These are average values, of course, and not everyone can afford an average mortgage or rent payment. However, the United Way also ranks St. Louis second in the nation (tied with Pittsburgh and trailing only Cincinnati) for the highest number of affordable rental units (80) per 100 households.

It’s good to see St. Louis earn a high national ranking in something other than crime; nevertheless, 80 rental units for every 100 households that need a place to live still isn’t enough housing. So, what can St. Louis do to meet the remaining affordable housing demand?

First, local governments need to get out of the way and let the free market work its magic. My colleague Patrick Tuohey has highlighted the harm that misguided government intervention has done to housing markets in both St. Louis and Kansas City:

Kansas City’s adoption of the 2021 International Energy Conservation Code (IECC) stifled new home construction by inflating costs. Builders, facing steep regulatory burdens, simply stopped building. In St. Louis, a reliance on tax credits and incentives for flashy developments has left vast swaths of the city with vacant lots and dilapidated buildings. In both cities, the results are clear: policies that ignore basic market principles fail to deliver desired results.

Second, the demand for low-income housing can be met indirectly by constructing more expensive or luxury housing. More housing, whether low-income or luxury, is beneficial and will positively impact the availability of affordable housing. Even if the construction of luxury housing occurs when there is a greater demand for profitable low-income housing, the filtering effect will help address the need.

Andrew Cline of The Josiah Bartlett Center for Public Policy extrapolates on the positive effect of luxury housing construction, describing the filtering effects of new apartment development:

Building luxury or higher-end apartments draws higher-income renters out of yesterday’s luxury apartments and into the new luxury apartments. Increased vacancies in yesterday’s luxury apartments attract higher-income residents who’ve been living in mid-level apartments. As new construction creates more vacancies, rents come down. That effect filters throughout the housing supply, lowering rents all the way down. 

It is precisely because of this filtering effect that projects like the one in Town and Country are good news even for those looking for something in a lower price range. While a new luxury condominium development may seem irrelevant to someone seeking a more affordable place to live, it nevertheless represents an increase in supply and exerts downward pressure on housing prices.

The post For More Affordable Housing We Need More Housing, Period appeared first on Show-Me Institute.

Some policymakers are starting to deal with the challenge of housing inflation thoughtfully. But some cities, like Pittsburgh, are adopting half-baked (but trendy) policies from elsewhere to solve a problem that, practically speaking, may not exist locally. As reported in the Wall Street Journal:

On Monday the mayor signed an ordinance . . . to expand the city’s inclusionary zoning requirements. Developers building 20 or more units in the gentrifying Bloomfield and Polish Hill neighborhoods will have to set aside at least 10% for affordable housing. Under the rules, a designated studio apartment could rent for no more than $742 a month, though the average rent for one is $1,300 in Pittsburgh, according to the housing search website Rent.com. . . .

[I]nclusionary zoning forces developers to set aside affordable housing whether or not they receive government incentives, so “the other 90% of the units have to subsidize that cost,” Mr. Eichenlaub says. “They are making the developer and the owners of those units, or renters, absorb those costs. Effectively, it’s a tax on housing.”

And when you tax something, you get less of it. Portland, Ore., introduced inclusionary zoning in 2017. Permits for residential buildings with 20 or more units plummeted 64% in 25 months as developers went smaller to get around the mandate. The nonprofit Up for Growth concluded that “rather than increasing the number of affordable units,” the zoning scheme “appears to be diminishing the supply of housing at nearly all income levels.” [Emphasis mine]

My colleague Elias Tsapelas has done, and continues to do, outstanding work digging into LIHTC. The Pittsburgh “inclusionary zoning” mandate is the same sort of government burden as the LIHTC, minus the incentives. As the Wall Street Journal editorial board astutely observes, Pittsburgh’s newly mandated costs are likely to metastasize not only into higher housing prices for other renters and owners, but also into overall housing supply degradations.

But Pittsburgh’s housing policy change is notable for another reason: by one prominent metric, the city is the only major metropolitan area in America that doesn’t appear to have an affordability problem. Wendell Cox is a prominent researcher on the issue of housing affordability, and he has published his “median multiple” index for many years now, ranking metropolitan areas worldwide based on how affordable their housing markets are. His 2022 edition of the index is illuminating, not only for the other findings (which I’ll get into in another blog post) but especially for Pittsburgh—which now ranks as the only purely “affordable” housing market in the United States. In other words, Pittsburgh is trying to fix a problem it doesn’t really have.

My colleagues and I will pull apart why housing costs can be artificially inflated by government interventions and why those interventions can nonetheless be politically popular, but Pittsburgh stands as a cautionary tale that Kansas City and St. Louis policymakers must be aware of and must refuse to emulate. There are numerous reasons that housing costs have risen nationally, and the solution to that challenge is neither simple nor monolithic. In its case, Pittsburgh should go back to the drawing board and ensure it isn’t about to create a problem that doesn’t meaningfully exist. Yet.

The post Pittsburgh, Poster Child for Sloppy Housing Policy appeared first on Show-Me Institute.

Business Facilities’ 2019 Metro Rankings Report scored Kansas City in the top ten on its list of major American cities with the highest potential for economic growth.

Kansas City landed on the list based on a few different factors, including the city’s quality of life and cost of living. Researchers at the Show-Me Institute have often urged Kansas City to play to exactly these strengths. Back in 2016, urban policy expert Wendell Cox published a paper walking through the advantages the region offers:

The fundamental question is, “What competitive advantages does Kansas City have over other metropolitan areas, and how can it maintain or expand those advantages?” The answers are clear. Kansas City’s strongest advantages are its low cost of living (the result of superior housing affordability), superior mobility, and a complete array of lifestyle choices. However, each of these advantages could be threatened by policies that currently enjoy favor within urban planning circles.

These factors might not be the most impressive on paper, but they are very important to those choosing to move into or stay in the region. Instead of playing to these simple strengths, Kansas City officials seem to be determined to become the next Denver, Dallas, or Seattle, using economic incentives to build trendier entertainment districts and businesses.

But Kansas City is unique, and has a lot to offer without trying to chase the trends of other areas. People live here for simple reasons like affordability and ease of transportation. A city government that chooses to spend taxpayer dollars on subsidizing things like sports stadiums or streetcars instead of bolstering basic city services is doing the region a disservice.

Kansas City risks squandering its potential for growth if policymakers fail to understand what the city does best. As my colleague Patrick Tuohey has previously stated, “If we want Kansas City to succeed, we need to understand exactly what we have to offer.”

The post Kansas City Should Rely On Its Strengths appeared first on Show-Me Institute.

The author of the Brookings Institution study referenced above does not know about Kansas City proper, or more specifically about downtown Kansas City. The Downtown Council itself apparently can’t provide worthwhile numbers either. Trying to piece together the data requires investing a lot of time and resources going through Census data at the county level. Until someone does that in 2019, we can rely on a 2016 paper for the Show-Me Institute by Wendell Cox, “Kansas City—Genuinely World Class.”

In Figure 3 on page 6, Cox offers us the chart at the top of this post. As you can see, populations have not grown in the urban parts of the Kansas City but rather in the areas outside the city proper. In fact, the urban and near-in suburbs are shrinking. This is expected to continue. Cox writes:

According to the Mid-America Regional Council, population growth will continue to be concentrated in the suburban counties. Between 2010 and 2040, it is projected that approximately 45 percent of the population growth will be in Johnson County, which will make up the bulk of the 55 percent of metropolitan area growth that is projected to occur in the Kansas suburbs. The Missouri counties are projected to constitute 45 percent of the metropolitan area growth, with Cass County accounting for 18 percent and Jackson County for 11 percent (Figure 4).

Lots of organizations spend a lot of money trying to attract people and jobs to Kansas City. All them have an incentive to show that all that money—in many cases tax dollars—is well spent so that their budgets will be expanded. Successes seem rare and the data aren’t promising. But if city leaders are serious about attracting residents and jobs, we need to have a serious conversation about what is working and what is not.

The post Follow-up on Kansas City Population Trends appeared first on Show-Me Institute.

But urban decline isn’t unique to Missouri. People all over the United States are voting for suburbs and exurbs with their feet. Giving tax dollars to a few more bars and restaurants won’t change that.

In their paper, “Beyond Gentrification,” researchers Joel Kotkin and Wendell Cox lay out the case that:

The spurt of urban core growth that occurred immediately after the housing bust was short lived. The preponderance of metropolitan growth has returned to the suburbs and exurbs, as had been the case at least since the late 1940s.

Kotkin and Cox make their case with census data: Suburbs are growing much faster than urban areas. Claims by urbanists such as Richard Florida that “creative class” millennials would come to cities and stay were wrong, as Florida himself admits. Unfortunately, cities like Kansas City and St. Louis spent billions of dollars exacerbating the problems of gentrification through subsidies, and continue to do so, chasing a myth.

If city leaders only understood that they are swimming against a nationwide current, they might be a bit more circumspect in their distribution of taxpayer dollars. But whether it’s misplaced faith in the promises of urban developers or the allure of campaign contributions from those same companies, something is compelling policymakers to invest taxpayer dollars in projects that benefit the developers at the expense of the communities where they are undertaken. Meanwhile, organizations such as the Downtown Council in Kansas City vacuum up tax dollars and spit out absurd population growth claims.

Kotkin and Cox point out what any close observer of Missouri’s urban politics already knows:

It seems clear that gentrification has not benefited the poor and may well have harmed them by spiking housing prices and, perhaps less obviously, restructuring urban economies in ways that hurt blue collar workers. Reporters and politicians might swoon over the latest “hip” urban manifestation, but the poverty rate is still two-thirds higher in urban cores than in the suburbs.

Beyond Gentrification then focuses on three cities—Chicago, Dallas, and Los Angeles—to flesh out what is happening in cities across the country. These things are happening in Kansas City and St. Louis, too. And no convention hotel, trolley, or new stadium will turn this around. We know, because other cities are pinning their hopes to developments like these, and it isn’t working. It won’t work for us, either.

City leaders across Missouri need to understand their cities’ competitive advantages and promote them. (The Show-Me Institute has already catalogued some for both Kansas City and St. Louis.) They need to deliver on infrastructure, public safety, and basic services efficiently and effectively. And they need to resist diverting tax dollars in pursuit of urban development that often does more harm than good to the surrounding communities.

The post Kansas City and St. Louis Battling National Trends appeared first on Show-Me Institute.

I also take exception to the Coastal notion that our cities are flatly uncompetitive, and the specific suggestion that Saint Louis is some charity case. In fact, there are very strong business cases for Amazon to consider both Kansas City and Saint Louis that have nothing to do with charity. And with respect, if Amazon doesn’t recognize and exploit those advantages, other companies will.

Make no mistake: I would love to see Amazon come to Kansas City and/or Saint Louis, and Show-Me Institute analysts have written about the advantages that Missouri’s biggest cities bring to the table for literally years now.

This isn’t to gloss over the cities’ problems, either, whether it be crime, governmental mismanagement, regressive taxation, or a whole host of other issues discussed on this site in the past. Too often city and state leaders try to hit home runs with tax incentives and paper-thin kabuki PR campaigns to compensate for the fact that they don’t consistently hit the singles and doubles that actually lead to economic wins—keeping residents safe, maintaining infrastructure, treating businesses fairly, and the like.

But no city, anywhere, is perfect; all cities fall short at times, and the process of local government reform and improvement is a continual effort.

What Kansas City and Saint Louis are world-class at—intermodality, centrality, cost, and livability—accentuate the fact that both cities, jointly and separately, should be in Amazon’s final conversations about advantageous sites. Two terrific papers written for SMI by Wendell Cox (the most recent being Kansas City’s, published last year) reiterate this truth and are available via the links below.

Whether Amazon comes to Missouri certainly remains to be seen, and the odds are against it. But win or lose, Kansas City, Saint Louis, and Missouri have a lot to offer to Amazon and companies like it, now and in the future. It’s those advantages that will direct these cities’ success going forward—not Amazon, not tax incentives, and certainly not political gimmicks.

KANSAS CITY–Genuinely World Class: A Competitive Analysis by showmesunshine on Scribd

HOUSING AFFORDABILITY: The Saint Louis Competitive Advantage by showmesunshine on Scribd

The post Ignore the Gimmicks. Here Are the Reasons Amazon Should Come to Missouri. appeared first on Show-Me Institute.

Kansas City’s pivotal position in the national highway system and its strong rail hub enable it to be one of the nation’s leading intermodal markets. Intermodal freight transport refers to the transfer of shipping containers from one mode to another (such as truck to rail, or air to truck).

In addition, Cox writes that land costs in Kansas City are low because the city has avoided costly land use regulation policies. Affordable real estate at a desirable location seem to have appealed to Amazon. But the essay—and the reality of the new Amazon center—suggest that there are other, similar opportunities to be had. Kansas City leaders need to stop importing policies from far off cities and design economic policies that take advantage of Kansas City’s great strengths.

The post Kansas City’s Intermodal Strength appeared first on Show-Me Institute.

The metropolitan area is served by a comprehensive freeway network and a good arterial street and boulevard network. Only two of the 50 largest U.S. urban areas have lower traffic volumes per freeway lane mile than Kansas City. This provides Kansas City with a considerable advantage in both personal and freight mobility.

Cox writes that according to Tom Toms Traffic Congestion Index, “Kansas City ranks as the least congested metropolitan area, overall, in the world among the 146 it ranks.” This is not because there are fewer people on the roads in Kansas City or because a larger percentage of people use transit. “Driving alone is by far the most important means of travel to work. In 2014, 82.6 percent of Kansas City commuters reached work driving alone,” writes Cox. Driving to work alone is not the sole dominion of wealthy workers, however:

Automobile usage is so pervasive that it is little different among low-income employees than among the overall work force. In Kansas City, only 3.0 percent of low income employees commute to work by transit. This is more than the share of the overall workers using transit, but still very small. Cars are much more important to low-income workers. This small difference is less than might be expected in light of the perception that low-income residents depend substantially on transit for their mobility. In 2013, 76 percent of low-income Kansas City workers drove alone to work, nearly as high as the approximately 83 percent of all workers who drove to work.

The next time you hear someone wax rhapsodically about the need for an expanded streetcar system in Kansas City so we can be like Denver and Portland—or because they think it will help poor people better get to work—direct them to Cox’s paper. Kansas City is not like those places—certainly not when it comes to density or traffic congestion.

The post Kansas City’s Remarkable Transportation System appeared first on Show-Me Institute.

The post Video: Kansas City: Genuinely World Class appeared first on Show-Me Institute.

More specifically, Kansas City leaders have not adopted land-use policies that have made cities like Portland and Denver so expensive. To demonstrate the impact of these regulations, Cox uses a “median multiple,” which he calculated by dividing the median house price by the median household income:

In 1990, the three metropolitan areas [Denver, Portland, and Kansas City] had similar housing affordability. The median multiple in both Denver and Portland was 2.4. Kansas City’s median multiple was 2.3. By 2015, the median multiples in Denver and Portland had more than doubled to 5.1. By comparison, the increase in the median multiple was much less in Kansas City, at 2.9.

Other cities also saw housing prices rise without a commensurate increase in median household income:

Sydney, Australia, which was among the earliest to adopt urban containment policy, now is among the least affordable housing markets internationally, with a median multiple of 12.2 in 2015, while San Jose and San Francisco have median multiples of 9.7 and 9.4, respectively. In these metropolitan areas, which had median multiples of under 3.0 before adopting strong land-use regulation, residents now face median multiples that are more than three times as large as those in Kansas City.

Kansas Citians are constantly told that we need to be like Portland and Denver by streetcar aficionados,  Dallas for folks who want a new airport, or Indianapolis by people pushing a new convention hotel. But Kansas City is not those places, thankfully. And our greatest strength—housing affordability and the cost of living it allows—exists exactly because we didn’t follow their lead on land use regulation.

Kansas City needs to be Kansas City, and Cox’s paper is required reading for anyone who wants to understand how we can promote ourselves to the world.

The post When Kansas City Leaders Got It Right appeared first on Show-Me Institute.

In a recent interview on Missouri Viewpoints, Cox said

I’m a bit of a skeptic on how much difference it makes to have a great economic development department. People move where housing is affordable; where life is good—livable communities. And by livable I mean low cost of living, good traffic, a place where you can raise your family from before you have children to the point where you have children and move later.

This may be disheartening to policy wonks and anyone working in the economic development field, but Cox is not alone. In 2014, economist Enrico Moretti gave an interview to National Public Radio where he said the same thing about cities that had become innovation centers:

"[Interviewer] This is the unsettling part of your book: How do cities replicate these innovative job clusters?

"[Moretti] It's very tough, because if you look historically where the innovation clusters are located, almost none of them [were] created by some deliberate, explicit policy. It's really hard to engineer an innovation cluster. We talk about Seattle, but if you look at a lot of the clusters, they were all born in very random, often serendipitous, ways. So it's really hard for policymakers to engineer from scratch."

This is important because Kansas City leaders are already on the record talking about how they want to build a city for the future. But how likely is it that city officials will be able to legislate into reality an as-yet-imaginary Kansas City technology district. The takeaway from Cox’s research is that policymakers ought to understand Kansas City’s strengths and build on them rather than just imitate what other cities are doing.

The post What Can City Leaders Do To Grow A City? Not Much appeared first on Show-Me Institute.

The post Wendell Cox and Crosby Kemper III on KCPT’s Ruckus appeared first on Show-Me Institute.

Cox comes to a number of very interesting conclusions.

For one, Kansas City’s housing is much more affordable relative to incomes than in any of the cities The Economist considers for their list of the 10 Most Livable Cities. The reason for this is that while cities were increasing land regulation through urban containment policies, Kansas City did not. For example, in 1990 Denver, Portland and Kansas City were all similar in the relation of housing prices to median income. Since then, due largely to excessive land use regulation, Denver and Portland housing prices have skyrocketed while incomes have not. Kansas City homes have remained as affordable as they were before.

Another one of Kansas City’s competitive advantages is commute times. Despite its sprawl, Kansas City has one of the shortest commute times in the world. Thanks to an impressive network of highways, traffic congestion is so slight that Kansas City had the least traffic congestion (tied with Richmond) in the 2015 Tom Tom Traffic Index. And lack of congestion isn’t due to public transit. Eighty-two percent of area residents commute to work alone in a car—including 76 percent of low-income workers.  In fact, only 3 percent of low-income workers in Kansas City commute to work by transit. Kansas City (like virtually all US metropolitan areas) is an automobile-oriented city and doing just fine.

Understanding these advantages is imperative if Kansas City is going to build on our strengths. Policy makers are often lured into adopting programs based on the results in Portland, or Denver, or Dallas. But Kansas City is not any of those places, and there is little guarantee that such policies will work here. If we want Kansas City to succeed, we need to understand exactly what we have to offer. This paper seeks to start that discussion.

The post Kansas City: Genuinely World Class appeared first on Show-Me Institute.

• Blog: Kansas City: Genuinely World Class
• TV: Wendell Cox on KC Competitiveness
• TV: Wendell Cox and Crosby Kemper III on KCPT’s Ruckus
• Radio (beginning at 23 minute mark): ‘How To Listen To Jazz,’ A World-Class Kansas City, And The Weekend To-Do List
• Radio: Wendell Cox appeared on KCMO radio with host Mike Ferguson
• Video: Kansas City: Genuinely World Class

The post Kansas City-Genuinely World Class appeared first on Show-Me Institute.

The post Wendell Cox on KC Competitiveness appeared first on Show-Me Institute.

Urbanists, journalists, and academics — not to mention big-city developers — were easily persuaded that shelling out to court “the hip and cool” would benefit everyone else, too. And [development consultant Richard] Florida himself has prospered through books, articles, lectures, and university positions that have helped promote his ideas and brand and grow his Creative Class Group’s impressive client list. …

Well, oops.

Another way I would describe this development strategy: “Warehouse lofts over warehouses.”

Indeed, the recasting — and really, inversion — of the American city by contemporary urban planners does not share a great deal in common with why American cities developed in the first place: because that is where the jobs were. As transportation and communication became more expansive and readily available, living in or near the city center for work became less of a necessity and more of an active choice. In a time where “creatives” can give a presentation over Skype and telecommute to work, location-location-location ain’t as necessary as it used to be when it comes to jobs. Moving downtown in the 21st Century oftentimes has less to do with labor needs as it does with identity preferences.

And that is, of course, the development quandary. My proximity to my place of work is going to affect where I live greatly if my job is in manufacturing. Indeed, many cities were purpose-built for the manufacturing industry: shoes, cars, etc. But manufacturing is not the industry cities seem to devote too much attention to these days, and unfortunately for cities, the “creatives” they are trying to attract do not exactly have development coattails.

Kotkin:

Indeed in many ways the Floridian focus on industries like entertainment, software, and social media creates a distorted set of economic priorities. The creatives, after all, generally don’t work in factories or warehouses. So why assist these industries? Instead the trend is to declare good-paying blue collar professions a product of the past. If you can’t find work in deindustrialized Michigan, suggests Salon’s Ray Fisman, one can collect “more than a few crumbs” by joining the service class and serving food, cutting hair or grass in creative capitals like San Francisco or Austin.

The story actually quotes Florida, one of the lead movers in the “hip” development scene, admitting to a serious flaw in the last decade’s worth of development fads: “On close inspection, talent clustering provides little in the way of trickle-down benefits.” In other words, if you build it, the “creatives” might come to your converted warehouses and niche dining establishments . . . but that is about it. (Emphasis mine.)

Yet this footprint of such “cool” districts that appeal to largely childless, young urbanistas in the core is far smaller in most cities than commonly reported. Between 2000 and 2010, notes demographer Wendell Cox [who has written for Show-Me], the urban core areas of the 51 largest metropolitan areas — within two miles of the city’s center — added a total of 206,000 residents. But the surrounding rings, between two and five miles from the core, actually lost 272,000. In contrast to those small gains and losses, the suburban areas — between 10 and 20 miles from the center — experienced a growth of roughly 15 million people.

The smallness of the potentially “hip” core is particularly pronounced in Rust Belt cities such as Cleveland and St. Louis, where these core districts are rarely home to more than 1 or 2 percent of the city’s shrinking population. Yet the subsidy money for developers is often justified in the name of “reviving” the entire city, most of which has continued to deteriorate.

More on this topic shortly.

The post Part One: The Smallness Of The Potentially ‘Hip’ Core appeared first on Show-Me Institute.

When it comes to housing, Saint Louis is one of the most affordable areas in the country.  And that, says demographer and economist Wendell Cox, is why Saint Louis is poised to recover its competitiveness…as long as area planners stay away from so-called “smart growth” policies and too much regulation.

Related Links

Housing Affordability: The Saint Louis Competitive Advantage (Full Policy Study)

The post A Rebirth for Saint Louis? and When “Smart Growth” Isn’t appeared first on Show-Me Institute.

People in the Saint Louis area often talk about the problems associated with so many different governments and so many types. Those problems are real, but there are positive aspects of having a large number of small governments, too. One of the best aspects of having a high number of smaller governments (such as the 90 different municipalities in Saint Louis County) is the inability to enact comprehensive planning in the area. Government-directed urban planning is too often just an excuse for others to tell you how to live. We do not need growth boundaries in Saint Louis. We do not need higher density zoning (which should be allowed, of course, if that is what people want; it just should not be mandated by government). We do not need excessive impact fees for construction. We do not need — and more importantly, do not have — any number of other examples of land use rules governing our lives. What does that lack of mandated planning give us? More freedom and lower housing costs; two wonderful things.

Wendell Cox is uniquely qualified to comment on the affairs of Saint Louis. While his writings and lectures are international in scope, he resides in the Saint Louis area. The Show-Me Institute is excited to have him writing for us, and you can view his full policy study here. You can also enjoy a conversation between Wendell and Rick Edlund, Show-Me Institute’s director of communications, here.

The post Lower Housing Costs, Less Urban Planning, and the Positives of 90 Municipalities in Saint Louis County appeared first on Show-Me Institute.

I look forward to seeing how this works out for the city and its residents. I am confident it is going to work out great. In our policy study on public-private partnerships for Missouri transportation, we discussed these options for transit at length (see Section VII, pages 32-36). There are many examples of successful transit privatization efforts in the United States, including Las Vegas and Denver. Here is a key finding from Wendell Cox, a local authority on transit and highways, as quoted in the policy study (note: competitive contracting is a common form of privatization):

Competitive contracting has produced positive results for transit agencies in the United States and abroad. The quality of competitively bid transit has been found to be equal to or better than that provided previously, and ridership has generally risen as cost savings allow for expanded service. According to Wendell Cox, direct savings from competitive contracting have ranged from 14 to 52 percent, with an average of 30 percent, over the former non-competitive service in cities that have competitively contracted out at least 10 percent of their service.

After this transit privatization works out to everyone’s benefit, I hope Independence can privatize a few more things. To their additional credit, at least the golf courses in the city are all privately operated.

The post Independence Privatizes Its Bus Services appeared first on Show-Me Institute.

Chairman Watson and Honorable Members of the Board of Commissioners:

Thank you for the opportunity to submit my comments about the upcoming sales tax vote in Saint Louis County, the proposed service cuts if the tax increase does not pass, and more. This testimony follows up on comments I made last month, at Metro’s invitation, at the Missouri Public Transit Association’s convention. The primary point of this testimony is not to comment on the proposed service cuts, but to suggest alternative means of financing and providing mass transit in general. These ideas will hopefully be given consideration, whether or not voters pass the sales tax increase, although they may become imperative should the measure be defeated.

Before I discuss alternative provision of transit, I would briefly like to consider the possibility of fare increases. I am aware that transit is subsidized everywhere, to varying degrees, and I agree that society as a whole gains from effective mass transit. However, there is nothing wrong with making the riders of the system pay as much of the cost of the services they use as reasonably possible. In years past, on numerous occasions, I have heard Metro officials explain the cost and demand curve of a fare increase. I understand and appreciate that, in the past, fare increases were inevitably met with substantial ridership reductions. However, these past fare increases also occurred during a prolonged period of remarkably stable and inexpensive oil and gas prices. When the cost of ridership increased then, potential riders reconsidered the cost equation of transit versus driving. In many of those cases, fare increases led riders to re-evaluate the cost of driving and decide in favor of driving, rather than using mass transit.

I propose to you, in light of the sharp increases in the price of gasoline during the past three years, and the prospect that gas prices will likely remain at a significantly higher level than their average just a few years ago (even considering the recent welcome reduction downward from $4 per gallon), that the vast majority of the system’s current riders would continue to use Metro’s buses and light rail after a fare increase. Fare increases to $2.50 per bus ticket, or $1 for a transfer, or $3 to ride light rail, are still very inexpensive when the overall costs of driving and parking are computed in an era of $3-per-gallon gas.

As I stated earlier, it’s a good policy to require the users of a service to pay for it. In some government-based examples, such as home inspection fees or park facility rental fees, it is theoretically possible to recover close to 100 percent of the cost of a particular service. For others, such as police protection and urban mass transit, it is either theoretically impossible or completely unrealistic to recover 100 percent. In the case of police protection, recovery is impossible because it is morally and logically unsound to charge or tax someone more because they might require additional police protection — e.g., someone who lives in a violent neighborhood. As for mass transit, if you charged the full cost recovery of the service, you would almost certainly price out some of the people who need the service the most. But, keeping that fact in mind, Metro should still recover as much of the cost of services as possible from the people who use the service. Using Metro’s own 2006 data, taxpayers subsidized every systemwide passenger boarding to the amount of $2.46. It seems simply absurd to argue that those taxpayers who do not use transit do not already give enough money to those who do. While it is reasonable to subsidize a single parent who needs mass transit to get to and from work, it is just as unreasonable to subsidize a Cardinals fan or Mardi Gras paradegoer. Striking the right balance might be a difficult task for Metro, but relying solely on increased subsidies is unfair, and — by increasing tax rates — harmful to our economy. One potential way to strike this balance could be to increase the cost of individual tickets more than the cost of monthly passes. That way, regular riders who depend on mass transit would not be priced out of the system, and would still be able to purchase affordable monthly passes.

The most important long-run decision for Metro, though, is not a fare increase. Rather, officials should consider whether Metro is willing to change the fundamental way it provides transit, and to consider the opportunities presented by private financing and private partnerships. The Denver Regional Transportation District provides 46 percent of its fixed-route bus services and all of its door-to-door services for the disabled through competitive contracting. This model allows a transit agency to determine the scope and goals of service provision, such as bus routes and preferred schedules, then invite private businesses to bid on performing that service.

Nobody is suggesting that private businesses are going to magically turn a profit on these routes. Instead, to quote David Horner, Chief Counsel to the Federal Transit Administration in his April 17, 2007, testimony before Congress, “Private operators then compete for the opportunity to provide services not by bidding up the concession payment but by bidding down the subsidy.” He terms the use of private companies to provide transit as “subsidy minimization.” While this differs from many road or bridge partnerships in which private service providers often make substantial up-front payments to governments, it nonetheless can save taxpayers significant sums of money. A study by Wendell Cox found that competitive contracting saved the Denver RTD $101 million between 1989 (when they began the program) and 1998. Las Vegas has also made extensive use of competitive contracting in its provision of mass transit. One of America’s fastest growing cities, Las Vegas contracts out the majority of its bus services to private providers.

Denver is going even further with its radical changes to transit provision. In the summer of 2008, Denver RTD issued a request for qualifications from contractors to build four new commuter rail lines. This was the city’s opening step in using private companies to design, build, finance, operate, and maintain an expanded light rail and commuter rail system for Denver. The first example of the use of private partnerships in U.S. light rail provision was the Hudson-Bergen line in New Jersey. According to Mr. Horner’s testimony, that private partnership resulted in the light rail line entering service five years ahead of schedule, with an estimated cost savings of up to $345 million. While there may be statutory limits and prohibitions to what Metro can do in this regard, we all know it only takes political will and effort to change those regulations. More importantly, it takes creativity, a nurturing of partnerships, and a willingness to work with the private sector to rethink how transit is provided in Saint Louis.

Metro knows how important federal funding will be in making the desired expansion of MetroLink a reality. Comments made by federal officials at an event commemorating the 15th anniversary of MetroLink, at Washington University this summer, as well as Mr. Horner’s testimony, make clear that large-scale transit capital projects involving private partnerships will receive favorable treatment and have a better chance of obtaining the necessary federal funds. Competitively contracted bus–rapid transit, though, could well serve the transit needs of the suburbs more cost-effectively than expanded light rail. As traffic moves back onto I-64 in 2010, improvements made to the arterial roads during the closure — including traffic light synchronization — will allow buses to serve the suburbs’ commuting needs better than before.

Missouri and Illinois could be on the forefront of private partnerships in mass transit. Whether or not the voters of Saint Louis County pass the sales tax, I recommend that Metro strongly consider the possibilities offered by competitive contracting and private partnerships.

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