Missouri has eight metropolitan statistical areas (MSAs), a term used to describe a city with a population of at least 50,000 and the surrounding area. Below is a graphic from my latest publication, The 2020 Missouri Tax Landscape, which provides an overview of Missouri’s economy and taxes at the state and local levels. The compound annual growth rate (CAGR) of these MSAs is a calculated rate helpful for evaluating growth over time. While GDP growth is volatile, the CAGR provides a calculated rate as if the growth had occurred at a steady rate during the period.

Notes: Some MSAs cross state lines, indicated by the inclusion of the states in the label. Real GDP numbers are for the entire MSA. Real GDP numbers are in chained 2012 dollars, meaning they are adjusted for inflation over time with 2012 as the base year.

Source: Bureau of Economic Analysis. Real GDP by County and Metropolitan Area.  https://apps.bea.gov/itable/iTable. cfm?ReqID=70&step=1#reqid=70&step=1&isuri=1

Columbia and Kansas City had the highest growth rates from 2009 to 2018, growing by 1.6 percent each year on average. St. Louis grew by less than half of that rate—a meager 0.7 percent. The CAGRs of Missouri’s largest MSAs are nowhere near those of large MSAs in surrounding states. In the same period, Oklahoma City, OK grew by a rate of 2.9 percent; Cincinnati, OH-KY-IN by 2.4 percent; and Omaha-Council Bluffs, NE-IA by 2.2 percent. Additionally, all of Missouri’s MSAs fell below the national growth rate of 2.3 percent during this period.

There are a lot of factors that contribute to a metro area’s growth, and the tax climate is certainly one of them. High tax rates take spending money away from citizens and make cities and states less attractive to people and businesses. There’s a plethora of research showing that taxation (and especially taxation on income) has a negative effect on economic growth. Given the low growth rates of Missouri’s MSAs, it may be time for some tax-related New Year’s resolutions.

The post MSA Growth in Missouri appeared first on Show-Me Institute.

The level of services provided and the types of taxes or fees collected to fund those services differ from city to city. My newest paper, “Breaking Down Expenses and Revenues: Kansas City and St. Louis Compared to Six Other Cities,” updates two previous Show-Me Institute case studies to shed light on the revenue collection and spending habits of St. Louis and Kansas City.

The six comparison cities are Tulsa, Oklahoma City, Omaha, Denver, Louisville, and Indianapolis. Compared to those cities, St. Louis and Kansas City are, respectively, the second and third highest spending cities overall, and the two highest spenders on debt service.

In terms of revenue collection, Kansas City ranks first among the comparison cities in fees per resident; in fact, it collects almost as much in fees per resident as all of the other cities combined. Indianapolis is the only other city with an earnings tax, yet both St. Louis and Kansas City nearly double Indianapolis in earnings tax collected per city resident.

For further discussion of the revenue and expenditure trends of these cities, click the link below to read the entire essay.

The post Breaking Down Expenses and Revenues: Kansas City and St. Louis appeared first on Show-Me Institute.

This new notoriety (from Google Fiber) and all the press and tweets that went with it gave us a new way to tell the Kansas City story, Tech entrepreneurs discovered that Kansas City was a great place to start up. They moved here just to plug in to Google Fiber and gigabit connectivity.

Well, maybe not. Google Fiber came to the Kansas City area in 2011, the same year Mayor James took office. Prior to that, information jobs in the region, according to the U.S. Census, had been sliding downward. The number of these jobs slipped from 52,000 in 2008 to 39,000 in 2011, a loss of one-quarter. Since then, the numbers through 2013 are pretty flat.

We don’t need to rely solely on Census data. The Show-Me Institute’s Joe Miller recently reviewed a study by the San Diego Economic Development Corporation that ranked cities based on the health of their tech scenes. Miller concluded that the tech industry in Saint Louis is “not a large player nationally, nor is it a terribly significant driver of,” the economy. The outlook for Kansas City is even worse. Of the country’s 50 largest metros, Kansas City ranked 34th, behind peer cities St. Louis (28th) and Oklahoma City (24th) but ahead of Louisville (39th).

Kansas City ranked even lower (42nd) for tech talent, a measure based on tech employee retention rates, percent of population with computer or math degrees, and the number of computer science degrees being awarded. The Mayor recognized as much in his remarks,

Our tech companies need more trained help—people who can manage the flow of information and data, write code, fix equipment and implement creative ideas. And lots of people in our city need jobs, or better-paying jobs to support their families.

While more recent Census data may show an uptick in information jobs and employers in the Kansas City region, for all the spending and talk of momentum and people moving to Kansas City “just to plug in,” the data suggest otherwise. 

The post Kansas City’s Tech Inertia appeared first on Show-Me Institute.

We have made a conscious decision as a community to build the infrastructure to retain, attract and grow tech companies here and support entrepreneurship. It’s one of our strongest economic drivers.

Unfortunately, the data tell a different story.

Recently, the San Diego Economic Development Corporation released a comprehensive report on the national tech sector, where it also ranked cities based on the health of their tech scene. Of the country’s 50 largest metros, Saint Louis ranked an unimpressive 28th, placing it below regional competitors like Indianapolis, Columbus, and Oklahoma City.

One of the most jarring reasons for Saint Louis’s low ranking, given the rhetoric, is the fact that the region has comparatively few software developers. The region has only 8.8 software developers per 10,000 workers, low for a large city. For comparison, San Francisco, Raleigh, and Washington, D.C., each have more than 20 developers per 10,000 workers (San Jose has more than 60). Worse yet, tech jobs actually decreased in Saint Louis from 2010 to 2014 by almost 10%. Average tech employment increased by more than 13% in the country’s largest cities during that same period. It’s hard for the region to be a rising tech hub when it has fewer and fewer software developers.

In terms of the tech sector pipeline, Saint Louis also performed poorly. The region’s residents are much less likely to have math or computer science degrees than are residents in other cities. If it’s harder to find tech talent, it’s harder to attract tech companies. One of the few bright spots for Saint Louis is money. After adjusting for cost of living, tech workers in Saint Louis get paid more than they would in most other large cities. In addition, Saint Louis attracts a decent amount of venture capital given the size of its tech sector.

To sum up, Saint Louis has established tech companies. It has startups and a tech incubator. But that can be said of almost any large American city. Taking a national view, Saint Louis’s tech growth strategy seems downright banal. As Aaron M. Renn from the Manhattan Institute put it:

Civic policy at the local level is dominated by “school solutions” that promote the same characteristics everywhere, often as a way of signaling that a city belongs in the “club.” …most cities try to look exactly the same as other cities that are considered cool, including offering bike lanes, coffee shops, microbreweries, a creative class, a food scene, and a startup culture. Even most cluster analysis seems to produce primarily a collection of the same five basic focus areas in every region (high tech, life sciences, green industry, advanced manufacturing, and logistics).

Simply having a tech scene is a natural result of being a populous region in the 21st century; it shouldn’t be taken as a sign that Saint Louis is about to have an economic transformation. The fact is, despite public support, Saint Louis’s tech scene is not a large player nationally, nor is it a terribly significant driver of the Saint Louis economy. 

The post Saint Louis: Not a Tech City appeared first on Show-Me Institute.

Far from it. Of the 77 U.S. cities that KPMG ranked (which was not exhaustive of all major metros), Saint Louis ranked 45th and Kansas City ranked 46th. Among the cities cheaper than Saint Louis (and Kansas City) are regional competitors like Nashville, Omaha, Cincinnati, Memphis, Indianapolis, Cleveland, and Oklahoma City, to name a few. Worse yet, Saint Louis was more expensive than all 18 Southeastern cities KPMG looked at, from Atlanta to New Orleans.

So where did the Post-Dispatch get a top ten ranking for Saint Louis? If we only consider regions with populations greater than two million (of which KPMG ranked 31), Saint Louis is the 9th cheapest. I will leave it to the readers of this blog to decide if Saint Louis should pat itself on back for being cheaper than New York, Los Angeles, and Chicago, when it has higher costs for businesses than Nashville, Memphis, and just about every other regional competitor. But if we do decide to use population as criteria, it seems more justified to look at metros with populations similar to those of Saint Louis and Kansas City (between two and three million residents). When we do that, Saint Louis is 7th and Kansas City is 8th out of 14 such cities. That seems awfully middling.

That’s probably why, if one reads the study that the Post-Dispatch reports on, they’ll find that it does not claim that Saint Louis is among the most competitive cities in the country. KPMG didn’t even break down cities by population in the study, choosing instead to do so by region.  The Post-Dispatch story (while citing the study) is actually based on an ancillary KPMG press release, which lauds Cincinnati, and is careful to note context.

Titling an article “St. Louis among most cost-competitive cities for business, report says” when the report in question says no such thing is a questionable decision for a newspaper of record. But this is not just a problem with the headline. The article itself is equally misleading, and it was not a headline writer who placed this story front and center on the Post-Dispatch’s website less than a week before a vote on multiple tax issues (where the city’s business climate is an issue). 

The post Report: Saint Louis, Kansas City *Not* Among Most Cost-Friendly Cities for Business appeared first on Show-Me Institute.

In his remarks, Cozad compared Kansas City to Indianapolis. According to a case study written by The Show-Me Institute’s Michael Rathbone, Indianapolis is similar to Kansas City in education, median household income and poverty levels. Indianapolis has about twice the population of Kansas City and is just a little larger than Kansas City in total city area. (The study also compared us to Tulsa, Denver, Oklahoma City, Omaha, St. Louis, and Louisville.)

Despite the larger population and larger geographical area than Kansas City, Indianapolis appears to be run much more efficiently. Their total government spending per capita is much lower than Kansas City’s, $1.411 to our $2,354. They spend much less on city administration per capita and less for about every other category the paper examined, including public safety, public services, culture and recreation and capital outlays. The Mayor’s own Citizen’s Commission on Municipal Revenue reported in 2012 that Kansas City has a higher number of employees per capita than most other cities it considered.

If Kansas City leaders were able to bring total spending per capita ($2,354.05) just halfway down to what Indianapolis pays ($1,411.64), it would save us $220 million each year, almost exactly the amount the earnings tax provides. They don’t have to match Indianapolis—or the even more efficiently run Tulsa, Oklahoma City, Omaha or Louisville—just get us hallway there.

Even if Kansas City just lowered its per capita city administration spending from its current $210.59 down to the level of Omaha ($109.57) the city would save $46 million per year. We’d save $78 million per year if we reduced it to what Indianapolis spends ($43.47).

Instead, our leaders prefer to dig in their heels and offer only scare tactics about cutting public safety spending. Don't taxpayers deserve better?

The post The Cost of Inefficiency in Kansas City appeared first on Show-Me Institute.

                The recent downgrade saw Saint Louis’s general obligation debt rating fall one notch, from Aa3 to A1. That still leaves the city with a rating denoting an upper-medium investment grade, even if the rating is well below prime. And as some news sources have pointed out, that means Saint Louis’s rating is higher than Chicago’s or Detroit’s. Unfortunately, if we don’t compare Saint Louis to cities exiting or very likely entering bankruptcy, its rating is relatively low, as the chart below demonstrates:

                A lower bond rating can lead to higher borrowing costs. In the same way that an individual with a low credit score might have to pay higher interest rates on a car loan or a mortgage than someone with a great credit score, a lower rating for a city can mean it has to pay more to borrow. As cities regularly borrow money to make civic improvements, the higher cost of borrowing means residents pay more for large projects like, say, a football stadium. Speaking of stadiums, the rating for nonessential debt (read: convention center and stadium) issued by the Saint Louis Municipal Finance Corporation was also downgraded, to A3. That corporation would responsible for issuing bonds for a new stadium.

                The primary reason for Saint Louis’s weak credit rating is the city’s “weak socioeconomic profile,” which is admittedly difficult for city leaders to fix. However, there are ways city hall could work to increase the city’s bond rating. According to Moody’s, the city is too reliant on the earnings tax. In addition, the city could boost its rating by making an effort to reduce total debt. Unfortunately, with the city prepared to go even further into the red to build a billionaire a new football stadium, it may be a while before Saint Louis can brag about its credit rating to people who don’t live Chicago. 

The post Bad for Borrowing: Saint Louis Bond Ratings Slip appeared first on Show-Me Institute.

This case study examines government revenue, per person, of Saint Louis and Kansas City along with six other comparison cities (Denver, Indianapolis, Louisville, Oklahoma City, Omaha, and Tulsa). It examines tax burdens on residents (in total and as a percentage of personal income), the amount of fees collected, and other tidbits of information that the general public might find interesting. Please give it a look.

The post Show-Me Institute Presents: Breaking Down Revenue appeared first on Show-Me Institute.

Download and read the full case study below.

The post Breaking Down Revenue: How Kansas City And Saint Louis Compare To Six Other Cities appeared first on Show-Me Institute.

If you only look at the close-in downtown neighborhoods, defined by the study as those “within 3 miles of the center of the central business district,” Kansas City saw an increase of 63 percent over the past 12 years. Compared to our peer cities, this is impressive. (See Table 1.) So supporters of using taxpayer dollars to subsidize development might argue their profligate spending is working.

But the data about cities as a whole is not so positive. Of those same cities, Kansas City as a whole ranked last in growth of this sought-after population. (See Table 2.) The average population increase for this demographic in all 51 cities was 25.2 percent. Kansas City came in below that.

City leaders have put their faith in an idea about urban millennials that may or may not be legitimate. In doing so they have diverted funds from projects and services throughout the city to build and maintain things downtown such as the streetcar and Power and Light District. But any subsequent population growth downtown is dwarfed by population stagnation elsewhere.

The argument over attracting urban dwellers is hotly contested. Regardless of who is right, Kansas City is not seeing much success, and economic development is more cannibalization than growth. Residents in the north, south, and east should be wary of sacrificing their own needs in favor of a downtown strategy that so far isn’t working.

The post Kansas City, Millennial Magnet? appeared first on Show-Me Institute.

Along with noting the FMMA’s existence, there’s also a reason worth teasing out for why the FMMA held its first conference in Oklahoma City. The short answer is “it’s where the FMMA’s organizers are based,” but a more complete answer is it’s where some very interesting free-market business models are being put into practice.

Advocacy of free market health care is the longtime passion of Dr. Keith Smith, co-founder of the Surgery Center of Oklahoma [and the FMMA]. The center began to post fixed prices for common medical procedures years ago, and has provoked widespread admiration within the medical profession for efficiency, reasonable cost and frequent support for those who are less fortunate.

At the Surgery Center, Dr. Keith Smith and Dr. Steve Lantier have established an operational structure and market-oriented billing as explicit alternatives to the third-party payer systems that now dominate U.S. health care.

The center posts online an up-front price for medical procedures in diverse areas of practice, including orthopedics, ear/nose/throat, general surgery, urology, ophthalmology, foot and ankle, and reconstructive plastics. In all, a total of 112 procedures are listed.

Translation? Transparent pricing plus direct pay works out to a pretty good business model premised on competition and service. Price transparency is huge because it’s generally pretty difficult to price shop in the U.S. health market, in part because the third-party payer system disincentivizes it, and because many providers aren’t willing to publish those prices. That makes it difficult to force prices down through competition. Posting prices should be common practice in the industry; unfortunately, it’s not.

It’s good to see folks in the movement getting organized when it comes to demonstrating that, yes, free-market reforms to health care do exist and can work. In the coming months, Show-Me readers will hear a lot more about free-market health care alternatives. Stay tuned.

The post Free-Market Health Practitioners Get a Group appeared first on Show-Me Institute.

This case study focuses on the cost of services that a city provides. The goal of this paper is to describe spending patterns on government services compared to Kansas City and Saint Louis. By presenting Saint Louis’ and Kansas City’s total expenditures and breaking down the general categories in which these expenditures were made, it is possible to compare them, in some ways, to the expenditures of other, similarly sized cities. For the purposes of this paper, the comparison cities are Tulsa, Oklahoma City, Omaha, Denver, Louisville, and Indianapolis.

The post Kansas City and Saint Louis Expense Breakdown Compared To Six Other Cities appeared first on Show-Me Institute.

In putting together a team of officials working to improve water services, Saint Louis Mayor Francis Slay deserves credit, not criticism. When an agency such as the water division, which has been doing something for a long time, seeks ways to improve, they need to look outside the organization for new ideas. Anything else is an exercise in futility.

The team the mayor established collected many water consulting bids and chose the French company, Veolia, to advise the city. The contract calls for a $250,000 consulting fee. Depending on which suggestions the city chooses, Veolia would then be paid more to help enact the improvements.

This is not privatization. Trust me, I wrote the study on privatizing the city water division and I wish this was privatization. It is not. This is a simple consulting deal. The city would still own, operate, and maintain every part of the water division. All this proposal calls for is tapping into the private sector expertise to improve water service. That will benefit everyone, and should be embraced, not attacked.

Opponents of this proposal are applying the shotgun approach in their fight: objecting to everything possible. This includes irrelevant issues like Veolia’s work in the West Bank and Israel and cherry-picking a few Veolia city contracts that failed and ignoring the many that have succeeded. Veolia has been effectively providing comprehensive water services in Oklahoma City and Edwardsville, Ill. — to give just two Midwest examples — for many years. Those cities have routinely renewed their Veolia contracts.

This contract has nothing to do with privatization, but the absolute objection to private water from some is still strange. Private water companies have been serving the one million people in Saint Louis County for a century. Do you recall all the scandals and controversies about private water in the county? Neither do I.

But it is scandalous that the city water division has never put in water meters. I am not blaming current leadership — this should have been mandated 50 years ago. The lack of water meters encourages waste, inefficiency, and is unfair to consumers. When the city raises water rates, residents have no effective way to react. Businesses, which have water meters in the city, can respond to price hikes by reducing usage to save money. as AB InBev recently did. City residents deserve the same ability to benefit from conservation.

City residents who use less water have long subsidized heavy water consumers. If you choose to sprinkle your lawn like you’re a zealot at Masada, wallowing in abundant water to purposely taunt the suffering Romans legions in the scorched desert below, that’s fine. But you should pay for it, not your neighbors.

The consulting deal with Veolia will result in many different ideas for better water delivery. People, businesses, and governments all benefit when they seek advice from knowledgeable parties outside their normal circles. The objections to the contract are an example of scattered ideology trying to stop practical steps for general improvement. The Veolia contract will improve water service in the city, and that will benefit us all.

The post Stokes on KWMU – Veolia Contract Would Benefit City appeared first on Show-Me Institute.

But over the past decade, the ?cool? cities have not seen any faster job or population growth than cities dominated by non-creative industries. The fastest employment growth has been in areas such as Houston, Dallas, Oklahoma City, and Omaha. The main employment in those cities is not in the cool, creative sector, but in industries such as oil and manufacturing. And, even the rapidly growing ?cool? cities, such as Raleigh and Austin, are not transit-centered places.

It is the same in Kansas City. Rail proponents are so frustrated about nearly a dozen defeats at the ballot box that they contrived a special taxing district, permitted only the residents of that district to vote, and used the result of that vote to commit the city to at least a $100 million rail line project.

A lawsuit against the city’s scheme was dismissed because of its timing, and the city has started collecting the tax. Now the blog Tony’s Kansas City is claiming that some are preparing for a ballot petition to stop the project. If the Kansas City City Council is unable or unwilling to defer to the clearly and repeatedly stated will of the people, then voters are completely within their rights to act on their own with a petition.

The post Get Off The Train: Kansas City Cannot Ride To Economic Growth appeared first on Show-Me Institute.

But over the past decade, the “cool” cities have not seen any faster job or population growth than cities dominated by non-creative industries. The fastest employment growth has been in areas such as Houston, Dallas, Oklahoma City, and Omaha. The main employment in those cities is not in the cool, creative sector, but in industries such as oil and manufacturing. And, even the rapidly growing “cool” cities, such as Raleigh and Austin, are not transit-centered places.

So why do we keep hearing that transit is what causes economic development and revitalizes downtowns? Transit may attract a certain demographic, but trends over the past several years in our country hint that this demographic is not the economic driver it appeared to be.

Now, it is not to say that transit precludes development. But why keep focusing our efforts (and subsidies) on something that is not an absolute necessity to promote growth in Saint Louis? We have written about our support for toll roads to limit subsidies for roads, but at least those subsidies benefit a majority of the population. With transit, we are taking money from a majority of the population to pay for something that benefits the few. Even Citizens for Modern Transit unintentionally admits this with their statement “You may not ride transit, you may not know anyone who uses the bus or MetroLink; however, Missouri needs transit.”

The post Get Off The Train: Saint Louis Cannot Ride To Economic Growth appeared first on Show-Me Institute.

A book co-authored by Arthur Rubinfeld, known as the “architect behind Starbucks’ expansion,” outlines the logic underlying the company’s growth strategy. With a target market comprised of “urban professionals, high-income individuals from the age of 18 to 45,” Starbucks sought to conquer the country’s major metropolitan areas. Demographic considerations, the intensity of competition, city-specific macroeconomic conditions, and a number of other factors, determined the pattern of expansion.

The areas surrounding Kansas City are home to a multitude of Starbucks coffee shops, which form something of a ring around the city itself. This same distribution is not evident in other Midwestern cities such as Saint Louis, Oklahoma City, Omaha, and Indianapolis. We can learn a lot about certain areas from the behavior of private enterprise.

My colleague Patrick Ishmael and I intend to explore this phenomenon in greater detail. We wish to better understand why Starbucks has chosen to focus disproportionately on Kansas City’s peripheral markets. As Rubinfeld’s volume makes clear, a substantial amount of research goes into determining how capital can be most profitably distributed. Accordingly, there is almost certainly a strong rationale under-girding Starbucks’ behavior in Kansas City. Perhaps further investigation can teach us some important lessons about the business climate in the City of Fountains.

The post What Can Starbucks Tell Us About Kansas City? appeared first on Show-Me Institute.

In putting together a team of officials to launch an effort to improve water services, Saint Louis Mayor Francis Slay deserves credit, not condemnation. When an agency such as the water division, which has been doing something for a long time, wants to look at ways to improve, it is obvious they should look outside the organization for new ideas. Anything short of that is an exercise in futility.

The team the mayor established collected water consulting bids from major water industry applicants. They chose the French consortium Veolia — one of the world’s largest private utility companies — to advise the city. The contract calls for a $250,000 consulting deal. Depending on which recommendations the city chooses, Veolia would then be paid more to help implement the improvements.

This is not privatization. Trust me, I wrote the study on privatizing the city water division and I wish this was privatization. It is not. This is a simple consulting deal. The city would still own, operate, and maintain every part of the water division. All this proposal calls for is tapping into the expertise of the private sector to improve water provision in the city. That will benefit everyone in the city and should be embraced, not attacked.

Opponents of this proposal are applying the shotgun approach in their fight: objecting to everything possible. This includes the irrelevant (Veolia’s work in the West Bank and Israel), the ideological (general left-wing opposition to private companies), the incomplete (cherry-picking a few Veolia municipal contracts that have not worked out and ignoring the many that have) and the idiotic (Veolia is foreign). Veolia has been successfully providing comprehensive water services in Oklahoma City, Okla., and Edwardsville, Ill. — to give just two Midwest examples — for many years. Those cities have routinely renewed the Veolia contracts.

While nothing about this proposal involves privatizing the water division, the absolute objection to private water from some is still peculiar. Private water companies have been serving the one million people in Saint Louis County, just one step north, west, and south of the city, for a century. Do you recall all the scandals and controversies about private water provision in the county? Neither do I.

But it is scandalous that the city water division has never implemented water meters. I am not blaming current leadership — this should have been completed 50 years ago. The lack of water meters encourages waste, overuse, inefficiency, and is unfair to consumers. When the city raises water rates, as it did in 2010, residents have no ability to react to that price increase (other than non-payment). Businesses, which use water meters within the city, can react to price increases by reducing usage and saving money, as AB InBev has done in recent years. City residents deserve the same ability to benefit from conservation as companies. People who use lesser amounts of water have long subsidized heavy water consumers in the city, and that is wrong. If you want to have the most glamorous lawn in the neighborhood, that is fine. But you should pay for it, not your neighbors.

The consulting deal with Veolia will result in many different ideas to improve water delivery in the city. These will range from the obvious, such as water meters, to the creative. People, businesses, and governments all benefit when they seek advice from knowledgeable parties outside their normal circles. Saint Louis city government and the water division are no different. The objections to the contract are an example of scattered ideology trying to stop practical steps for general improvement. The contract for consulting services from Veolia will improve water quality and services in the city, and that will benefit everyone.

David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post Contract With Veolia Would Benefit Saint Louis Water Services appeared first on Show-Me Institute.

First, the city could raise a large amount of money through the sale of its sewer system — possibly millions of dollars. This could be used to pay down debt, invest in needed public services, or lower taxes. The city of Florissant used the revenue from the 2002 sale of its water utility to finance several public improvements and establish a $10 million reserve fund.

Second, privatization would turn the sewers into a taxable asset. This means additional revenue for the municipality, possibly easing the tax burden on existing residents and businesses.

Third, privatization often results in lower costs, higher efficiency, and better service. For instance, Oklahoma City partnered with Veolia Water for wastewater treatment in 1984, and by 2001 had reduced treatment plant costs from $14 million to $11 million dollars. As long as efficiency gains such as those in Oklahoma City are passed on to consumers, lower costs can lead to customer savings. And although government regulations tend to erode efficiency gains over time, the immediate benefits should not be ignored. 

Make no mistake: Arnold’s wastewater system is aged and in need of extensive overhaul and repair. Privatization will not change that. Over the next few years, a significant portion of the sewer system will reach the end of its usable life. When this happens, significant costs will be incurred to renovate the system. These costs will occur whether or not the sewer system is privatized, but privatization could help keep renovation costs as low as possible. Sewer user-fees have gone up twice in the last three years – and that is with government ownership of the system. 

Private utility ownership is common throughout Missouri. In neighboring Saint Louis County, almost every resident purchases water, gas, and electricity from private companies. Although sewer privatization is less common, it is not unheard of; Missouri American Water, for instance, has several thousand sewer system customers throughout the state. 

The possibility of public repossession of the sewer system is an important option to remember. In the sale contract, Arnold can reserve the right to take the sewers back if certain standards are not met. Such a provision can protect residents from the danger of quality degradation and monopolistic fees. Another protection is the Missouri Public Service Commission, which regulates fees charged by private utility companies.

Arnold’s privatization option appears to be an opportunity for comparatively lower sewer rates and additional city revenue. The city will have more money, sewer costs will be handled more efficiently, and any concern about the quality and price of service can be addressed in the sale contract. Selling the sewers appears to be a situation where both the government and the people it serves can benefit.

Bruce Stahl is a research assistant at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post Selling the Sewers: The Sweet Smell of Success appeared first on Show-Me Institute.

City Manager Troy Schulte was appropriately blunt recently discussing Kansas City’s troubled pension system. He proposed good changes that could affect thousands of current and future city employees, while saving taxpayer dollars along the way.

“I don’t think our pension system is sustainable in the current structure,” Schulte told [the Pension System Task Force] evaluating the city’s retirement programs. The panel, which meets again today, should pay close attention to his recommendations.

The Task Force is presently comparing its systems (police, firefighters, and city employee systems) to those of a peer group of eight cities, including Oklahoma City, Denver, and Minneapolis.  And what are some of the preliminary findings? First, Kansas City taxpayers contribute an amount equal to 12.88 percent of a civilian employee’s salary towards his/her pension plan. This contribution rate is greater than rates in each of the peer group cities.

Second, the cost of living adjustment for retirees is three percent per year, higher than six of eight peer cities. Finally, the two percent per year multiplier is greater than those in seven of eight peer cities. Thus, retirees with 30 years of service receive 60 percent of their final average pay upon retirement.  In Indianapolis, by comparison, a retiree would only be entitled to 30 percent, based on a one percent per year multiplier.

While Kansas City’s self-analysis is fine so far as it goes, greater Missouri has approximately 130 government employee pension programs, ranging in size from the gargantuan Missouri State Employees’ Retirement System to the relatively miniscule Antonia Fire Protection District Pension Plan.  That’s right, 130!

Perhaps Kansas City is not alone, as the entire state of Missouri could be sitting on a pension time bomb.

Because public pensions are largely funded by Missouri taxpayers, taxpayers and their elected representatives need to address numerous issues in an open forum.  For example, are present and future liabilities underfunded, and if so by how much? Will future shortfalls be funded in the form of taxpayer legacy costs (i.e., future tax increases), by increased employee contributions, or by some combination of both? Should we begin now to require government employees to contribute to their pensions from current wages, thus tamping the insatiable demand for increased future benefits that arises when pension beneficiaries are not required to bear the costs? Have the managers of these pension funds reasonably estimated future portfolio returns, thus assuring that today’s contributions adequately support tomorrow’s payouts?

One may easily imagine a host of further questions that need to be asked.  That dialogue should occur soon, before time runs out.

The post Kansas City: Grabbing the Pension Bull by the Horns? appeared first on Show-Me Institute.

The $2.5 billion settlement to improve the Kansas City sewer system has put the city well past the question of whether something needs to be done with its infrastructure assets. Right now, private companies are willing to pay for the right to manage the city’s property, and long-term savings result when the private sector operates public services more efficiently. Partnering with the private sector — either in the form of up-front payments for asset management, or cost savings from greater operational efficiencies — could help Kansas City meet its financial obligations, both now and in the future.

In 1984, Oklahoma City contracted out the management of its wastewater treatment facilities to a private utility company, Veolia Water. At the time of the contract, Oklahoma City spent $14 million per year on its system. Seventeen years later, in 2001, Veolia operated an improved system for only $11 million per year. These numbers have not been adjusted for inflation, making the savings even more impressive. Veolia still operates the Oklahoma City wastewater system today, after further contract renewals.

I provide this example not to encourage you to buy stock in Veolia or move to Oklahoma City, but to showcase the potential effectiveness of partnering with the private sector in public infrastructure operations, management, and delivery. A city council committee has approved a resolution for Kansas City officials to study the possibilities offered to residents and taxpayers from private sector competition for public infrastructure programs. The full council is scheduled to consider the proposal soon.

This resolution is limited in its reach. The proposal simply calls for the city to study the expected effects of contracting out the management of certain assets. There is no plan or intention to sell off and fully privatize city assets. Instead, the study could consider a range of options, such as private companies that pay the city for the right to operate city parking garages, or a private engineering firm contracting to operate water or wastewater facilities. One local example of the benefits of these ideas involves recent successful changes to the Kansas City animal shelter, although that particular effort moved further toward full privatization than this proposal does.

Successful examples of the private provision of public services can be found throughout Missouri. They include instances of outsourcing, contracting, and private ownership. Private companies successfully operate the nation’s only private, commercial airport in Branson; manage the pharmacy services of Saint Louis County’s Department of Health; provide electricity, gas, and water throughout Missouri; and manage trash collection in communities throughout the state. Around the country, private companies efficiently operate public highways, libraries, jails, and much more.

Not every example would be appropriate for Kansas City, but a study could help determine where private partnerships would benefit the city. Mayor Mark Funkhouser deserves credit for bringing these issues to the forefront, and the people of Kansas City will benefit if they get the serious study they deserve.

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

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