Homer Tourkakis: Victim of Eminent Domain Abuse

Posted on by Timothy B. Lee

 

In January of 2004, the city of Arnold unveiled a plan to re-develop a large chunk of Arnold commonly referred to as the Arnold Triangle. The plan envisioned 250,000 square feet of retail space, a Dierbergs Market and a Lowe’s store. Unfortunately, there were 52 homes and businesses already occupying the area. They don’t pay as much in taxes as the city expects to get from the big box retailers, and the city has decided to remove them in favor of wealthier businesses.

One of the property owners the city wants to displace is dentist Homer Tourkakis. He and his wife Julie have put down roots in Arnold. They’ve been in the city since 1985, when they started the practice in the Arnold Triangle. They’ve spent the last 21 years forging friendships and attracting clients from all over Jefferson County. They also raised two daughters, both of whom are now in Missouri colleges.

“When I heard about the city’s plans, I had a lot of concern and consternation,” Tourkakis said. “I was ignorant about eminent domain and all the ramifications, and the power that was available to the city. I still looked at the world through rose colored glasses. I thought the city council would be there to defend me. It didn’t take long for me and other business owners to realize that like it or not, this thing was going to happen.”


Business owner Homer Tourkakis in front of his “blighted” dental office.

On September 16th, 2005 the city voted in favor of giving Overland-based developer THF Realty $24 million in tax breaks and the authority to condemn the homes and businesses of property owners who refused to sell.

Tourkakis and his neighbors protested the plan. “I didn’t want to be part of this development program,” said Tourkakis, “I didn’t want to have to dip into my savings and start all over again.”

In response to those protests, some influential property owners were spared. The city promised to give the Veterans of Foreign Wars land within the development area and build a new VFW hall. A UMB bank was also guaranteed a place in the new plans. And Norman Moss, who sits on the city’s Board of Adjustments, managed to get his business, Arnold Stove and Fireplace, spared from forced relocation outside of the development area.

But no such concessions were offered to small business owners like Tourkakis. Tourkakis thinks that the city is playing favorites. “It just seems really arbitrary,” said Tourkakis, “why do some get red-carpet treatment, while I get my life turned upside down so the city can pick up a few bucks?” Tourkakis says that the city council members of his ward, Phil Amato and Joyce Deckman, refused his requests for help.


Board of Adjusts member Norman Moss’s business, Arnold Stove and Fireplace, will not be forced to relocate outside the development area.

Tourkakis’ property, along with about 12 others, was declared blighted by the firm of Peckham, Guyton, Albers and Viets (PGAV), the same consulting company that made the blight determination in the infamous Sunset Hills redevelopment project. In one instance, PGAV cited broken pavement as evidence of blight–never mind that maintaining roads is a city responsibility.

“They say they offer fair market value, but my business has been established in this area for years. I’ll have costs that ‘fair market value’ simply won’t cover. What about my loss of highway traffic? What about the risks I incur?” Tourkakis asked. “The appraisals were a joke. They looked at property that was miles away from mine. Everybody knows they lowball you.”

The developer, THF, did go through the motions of negotiations. THF principal Allen Bornstein visited Tourkakis on three occasions. But Tourkakis charges that the relocation offers made to him were vague and inadequate. “They just wouldn’t talk seriously about a plan,” said Tourkakis. “At one point, Bornstein said to my attorney, ‘Look, I’m not in the dental building business.’ They all seemed pretty convinced that they could push me where they pleased. They were pretty arrogant.”


A “blighted” home a block away from Tourkakis’ dental practice.

The Tourkakis dental practice isn’t as large as Dierbergs or Lowe’s. He employs a staff of three full-time, fully health-insured persons, two of whom are Arnold residents. His practice is one of a handful which treats Medicaid patients, including the elderly and the developmentally disabled. Treating Medicaid patients who can’t pay their bills means operating at a loss. The government only reimburses Tourkakis ten cents for every dollar he spends treating those patients. “I see doing it as part of being a member of the community,” says Tourkakis, “helping out the community makes for a stronger community.” Tourkakis’s practice has treated Medicaid patients for 21 years.

In the coming weeks, the developer must make a final buyout offer to the remaining property owners, who number about 15. If they can’t get the contracts, they’ll ask the city to file a condemnation lasuit against the property owners.

“It kind of makes you wonder why you work so hard to build something,” said Tourkakis. “If they’re just going to take it away from you, why bother?”

Timothy B. Lee is an editor at the Show-Me Institute. Jonathon Burns is a student at Truman State University.

 

Better Teacher Pay Would Improve Math and Science Instruction

Posted on by Timothy B. Lee

 

In many schools across the country, students hand in lab reports and math homework to teachers who have no background in science or math. The Missouri Department of Elementary and Secondary Education says that Missouri schools suffer from teacher shortages in those subjects. Governor Blunt has pledged to address the problem. He held a Math and Science Summit last month, and he recently named twenty scholars to a Math and Science Alliance.

Such state-wide initiatives are a good start, but we’re unlikely to solve the problem until changes are made at the local level. Unfortunately, when it comes to hiring math and science teachers, school districts’ hands are tied. Under Missouri law, school districts must use rigid salary schedules that apply to all teachers. They can’t offer better pay to teachers of shortchanged subjects, or to teachers with valuable credentials and experience. Those restrictions prevent school districts from hiring the best teachers. Crucial subjects like math and science are the hardest hit.

What causes a teacher shortage? In a recent study, University of Missouri economist Michael Podgursky looked at public school teachers’ wages compared to the wages earned in other professions. He found that teachers as a group aren’t underpaid, but some individual teachers are. Most teachers, if they weren’t teaching, would probably find jobs in nearby fields like social work and library science. Teachers earn more than those professionals on average.

However, math and science teachers might choose to work in architecture or engineering—fields that pay better than teaching. Podgursky found that teaching is an attractive position compared with the other options available to English majors, but that a physics major often has much more lucrative alternatives. Therefore, when school districts offer the same salary to English and physics teachers, physics teachers are in short supply.

A National Center for Education Statistics (NCES) study of biology teachers highlights the problem. Of U.S. secondary-level public school students in biology classes, 39 percent were taught by a teacher who did not have a major or minor in biology. Some of these teachers had studied elementary education, physical education, or English. When science majors go into engineering, preparing the next generation of scientists is left to people who would be better qualified to teach Shakespeare or soccer.

Poor teacher education holds the U.S. back as it struggles to catch up with other countries in math and science instruction. Students in Asian countries such as Japan, Korea, and Singapore consistently score higher than American students on the Trends in International Mathematics and Science Study (TIMSS). The difference between U.S. teachers and teachers in other countries stands out in a TIMSS report on eighth-grade mathematics teachers’ backgrounds. In the U.S., only 41 percent of eighth-grade students were taught by teachers who had majored in mathematics, 30 percentage points below the international average.

In order to solve the math and science teacher shortage, school districts will have to break away from strict salary schedules and offer math and science teachers better pay. This past session State Rep. Allen Icet sponsored a bill that would allow districts to use hiring incentives to attract teachers with desired qualifications or experience. The state of Missouri should give districts the option to reward hard-to-find teachers. If math and science teachers are offered reasonable salaries, they’ll no longer be hard to find.

Timothy B. Lee is a policy analyst, and Sarah Brodsky is a research assistant, at the Show-Me Institute.


 

 

 

Legislation Fails to Protect Property Rights

Posted on by Timothy B. Lee

 

Is it right for the government to take your property for the benefit of another private party? Voters across the nation were outraged last summer when the Supreme Court said “yes” to that question in its infamous Kelo decision. Missouri’s elected officials reacted by pledging to change Missouri law to ensure that Show-Me state residents’ property would be secure.

But judging from the legislation passed last week and expected to be signed by the governor, they didn’t mean it. True, the legislation does impose some new requirements on cities seeking to take peoples’ homes, but it does almost nothing to prevent the use of eminent domain to benefit one private party at the expense of another. If the governor signs the legislation this week, property rights in Missouri will still be in danger.

Our legislators seem to think that private property is an issue of money and paperwork. Municipalities exercising eminent domain must pay an extra 25 percent if they take your primary residence, and an extra 50 percent if the home has been in your family for 50 years or more. And the law requires more public input, more negotiations, and more court oversight before a taking can occur.

Such tweaks miss the point. Fundamentally, property rights are about equal rights before the law. Private property places the smallest homeowner on an equal footing with the largest corporation. If the company wants the homeowner’s land, he must pay a price the homeowner is willing to accept or look for land elsewhere.

In contrast, when the law permits eminent domain for private profit, ordinary property owners become subject to the whim of the powerful and well-connected. We recently saw a clear example of the dangers of eminent domain abuse in Clayton, where the Board of Aldermen is in the process of condemning five small downtown retail establishments to make room for the expansion of Centene Corp’s corporate headquarters. The city justifies the taking on the basis that the retail establishments are “blighted,” despite the fact that downtown Clayton is one of the most prosperous neighborhoods in the St. Louis metro area.

“Blight” has become a catch-all term that allows municipal leaders to condemn anyone’s land. It was the pretext under which the city of Sunset Hills condemned properties in its doomed re-development plan, which collapsed last fall when it was discovered the developer couldn’t finance the project. And it was the justification given by St. Louis alderman Tom Bauer when he sought to condemn several homes and businesses to make room for a QuikTrip gas station—a plan that led his constituents to recall him.

Yet the legislation being sent to the governor this week wouldn’t have done a thing to stop any of those three abuses. “Blight” takings are still permitted, and no change has been made to the current “anything goes” rules for defining blight. Under the current rules, cities commission blight studies by friendly consulting companies that invariably give cities the answers they’re looking for. Such studies often cite trivial problems such as broken drain spouts, declining tax revenues, or windows that are too small for the latest fire code. Amazingly, some studies even cite poor upkeep of public streets and sidewalks as evidence of blight, even though those are the responsibility of the city government that sought the blight designation in the first place.

Even worse, the new legislation continues to allow land to be taken if a “preponderance” of a proposed redevelopment area is blighted. That means that the city can take your home even if it’s in perfect condition, as long as some of your neighbors haven’t been maintaining their properties. In Sunset Hills, several meticulously maintained homes were condemned because their owners happened to live in a neighborhood the city government considered “blighted.”

Missouri’s elected officials have failed to keep the promises they made last summer to pass meaningful restrictions on eminent domain abuse. Instead, they passed legislation that is little more than window dressing, in the hopes that that would satisfy voters’ demands for stronger property rights. Show-Me state voters shouldn’t be fooled by that kind of legislative sleight of hand.

Timothy B. Lee is a policy analyst at the Show-Me Institute.

 

Cable Consumers Deserve Choices

Posted on by Timothy B. Lee

 

“The company that had a monopoly had lousy services until competition came, and then they improved their services.”

That’s how one Texas consumer describes the increased cable TV competition his community has experienced in recent months, after the Texas legislature passed sweeping legislation to open up the cable TV market to new competitors. Another Texas consumer says, “I think I am paying too much for what I am getting and that is why I am switching.”

That’s how competition is supposed to work: several different companies compete for your business, and you choose the one that offers the best service at the lowest price. But that’s not how the cable TV industry works in Missouri. For most consumers, the only alternatives to your local cable company are satellite TV or rabbit ears.

Under current Missouri law, a new company wanting to compete with incumbent cable companies must negotiate hundreds of franchise agreements with individual municipalities. The process can take years and cost millions of dollars in attorneys’ fees. Not surprisingly, few companies have attempted it.

Sen. John Griesheimer has introduced legislation to reform the system and reduce red tape, but his bill has stalled in the Senate. He blames heavy lobbying by the cable industry, which—not surprisingly—would rather not have new competitors.

That is particularly disappointing because it comes just as several new studies find that reform would bring substantial benefits for consumers. Jerry Brito and Jerry Ellig of the Mercatus Center at George Mason University calculate that cable franchise reform could increase competition and save consumers nationwide $5.5 billion per year. Kent Lassman of the Progress and Freedom Foundation published a study last month that focused specifically on the Missouri cable market. He estimated that franchise reform could save Missouri consumers more than $100 million per year.

These predictions are borne out by experience. A survey released last month by the American Consumer Institute shows the dramatic results of the Texas franchise reform: in three of the first communities where Verizon Communications began offering video service in competition with the incumbent cable companies, more than 20 percent of consumers switched to the new service. Customers who switched since Verizon entered the markets have saved an average of $20/month on their cable bills.

But the benefits of competition go beyond saving money. Many of the “switchers” indicated they did so because they preferred the package of channels offered by the new company. Others cited dissatisfaction with the quality or customer service of their previous company. Competition drives down prices, but it also spurs companies to offer higher-quality, more responsive service. Consumers in Texas are reaping those benefits.

Unfortunately, in Missouri, the interests of consumers seem to have taken a back seat. That’s especially problematic because Missouri is in competition with other states for new investment. After Texas passed its franchise reform bill, telecom companies pledged to spend $800 million on new and upgraded infrastructure. Indiana, which enacted similar legislation last month, is seeing a similar windfall, as AT&T has promised to upgrade their infrastructure in 33 rural Indiana communities to offer new services. Virginia has passed similar legislation, and there are numerous other states considering it.

If the Missouri legislature adjourns without passing meaningful franchise reform, it is likely that the telecom companies seeking to invest in next-generation video services in 2006 will invest in other states with less hostile regulatory climates. By the time the legislature convenes again in January 2007, we will likely have fallen behind several more states.

Time is of the essence. Consumers in Texas, Indiana, and Virginia are already enjoying the benefits of increased competition. Why should Missouri consumers have to wait until next year?

Timothy B. Lee is a policy analyst at the Show-Me Institute.

 

Sharon Fitzgerald: Victim of Eminent Domain Abuse

Posted on by Timothy B. Lee

 

 

The summer of 2005 was not a good one for Sharon Fitzgerald. On Memorial Day, she learned she had inoperable lung cancer. Three days later, she got a knock on her door.

It was Jonathan Browne, head of real estate developer Novus Equities. He wanted to buy her house. And he made it clear that this was an offer she couldn’t refuse.

Sunset Hills
Michael Fitzgerald outside his “blighted” home. Sharon was too ill to come outside for this picture.

“He told us that if we didn’t sell, he’d just use eminent domain and take our home anyway,” said Sharon, “What could we do? With my health and everything and the chance to lose our home anyway, we didn’t really have a choice.”

Sharon and her husband Michael reluctantly agreed to sell. They wanted to get the issue behind them so they could concentrate on dealing with her illness. But when the time came to close on the house, they were dealt another blow: “It turned out that Browne didn’t have enough money from the banks to close,” said Sharon.

Residents say that Browne misled them and the city council about his capacity to complete the project. In reality, he didn’t have the money he needed to buy out the properties, and he was having trouble recruiting tenants for the shopping mall he wanted to build. When those facts came to light, the project collapsed.

Sunset Hills
Another Sunset Hills home condemned for “blight.”

That has put many Sunset Hills residents in a bind. Some of them had already entered into agreements with Browne to sell their homes to him, and they had made plans to move on the assumption that the contracts would be honored.

Even worse, some property owners have already moved, leaving their previous homes in a state of disrepair. There wasn’t much blight in Sunset Hills at the start of the process, but there is plenty now. Some of the most neglected homes in the neighborhood are owned by Browne, who has not kept them in good repair.

One Sunset Hills resident died without bequeathing his house to anyone, leaving the house abandoned. Sunset Hills doesn’t have any legal provision for handling abandoned property, and neighbors say that the city council hasn’t made any effort to address the problem, choosing instead to let the property deteriorate.

With the collapse of Browne’s development plan, the uncertainty faced by Sharon and Michael has only increased. There is talk of finding another developer, but that will take time. In the meantime, property values have begun to decline as the looming threat of condemnation discourages anyone from purchasing property in the area.

Sunset Hills
The home of Sharon’s parents, also condemned for blight.

Sharon and her husband weren’t the only ones whose lives were put on hold by Browne’s actions. Sharon’s parents live just down the street from her in the house they’ve owned since 1954. When Browne came to the door with threats of eminent domain, Sharon’s parents became quite frightened. “They were scared out of their minds,” said Sharon. “They’ve lived in that house for decades and they can’t afford house payments now, with their medical bills and other expenses. The entire experience has had a terrible effect on their health.”

Not all of Sharon’s neighbors were so easily intimidated. Resident Kathy Tripp decided to tell Mayor Hobbs about Browne’s strong-arm tactics. She got nowhere. “He assured me everything would be fine, but then he didn’t do anything at all,” said Kathy.

But Kathy isn’t easily deterred. She recently filed suit against Novus and Browne for fraud. The suit details Browne’s extensive harassment of residents.

Sunset Hills
This neglected property is owned by developer Jonathan Browne.

Kathy says that Browne’s harassment campaign was made possible by the city’s decision to use the power of eminent domain. When Browne approached the city with his development proposal, the city enthusiastically agreed to help him get the land he wanted. They commissioned a blight study from Peckham, Guyton, Albers, and Viets (PGAV), a consulting firm notorious for finding blighted conditions everywhere they look. After inspecting only 42 of the 262 homes, PGAV concluded the neighborhood was blighted, citing such problems as a broken rainspout, an unsettled concrete porch, and a family of four living in a 2-bedroom house. With the blight study in hand, Browne had a credible threat to use against residents who didn’t want to sell their homes.

Residents say that eminent domain has pitted neighbor against neighbor, as those who want to move blame those who want to stay, and vice versa. “I’ve been called every name in the book by some neighbors,” said Kathy. “Some people don’t like me standing up for my rights.”

But both Sharon, who signed a contract with Browne, and Kathy, who refused to do so, agree on this much: it’s not right to use eminent domain for private profit.

“It’s not right what Browne has done, or what the city has done.” Sharon said. “People’s homes shouldn’t be taken away just because the city can pocket some extra money. A hospital is one thing, but profit is different. And Brown has nearly destroyed our neighborhood, pitting one against the other. The hardest ones hit are the elderly.”

Timothy B. Lee is an editor at the Show-Me Institute. Jonathon Burns is a student at Truman State University.

 

Stadium Proposal is Unfair to Taxpayers

Posted on by Timothy B. Lee

 

Should Kansas City’s taxpayers pay for the renovation of the Truman Sports Center? Advocates for the proposal offer two major reasons for doing so. They say it will spur economic growth in the Kansas City area. And it’s suggested that if the proposal isn’t approved, the Chiefs and the Royals will move their teams to another city that’s more willing to offer them handouts.

Do stadiums really create economic development? It’s a refrain that’s heard all across the country when sports teams seek subsidies for their stadiums. Unfortunately, it isn’t true.

Supporters like to focus on the new economic activity that inevitably occurs around the stadium. But they forget that a new or renovated stadium is in competition with a region’s existing restaurants and entertainment venues. Although the bars and restaurants immediately adjacent to the stadium may benefit from the new facility, that additional business may be drained away from other parts of the city.

Moreover, when touting the economic benefits of a new stadium, supporters rarely take into account the job losses inflicted by new taxes. When a new stadium is financed by tax dollars, every dollar taxed away to finance the stadium is a dollar that would otherwise have been spent by a private individual or business elsewhere in the economy.

Indeed, the evidence bears that out. The Cato Institute published a study in 2004 that examines the impact of new and renovated stadiums across the country. On average, they found that a new stadium project has a negative impact on the economic performance of the surrounding metropolitan area.

So the benefits of stadium subsidies to taxpayers are debatable at best. What’s indisputable is that the tax would be a windfall for the owners of the Chiefs and the Royals, who have spent hundreds of thousands of dollars promoting the proposal. Most private businesses are required to spend their own money if they want to upgrade their facilities. It’s hard to see why sports teams should be any different. It’s true that sports teams generate new jobs and tax revenues for the state, but so does every other successful business. There’s no reason to single out professional sports for special treatment.

In addition to touting the economic benefits, supporters of the stadium tax suggest that if the referendum fails, the Royals and the Chiefs will leave for another city that’s more willing to offer handouts. Sports teams have become adept at playing cities against each other, using the threat of relocation as a means of extracting ever-larger handouts from cities.

That’s a shame. Kansas City’s sports fans are known for being among the most loyal in the country, sticking to their teams through thick and thin. It’s disappointing to see that their loyalty is not being reciprocated by the teams they love. The proposed stadium renovation is a bad deal for taxpayers, but more importantly, it’s unfair to fans. It’s not right for the Royals and the Chiefs to use their fans’ love to line their own pockets.

Timothy B. Lee is an editor at the Show-Me Institute.

 

Saint Louis Can’t Afford an Earnings Tax

Posted on by Rex Sinquefield

Saint Louis faces a sad irony. It boasts cultural institutions that many larger cities envy — its symphony, opera theatre, botanical garden, art museums, and zoo are among the best in the nation. Its professional and collegiate sports teams have a history of success and draw from the across the Midwest. The entire world recognizes the arch. The city is home to prominent universities, one of the nation’s top-ranked medical schools and a thriving biotechnology corridor. It is filled with beautiful parks, neighborhoods and architecture. All of these advantages ought to draw residents and businesses into the city.

Sadly, however, the city has been on a downhill slide for over 30 years. After adjusting for inflation, total personal income within the city limits has been falling since the 1970s. While the Saint Louis suburbs have been growing steadily, city residents collectively take home less money, in inflation-adjusted dollars, than they did three decades ago. Businesses have been leaving too. In 1970, the majority of Saint Louis area workers had jobs in the city. Today, only 20 percent work within the city limits. Most of the region’s businesses are now in the suburbs.

How can a city that has so much going for it turn in such a depressing economic performance? We believe that the city earnings tax is a major culprit. Of course, many factors contribute to a city’s economic performance. But compare Saint Louis’s performance with that of Missouri’s largest city without an earnings tax — Springfield. Over the same 35-year period, as Saint Louis has been stagnating, total personal income in Springfield has tripled. And Springfield has managed to keep the overwhelming majority of its jobs in the city. Springfield’s share of employment in its metro area has fallen only slightly, from 92 percent to 88 percent.

The same pattern can be seen across the nation. A new Show-Me Institute Policy Study by Mizzou professor Joseph Haslag collects data on per-capita income in 101 of the nation’s largest cities, 23 of which have an earnings tax. He finds a consistent pattern: cities with earnings taxes are falling behind their suburbs in per capita income faster than the cities without earnings taxes.

As Haslag’s report explains, this is what economic theory predicts. Economics tells us that businesses and workers will both seek to locate where their after-tax returns are the highest. The earnings tax penalizes workers and businesses for doing business or residing within the city limits. It’s hardly a surprise, therefore, that the vast majority of Saint Louis–area job creation occurs in the suburbs.

Of course, few will dispute that the earnings tax harms the city. It is not a popular tax. But because it accounts for 16 percent of the city budget, some people consider eliminating it politically impossible. They ask “What services would you cut to get rid of this tax?”

This is the wrong question and the wrong way of thinking about this issue. The earnings tax is killing the city. If we continue as we have, driving residents and businesses into the suburbs, the bad economic news will continue as well. Thirty years of decline will become 40, then 50. The city’s budget woes will only become more severe, and cuts to city services will become inevitable.

On the other hand, if we replace the earnings tax with something more benign, the city will boom once again. That will mean new tax revenues, which will create plenty of room in the budget for improved city services.

Show-Me Institute scholars are actively exploring ways to fix the problem and will present these ideas in the coming months. But the one thing we know is that something has got to change. As long as the earnings tax is on the books, it will continue to hold back the city we all love. Some ask how we can afford to cut the earnings tax, but we ask: can we afford not to?

Rex Sinquefield is the president and Timothy B. Lee is the editor of the Show-Me Institute.

One-Size-Fits-All Education is the Wrong Direction

Posted on by Timothy B. Lee

Governor Blunt has proposed that schools be required to devote 65 percent of their budgets to classroom instruction. He deserves credit for highlighting the need for educational improvement, but unfortunately, his plan is more likely to lead to accounting gimmickry than genuine improvements in student performance. Instead of micromanaging the public schools, he should throw his weight behind school choice proposals that will empower parents while spurring public schools to improve.

The governor is right that more resources need to be devoted to instruction rather than to administrative overhead. But such changes will only be effective if they are embraced by principals. If schools merely comply with the letter of the law—say, by assigning a few of their administrators to supervise study hall for one period each day—that won’t do a thing to improve educational outcomes. And it will create added paperwork for schools that are already doing a good job.

Governor Blunt’s proposal rightly focuses on holding schools accountable. However, it’s important to ask: accountable to whom? The governor’s plan holds them accountable to state bean counters, by dictating how they spend their money. But what needed is to hold schools accountable to their customers: parents.

The best way to do that is to give parents more choices, so that if their children are not leaning in their current school, they have the option of taking them to a school that will do a better job. Only then will public school administrators truly feel the urgency to make the tough choices necessary to raise student achievement.

Opponents of the governor’s 65 percent plan have pointed out that out that not all districts—or all children in those districts—are the same. They’re right. Local school boards need the flexibility to decide how to make the best use of their limited resources. Different districts have different student bodies with different needs. One-size-fits-all education won’t work.

But that analysis applies to individual students, too. Just as each school district needs the flexibility to make educational choices tailored to the needs of the children in their districts, each parent needs the flexibility to choose the best educational option for his or her child. There is no reason to think that all the children in a particular school district need the same kind of instruction. One child might do best in a large school with a lot of extracurricular activities. Another might thrive in a small school where each student gets more personal attention. Some children might need an environment of strict discipline, while another might flourish in a school that lets students work at their own pace. Some might be interested in science, while others might be interested in arts or foreign languages.

Instead of further centralizing education with a one-size-fits-all spending rule, we should be exploring ways to increase choice and diversity in our education system. No two school districts are alike. And neither are any two children.

Timothy B. Lee is an editor at the Show-Me Institute. The mission of the Show-Me Institute is to to research, develop, and advance public policies that enhance economic growth and opportunity for all residents of Missouri.

‘A La Carte’ Cable: Bad Economics, Bad for Consumers

Posted on by Timothy B. Lee

In the 1991 remake of the classic movie Father of the Bride, Steve Martin goes into a grocery store and begins ripping open hot dog bun packages. When confronted by a store clerk, he explains: “I’ll tell you what I’m doing. I want to buy eight hot dogs and eight hot dog buns to go with them. But no one sells eight hot dog buns! They only sell twelve hot dog buns. So I end up paying for four buns I don’t need. So I am removing the superfluous buns.”

Martin’s character would probably have favored government regulation of bun-packaging practices. More recently, activists have begun demanding “unbundling” in another industry: they want to require cable TV companies to sell channels “a la carte” rather than bundling them together in “tiers.”

This effort to force cable companies to sell their cable channels individually is just as misguided as Martin’s demand to purchase individual hot dog buns. Companies don’t bundle products together to “force” customers to purchase things they don’t want. Rather, bundling is a mechanism for lowering the per-unit cost of goods and services by spreading costs over a larger number of units. That benefits consumers because the price per bun—or per channel—is lower than it would be if the company were forced to sell their product one piece at a time.

This is easy to see in the case of hot dog buns. The price of a 12-pack of buns includes the manufacturing costs of the buns, but it also includes the labor and materials needed for packaging, shipping, stocking, and ringing up the product. Packaging a 12-pack of buns, for example, might only require three times as much material and labor as packaging an individual bun by itself, thereby reducing the per-bun packaging costs by a factor of four. These savings are passed onto the consumer.

The same can be seen in another example of bundling—the newspaper. Some readers read the business section but not the sports section. So why don’t newspapers let their customers pick and choose which sections of the newspapers they want to receive?

The reason is that most of a newspaper’s costs don’t vary by the number of customers who take a particular section. Delivering the paper, for example, costs virtually the same whether the paper is fat or thin. And the columnists and reporters who produce the content in the sports sections will collect the same salary regardless of how many readers get their section. So the better question is: if it doesn’t cost more, why not include every section in every paper?

Precisely the same considerations apply to cable TV. Most of the costs of delivering cable content to a consumer’s home are fixed costs that don’t change with the number of channels an individual subscriber receives. The Fox News Channel, for example, costs the same to produce whether it has one viewer or a billion. And the infrastructure that delivers that content to a consumer’s home costs virtually the same to deploy whether the consumer takes one channel or 100.

Advocates of a la carte pricing seem to think that, if 50 cable channels cost $50/month, then one cable channel ought to cost $1/month. But that’s absurd. Taking only one channel doesn’t make cable infrastructure any cheaper to build or maintain. In fact, more staff might be needed to cope with the greater administrative overhead of keeping track of which customers have chosen which channels.

But won’t cable companies at least save money by not having to pay as much in license fees to the studios that create television channels? It’s not likely. Cable channels keep their rates low by spreading the costs over tens of millions of households. If the number of subscribers per channel dropped dramatically, the channels would be forced to raise their rates dramatically.

In practice mandating “a la carte” pricing would force cable companies to drastically raise per-channel prices in order to cover their costs. The result would be that consumers would pay about the same, on average, but would get a lot fewer channels for their money. That’s every bit as irrational as Steve Martin’s bun crusade.

Timothy B. Lee is an editor at the Show-Me Institute, a non-partisan public policy research organization based in St. Louis. This article originally appeared in the Chicago Sun-Times.

 

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