have a dog, Marleigh, which: a) I adopted from the APA (a shelter here in St. Louis) about 10 years ago; and, b) was named by me years before that book or movie came out, I swear.

The argument for licensure of dog breeders is pretty simple: You have to have licensure so inspectors know who to check up on, to ensure they are following health and safety standards. It’s the same argument used to justify licensure for a lot of other industries, but because we are dealing with living creatures in this case, the intervention has more validity to me than it does for most other occupations.

Licensing and the current crackdown are probably valid in this case. There are certainly far worse examples of occupational licensing in our state, where the real goal is to limit competition. But I still think that the most important thing that the people of Missourians can do to reduce the prevalence of puppy mills would be to stop buying dogs from breeders and start getting them from shelters. If we all did that, the solution would solve itself without the heavy hand of government.

What Does the Earnings Tax Cost Saint Louis and Kansas City?

Posted on by Joseph Haslag

Missouri’s two largest cities are shrinking relative to the rest of the United States. The city of Saint Louis is shrinking, period.  From 2000 to 2007, total personal income in Saint Louis averaged a whopping 2.1-percent annual decline when adjusted for inflation.  Taking a longer view, from 1990 to 2007, the U.S. Census Bureau reported that Saint Louis experienced a drop in total personal income — despite the fact that the 1990s were one of the most prosperous economic eras in American history. Even during normal or positive economic climates, Saint Louis seems to have some defect inhibiting its growth.

A similar, though slightly less dire, tale could be told of Missouri’s other economic giant, Kansas City. Since 2000, Kansas City has also recorded declines in personal income. The first eight years of this decade there have been just as bad as the situation in Saint Louis, with Kansas City having suffered a 2.3-percent average yearly drop in real personal income. However, the city capitalized on the prosperity of the 1990s slightly more than did its cross-state rival. Going back to 1990, Kansas City has treaded water, experiencing anemic income growth during America’s so-called “Great Moderation.” For comparison purposes, personal income increased nationwide at an average rate of 2.3 percent per year between 1990 and 2007.

Though neither city can completely attribute its woes to one bad policy, they share a common element: Both cities have implemented a 1-percent earnings tax. Under the prevailing school of thought, an additional 1-percent tax assessed on those working or living within city limits is insignificant. Indeed, proponents rationalize, the rate is low enough that it could not possibly harm a city economy. Both Saint Louis and Kansas City also have infrastructure advantage over the suburbs; all roads lead to the central business district. But technological gains are rendering infrastructure advantages obsolete. As technology and transit become cheaper, the earnings tax may actually be shifting the advantage toward suburban or even out-of-state areas. Springfield, the state’s third-largest city and one that does not employ an earnings tax, has seen much lower rates of economic suburban migration and substantially higher rates of personal income growth than either Kansas City or Saint Louis.

What would a future without the earnings tax look like for Kansas City and Saint Louis? We tried to answer this question by estimating the growth rate for each city if the tax were eliminated. According to our calculations, ending the tax would reverse Saint Louis’ current negative growth rate. If Saint Louis were to eliminate its earnings tax, our projections indicate that during the next 25 years, the cumulative discounted income gains would be $1.5 billion. If Kansas City were to do the same, its cumulative discounted income increase would be even more substantial, totaling $3.2 billion additional dollars in additional personal income for the next generation.

Missouri’s two largest urban areas are in danger of ceding their economic tax base to other parts of the state, and to Illinois and Kansas. If current trends continue, development and entrepreneurial activity will increasingly eschew locations within the city limits of both Saint Louis and Kansas City. Instead, they will opt for sites farther from the urban core, but that offer tax advantages to workers and entrepreneurs.

Armed with measures of the lost potential in each city, it is time to implement tax policies that will raise the living standards in Missouri’s urban core. Important questions remain: Most importantly, how does one replace the revenues from the earnings tax? Future studies will explore solutions. Let us begin, however, with a simple agreement: Ending distortionary policies like the earnings tax is certainly a step in the right direction.

Joseph Haslag is executive vice president of the Show-Me Institute, a Missouri-based think tank, and a professor in economics at the University of Missouri–Columbia. Alex Schulte is an intern at the Show-Me Institute.

 

Addressing Charter Enrollment Disparities

Posted on by Sarah Brodsky

This is from an article about charter schools in Portland, Ore.:

School board members in Portland worry that a large influx of charters could foster a two-tiered public school system, pitting small neighborhood schools with more disadvantaged and minority students against charter schools that typically attract more middle-income and affluent white students.

I haven’t seen demographic data for Portland’s charter schools, but I was surprised by this assertion because most charter students nationwide are not white and affluent.

Reading through the rest of the article, I can imagine why the pattern would be reversed in Portland. Portland’s public school district turns down charter application right and left — a couple have opened, despite the district’s disapproval, after appealing to the state.

Of the charters that made it through the application process, several center around trendy hands-on learning philosophies. That’s fine, but such schools appeal disproportionately to well-off parents. Disadvantaged families generally prefer structured academics and extra classroom time, not free exploration. Those aspects of KIPP charter schools have attracted inner-city minority students wherever they open, but there isn’t a single KIPP school in the entire state of Oregon!

Increasing charter school diversity is an admirable goal. To achieve it, Portland will have to allow a wider variety of charter schools to compete. It wouldn’t hurt to advertise charters to minorities, either. Look at these statements from the opening of the article:

Southwest Charter School sits squarely in the center of the city, just steps from the Willamette River, off a busy street in a commercial district, with almost 200 kids enrolled. But most people don’t know the public school exists.

That’s no accident.

Portland Public Schools doesn’t mention Southwest Charter in its literature or on its Web site.

Is it any surprise that disadvantaged students are left out of schools that are kept under wraps? I don’t know whether it’s appropriate to feature charters on the district website, but there are other ways to spread the word so charters’ existence will no longer be a secret.

Confusion Over CIDs in Springfield

Posted on by Caitlin Hartsell

After a debate about CIDs in the comments of my post about tax stacking, I came across an article in the Springfield News-Leader about the city council’s dilemma regarding Community Improvement Districts, or CIDs. The Springfield city council recently permitted a CID because the councilmembers did not know whether they legally had the authority to reject it:

However, the state statute that created CIDs includes language that appears to give city governments the legal muscle to turn down such proposals, reading: “the governing body of the municipality may adopt an ordinance approving the petition …”

City attorney Dan Wichmer said the council cannot reject a CID based purely on a philosophical opposition to raising taxes and, in fact, has limited power — the power only to review whether the sales tax petition meets state guidelines.

The petition did meet the guidelines that more than 50 percent of the property holders and owners of more than 50 percent of the total property must sign the petition.  The Springfield City Council was hesitant to vote it down after a lawsuit last year in Blue Springs when its council rejected a CID.  The Springfield council passed the Commercial Street CID hoping to avoid a lawsuit.

There should be no such confusion about whether a CID can be rejected by a city council.  Councils should be able to vote down higher taxes in their areas without fear of lawsuit.  One hopes that clarification, whether legal or otherwise, might prevent this sort of confusion from happening in another town.

Cap and Trade Dangerous for Missouri

Posted on by Caitlin Hartsell

A cap and trade bill was narrowly passed in the House of Representatives on Friday afternoon. If passed in the Senate, the bill would set a ceiling for carbon and greenhouse gas emissions, then allowing companies to buy and sell permits to produce more.

This cap would severely damage the coal-reliant Midwest economy, while being ambiguously effective (even the Progressive Democrats of America agree that it won’t work.) The Missouri Public Utility Alliance estimates the legislation could bring as much as an 80-percent increase in energy prices during the next 20 years. Science Applications International Corp. estimates that the Missouri economy would lose between $2.7 and $3.7 billion per year from cap and trade.

The legislation would result in high costs across the country. The Congressional Budget Office estimates that cap and trade will cost each American household $175 in higher annual energy costs by 2020. However, this analysis has been rebutted by other groups that say the CBO ignored the negative impact that this legislation would have for the GDP as a whole. The Heritage Foundation has released a report estimating that the bill would lead to an extra $1,870 in annual energy costs for a family of four by 2020, and $6,800 by 2035. This would amount to a huge tax increase on Americans, especially on the poor, who spend a higher percentage of their income on energy.

Some might argue that this high cost is worth the environmental gains that cap and trade might bring, but such projections are controversial. Previous cap and trade regulations in Los Angeles and Europe have failed to deliver on their promises, creating energy delays and huge profits for utilities without leading to reduction in emissions. A relevant op-ed in the Philadelphia Inquirer points out that the U.S. bill would allow companies to profit from polluting during the next 20 years, without any real environmental improvement.

On top of all this, the Competitive Enterprise Institute has released a report showing that the Environmental Protection Agency has been using outdated data to support its conclusions about how severe global warming is. According to this report, the EPA has ignored developments that include “a continued decline in global temperatures, a new consensus that future hurricanes will not be more frequent or intense, and new findings that water vapor will moderate, rather than exacerbate, temperature.”

There is still debate about how bad the climate change situation actually is, and much dispute about whether cap and trade will even be effective in reducing carbon emissions.

Existing evidence suggests that cap-and-trade legislation would hurt Missourians without providing the results claimed by advocates. More successful alternative routes to a reduction in emissions might include alternative and nuclear energy, solutions worth trying before we impose the largest effective tax increase in the history of the United States.

Panhandling, Government Programs Both Ineffective Solutions for Alleviating Poverty

Posted on by Abhi Sivasailam

When a child takes a tumble, incurring broken bones and bruises, we all know better than simply to slap Band-Aids on some of the scrapes and be satisfied. We recognize the implicit silliness of Band-Aid solutions like this one, and understand how they could actually prove dangerous. Yet, what we recognize as irresponsible in our personal lives we sometimes permit as acceptable — even praiseworthy — when we make public decisions.

In a recent Post-Dispatch article, Adam Jadhav explores how this terrible irony rears its ugly head in the realm of charitable giving to panhandlers. The article discusses the growing prevalence of pandhandling in the city, and questions the personal and social benefit of giving to public beggars.

Jadhav argues, echoing the views of entrenched outreach organizations such as New Life Evangelistic Center and St. Patrick Center, that there are other avenues available to panhandlers beyond mere begging that are fundamentally better suited to addressing the issues of individual homelessness and poverty. Poverty outreach organizations have for years pleaded that the public divert the funds they ordinarily give to street beggars, and give it instead to organizations that can achieve economies of scale, maximize efficiency, and give the impoverished the targeted amount and type of aid they need to become self-reliant. To that end, government is not the solution either.

It is heartening that the Post-Dispatch article endorses private solutions to public problems like homelessness and poverty. In these situations, increasing government support for the impoverished amounts to yet another Band-Aid solution. Besides, government services cost money, and raising taxes reduces private-sector productivity and as a result leads to cuts in other more useful and more sustainable avenues of recourse for the poor.

The article presents several anecdotes from the trenches of homelessness. Here’s an interesting one:

For James Scott, a captain with the Salvation Army, begging did nothing but prolong his days on the street. He was homeless on and off while fighting a crack cocaine addiction in the late ’80s and early ’90s.

He spent days “working a trail” among charities for food and street corners for drug money. Only when he hit bottom and enrolled in a Salvation Army rehab program did he get clean.

He still gives a dollar from time to time, even knowing how little good it will probably do.

“We should never lose our compassion,” said Scott, 49. “But I can say from my experience, it was never a few dollars that got me clean. I needed real help.”

Band-Aid solutions are not only ineffective at helping Scott and his ilk, they are dangerous. Charity on the streets is a great way for citizens to spend away their individual and collective guilt; it forms a rationalization for closing one’s eyes to underlying problems like deep recessions, shocks to food prices, corruption, poor education, poor infrastructure, poor social integration, and poor mental health. Homelessness is a problem and poverty is a tragedy. By indulging panhandlers, we fail them and fail the cause.

Bill McClellan on Property Taxes and Country Clubs

Posted on by David Stokes

I am a huge Bill McClellan fan. For those of you outside of St. Louis who are not familiar with him, he is the primary columnist for the Post-Dispatch. My stepfather is a friend of his, and I have had the pleasure of meeting him a few times, including going to a Cards-Cubs game with him a few years ago.

McCellan had a very interesting column this past weekend, about how the state assesses golf course property. He claimed that state officials are “subsidizing” private country clubs by charging lower taxes than they charge for public courses. This is a very exciting topic for geeks like me, because the nexus of property taxation and country club golf is something I am well qualified to write about.

This question is similar to the debate we have had in the comments sections of other posts about tax incentives and abatements. One view — let’s call it the “low taxes at all costs” view — is that lower taxes are always good, in every case, for anyone, for whatever reason. Another view, which I generally hold, is that taxes should be low, but that they should also be as evenly spread out as possible — a view which can, in certain instances (like TIF), lead to arguments against lower taxes for certain taxpayers in favor of lower taxes across the board.

Golf courses in Missouri are assessed at the residential property rate of 19 percent — except for municipal courses, which are tax exempt, as McClellan states. The dispute at the heart of his column is that country club property other than the course itself, such as a clubhouse, is also taxed at the residential rate, while public course property, like a driving range, is taxed at the commercial rate of 32 percent.

How do these differences work out in practice? Tower Tee, the public par-three course in Affton — which lies at the heart of McCellan’s column, and which almost every St. Louisan is aware of — paid $77,692 in property taxes for 28 acres during 2008, according to St. Louis County public records. It paid those taxes on an appraisal of $3,162,700 — about 85 percent of that in the commercial classification.

Glen Echo Country Club, in nearby north St. Louis County, paid $65,128 in property taxes on 130 acres, with an appraisal of $3,252,800 — all residential.

Westborough Country Club, in the Webster-Kirkwood area, paid $95,057 on 73 acres and an appraised value of $7,476,600 — almost all of that at the residential rate.

So, the total tax bill for Tower Tee does not seem out of line or unfairly high here. Consider that the main reason it is smaller than the bills for other courses is that it’s a par-three course. If it were a full-sized course, that land would be taxed at the lower residential rate.

The general consensus among those I discussed this with here at the Show-Me Institute was that the overall rates should be equalized, and that the total property for all golf courses should be taxed at the lower residential rate. Some thought that a land-heavy use such as a golf course deserves some type of general tax reduction, so as not to price the game out of the ability of most people to play. This sort of falls in line with how we all agreed it made sense to tax agricultural property at an even lower rate than residential or commercial, at 12 percent.

While I have no problem with lowering the tax rates on public golf courses, I was somewhat alone in disagreeing with McClellan by not seeing anything wrong with the current situation. One of the differences between commercial and residential assessments is that the former aren’t set just based on market value, the way homes are. Commercial assessments can be set several ways, and one of the most common methods involves expected income generation. A popular driving range like Tower Tee is going to generate a substantial cash income, and that is one reason its commercial assessment is so high. It would be unrealistic to attempt to assess the property of country clubs in that fashion, because they are not trying to generate a profit from their property. Although commercial property can be assessed by market value of the land, the primary alternative use for land golf course land is to turn it into housing developments, so perhaps that’s an argument in favor of applying the residential rate.

The most important thing to me is that the clubs, even as non-profit entities, are still paying substantial property taxes — as they should be. They all have to compete against municipal courses, which pay no taxes at all. I hardly think the rest of us you are subsidizing country club membership just because state law sets their property tax rate at 19 percent. Again, though, I see nothing wrong with lowering the rates for public courses, too, in the interest of equity.

Then again, maybe Rodney Dangerfield was right in what he said about country clubs. (Scroll down about 49 clips.)

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