June 30, 2015

You Don’t Say

Telling people “I told you so” is probably not a good way to win friends and influence people. However, when you debate something contentious (like stadium subsidies), it’s tempting to gloat when the facts vindicate you.

Hence my struggles after reading this new story in the Post-Dispatch. The story reports that, according to emails from Budget Director Paul Payne, the St. Louis Rams are not generating enough tax revenue to cover the debts associated with the construction of the Edward Jones Dome. Due to the fact that Saint Louis City only collects taxes from the Rams during home games, the players and staff barely pay anything in earnings taxes to the city. This is something we’ve been talking about for months now. The Rams do not pay for themselves and to say otherwise is simply wrong.

SPike-3Consider these three things:

1. The Dome has not lead to revitalization of the surrounding area.

2. Subsidies for sports stadiums do not generate economic growth.

3. The taxes generated by a new stadium project cannot offset the amount of the subsidy.

Given these points, what economic justification could there be to subsidize construction of a new stadium?

The truth is there is no economic justification for public money being spent on constructing a football stadium. If people want to make the case that football is a luxury good that residents can enjoy, they are free to do so. However, I don’t think it’s good policy to force people in Springfield, Kirksville, and Joplin to pay for a luxury good in Saint Louis.

Sometimes it isn’t fun to be right. Still, when the facts bear you out, it’s worth mentioning. I hope policymakers consider this when deliberating on whether more subsidies is the way to go.

Top Misconceptions About the Riverfront Stadium Plan

As the fight over funding a new riverfront stadium, designed to keep the Rams in Saint Louis, plays out in the courts, many misconceptions about the plan have been allowed to take root. This blog post will try to set a few of them straight.

Myth 1: Professional sports teams generate development and boost regional economies.

The consensus among economists is that this is not the case. Nearly every study on stadiums finds no tangible impact on job creation or economic activity. As for redevelopment, economists Dennis Coates of the University of Maryland and Brad Humphreys of West Virginia University wrote:

“. . . strategically placed stadiums and arenas can sometimes ride existing redevelopment trends, but they are never the cause of these trends.”

Myth 2: A riverfront stadium plan will pay for itself.

Total subsidies to the riverfront stadium in Saint Louis will likely exceed $400 million, no small sum. Even so, public officials and respected news outlets like the Post-Dispatch claim that the stadium will pay for itself through increased tax revenue. The mass of scholarly literature rebuts this assumption. Most economists find that sports stadiums have very little impact on tax revenue and do not recoup large public subsidies.

A review of the literature suggests that the optimistic assumptions of stadium backers and local newspapers tend to rest on overestimated direct tax revenue from sports teams and underestimated opportunity costs for government expenditures. However they go wrong, when politicians claim an NFL stadium will pay for itself, they are ignoring clear economic evidence to the contrary.

Myth 3: The stadium will be built with no new taxes.

First, extending bonds (and the taxes that back those bonds) is an increase in taxation when those taxes would otherwise expire. Beyond that, the existing stadium plan does not account for the following costs:

1. New stadium maintenance

2. Renovations to the Edward Jones Dome

3. $150 million in state tax credits

Someone will pay for these policies, and it’s unlikely to be the Rams. Furthermore, according to the lawsuit the Regional Convention and Sports Complex Authority (RSA) filed against the city, officials plan to use other methods of funding that will result in more taxpayer dollars getting spent (or diverted). These include using public dollars to purchase land (which is already underway), setting up new downtown taxing districts (more TDDs and CIDs), and tax increment financing.

Missouri residents should understand that if they subsidize a stadium, they may get an NFL team, but they aren’t likely to make their money back. There also isn’t any reason to think that it will create significant economic benefits for the region. The plan’s high costs and limited public benefit should make some sort of public approval a necessity. Unfortunately, depending on how the courts rule, public involvement might be sidestepped altogether.

June 29, 2015

And the Top State Is . . .


Well, it wasn’t Missouri. CNBC recently released its annual America’s Top States of Business ranking. The ranking is based on 60 different measures grouped into 10 broad categories, such as Workforce, Infrastructure, and Technology and Innovation, among others. So how did Missouri fare?

In 2015 Missouri came in at number 26. Invoking the “well, it could have been worse” mentality, Missouri ended up, yet again, in the middle of the pack. In fact, Missouri has claimed this relative position in nearly every ranking since its inception in 2007. Except for a brief dip to the mid-teens during 2009-2012, Missouri and mediocre are becoming synonymous.

To put a positive spin on the news, where did we rank the highest? In 2015, as in 2014, Missouri took the 11th spot in the category Cost of Doing Business. This area accounts for factors such as a state’s tax climate, utility costs, wages, office and industrial rent, and state-sponsored incentives to lower the cost of doing business. If the last measure includes items such as TIFs and tax breaks, maybe being highest in the CNBC ranking isn’t actually a good thing.

Where did the state rank the worst? Scored on aspects such as crime rate, antidiscrimination protections, quality of health care, overall health of population, environmental quality, and other “livability” factors, Missouri came in at 47th in the Quality of Life category. In fact, since 2013 Missouri ranked 47th or 48th in this area. Doesn’t make us look like a real destination, does it.

I do not know if the CNBC ranking drives decisions by businesses, households, or policymakers. But achieving a lackluster performance on yet another ranking of business climate is becoming the norm for Missouri. Perhaps it helps explain why the state continues to record one of the slowest economic growth rates of any state and achieves at best mediocre predictions of future economic success.

Indiana Toll Road Sold to New Company for $5.7 Billion

On May 28, Industry Funds Management, an international infrastructure investment firm, purchased the lease (with 66 years remaining) of the Indiana Toll Road from the bankrupt Indiana Toll Road Concession Company (ITRCC) for $5.7 billion. The purchase, along with additional investment the firm plans for the toll road, is good news for the Indiana residents and states looking to use private capital to improve infrastructure.

tollWe’ve written about the privatization of the Indiana Toll Road before. Long story short, in 2006 an international consortium paid Indiana $3.8 billion to operate the toll road for 75 years. They also agreed to make hundreds of millions of dollars in upgrades to the toll road. The consortium set up the ITRCC to manage the lease. When the recession hit, highway users fell far below projections and the company eventually went bankrupt. But all was well for Indiana residents, who saw their toll road improved and the $3.8 billion from the sale used for state highway upgrades.

Some critics of toll road privatization have used the example of the Indiana Toll Road to claim that privatization does not work. After all, companies can go bankrupt, and then what happens to the highway? In the case of the Indiana Toll Road, it has simply been bought by another company that agreed to abide by the original terms of ITRCC’s lease. Even better, the new company, Industry Funds Management, plans to invest at least $260 million into the toll road, modernizing toll plazas and repaving worn-out roadway.

For states like Missouri, the resolution to the Indiana Toll Road Concession Company’s bankruptcy should be a convincing example that privatization can work even if a particular private partner fails. What’s more, the sale price of $5.7 billion demonstrates that there is still significant private capital available for valuable infrastructure investments, if Missouri goes down that road.

June 26, 2015

Nixon Vetoes Transfer Bill . . . Again

Today, Gov. Jay Nixon vetoed a bill to amend the transfer program for students in unaccredited school districts for the second time in two years. HB 42, this session’s version, would have expanded virtual and charter school options for students in failing schools in Jackson and Saint Louis counties, created a new accreditation process evaluating individual schools rather than districts, required students to transfer to an accredited school within an unaccredited district first, and restricted transfers to those students who have lived in a failing district for one semester.

The governor foreshadowed this move on Tuesday when he announced a new plan for the state’s two unaccredited districts. Twenty-two higher-performing districts will commit to offering a lower tuition rate for students transferring from Riverview Gardens and Normandy and will provide instructional support for the unaccredited districts. Apparently for him, that is enough for the students in Riverview Gardens and Normandy for at least another year.

But it is not enough for them. Students in these districts should be able to attend the school that best fits their needs, be that a charter school, a virtual school, or a private school. Even one year within a failing school can cause irreparable damage in the life of a student. Students shouldn’t have to wait for support from other districts or their own district to get its act together.

Last year, the governor vetoed the transfer bill because it allowed for the creation of a tiny school voucher program. Legislators cut that provision this year, and still the bill was vetoed.

Minimum Wage Hike on Ice?

To say the proposed minimum wage hike in the city of Saint Louis has been controversial is an understatement. We’ve been on top of the issue since it was first proposed. I even got a chance to testify on the bill before the Ways & Means Committee. Needless to say, I was not the most popular guy in that room.

Still, Alderman Joe Vaccaro, the acting Ways & Means chairman, has announced he is cancelling all future meetings on the minimum wage, potentially killing the proposal. A recently passed bill from the Missouri Legislature, if signed by the governor, would prevent any local minimum wage increases from going into effect after August 28. Given that the Board of Aldermen go on summer break starting July 10, this puts the minimum wage bill in a precarious position and will make it difficult for any minimum wage increase to be enacted.

I applaud this decision, and I hope no increase is enacted. Increasing the minimum wage will destroy jobs and do little to help those in poverty. I want people across the city and state to earn more in wages. However, increasing the minimum wage is not the way to achieve such a goal. Thankfully, some on the Board of Aldermen feel similarly.

Kauffman Foundation Releases New Education Data Tool

Are you looking for a new school for your child? Are you curious to know how your child’s school stacks up to others across the state? Do you want to know if your hard-earned property tax dollars are being put to good use? You’re in luck!

This week the Kauffman Foundation released Edwise, an “online tool to help parents, educators, school districts, policymakers, and the public make informed education decisions.” It has comparable data for every school and district in Missouri (and some in Kansas) on everything from ACT scores to enrollment to student-teacher ratios.

As school choice expands in the Show-Me State, access to information regarding schools must as well. While the Department of Elementary and Secondary Education (DESE) already provides data for every school district and charter school, their website is notoriously hard to navigate.

Increasingly, websites such as stlschools.org and greatschools.org are helping parents find a school that fits their child’s unique needs.

Edwise makes a great contribution with its easy-to-navigate map tool that makes data that could be daunting to comb through incredibly user-friendly.

I encourage you to check it out!

act kauffman

Abatement Advisory Board Declines to Catch a Falling Star

It’s been a bad few days for the Kansas City Star. Last week, the Kansas City Business Journal reported that the Star was seeking a 15-year extension to the abatement it has on its downtown production facility, which ended last year. If approved, the extension would be worth millions of dollars for the newspaper.

But prospects for the Star‘s extension dimmed a bit on Wednesday when the city’s Chapter 353 Advisory Board, in unexpectedly harsh terms, recommended the city deny the newspaper’s request.

Advisory Board Chairman Michael Duffy made the motion to recommend denial, giving two primary reasons. For one, Duffy said, Chapter 353 abatements were intended to be used as redevelopment incentives, “not as a bailout provision for a troubled business.” In addition, Duffy said, the Star‘s request appears to be “an end run around an adverse county determination of fair market valuation.”

According to the Business Journal, without the abatement the Star‘s property taxes could accelerate from less than $100,000 each year to around $1.3 million annually. That’s a hefty chunk of change to be sure, but remember: It’s a chunk of change that the newspaper hasn’t had to pay for the last decade. Put another way, the Star‘s present abatement meant millions of dollars did not go to public services in Kansas City; denial of this extension would allow the newspaper to fully fund its obligations to the city’s schools going forward.

Chairman Duffy’s suggestion that an abatement shouldn’t be a “bailout provision for a troubled business” is exactly right. If an enterprise cannot make it on the strength of the value it brings to the market, it is not the obligation of taxpayers to make it profitable. If the government is the only thing that can make a business work, then the business isn’t working (*cough cough* convention hotels *cough*).

But this week’s news is unlikely to be the end of the Star‘s abatement story. We’ll keep you posted.


June 25, 2015

Taxicab Commission: Ridesharing a Want, Not a Need in Saint Louis


The status of ridesharing companies, like Uber and Lyft, dominated the agenda at this month’s meeting of the Metropolitan Taxicab Commission (MTC). When the commission opened the floor to public commenters, most were supportive of reforms necessary to get ridesharing companies up and running in Saint Louis.

However, despite the public enthusiasm, the commissioners themselves were more critical and directed their criticism mainly at Uber’s business model. They doubted whether Uber’s background checks were up to their standards, they discussed at length the need for initial drug testing, and they questioned Uber’s insurance requirements. As is usual, they claimed that their concerns were only about customer safety.

In their nitpicking about which background check was most thorough, the MTC continued to ignore the fact that most of its for-hire vehicle regulations have nothing to do with safety. How does limiting the number of licensed cabs protect safety? How do pricing regulations determine whether a cab is road worthy? What consumer breathes a sigh of relief knowing that the MTC controls what drivers may wear?

Unfortunately, rather than take an open attitude toward innovation, a regulatory reflex reigns at the MTC. When the commission was asked to reconsider the necessity of its regulations, one commissioner asked, and I’m paraphrasing, “Would you get your hair cut at an unlicensed barber?” (Barbers require licenses in Saint Louis.) He was incredulous to the idea that, yes, many residents would feel perfectly comfortable choosing a barber that did not have the city’s seal of approval, if that barber did a good job. That same commissioner ended the meeting by saying that ridesharing companies were a want, but customer safety was a need. Customer safety as defined by the MTC, not customers themselves.

The MTC would best serve Saint Louis if it takes the demands of its residents seriously and gives up on its instinct to delay and control ridesharing companies. More than anything, Saint Louis needs a welcoming business environment; no one wants the MTC to hold the region back.

The Risks of the New Convention Hotel

Despite being midsized in both population and convention business, Kansas City was rated among the top five cities in high travel taxes. That rating didn’t include the new 1 percent downtown streetcar Transportation Development District (TDD) tax or the proposed 1 percent Community Improvement District (CID) for the proposed new 800-room convention hotel. These additional taxes will make Kansas City less attractive to conventions.

The proposed hotel deal not only will make conventions here more expensive, but it also will remove one of the few remaining charges conventions can keep down: open-bid catering.

Patric Mills works with Educational Testing Service (ETS), which brings over 5,000 people to Kansas City every year for between eight and 23 days—accounting for 26,000 room nights and 173,000 meals. She says that Kansas City is already more expensive than our peer cities. In a phone interview, she told me,

Kansas City is more expensive in general than some of our other site cities, such as Louisville and Cincinnati. Everything—travel, lodging, local transportation, IT support, decorators, security services, etc.—is less expensive in other cities. Being able to save on catering dollars makes Kansas City more attractive than it would otherwise be. 

The deal Kansas City is considering would give up the only cost advantage it has—catering—by giving Hyatt exclusive rights to it. As a result, convention planners like Mills will lose an opportunity to control costs. Mills said,

In most cities, the convention center has exclusive catering. Kansas City has open catering, and that is one of the biggest attractions, because it saves us money. . . . Exclusive caterers will have to bill for overtime and, with no competition, would have no incentive to offer low prices.

This will make Kansas City less attractive to ETS and probably many other conventions. Increasing costs and decreasing choice won’t bring Kansas City new convention business. Mills concluded,

The College Board has a budget, and ETS, in managing their programs and events, has an incentive to keep costs low. If Kansas City moved to an exclusive caterer and prices rose as high as I am afraid they might, College Board could ask us to move the Kansas City AP Reading to a less expensive site.

The benefits of a new convention hotel are iffy, but the costs and the risks are real. Kansas City is already an expensive place for conventions—this effort to build a new hotel will make us more expensive and cost us an important competitive advantage: open-bid catering.

Taxpayers and the City Council need to understand these risks. If we’re not careful, we may end up pricing ourselves out of contention.

Supreme Court Rules Against King v. Burwell Plaintiffs

Today, the U.S. Supreme Court ruled that federal subsidies may continue to flow to insurance plans sold in federal insurance exchanges, despite what the text of the Affordable Care Act might suggest. Readers can find the Court’s ruling here and further background on the case here.

The Court’s decision is a disappointment not only to supporters of genuine reform to America’s health care system, but also to the millions of Americans who will now be fully exposed to Obamacare’s mandate and penalty provisions—including hundreds of thousands of Missourians. More to come; stay tuned.

June 24, 2015

Maintaining the Education Status Quo

Today it was announced that many St. Louis area school districts have agreed to accept a lower tuition rate for students transferring from the Normandy and Riverview Gardens school districts. Jessica Boch of the St. Louis Post-Dispatch writes:

 A significant number” of districts have agreed to reduce the tuition costs for transfer students to about $7,250, said Don Senti, executive director of EducationPlus, an organization of area school districts that has coordinated the transfer process for the past two years. That is the same amount most districts charge St. Louis Public Schools for transfer students under the voluntary desegregation program. In the past, tuition rates have ranged from $20,768 in Clayton to a low of $7,927 in Mehlville.

I am very pleased that the school districts have decided to take this step. Actually, I’ve been saying this action was possible all along. Back in January 2014 I wrote:

 Many have lamented that the inter-district transfer law, which allows students to transfer from unaccredited public school districts to nearby accredited districts, may bankrupt failing districts. Normandy and Riverview Gardens, the two unaccredited districts currently allowing students to transfer, are already seeing financial hardship, and reports indicate that Normandy could be bankrupt by the end of the school year. This has occurred because the districts are paying tuition rates that are often in excess of what the districts spend on their own students. This has led some to clamor for a set tuition rate.

In a recent position paper by the Cooperating School Districts of Greater St. Louis, area school superintendents stated, “If transfers are made between school districts then a regional tuition rate should be determined.” The interesting thing is that nothing is stopping area school districts from charging a lower tuition rate now. Each district, with a vote of its school board, could decide to set a lower, consistent tuition rate. To date, none of them have. Instead, school leaders are asking for more state government action.

This is the very problem that plagues our society in so many regards; instead of taking initiative and fixing a problem ourselves, we allow or we seek greater government involvement.

The next time you hear a school leader complain about the transfer situation and how it may bankrupt unaccredited schools, ask him or her what his or her district is doing to help. Are these leaders taking action locally, or are they requesting a solution from Jefferson City?

Eighteen months ago school leaders scoffed at my idea. They wanted a legislative fix. They wanted to stop the transfer program. What changed? Now, area school leaders are acting to stop a legislative fix. The current bill sitting before the governor would improve Missouri’s charter public school law and allow for broader establishment of virtual schools.

Eighteen months ago, the education establishment rejected the idea of lowering tuition because they wanted the legislature to maintain the status quo. Today, the education establishment welcomes the idea of lowering the tuition because they want to avoid the legislative fix and maintain the status quo.

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