At first glance, some might assume this drop is simply a byproduct of the state’s post-pandemic Medicaid redeterminations. But as I’ve written before, I fear that explanation doesn’t add up. Permanently disabled recipients aren’t people you expect to lose coverage once their eligibility is established, given that they’re unlikely to re-enter the workforce. Instead, the data and a new quote suggest a different story: PTD shifting.

As I’ve explained in more detail here, PTD shifting is the process where individuals who would normally enroll in Medicaid due to their disability instead enroll as a healthy adult in the Medicaid expansion population. Why would they do this? For recipients, it makes sense because gaining access to Medicaid coverage through expansion is a much easier process. They don’t need to prove their disability; they just need to be able to show that their income qualifies. And for the state, it makes even more sense because the federal government pays 90% of the healthcare costs of someone enrolled in Medicaid expansion but only about 65% for disabled individuals.

People with disabilities often have a variety of healthcare needs, which in turn means paying for their coverage is quite expensive. If some of these costs can be shifted to the federal government, it could yield huge savings for the state. The problem, of course, is that this is explicitly not allowed. Federal law requires that individuals enrolling in the Medicaid expansion population be “newly eligible” for services, meaning they couldn’t otherwise qualify for the non-expansion part of the program. While I have no proof this is what Missouri is doing, this is a trap I’ve feared our state could fall into since before we adopted Medicaid expansion.

My concern was reinforced in a recent article quoting Timothy McBride, the former chair of the MO HealthNet Oversight Committee. When talking about Missouri’s changing Medicaid enrollment, he stated:

Essentially, the recipients chose one door or another when choosing to enroll, and it’s a much easier path to sign up for the expansion than sign up through disability, since it can take one year or longer to become qualified for Medicaid as permanently disabled.

If his observation is true, and the federal government finds out that Missouri is effectively off-loading disabled enrollees into the Medicaid expansion population to save state money at the expense of federal taxpayers, the consequences could be severe. We’re talking hundreds of millions, if not billions of dollars, that could need to be repaid to the federal authorities.

Missouri’s lawmakers should take this warning seriously. The drop in PTD enrollment is no longer just an accounting curiosity—it’s a signal that our state may be running afoul of federal law. Ignoring this problem now could lead to both a fiscal and legal crisis later.

The post Medicaid in Trouble? appeared first on Show-Me Institute.

For Missouri, perhaps the biggest change will be the cost of SNAP going up. Unlike Medicaid, the federal government has historically paid for 100% of the SNAP benefit, with states only on the hook for 50% of its administrative costs. The OBBB increases the share of administrative costs borne by states to 75%, and has the potential to start charging states for some program benefit costs as well.

There’s a noticeable focus in the OBBB on improving program integrity in America’s welfare programs. With Medicaid, the focus was on checking program recipients’ eligibility more frequently. For SNAP, the focus is on reducing state payment error rates. Last year, the national rate of overpayment for SNAP (awarding benefits to people who don’t qualify or offering more benefits than the recipient was eligible for) approached 10%, with Missouri not much behind at 8.16%. Perhaps the most surprising thing about the payment errors is that they’re almost entirely overpayments. The error rate for underpayments barely exceeds 1%.

To be clear, there could be myriad reasons for the errors, but it shouldn’t be controversial to say that the government needs to do better. One possible explanation is that states tend toward overpayments because they aren’t responsible for the cost. The OBBB tries to address this misaligned incentive by requiring states to get their error rates below 6% by 2028; states that fail to meet this goal will need to start paying for a portion of the cost, with the share scaling by how far away the state is from the 6% goal.

All told, the SNAP changes contained in the OBBB could have a greater impact on Missouri’s budget than the changes to Medicaid. According to the Tax Foundation, these new costs could reach up to $400 million per year for Missouri if the state isn’t able to sufficiently reduce its payment error rate. It’s important to remember that the only guaranteed increase in cost for states is the higher share required for administrative services. If Missouri can find efficiencies in how it administers the program, the state’s cost might not need to go up much at all.

In the coming weeks, I’ll explain more about the OBBB’s changes to SNAP (no, these aren’t all of them), but these are the two that could have the largest impact on Missouri’s budget. Now that the federal government has finally gotten around to tackling the many broken incentives in America’s welfare system, it’s time for Missouri to step up and follow through on enacting comprehensive reform.

The post SNAP Back to Reality appeared first on Show-Me Institute.

Back in May, when the concepts for the bill were still being discussed, I wrote about several of the proposals that I thought might be included. As a jumping-off point for a more in-depth discussion of the many reforms included in the OBBB, I thought it would be helpful to first compare what made it across the finish line to the ideas I discussed in my earlier post.

• Rein in financing gimmicks: As I’ve discussed at length, states have recently been drastically increasing their reliance on Medicaid provider taxes in response to rising healthcare costs. The OBBB freezes state provider tax rates where they are today, prohibits states from adopting new ones, and begins lowering the maximum allowable rate from 6% to 3.5% over a period of years (excluding those for nursing homes and intermediate care facilities). Missouri’s current rate for its hospital provider tax is 4.2%, so this change could have an effect on the state’s budget in several years once the OBBB is fully implemented.
• Work requirements: Instead of offering states the opportunity to try work requirements for their respective Medicaid programs, as has been proposed in the past, the OBBB goes one step further by requiring states that have adopted expansion to establish “community engagement requirements” for their able-bodied enrollees. These requirements largely exempt populations that aren’t considered working-age able-bodied adults, such as pregnant women and parents with dependents under the age of 14.
• Reduce “enhanced” federal match: Decreasing the federal government’s skewed payment structure for the Medicaid expansion population was one of my only expected reforms that didn’t make it across the finish line. While this change was excluded, the OBBB does eliminate the temporary increase in federal payment share that has existed for several years, which was an effort to entice states to adopt expansion. It also reduces the federal payment rate for states that cover illegal immigrants under their Medicaid programs.

All told, the OBBB includes at least a dozen additional healthcare changes that will impact Missouri in one way or another that I haven’t mentioned above. It’s also important to keep in mind that much of the OBBB will not go into effect immediately and will be implemented in phases over the next decade. For many of the changes included in the bill, it’s far too early to confidently predict the effect they may have on Missourians or the state’s budget.

Over the coming weeks and months, I’ll dive deeper into some of these provisions as more information related to Missouri comes to light. Time will tell whether Missouri’s government is ready or capable of successfully implementing the reforms on the horizon.

The post Medicaid Reform Incoming appeared first on Show-Me Institute.

In part two of this series, I briefly mentioned that in Missouri’s recent period of overwhelming Medicaid growth, the only eligibility category that had a reduction in enrollment is people with disabilities. Today, there are approximately 125,000 disabled Missourians enrolled in the Medicaid program, which is down 50,000 since its peak in 2023, down 25,000 since 2019, and is actually lower than at any point in the past 20 years (which is as far back as the data goes).

What could possibly explain this sudden shift? One explanation, as I referenced in part one, is that Missouri is still catching up on processing thousands of program eligibility redeterminations that were paused for several years during COVID-19. But the problem with that theory is that you wouldn’t expect many people with disabilities to lose Medicaid coverage once they qualify. They, unlike several other populations such as healthy adults or pregnant women, are less likely to only need coverage temporarily or just until they can get back to work. This is why I think it’s likely that disabled individuals are simply receiving their coverage through different means.

One way this could happen is through what I’ve called “PTD shifting,” which is something that I’ve been warning about since early 2020. PTD (permanent total disability) shifting was a key component of Medicaid expansion supporters’ claims that adopting the proposal would be costless for Missouri taxpayers. PTD shifting occurs when states exploit the way Medicaid is financed to shift a significant portion of disabled enrollees’ costs to the federal government. Given that people with disabilities often have a variety of complex medical issues, providing them health coverage can be very expensive, which in turn means that shifting these high costs to the federal government could save states a lot of money. The problem is that the federal government has explicitly stated numerous times that this practice is not allowed.

To be clear, I don’t have any definitive proof that Missouri’s Medicaid agency is doing anything wrong, but the latest program enrollment data should be raising some eyebrows. If my fears are confirmed, and Missouri is practicing PTD shifting, state taxpayers might soon be on the hook for an enormous Medicaid bill. This is because once the federal government discovers a state has been wrongfully receiving extra federal funds to support its Medicaid program, the feds could require state taxpayers to pay them back, which in this case could amount to hundreds of millions of dollars.

Needless to say, Missouri’s Medicaid program deserves a closer look from our state’s elected officials as soon as possible. The longer it takes to get to the bottom of what’s going on, the more difficult and expensive the fix is likely to be.

The post Medicaid’s Checkup: Part 3 appeared first on Show-Me Institute.

The report advocates for a substantial reduction in federal spending, emphasizing the elimination of programs that are redundant or fall within state jurisdiction. The goal of this new approach is to alleviate the economic burdens imposed by excessive federal regulations and expenditures.

Missouri needs to conduct a similar exercise. The state’s budget has expanded significantly, with general revenue spending increasing nearly 50% over the past three years. As my colleague Elias Tsapelas has pointed out, this led to a “D” grade for Governor Mike Parson in the Cato Institute’s Fiscal Policy Report Card, indicating a pressing need for more disciplined fiscal management.

These reports serve as critical reminders of the importance of efficient government operations. We need a leaner government that prioritizes essential functions and empowers states to manage their affairs more effectively.

The post Does Missouri Need a DOGE? appeared first on Show-Me Institute.

The federal government has spent billions on internet expansion and hasn’t connected a single new home. California has increased its high-speed rail budget from $33 billion to $135 billion and still hasn’t laid down any track fifteen years after the program began. It’s insanity.

Another huge federal program with local implications that has failed miserably is the program to install thousands of electric vehicle chargers across the nation. $7.5 billion was appropriated toward this goal in 2021 as part of the bloated stimulus package, and by the end of 2023, zero chargers had been installed.

2024 has witnessed the installation of a few new chargers. As of this summer, the program is up to eight. All of this for something the private sector could provide. But if you leave it to the private sector, they might not install chargers exactly how the federal government wants them to, and that’s (apparently) the problem. The federal rules are so unnecessarily yet intentionally complex that they are the cause of the delays. As Reason magazine writes:

Why so little progress? Alexander Laska of the center-left Third Way think tank told Autoweek’s Jim Motavalli that the federal cash “comes with dozens of rules and requirements around everything from reliability to interoperability, to where stations can be located, to what certifications the workers installing the chargers need to have.”

Who cares what certifications the workers have as long as the chargers work? And who cares where they are located as long as they are located somewhere a car can get to? The federal government cares, of course, because the complexity of the rules is exactly what gives bureaucrats their power and allows officials to reward supporters.

EV charging mandates, subsidies, and regulations, are all unnecessary. Where there is a demand for chargers, the private sector will supply them. This is no more complex than the gas stations that have been filling up cars for over a hundred years. (Did you know that the first gas station in America was in St. Louis? I didn’t.)

$7.5 billion for eight EV chargers in three years. So typical.

The post Charging Nothing and Liking It appeared first on Show-Me Institute.

For years, I’ve written about how big of a problem the Medicaid program is for Missouri’s budget. More recently, I’ve discussed our state’s broader budgetary troubles. Medicaid has long been Missouri’s single largest budget item, and the size of the program continues to only increase. Since 2020, program enrollment has increased by more than 40%, with more than 1.4 million Missourians now on the rolls. Additionally, Medicaid’s total cost has grown by nearly 80% in just four years, from approximately $10.8 billion to $19 billion.

One saving grace over this period of skyrocketing growth is that state taxpayers have been spared from the brunt of the cost increases due to an enormous injection of federal funds. This doesn’t mean that state taxpayers aren’t paying more for Medicaid today than ever before. In fact, state spending on the program has increased by more than 70% since 2020. But during that time, Missouri also experienced a tremendous run of state revenue growth, which, taken together with the increased federal funding, has meant that Missouri’s lawmakers have staved off addressing the long-running Medicaid cost problem. Going into next year, things are going to change drastically.

The federal government has ended its “enhanced” pandemic-era match for Medicaid funding. Typically, the federal government pays roughly 65% of Medicaid enrollee’s healthcare bills, but from 2021 until very recently, Missouri has received an additional 5% for adopting Medicaid expansion, and an additional 6.2% to help cover the increased program costs from the pandemic. Missouri lawmakers will have to replace the extra federal funds with state tax dollars.

This means that, without action, state lawmakers should expect the general revenue cost of the Medicaid program to increase significantly next year, likely by at least several hundred million dollars. And given that recent reports suggest that state tax revenue growth is expected to remain relatively flat, it’s possible the cost of Medicaid might even increase by more than the state’s tax collections. If that were to happen, unless reforms were made to the Medicaid program, significant budget cuts to other state spending priorities such as education, roads, or public safety would be needed to finance Medicaid’s cost growth.

Unlike the COVID-19 pandemic, the coming budgetary shortfall is entirely predictable. The federal government gave states more than a year’s warning for when it would be reducing Medicaid payments, but Missouri’s elected officials have thus far chosen not to prepare for that reality. Successfully reforming Medicaid will take months to implement, which means that time is running out if policymakers want to make the changes necessary to steer our state clear of the budgetary shortfall that’s ahead. Let’s hope state lawmakers realize this sobering truth before it’s too late.

The post Beware the Medicaid Hole appeared first on Show-Me Institute.

For years now, I have written about how Missouri’s spending habits will eventually prove unsustainable. As a quick reminder, Missouri has set a new record for the largest budget in state history in each of the past thirteen years. Between fiscal years 2019 and 2023 alone, the state’s total budget nearly doubled, and spending of state income and sales tax dollars grew by more than 42%. In other words, this isn’t a trend that can be explained away as solely a federally fueled phenomenon.

Of course, it is true that over the past few years Missouri has received an enormous influx of federal funds as part of the response to COVID-19 and the large infrastructure bill. But as it always does, the federal government will soon begin winding down its state aid, leaving Missouri’s lawmakers with the difficult task of deciding how to fill the holes that their federal counterparts left behind.

As I explained in my report last year, Saving Federalism¸ government spending typically only grows, and lawmakers in Washington, D.C. are a major reason why this is the case. The most common way the feds have kept perpetually growing spending has been through increased financial support during times of emergency.

During the 2008 recession, and again in recent years, the federal government has offered states generous funding to keep their budgets afloat and help them avoid the need for any service cuts. But at the same time, federal officials create or expand government programs that they have no intention of funding at the same level going forward, knowing full well how difficult it will be for states to pick up more of the bill or scale back the program once the emergency is over. This is exactly what Missouri’s government will begin experiencing in 2024.

As next year’s budget requests for the state’s executive departments show, state taxpayers will need to chip in hundreds of millions of additional dollars to continue funding the services expanded by the federal government’s initiatives. Two of the most expensive examples include further extending Medicaid coverage to individuals who likely don’t qualify for the program, and continuing rate increases with state taxpayer dollars for federally subsidized child care that go beyond what the federal government will cover. To be clear, these are dollars that would otherwise be used to fund Missouri’s—not Washington, D.C.’s—spending priorities.

Making matters worse is that reports indicate that state tax collections are down compared to last year, meaning that Missourians can less afford this added expense than in years past. Going into the 2024 legislative session, it’s clear that reining in the budget should be one of our lawmaker’s top priorities. The first step should be rejecting funding for any effort to make temporary federal programs permanent.

The post Growing, Growing, Gone appeared first on Show-Me Institute.

For years, I’ve been complaining about Missouri’s IT systems and have been begging for improved data quality. Back in 2020, due to insufficient computer systems, pandemic unemployment benefits couldn’t be tied to recipient incomes, which led to the federal government paying many individuals more to stay home than to go back to work.

More recently, I’ve written about Missouri’s sluggish start to the post-pandemic Medicaid eligibility redetermination process. States often struggle to keep up-to-date income or address information on Medicaid and other welfare program recipients, which is why there are frequent checks to see whether those enrolled in these costly programs are still eligible to receive services. But for the last three years, many recipients maintained coverage because the state didn’t know that they no longer qualified, or weren’t allowed to remove them even if they did. It’s easy to see how poor data in such cases can quickly result in serious government waste.

These data limitations are a big reason why I wrote that the recently signed “benefit cliff” legislation is a bad idea. While it may sound good to slowly reduce welfare benefits as recipient incomes increase to avoid an abrupt loss of services, the government implementing something like that requires far better data than what is available. Missouri doesn’t keep real-time income data on program recipients, and often only checks earnings once per year. Even if a program tries to offer a welfare off-ramp, if eligibility is only checked once per year, all you have is another cliff.

All this to say, accountability in government spending is incredibly important, and it’s unfortunate that Missouri has fallen so far behind. But it’s also a good thing that the federal government wants to know that the summer food stamp benefits are actually making it to kids who need them—regardless of whether Missouri could get its act together to comply with the program’s requirements.

For a while now, the costs for Missouri’s insufficient computer systems were primarily borne by state taxpayers via bloated programs. But now that our state is missing out on millions of available federal funds aimed at benefiting children, it is my hope the issue of improving IT is something everyone can agree on. Let’s hope Missouri’s legislature listens and takes action next year.

The post Data’s Double-Edged Sword appeared first on Show-Me Institute.

These questions and others are addressed in this report, which also presents a program-by-program account of how education dollars are spent in the state. To read the full report, click here.

The post State and Federal Funding for Public Education in Missouri: 2023 appeared first on Show-Me Institute.

Missouri’s government grows larger every year, significantly outpacing inflation, and the federal government is the primary reason. Today Missouri is more reliant on federal aid than ever before, with more than 40 cents of each dollar spent coming from federal coffers.

The federal government primarily exercises its power over state policy through what are called grants-in-aid. These grants are transfers of money from the federal government to state or local governments to fund specific projects or programs. Upon accepting the federal funds, which are not loans and do not have to be repaid, state or local governments agree to spend the funds according to guidelines established by the federal government.

For most of American history, federal grants-in-aid were rarely used, but over the past 60 years, their influence on state budgets has skyrocketed. What were once seen as state prerogatives, such as maintaining roads, educating children, and caring for the needy, are now areas where the federal government holds enormous power. It is important to note that this loss of state control comes at a real cost to state taxpayers, emphasizing the point that these federal grants are in no way “free” for Missouri.

This report analyzes the various ways Missouri’s state government receives and spends federal aid, considers the strings attached to those dollars, and discusses how those policies have shaped the spending of state tax dollars. Finally, this report discusses the broader implications of increased state reliance on the federal government and proposes reforms for righting Missouri’s financial ship for generations to come.

Click here to read the full report.

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The post Saving Federalism: How Federal Policy Affects Missouri Spending appeared first on Show-Me Institute.

Over the past few years, my colleagues and I have written a lot about Medicaid expansion and the problems it presents for Missouri. Before voters approved the Medicaid expansion ballot measure in 2020, I wrote repeatedly about how costly expanding eligibility would be for our state, despite the ballot language suggesting the measure could somehow save money. In addition, I discussed how administratively difficult it would be to grow an already oversized program, and what that could mean for other state funding priorities.

After expansion passed, there was a long legal battle about whether the ballot initiative required the legislature to fund Medicaid expansion. In short, some legislators argued that since the expansion initiative failed to include a way to pay for the costs incurred by expansion, it was their prerogative to decide whether to pay for expansion at all (because the constitution gives the legislature exclusive authority to approve all state spending). The state supreme court disagreed and ruled that the legislature was required to find the money necessary to cover the cost of expansion. Administering the state’s largest program is more difficult than just writing a check, so the legislature now appears ready to ask voters for additional input on how they think Medicaid should be run—thus a new ballot initiative.

So far, the legislative effort is focused on three separate Medicaid issues. First, should Missouri impose work requirements for able-bodied enrollees in the expansion population? Second, should Missouri continue paying medical bills for individuals who live outside of our state boundaries? And third, should the legislature have the flexibility to decide how much money can be spent on Medicaid expansion annually, or does the program really have a “blank check”?

Since Medicaid is a partnership with the federal government, it’s not clear how easy each of these changes would be to implement, as they’d likely require federal approval as well. But I do believe additional flexibility would represent a major step forward for Missouri’s Medicaid program. And as far as I know, Missouri voters have never weighed in on these three issues before, so it will be interesting to see if they agree.

The post Another Crack at Expansion? appeared first on Show-Me Institute.

Under the proposed plan, Bi-State would operate the trolley while the Loop Trolley Transportation Development District (LTTDD) would still be liable for it financially. Bi-State would enter into a managerial and logistical support contract with the LTTDD without transferring ownership of the trolley. Leaders of the LTTDD are also asking Bi-State to reconsider the $1.26 million of federal traffic congestion and air quality improvement grants it denied to the trolley late last year.

The catch with restarting the trolley after years of broken promises and operational failures is that the federal government is threatening to claw back $37 million of grants that were used to build the trolley. At this point, the most sensible decision would be to do whatever would cost taxpayers less. This would mean doing some hard math, which I described here previously. The agenda for the Friday meeting does not indicate that a cost–benefit analysis has been undertaken.

And just as a reminder: $51 million of taxpayer’s money has already been spent on the trolley with little to nothing to show for it. As an example of things that can actually be done with that amount of money, India sent a satellite into orbit around Mars on a slightly larger budget of $74 million. I am neither advocating spending another $23 million on the trolley nor sending the trolley to Mars. But I do wish that the Loop Trolley developers had been as resourceful with our money.

But now that I think about it, sending the Loop Trolley to Mars might not be such a bad idea . . .

The post St Louis Reconsiders the Loop Trolley . . . Again appeared first on Show-Me Institute.

The top line is that test scores are down pretty much across the board. The end-of-course (EOC) assessments in English 1 and Physical Sciences are the only two exceptions. DESE has made it very clear that last year’s scores can’t be compared to any earlier years. We can wait to do that in a couple of years. But there’s plenty of information in just this year’s scores.

Here are my takeaways (bear in mind that about 50,000 students who should have taken the tests did not. We don’t have any information on the type of students who were missing, but one can guess that most high-achieving students showed up):

• Virtual learning was a failure. Eight in ten virtual or distance learning students scored either below Basic or at Basic in math. Those students have either a minimal or a partial understanding of the material. English/Language Arts wasn’t much better. Two thirds of those students scored below grade level.
• We have a math problem. Nearly one third of students tested in math—including students who learned in person and virtually—scored below Basic. That equates to almost 150,000 Missouri students with a minimal understanding of their grade level’s math.
• We have a reading problem on the horizon. One group that I have been very concerned about during the pandemic is early readers. English/Language Arts scores dropped in all the early grades. But what’s really troubling is that out of 60,000 third graders tested, 3 in 10 scored below Basic and another 3 in 10 scored at the Basic level. That’s over 35,000 third graders that will not be able to read a math book or a science book unless we take immediate action.
• Our most disadvantaged students—Black and Hispanic students, students with disabilities, low-income students, and students learning English as a second language—were the hardest hit by the pandemic. Although the scores released by DESE for these groups bundled all three subjects together, the percentages of students who scored at the Basic level or below were dismal. Eighty-five percent of Black students, 87 percent of students with disabilities, and 74 percent of low-income students demonstrated only a minimal or partial understanding of the material.

So now what? The good news is that we have money and lots of it. DESE has received nearly three billion dollars from the federal government in stimulus spending. Although most of the money is directly distributed to districts, several hundred million will be spent at the state level. Parents are worried about their children being behind and they want services now. Students and families should be consulted about their needs and money should be made directly available.

Hopefully, more detailed data will be released soon. We need to understand this as the crisis that it might be.

The post Troubling Test Results for Missouri Students appeared first on Show-Me Institute.

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The CARES Act made several large changes to the unemployment insurance system. These changes were intended to be temporary and preserve family and small business finances during the period of greatest uncertainty. Specifically, the CARES Act extended the duration of unemployment benefits, added a $600 weekly supplement to the usual state benefit amount, expanded eligibility to gig workers and many others traditionally excluded from the unemployment insurance system, and introduced other modifications such as the waiving of job search requirements to account for the unique circumstances of the pandemic. At the end of 2020, the federal government extended into March the supplemental benefit amount at a lower level of $300, and President Biden’s American Rescue Plan extended these enhanced benefits further until September 2021.

These changes to the unemployment system have undoubtedly had major effects on individuals and the economy. The additional $600 was certainly beneficial for the financial situation of the unemployed; researchers have found that additional benefits from the CARES Act resulted in 76 percent of unemployed people earning more than their previous wages on unemployment between April and July. In Missouri, the median replacement rate of UI benefits (including the $600) to lost wage earnings was 154 percent, meaning those on unemployment made 54 percent more than their lost wages. Even with these extra earnings, research has found that unemployment benefits did not harm job growth in spring and summer 2020 when lockdown restrictions made job search very difficult.

However, conditions have changed. Most businesses are open, vaccines are available to those who want them, and the unemployment rate has fallen from 14.8 percent to 6.1 percent. Are these extra unemployment benefits still necessary? Job openings hit a preliminary record high in March and anecdotally, many businesses are struggling to find workers. It’s certainly possible that the additional $300 and the long extension to September are causing people to push back their job search and extend their time receiving UI. Jobs will likely be even more abundant by the time benefits expire, thereby reducing the risk of a delayed job search.

It seems that the job market (and therefore our economic recovery) is being helped by vaccine access and business re-openings and hurt by extended unemployment benefits. However, we may be able to see the light at the end of this UI tunnel. Governor Parson announced that Missouri would end participation in the federal pandemic unemployment programs on June 12th, saying that these benefits were always meant to be temporary and it’s time to get people back to work. The federal government is also taking steps to return to pre-pandemic UI rules. Lawmakers seem to recognize that getting people back to work is a priority and enhanced UI benefits may not have been moving us toward that goal. Hopefully, these changes will help us continue to recover quickly.

The post How Are We Recovering? (Part 3) appeared first on Show-Me Institute.

We saw similar weak employment recovery following the 2009 financial crisis when endless extensions of unemployment insurance benefits discouraged some from seeking jobs and reduced job creation. Could the forces that created the “Redistribution Recession” last time also be a threat now?

One reason to be extra concerned is that people may be getting more money on unemployment than they would if they were working. The most recent federal relief package, the American Rescue Plan Act, extends unemployment benefits through at least September and maintains the $300 supplement that gets paid out on top of the usual state benefit.

Unemployment benefits are meant to provide temporary assistance for people as they look for jobs. These benefits are not intended to replace work and therefore should not put people in a position of taking a pay cut to get a job. Why would people go back to work if that’s the case? We also need to be mindful of other factors here—disincentivizing work hurts small businesses that are trying to find workers to get back up and running.

Of course, not all unemployment benefit recipients are receiving more than their previous paychecks. Some workers are getting paid too much—disincentivizing them from taking a job—while others are still left to make do with less money than when they had a job. To fix these problems, it may make sense to replace the $300 supplement with unemployment benefits that are more closely tied to previous wages.

The best way to get the economy on track is to help jobless workers avoid financial distress while still ensuring that it is financially advantageous for them to find a new job rather than remain unemployed. Putting money in people’s pockets is a temporary Band-Aid that staves off hardship. But if an unemployment insurance program delays the real cure of getting people back to work, is it really a stimulant for the economy? Or a depressant?

The post Are Unemployment Benefits Making It Harder to Find Workers? appeared first on Show-Me Institute.

Imagine painting yourself into a corner—as someone of limited means who is subject to wacky increases in the cost of something as basic as renting an apartment. I do mean wacky, with this big component in the cost of living not just doubling, but going up no fewer than eight times over the course of a single year.

That happened to me in 1975 as the sole breadwinner in a family of three. I offer this small bit of personal history as something to think about in pondering today’s news.

In the beginning of that long-ago year, I quit my job as a newspaper reporter at the St. Louis Globe-Democrat and moved to Beirut as a self-deployed freelance writer. This was shortly after the OPEC oil embargo and the quadrupling of oil prices in 1974. Thinking the Middle East would experience one of the greatest transfers of wealth in the history of the world, I wanted to be there as an observer.

My wife and I left a three-bedroom, two-bath apartment St. Louis’s Central West End. Our rent was $165 a month. With one young child, the cheapest, somewhat comparable place we could find in Beirut cost $700 a month.

The civil war in Lebanon erupted in early April, shortly after our arrival. By the end of the year, fighting in the streets of Beirut became so fierce it led to a mass evacuation of most of the city’s large expatriate business population. As a result, the Lebanese capital was suddenly “halas” —the Arabic word for finished—as the regional center for business in the Middle East. But the spending spree in Saudi Arabia, Iran, and other countries was just beginning. We resettled in Bahrain, where more sticker shock awaited. We moved into a three-bedroom, two-bath bungalow that cost more than $1,400 a month.

Why would it cost more than eight times as much money to find a place to live in the Middle East as it would in St. Louis?

The Middle East had been bitten by a strange curse—known in economic literature as the “resource curse,” or the paradox of plenty. Resource-rich countries are all too likely to squander the windfall wealth that comes from possession of precious metals or vital resources such as oil. Bubbles develop as people who have benefited the most from a sudden influx of money bid up the price of real estate and other assets that then become increasingly unaffordable for many other people.

I got lucky. I landed a full-time position with Mideast Markets, a high-priced publication that had sprung up to provide ongoing coverage of the fast-changing business scene in the Middle East. My new employer paid the full cost of our move and our housing as well. Bahrain became my jumping-off point for traveling throughout the region over the next three years.

With my own eyes, I saw the inevitability of prodigious waste in places where money was no object. I also saw how the resource curse exacerbates the divide between haves and have-nots. In Bahrain we lived across the street from a Persian family where eight sons—all in their twenties and thirties—were still living with their parents. Though they all had jobs, they had been priced out of the housing market—and this at time when others we knew were making fortunes in speculating in real estate.

Today our own government in Washington, D.C., is acting in much the same way as the governments in the newly oil-rich countries of yesteryear. Since the onset of the pandemic, our government has been passing out “free” money all kinds of reasons—from paying the unemployed to stay unemployed (knowing they would lose money by going back to work) to $3,000-a-child tax credits and $2,800 handouts to households with annual incomes of up to $140,000. And now we are seeing some of the same (if not quite so wild) distortions in housing prices and other asset values I saw in the Middle East.

I am not arguing against a safety net for the truly needy. Nor am I saying that there should be no compensation from governmental entities for government-ordered lockdowns that have forced thousands businesses to close their doors and deprived millions of workers of their livelihoods.

But where is all the money to come from to pay for what looks like a massive and ill-considered increase in the size of the welfare state? Not from current tax revenues or any gain in productive capacity. It is coming from funny money—trillions of dollars of borrowed or newly created money used to grease the wheels of an already strong recovery. If not repudiated through inflation, these financial obligations will have to repaid by American taxpayers in future years.

Good luck with that. How can making people less reliant on doing things for themselves and more dependent on getting checks from the government be a recipe for sound money and future success?

The post Return of the Resource Curse: The Trouble That Comes from Too Much Money appeared first on Show-Me Institute.

I’ve previously written about the Mercatus Center’s State RegData project, which calculates how many times each state tells its citizens what they can and cannot do. Using a similar program, researchers examined the impact that federal regulations have on individual states using the federal regulation and state enterprise (FRASE) index. Though federal regulations apply to all states, each state’s economy is made of different industries, so regulations targeted at specific industries will affect states differently.

The authors find that “[the] impact of federal regulations from 1997 to 2015 on the Missouri economy is associated with the following regressive effects:

• 93,411 people living in poverty
• 2.7 percent higher income inequality
• 180 fewer businesses annually
• 2,406 lost jobs annually
• 7.35 percent higher prices”

I’ll admit that it’s difficult to quantify these things and find direct links between regulations and these effects; there’s no specific regulation that led to one of these specific consequences. However, this novel program counts phrases that usually translate to regulatory requirements (like “shall” and “must”) to track changes over time. The authors then use this data along with data for other economic indicators to find the regressive effects. Given what we know about regulations generally, these numbers make sense and are pretty staggering.

From 1997 to 2015, the effective federal regulatory burden on Missouri increased by 54 percent. Researchers have found that an increase in the effective federal regulatory burden on a state is associated with an increase in the poverty rate in that state. This helps to explain why federal regulations have led to more people living in poverty and higher income inequality. Regulations reduce entrepreneurship because they increase the red tape one must cut through to be successful, which impacts the number of businesses in a state. Regulations also increase the compliance costs for businesses, which they then transfer to consumers by increasing prices.

These regulations are not just affecting the industries or groups to which they are targeted. They can affect Missouri workers, small businesses, and consumers. As we continue through this legislative session in Missouri, we should remember the unintended consequences of legislation and regulations.

The post Do Federal Regulations Impact Missourians? appeared first on Show-Me Institute.

The pandemic has already taken a serious toll on our government’s budget. The virus, combined with lockdowns and other restrictions placed on businesses, has drastically decreased economic activity, which in turn has lowered state and local tax revenues. For the fiscal year that ended on June 30th, Missouri’s collected 6.6 percent less in revenues than it did the year before. And this year, the governor has already restricted more than $400 million in state spending, indicating his budget staff believes the decline in tax revenues will persist for some time.

Over the past eight months, Missouri has been unable to spend hundreds of millions in state tax dollars that otherwise would have gone toward priorities such as education and public safety. At the same time, the cost of other state programs has increased as a result of the virus. It is true that some of these issues have been temporarily alleviated by generous federal relief efforts. But federal support cannot fill the hole created by COVID-19 for every state priority (the federal government places restrictions on where the money can be spent). More importantly, this funding is a short-term solution to a long-term problem.

Missouri was unprepared for the current situation in large part because state spending has been growing for years. We must also realize that it’s becoming increasingly likely the virus will be defeated before tax revenues return to pre-pandemic levels. For that reason, it’s time to start thinking about how our elected officials will respond once the state’s budget is no longer being propped up by federal aid.

In the coming months, Missouri’s policymakers should consider every option that could help contain the state’s runaway spending trajectory and shrink the size of government to match the revenue projections of the years ahead. There’s no doubt the task will be difficult, but it’s all but certain the cost of acting now will be lower than if we wait until it’s too late.

The post Special Session a Reminder of Budgetary Troubles appeared first on Show-Me Institute.