Originally, the city paid for solid waste collection from ordinary tax revenues. However due to budget constraints—maybe due to the city giving away hundreds of millions of dollars in tax subsidies—the Board of Aldermen passed a bill in 2010 to implement an $11 monthly fee per household to help cover refuse costs. Last August, the Board voted to increase the fee to $14. The additional money was for, among other things, obtaining new garbage trucks to “ensure garbage collectors won’t be forced to work overtime because they’re stuck with poorly functioning trucks.”

And what have the results been? The city’s fleet of garbage trucks continues to deteriorate. Roughly half of the 84 trucks are in disrepair, leaving the other half to cover the 55 daily routes. Even with extended hours and 12 new—leased—trucks, the city still lacks the resources to pick up the trash on time, so the dumpsters continue to overflow.

We are not suggesting that the problem here is exclusively the fault of city officials. For one thing, piles of uncollected garbage don’t make for good optics if you’re an elected official with constituents to keep happy. And the decision to lease new trucks rather than buy them looks like a reasonable response from a city that is behind on maintenance for the trucks it already owns.

Maybe the larger issue is that garbage collection is a better fit for private companies than for a city government. Privatizing this service would allow residents to choose their garbage collector, unlike now, creating competition among service providers and incentivizing high-quality, efficient operations. Wichita, Kansas, a city with 80,000 more people than St. Louis, has no city-run solid waste collection system. The average household in Wichita spends $25 per month on garbage collection. (In comparing this rate to costs in Saint Louis, keep in mind that St. Louis’s current $14 per month fee is in addition to the money from the overall city budget that goes toward trash collection.) As for the quality of service provided, we can’t claim to have our fingers on the pulse of the Wichita trash-collection scene, but our internet searches yielded nothing like this or this or this in Wichita.

Maybe it is time to see if the private sector has an answer to this embarrassing—and smelly—problem.

The post Time to Take out the Trash appeared first on Show-Me Institute.

On Tuesday, April 5, Saint Louis voters will decide whether to extend the city’s 1 percent earnings tax for five more years.

Without a doubt, this is a hugely important decision.

In inviting me to talk to you, Ron Zager (co-chairman of the Missouri Progressive Action Group), asked that I begin by presenting both sides of the argument—for and against the earnings tax .

I am happy to do so. It makes for an interesting—and even a startling—contrast.

Supporters cite three principal reasons for extending the earnings tax:

1. It is simple, fair, and easy to collect. Businesses withhold $1 out of every $100 from the paychecks of all of their employees and pay it directly to the city. They also pay a 1 percent tax on their net profits.
2. It brings in a lot of revenue—almost as much as the combined receipts from the city’s property, sales, and utility taxes. It provides a third of the city’s General Revenue Fund, used to support fire, police, courts, streets, parks, recreation, and other day-to-day city services.
3. A large portion of this revenue is like manna from heaven. People who commute into Saint Louis from the surrounding suburbs account for more than half of the city’s annual earnings tax receipts of about $160 million. And why not? The high-earning commuters are significant consumers of city services, swelling the daytime population of the city by about 35 percent.

To sum up the case in favor of retention: The earnings tax is critical to the continued functioning of city and the continued provision of police and other services to a population that includes a high proportion of low-income residents. It is a real lifeline. The city would be in danger of going bankrupt without it.

Opponents have three main reasons of their own for eliminating or phasing out the earnings tax:

1. It encourages people and businesses to move out of the city.
2. It also encourages an ongoing merry-go-round of tax carve-outs and special favors for large and well-known firms. The city does not extend the same benefits to thousands of smaller businesses, which take care of most of the daily needs of people who live in the city, such as the neighborhood grocer, cleaners, pharmacist, or auto repair shop.
3. Though not a regressive tax (applying the same 1 percent to people at all income levels), it is a cruel one. Unlike federal and state income taxes, there is no exemption from the city earning tax for working people at or below the poverty line. The tax hits the first dollar of income even from the lowest-paying jobs. A still greater problem is the narrowing of job opportunities in parts of the city experiencing a rapid out-migration of people and the closure of many small businesses.

The minuses are really the flip side of the pluses I have just mentioned.

Yes, the earning tax is easy to collect, but it is also easy to avoid. As a business owner, you can avoid the tax on your net profits simply by moving your business to the suburbs—anywhere outside the city. There is no earnings tax in Clayton, here in Frontenac, or anywhere else in Saint Louis County and other surrounding counties and municipalities. If you did move your business, many or even most of your employees who already live in the county would, out of their own self-interest, applaud your decision. And others who live in the city would be given a reason to move to the county.

Yes, the earnings tax pays many big bills for the city. By the same token, it provides a strong incentive for individuals and businesses—who have bills of their own to pay—to relocate in order to avoid the tax.

By collecting more than half of earning tax revenue from commuters, the city is (inadvertently) making a powerful argument for downtown-based law firms and other businesses with a large number of highly paid employees to take flight—for both economic and personal reasons. At one stroke a firm can give many of its officers and employees an instant 1 percent raise while sparing them the bother of a long commute. So what can the city do to prevent such businesses from moving?

If you are the sitting mayor or other high-ranking city official, here’s the answer: Offer big potential flight risks all kinds of tax breaks and other incentives to stay downtown. Find ways to abate property taxes to keep prestigious firms from leaving downtown. Waive the half-percent payroll tax (separate from the earnings tax) for large employers such as Anthem and Wells Fargo. And lobby the state for more handouts.

But of course, given your obsession with preserving earning tax receipts, you do that only for the big guys and you forget all about the little guys who are so numerous (even in decline) that you know little or nothing about them.

A classic example of how this works can be taken from 2011, when Stifel Financial Corp., which has had its corporate headquarters in downtown Saint Louis since 1890, announced plans to buy its downtown office building and expand its workforce in the city by a couple hundred people. Mayor Francis Slay called it “tremendous news for the future of downtown.” He also helped Stifel get some $17 million in public financing for the purchase and renovation of the building.

Why would a large and successful financial firm need help in feathering its own nest? Ron Kruszewski, Stifel’s CEO, said it all: “There’s very little investment going on right now without some incentives.”

That prompted Bill McClellan of the St. Louis Post-Dispatch to comment in one of his columns: “When liberals like me argue for comprehensive health care, critics call us socialists. But when businesspeople demand public money to underwrite their projects, hardly anyone says anything.”

(I’ll take issue with McClellan on one point here: There is at least one institution that has fiercely and consistently opposed all forms of corporate welfare and crony capitalism, whether it is providing public funds for new corporate headquarters, public funds for professional sports stadiums, or any other kind of commercial development. That is the Show-Me Institute.)

To sum up the minuses: the earnings tax is a tax on work and enterprise, and when you tax something, you get less of it. In this case that means fewer jobs and less growth. The earnings tax has also encouraged unfair and unwise favoritism in tax practices—decisions made up on the fly to keep big-name businesses from bolting to the county. It’s time for a long look at Saint Louis city government—how it is financed and, more fundamentally, how it thinks.

Let us take a moment to consider decade-to-decade changes in the relative importance of Saint Louis among major cities in the United States over a long period of time—both before and after the introduction of the earnings tax in 1954.

According to census data, the last time Saint Louis moved upward in the ranks of U.S. cities was in the 1890s. The population grew from 452,000 people at the beginning of the decade to 575,000 in 1900, and Saint Louis moved from being the 5th largest city in the country to the 4th (behind New York, Chicago, and Philadelphia).

Of course, that was just prior to the Saint Louis World’s Fair. In that same amazing year of 1904, Saint Louis also hosted the world’s third modern Olympics—following the 1900 Olympics in Paris and the 1896 Olympics in Athens.

Saint Louis held onto 4th place until the 1920 census, when it was overtaken by Detroit and Cleveland, dropping to 6th. It was passed by Los Angeles in 1930 and Baltimore in 1940, falling to 8th. It remained in that spot in the 1950 census—when the city’s population hit an all-time peak of 857,000.

At that point the city’s population went into a steep decline that continues to this day. Since 1950, its population has dropped from close to 900,000 to a little more than 300,000—discarding almost two-thirds of its human body weight—and Saint Louis has gone from being the 8th-largest city in the country down to the 60th, behind such places as Tulsa, Oklahoma, and Wichita, Kansas.

It would be absurd to place all or even most the blame for this decline on the earnings tax. It would be equally absurd to deny that the earnings tax has made a significant contribution to the depopulation of the city and the growth of surrounding areas.

For one thing, we know that downtown Saint Louis no longer rules the roost as the unchallenged commercial center of the Saint Louis region. Clayton has become a strong second center, and other places around the county are also filled with offices and business enterprises. It is only in Saint Louis City that you find acres and acres of abandoned houses, deserted storefronts, and boarded-up factories.

Here’s a statistic that may surprise you: There are now more people who commute into Saint Louis County . . . both from the city and from Saint Charles and other counties . . . than there are people who commute into the city from the county or other jurisdictions. There are 236,000 people commuting into the county versus 172,000 commuting into the city, according to recent census data.

Somehow, Clayton and other municipalities receiving this great daily influx of commuters have been able to handle it . . . without instituting an earnings tax or having everything from the streets to public safety fall to pieces. Why is it any different for the city of Saint Louis? Why is the city unable to cope without taxing the earnings of people who come there to work?

Let’s turn then to the question of whether it is possible to phase out the earnings tax without throwing the city into bankruptcy and fulfilling the worst predictions.

Bear in mind that the proposal on Tuesday’s ballot in the city calls for phasing out the earnings tax over 10 years—whittling away at a $160 million funding gap that would occur in the year 2026 through spending cuts or revenue enhancements averaging $16 million a year between now and then.

Is $16 million a year too tall a mountain to climb? Somehow, in the city’s desperate efforts in recent months to persuade the Rams and the NFL to keep the team in Saint Louis, the city funneled $16 million through the Saint Louis Convention & Visitors Center Commission to pay legal fees and other expenses in what turned out to be a losing effort.

Before that, Mayor Slay and Missouri Gov. Jay Nixon were prepared to raise about $400 million to pay for a large portion of the cost of building a new downtown stadium for the Rams. That alone would have equaled the revenues from the earnings tax over a two-and-a-half-year period.

If almost any large business you can imagine were to lose customers year after year—eventually losing more than half of its business base—you would expect it to downsize drastically, if not go out of business.

Why is it—despite the steady, continuing loss in population—that the city’s budget continues to grow, if only slowly, from one year to the next, with few if any large reductions in its workforce?

Faced with such questions, city officials typically shift the focus to public safety, saying they need more rather than fewer police and firemen. Public safety accounts for a little over half of general funds expenditures. Why, then, is it so hard to trim the other expenditures that make up about 45 percent of the budget?

There are other ways that the city can either cut expenditures or raise revenues besides the shock of instituting sudden and drastic increases in property or sales taxes. It could raise hefty sums of money by privatizing assets such as the airport or the water system.

It could also make a serious effort to raise some revenue from its large nonprofit institutions. As Post-Dispatch business columnist David Nicklaus pointed out in a recent article:

These universities and hospitals depend on city service but don’t pay property taxes. Boston and other cities have negotiated payments from their big nonprofits; Saint Louis could try to do the same. Eliminating the 1 percent earnings tax should make it easier for these institutions to attract and retain employees; wouldn’t they pay something to make the tax go away?

But none of those things is going to happen without a fundamental change in thinking on the part of city officials who have come to look upon the earnings tax as the sine qua non of Saint Louis city governance.

Following the last election, when voters re-approved the earnings tax, city officials heaved a sigh of relief, agreed that the tax did indeed put the city at a competitive disadvantage, and promised to study alternatives. That was five years ago. And since then they have done nothing.

Maybe if the vote is closer this time, they will begin to think differently. But maybe not. Maybe they will just go on hoping for miracles while continuing to pursue policies that have contributed the city’s decline and fall from the heights it once occupied as a great American city.

The post The Saint Louis City Earnings Tax: Lifeline or Noose? 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.

Kansas City’s recent past is full of rosy development projects that did not pan out; KCP&L (Kansas City Power & Light) is chief among them. As a result, the city — and the taxpayers who fund city operations — are on the hook for about $13 million each year. Funds used to support the project are being diverted from other worthy causes.

Aviation Department Administrator Mark VanLoh says: “One common misconception the city must overcome: People think Kansas City will have to raise taxes to pay for a new terminal. It will not.” Maybe, maybe not.

Let’s review airport revenue. Dave Helling wrote in the Kansas City Star about how a new terminal would struggle to raise revenue:

There aren’t a lot of ways airport users could generate that kind of revenue. Ticket sales are already taxed, and air travel here is slumping. The airlines could pay more in rent, but other airports would pounce if the cost at KCI gets too high.

Indeed, VanLoh has admitted in press interviews that airports in Branson, Mo., and Wichita, Kan., are already taking market share from Kansas City because they are paying airlines to land there. Increasing rents or landing fees are not a realistic option.

If the airport is unlikely to be able to generate the revenue needed to support those bonds, can’t we turn to the federal government for help? VanLoh says “no,” telling the Star that large-scale federal participation in the project faces headwinds.

If the city were to issue $1.5 billion in revenue bonds in order to pay for the new terminal, it certainly would require a vote of the people. (Note that the $1.5 billion they are now considering is already a 25 percent increase over where we started, at $1.2 billion.) But what of Kansas City’s 2nd District City Councilman Ed Ford’s assertion in November that the project is “going to happen regardless of whether our citizens want it to happen”?

It turns out that not all bonds require voter approval. These bonds, known as Special Obligation Bonds, are not considered debt in the same way as other bonds and therefore require no public vote. Kansas City uses them all the time, and in fact is preparing to issue some this year to pay for the streetcar. Special Obligation Bonds were created to address a city’s immediate need — say, a broken water main — when it does not have the resources to fix it or the time to seek a vote. Kansas City issued two such bonds in 2012 amounting to $75 million that funded computer upgrades for the city’s revenue collectors, garages, and the refinancing of the ill-fated Citadel Plaza project.

Unlike revenue bonds, which do require a public vote, these bonds are normally secured by property. In this case, the Aviation Department may secure the $1.5 billion debt with the airport itself. While the city may not have to raise taxes, as VanLoh says, it is well within reason that the city will have to cover those bond payments from the general fund just like we cover KCP&L.

Welcome to the Kansas City Power and Flight District.

The post Kansas City’s Power And Flight District appeared first on Show-Me Institute.

Why is fanciful airport art an issue? Kansas City officials argue that we need a shiny new terminal because we are losing market share to other airports in the region, such as Branson, Mo., and Wichita, Kan.

On KCPT’s Week in Review program (comments begin at 5:07), Scott Parks of KMBZ 98.1, in a courageous act of honesty, questions the whole concept of a city “losing flights” to another city. He says:

Maybe I struggle against this panel mentally. I don’t understand how Kansas City is losing flights. Airlines are a business. If people want to fly to Kansas City for business, for pleasure, to visit family, whatever, they’re going to fly to Kansas City. I heard the argument this week that we’re losing flights to Columbia, we’re losing flights to Branson, we’re losing flights to Wichita. Well if I live in Seattle and I have family that lives in Kansas City, I’m not flying to Wichita and then driving three hours to Kansas City. I don’t understand how flights that were supposed to be coming to Kansas City are now going to Wichita or Branson.

The conversation immediately moved to the cost of security and Kansas City International Airport (MCI); no one addressed Parks’ concern.

Just like the old ministers in Hans Christian Anderson’s “The Emperor’s New Clothes,” Parks states the obvious — doing so almost apologetically. But he is exactly right. If proponents want to argue that the airport is unattractive as a hub — a place where people make connections to other flights but not itself a destination — a shiny new terminal will not address that problem. It will only exacerbate the problem if it results in higher costs to airlines who are already being lured elsewhere with cash.

Week in Review was rife with those same slick computer-generated images that were shown at the transportation committee meeting. Those images are meant to appeal to emotions. The Kansas City Star reported that the aviation department has contracted with an outside public relations firm for $117,000. Are presentations to the Kansas City Council and the public already focused on selling slick and colorful images rather than answering substantive questions? The city council’s committee hearing suggests the answer is “yes.”

Kansas City Mayor Sly James has called for an “adult discussion about the facts,” and that is good. But he and others on the City Council have yet to make their case that the Emperor is not naked.

The post The Emperor’s New Airport appeared first on Show-Me Institute.

For example, Chris Seyer is a friend of mine from business school who helps run his family’s aerospace manufacturing firm, Seyer Industries. His family’s company pays taxes at the individual level. Many of Seyer’s rivals, such as Harlow Aerostructures LLC, are located in Wichita, Kan. Chris told me that if a competitor like Harlow is able to benefit from the reduced tax rates in Kansas, then it will have a competitive advantage. For example, if Seyer and Harlow both made $5 million before taxes, Seyer would have to pay $300,000 in taxes, while Harlow would not pay anything. Harlow could use that extra $300,000 for capital expenditures, or it could hire a couple of new employees, or it could save it for future needs.

Missouri should not be picking winners and losers by handing out special tax breaks or incentives. Instead, the state should make it as easy as possible for companies located within its borders to succeed and thrive on their own. Kansas took a large step in making businesses in the state competitive. Missouri is lagging behind. One possible way for Missouri to make up some ground on Kansas is to eliminate the state’s corporate income tax. Missouri could also look into phasing out the tax on pass-through entities. That would help Seyer Industries and a lot of other companies in Missouri.

The post Kansas Cuts Taxes . . . Missouri Businesses Suffer? appeared first on Show-Me Institute.

Like any good journalist, the reporter got quotes from all sides of the debate. And, man, did he ever get some good quotes from the supporters of licensing (all emphasis below is added):

“The licensing process is a must,” said Detwiler, who along with fellow state-certified massage therapist Stephanie Lansdown run The Neuromuscular Clinic, which opened Nov. 15 in Springfield. “If you don’t know what you’re doing and say that you do, you could really do some harm to somebody.”

Clearly, this person has never tried to pick someone up at a bar.

“If we did the same work in San Diego, it would be a lot more expensive,” Detwiler said.

“I think it’s more about where you are. I don’t think the licensing would really have an effect on price.“

Believe it or not, we actually considered the issues of cost-of-living. The therapist is right that it matters, but wrong when he or she says that it explains the difference between Wichita and Springfield. The two cities have a very comparable cost-of-living, and Wichita’s is actually slightly higher. The main reason a massage session is $10 more in Springfield than Wichita is licensing, not costs of living.

I’ll finish with one quote that shows progress being made:

He added that the National Council of Architecture Review Boards has in recent years made it easier for architects licensed in one state to get licensed in others.

That is one way for the harmful effects of licensing to be reduced, and I applaud the architects for making it happen.

The post SMI In the Springfield Business Journal appeared first on Show-Me Institute.

His latest case study compared the prices of the metropolitan Kansas City market on both sides of the state line, and compared Springfield to Wichita. Unsurprisingly, the data show that Missourians pay a higher cost for massage services, a situation likely caused by market regulation. Stokes is quoted in the article as saying:

“This is a system designed to limit competition for the people who have the current licenses,” Stokes asserts. “That’s the only reason. Everything else is a smoke screen.”

I agree with David Stokes 100 percent. It baffles me how people try to argue for occupational licensing by saying that it is a form of consumer protection. Although his study demonstrates some of the ancillary benefits that licensing can provide, such as reduced search costs when trying to find a competent practitioner, government officials aren’t in a position to determine whether those benefits are worth the higher market costs that reduced competition brings. Ultimately, the primary thing being protected is the income of a particular set of licensed professionals.

I could easily prolong this post, but interns at the Show-Me Institute don’t get that long of a break. So excuse me while I go to Kansas to get a massage — it’s been a loooong day!

The post Stokes Massages the Post-Dispatch appeared first on Show-Me Institute.