October 24, 2014

Bring Dead Capital to Life

Think of that spare bedroom left vacant by children leaving the nest. Think of that empty passenger seat in most cars as they clog traffic in our major cities. To an economist, those are unused bits of capital: The room could be rented out, satisfying someone’s need for a short-term stay in town; that car seat could be occupied by someone heading in the same direction as the driver. Such unused sources of production are, simply put, dead capital.

Arthur C. Brooks, president of the American Enterprise Institute, recently argued that significant amounts of such dead capital could be brought to productive life if only local governments would stop protecting vested interests and allow entrepreneurs to invigorate their local economies.

How? There are new, exciting companies that empower individuals to improve their economic condition and, at the same time, improve the productivity of capital. One example is the ridesharing service Uber. Uber brings together those with empty passenger seats and those needing a ride across town. My experience (unfortunately, not in Saint Louis) is that Uber rides showed up faster than traditional taxis and that the drivers were more attentive to my needs. Because Uber drivers are rated by riders even in transit, poor drivers can lose business for inadequate service. Competition drives out poor performers.

Airbnb is a market solution to the problem of underutilized housing capital. With excess bedrooms in the United States, why not allow the owners of those empty rooms to satisfy the needs of individuals seeking a place to stay for a night or two? The needs of those willing and able to pay for a room are served and the owner is rewarded with, especially in these still-difficult times, an extra bit of income.

Unfortunately, a maze of state and local regulations block Uber and Airbnb from operating in many locales. “Governments have their own golden opportunity,” Brooks writes, “to exercise creativity in service of the common good, whether that entails rethinking anachronistic zoning laws or adjusting tax policies that treat someone’s spare bedroom the same as a Marriott suite.”

If bringing dead capital to life is good for the economy, isn’t it time for politicians and regulators to awaken to the potential benefits that such services can provide?

October 23, 2014

An Idea for Kansas City Schools: Give Principals Power

Kansas City Public Schools (KCPS) is seeking input from parents, school staff, and the community about how it might regain and sustain full accreditation and retain and attract students. To that end, it is forming a School Improvement Advisory Committee (SIAC) and has been seeking applicants to serve in that capacity. We have a few ideas we’d like to share about strengthening administration and staff, rewarding teachers, and empowering parents.

First, it is noteworthy that the stated purpose of the advisory committee is seemingly small ball. Their email soliciting participation asks only,

What’s it going to take for Kansas City Public Schools (KCPS) to regain full accreditation? What’s it going to take for your school to regain/sustain full accreditation? How can we retain and attract students?

In other words, “What do we have to do to provide the minimal state-required level of service?” We’re also suspect that they are looking toward parents and the community for ideas when there is an entire industry of specialists who have researched, written, and talked about what to do to improve schools. We at the Show-Me Institute have our own suggestions, and they aim at rebuilding world-class education in Kansas City. All our ideas have a common theme: Move power away from centralized school districts and toward students and parents.

For his 2003 book Making Schools Work, UCLA Professor and Author William G. Ouchi studied more than 200 schools in six cities and found that a school’s educational success may be most directly affected by how it is managed. The way to increase successful management, he argues, is to give schools more control over their own budget.

While schools may boast large budgets, Ouchi’s research uncovered that very little of it is controlled by the principal or the school itself. In one anecdote, he relates that a Los Angeles principal said her school had a budget of $21 million but added, “It doesn’t really matter because I only control $32,000.” Ouchi’s further research indicated that in New York, Los Angeles, and Chicago the local schools only controlled 6.1 percent, 6.7 percent, and 19.1 percent of the budget, respectively.

In school districts that have seen tremendous improvements in their urban school performances, such as Seattle, Houston, and Edmonton, Canada, the percentage of the budget controlled by the local schools was 91.7, 79.3, and 58.6, respectively. This should be no surprise. Administrators, teachers, and parents at the school are best able to identify and address the specific needs of their students.

Here in Kansas City, better school management means moving the power of the purse away from the top-down centralized control at 12th and McGee streets and out to the principals at Paseo, Lincoln Prep, and elsewhere. Ouchi offers this warning to parents:

Control goes with the money. If your superintendent smiles, invites your group into his office, and tells you that he agrees with you and that he’s going to roll out a new school-based decision-making program that includes parent involvement—smile sweetly and ask him who will control the school’s budget. Don’t let him off the hook. Don’t let him think that you can be so easily fooled.

Remember, the author was chief of staff to Los Angeles Mayor Richard Riordan. He has academic credentials, but he has weathered political fights as well. And the Kansas City district appears to be doing exactly what he describes: They smile, invite people to discuss the district, but surrender none of the control that is necessary for success.

St. Louis County Municipalities: Should More Consider Disincorporation?

In the months following the tragic events in Ferguson, there has been increasing scrutiny on the policing practices in small North Saint Louis County cities. The argument, best made by Radley Balko of the Washington Post, is that micro-cities in Saint Louis County are using local police to shake down poor residents in order to support otherwise unnecessary government.

St. Louis County munis

While we would argue that municipality size is certainly not everything, it is undeniable that many cities in Saint Louis County rely heavily on fines and court fees. One way of curtailing this sort of abuse is the rigorous implementation (or strengthening) of the Macks Creek law, which caps the amount of income a city can receive from traffic fines to 30 percent.

Missouri is preparing to audit some North Saint Louis County municipalities (along with cities in other counties) to ensure that they are not violating this law. However, the enforcement (or reform) of the Macks Creek law is up to statewide officials and voters. What’s more, if the law is vigorously enforced tiny municipalities might be forced to turn to large property tax increases or face insolvency. But local residents do not have to wait on statewide actions or accept a parasitic government. Voters can, and in the past did, disincorporate a city.

Under Missouri law, the residents can disincorporate their municipality if they: a. Gather 50 percent of residents’ signatures calling for an election on disincorporation; and b. 60 percent vote for disincorporation. At that point, the city would receive its basic services (including police and courts) from the county, unless they decide to join with another municipality.

Cities in Saint Louis County have disincorporated before, and recently. Just a few years ago, the poster child for a dysfunctional, traffic ticket-financed municipality was actually a middle-class, 95 percent white city in South Saint Louis County named Saint George. Major police scandals resulted in the city disbanding its police force, and residents ultimately voted to disincorporate in 2011. In 2013, the tiny (pop. 447) city of Uplands Park also held a vote on disincorporation, but that bid failed to reach the 60 percent mark.

The strategy of disincorporation is not without controversy. Loss of local representation, especially in areas with high minority populations, might be more worrying to some residents than fine-seeking officers. The approach also has limitations, as a municipality that funds decent public services mostly by fining pass-through traffic may serve voters’ interests while causing wider harm to the metropolitan area.

Most municipalities in Saint Louis County, including smaller ones, do not attempt to run their governments through aggressive police citations and court fees. However, residents should know that a local government that fails to provide for the common welfare (or openly harasses the poor) can be removed. A wider knowledge, if not actual use, of that option may result in more responsible city governance in Saint Louis County.

October 22, 2014

ESAs Empower Families in Arizona

All students have unique educational needs, which is why Salima’s parents chose to participate in Arizona’s Empowerment Scholarship Accounts (ESA) program. The ESA is an education savings account that allows parents to use a portion of their public school’s funding and deposit it into an account. The account can be used to pay for private school tuition, online education, private tutoring, or future expenses like college. This makes a world of difference to kids like Salima, who is one of 400,000 people living with Down syndrome in the United States.

This inspiring story is just one example of how school choice can transform lives. Because Salima’s parents were empowered through Arizona’s school choice program, their daughter’s needs finally are being met.

Missouri’s Medicaid Program Striking Out Intended Beneficiaries

In baseball, getting a hit three out of 10 at-bats could make you an All-Star, and maybe even a Hall of Famer if you do it consistently enough. But while batting .300 is pretty good for the National Pastime, in most other contexts succeeding only three out of 10 times won’t get you accolades.

That point was hit out of the ballpark over the past few days.

Last week mid-Missouri’s ABC 17 reported on the story of a pregnant woman who had been trying to sign up for Medicaid benefits, only to have her paperwork lost and her calls unreturned by the Department of Social Services (DSS). When the issue came up at a House hearing, the DSS admitted it had to do better, but it also admitted something astonishing (emphasis mine).

The Department says thirty percent of its callers are having their needs met, which Campbell acknowledges is too low. She says staff are being reassigned to taking calls and other changes are being made to improve that percentage, but [State Rep. Sue] Allen says the situation remains frustrating.

“In a company, in a private business, people would be gone,” observes Allen.

Missouri’s Medicaid program is deeply broken, and yet some of our politicians think now is the time to expand it with Obamacare. It isn’t. In baseball and business, step one would be to fix what is wrong and then build upon successes, not to double-down on a bad system and bad players. That’s what Missouri should be doing: fixing Medicaid, not making an already bad situation worse—especially for the patients the program was supposed to help.

Missouri’s Medicaid system is institutionally well below the Mendoza line. It’s time to rethink the program.

October 21, 2014

The Teachers’ Union Cycle

Last week, Time Magazine released an article titled “Teachers Unions Are Putting Themselves On November’s Ballot,” which reported that the National Education Association (NEA) and the American Federation of Teachers (AFT) will spend a combined $60 million to $80 million this election cycle. What does that mean for education stakeholders in Missouri?

The graphic below represents how teachers’ unions influence local school districts.

teachers union cycle

The first path of influence is through national and state political activity. At both levels, teachers’ unions make contributions to candidates that are likely to represent their platforms. The NEA, for example, takes strong positions on national education issues such as Common Core and school choice.

Unions also back issues at the state level—the Missouri NEA is reported to have donated $20,000 to campaign against Amendment 3, an initiative to end teacher tenure in Missouri, while it’s PAC, the Committee in Support of Public Educators, raised almost $90,000. Although there is money spent on the opposite side, monetary contributions are not the only way teachers’ unions influence policy.

Involvement in school board elections is the second route of influence. In Missouri, teachers’ unions have the right to collectively bargain with school administrations. These agreements include a range of items such as workplace rules, teachers’ compensation, and personnel decisions. According to union guru Myron Lieberman, collective bargaining was initially seen as a check on the power of school boards, who are democratically elected by residents within a school district.

However, a study by Stanford Political Scientist Terry Moe showed that within the 253 school districts examined unions supported school board candidates in 92 percent of the districts,”made phone calls in 97 percent, campaigned door-to-door in 68 percent, and provided mailings and publicity in 94 percent.”

If Moe’s study holds true in Missouri, then teachers’ unions have influenced school board elections, helping to elect candidates with similar views—nine Missouri school boards have passed resolutions against Amendment 3.

Through these two paths, the teachers’ union cycle perpetually strengthens itself. By limiting the power of parents, influencing the hand of local school district officials, and mobilizing state and national efforts to keep the status quo, the teachers’ union is able to protect the people the system was designed to serve—teachers.

Protecting the interests of teachers is not necessarily a bad thing. The problem is that within the teachers’ union cycle the interests of teachers often outweigh the needs of students.


Chart Correction on Show-Me Institute Essay

An astute reader brought our attention to an error in one of our charts. The chart in question was in the foreword that I co-wrote with David Stokes to Professor Howard Wall’s essay discussing the negative effects of earnings taxes on city population and employment growth. There was an error in calculating one of the averages. The corrected chart is below:

Wall Chart 1e

Instead of losing population between 1990-2000, the cities without an earnings tax gained population over that period. This new result strengthens Professor Wall’s conclusion that earnings taxes negatively impact a city’s growth.

October 20, 2014

Where the Buses Don’t Run

Recently, a study from the University of Minnesota calculated how many jobs could be reached by transit in major U.S. cities during peak travel times. The results showed that, even in dense metropolitan areas, relatively few jobs can be reached quickly. For example, in New York City the average worker can only access 2.5 percent of the city’s employment opportunities in fewer than 30 minutes using transit and walking. Only 14.6 percent of jobs can be reached in fewer than 60 minutes.

The case with Saint Louis and Kansas City, with only around 10 percent of the job market density of NYC, is considerably worse. In both cities, less than 1 percent of job opportunities in the city can be reached within 30 minutes of transit travel. Only around 5 percent of jobs can be reached within one hour. A chart of percentage of jobs available by transit travel time is below:

As a result, moving from suburban residences (where most Saint Louisans live) to suburban workplaces (where most Saint Louisans work) is not well served by transit. Furthermore, large employment centers in exurban areas are difficult to reach via transit at all. Despite significant investment and operating costs—usually more than $300 million per year in Saint Louis—it is clear that very few workplaces can be reached quickly via transit in Missouri.

What accounts for this disconnect? One factor may be that cities like Saint Louis and Kansas City are polycentric urban centers with employment clustering in different nodes across the metropolitan area. Focusing on Saint Louis, while virtually all of Saint Louis City and much of Saint Louis County has reasonable access to transit, much of the system is focused on bringing people in and out of the downtown core. A map of MetroBus accessibility is show below:

Map_area_around_stops (1)


A second problem is that transit is time-costly even where it regularly operates, putting work locations outside the 30- or 60-minute transit range. Again taking Saint Louis as an example, it takes 30 minutes to travel from the Chase Park Plaza (in the Central West End) to City Hall via walking and transit. That is about as transit-friendly a route that exists in the city. Traveling from the Central West End to Monsanto headquarters for work (around 8.5 miles apart) would take an hour or more via transit, necessitating a commuter to leave at 7:38 a.m. to get to work by 8:55 a.m. The drive, depending on traffic, is less than 20 minutes.

These realities likely contribute to the very low share of commuters who choose transit in Saint Louis and Kansas City. And unfortunately, it is unlikely that any feasible increase in transit spending or service extension will meaningfully alter these realities. Without significantly rethinking how transit is provided, there is little chance the mode will be able to provide timely transportation for labor pools in Saint Louis and Kansas City.

October 19, 2014

Missouri Is One of the Top States . . . in Corporate Welfare

Typically it’s a good thing to be ranked high. That’s certainly the case for college football and the Forbes 400. However, a high ranking isn’t always a good thing. According to a report from the Mercatus Center (H/T AEI), Missouri has given $5.2 billion in subsidies to private businesses. This gives Missouri the dubious distinction of being the ninth most generous state in terms of corporate welfare. Now, I like being in the top 10 as much as the next guy, but not for this reason.


Tax credits and enterprise zones are among the items included in calculating the total amount of subsidies provided to these companies. We have written extensively on how these and similar programs do not generate the type of growth that supporters of these programs claim. Unfortunately, policymakers seem to be big fans of these types of subsidies, as are the companies that benefit from receiving them.

Guess which company is the biggest beneficiary of corporate welfare. I’ll give you a minute. Need a hint? They build airplanes. Give up? I’ll show you.


Boeing collects more in corporate welfare than the next two companies combined. Missouri did its part in improving the company’s bottom line when it gave Boeing a massive handout so that it would locate additional aircraft manufacturing here. However, the state is unlikely to get enough money in return in order to justify these subsidies. To generate sufficient returns, Boeing’s investment in the area would have to be in excess of what they made in profits for all of last year. Color me skeptical that they’ll make an investment that large.

Instead of giving out all of this taxpayer money to specific businesses, why doesn’t the government just cut taxes for all businesses? The state would make itself more attractive to businesses, and it would avoid the management problems that occur with these tax credits.

October 18, 2014

Recent Missouri Travel Trends Fail to Meet MoDOT Expectations

In February, the Missouri Department of Transportation (MoDOT) issued its finalized Long-Range Transportation Plan, titled “A Vision for Missouri’s Transportation Future.” While most of the plan rightly focuses on maintaining the current highway system and increasing transportation safety, it also outlines hopes for a department with broader funding and broader responsibilities. These new responsibilities would include an increased role in transit funding and expanding the state’s inter-city passenger rail system.

MoDOT has justified these new charges partially under the argument that Missourians in the future will drive less and use alternative transportation more. However, recent data suggests that such a transformation is not occurring, at least not yet.

In MoDOT’s long-range plan, the department cited the steady increase in passenger rail traffic from 2007 to 2012 as a reason for increased investment in this mode, including the addition of lines from Saint Louis to Springfield and Kansas City to Omaha. However, in fiscal year 2014, passenger rail travel actually fell on Missouri’s heavily subsidized inter-city line, the Missouri River Runner. Passengers declined from 197,000 in 2013 to 189,000 for 2014.


In fact, passenger rail usage in Missouri is still lower than it was in 2001, when there were 208,000 passengers. The recent stagnation and long-term decline of inter-city rail traffic argue against a role for MoDOT in funding new billion-dollar rail lines in Missouri.

MoDOT’s long-range plan also called for a larger state role in transit spending, citing increased usage from 2010 to 2012 statewide and demographic changes as evidence of increasing transit demand. But once again, recent data shows that transit usage statewide fell from 2012 to 2013 (from 63.4 to 62.5 million UPT), reversing the post-recession trend.


In fact, transit usage in Missouri, despite significant local and federal support (averaging more than $400 million per year), has steadily declined since 2000. There are many arguments one could make for increased transit spending by MoDOT, but rapidly increasing demand is not one of them.

The fact that recent travel data runs contrary to MoDOT’s expectations is perhaps unsurprising. In written comments to a draft version of the Long-Range Transportation Plan, we cautioned MoDOT against extrapolating weak post-recession trends (and anecdotal evidence) too far into the future. We especially cautioned against using those trends to speculate on revolutionary change in Missouri travel habits. But speculate they have. Unfortunately for Missourians, those speculations are coupled with plans to spend billions in an effort to meet, what are at present, stagnating travel trends.

October 17, 2014

Support Local Control? Oppose Teacher Tenure Mandates

In November, Missourians will vote on a constitutional amendment that would change the way school districts manage the teacher workforce. The amendment would strip away current teacher tenure protections for new teachers and limit contracts of these new teachers to a maximum of three years. Additionally, it would require school districts to use student performance data in teacher evaluations.

Now, there are good and compelling arguments on both sides of this issue. Ironically, however, one of the main arguments against Amendment 3 is that it constitutes a loss of local control.

There is some truth to that claim, but it is important to ask the question, “As compared to what?”

Under current state statutes, Missouri public school districts are forced to enter into an “indefinite contract” when teachers receive tenure and that it shall last for an “indefinite period.” Talk about top down!

What’s more, state statutes mandate a specific process for removing a tenured teacher. This is illustrated in the graphic below (from my paper, “The Power to Lead”).

It is perfectly fine for opponents of Amendment 3 to call it a “top-down mandate” that will strip away local control. I just hope that after November 4, these groups will continue to support local control and oppose top-down mandates for teacher tenure.

Mo Tenure process

Government Pensions Should Be Portable, as Well as Sustainable

I was hired by the California Legislative Counsel right out of law school at the age of 25. At the time, I could see myself spending the next several decades there, but I wasn’t ready to commit to the proposition. Unfortunately, in order for my retirement package to be valuable, I would have had no choice but to make a career of it.

California’s retirement system uses a defined benefit plan and would have paid me a generous amount each month during retirement, but only if I spent several decades in the system. If I stayed at my job for less than a decade, my retirement benefit hardly would have been worth the contribution I was paying into the system.

Situations like mine are common where government employees are in a defined benefit system. The following chart illustrates my point by showing benefit growth in the New York City Teachers’ Retirement Plan.

NY teachers pension graph


An employee who stays in that system for a full 15 years will only earn $100,000 in benefits, but 15 years later, the value of the benefits will quadruple. These types of formulas often incentivize employees to stay at a job longer than they would like. They also make the position unattractive to new hires who might not want to stay with the job for 20 or 30 years.

Sustainability is the main problem with defined benefit pensions. Unlike with a 401(k)-type retirement system, where an employee invests a definite amount each paycheck and collects the return during retirement, defined benefit plans commit public institutions to vast pension obligations to be paid out years in the future. The discrepancy between promised benefit and actual amount invested means that defined benefit systems are often inadequately funded and can create fiscal crises when pensions mature.

An important side benefit of pension reform is the potential increase in the quality of government workforces. By switching to a more portable system, governments would attract a more experienced and a more diverse workforce. Employees would join government workforces at the middle and end of their careers, bringing valuable private-sector experience with them, and people would feel free to take a government job at the beginning of their careers, even if they weren’t sure they wanted to be there until retirement.

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