July 30, 2014

Video: Missouri Roads – Better Than You’ve Heard

We have written many times that Missouri needs to invest in its transportation infrastructure. However, the need for timely and adequate funding does not mean that Missouri’s state highway system is about to crumble.

Check out our new video on the condition of Missouri’s highways and bridges:

July 29, 2014

Show Me Better (Part 3): Certificate Of Need And The Cost Of Care

As consumers, we like to get more for less – especially when it comes to our health. Usually we feel ripped off if we receive a lower-quality service for the same (or higher) cost of a better service. In a previous blog post, I discussed how, in some cases, certificate of need (CON) programs can be the very reason patients are forced to receive inferior care from less-skilled doctors. Additionally, CON regulations likely do not save patients much money, if any.

In a world of limited resources and virtually unlimited wants, we are forced to make trade-offs. A decrease in the quality of health care might be acceptable if CON led to lower costs. Proponents of CON argue that this regulation does contain the cost of care by preventing the “duplication of services” in a given geographic area. To illustrate this chain of reasoning, let’s say that Barnes-Jewish Hospital and Saint Louis University Hospital buy “too many” MRI machines – as a result, many of the new MRI machines go unused. Because of the outlay, CON proponents assume the two hospitals will probably charge higher prices for MRI scans to make up for the mistake.

There is evidence to suggest that theory is not well founded. One evaluation of Illinois’ CON program found that “there is little direct broad proof that overcapacity duplication leads to higher charges.” CON regulations may result in “tangible savings on the actual costs of specific medical technologies” but these programs tend to “redirect expenditures to other areas.” In other words, CON may actually prevent hospitals from spending too much on a certain type of medical technology, but any savings will be spent on other items instead of being passed onto patients. One study even suggests that strict CON programs may actually increase health care costs by as much as 5 percent.

What use is a program that can be delivering sub-optimal health care without cutting costs?

July 28, 2014

Decline In Catholic School Enrollment: Is Sector Switching The Answer?

In urban communities such as the City of Saint Louis, parents are able to send their children to magnet, charter, or public schools at no cost. All the while, tuition-driven Catholic schools are facing record low enrollment. The graph below illustrates the decline of Catholic school enrollment in the U.S. from 1960 to 2010 at the elementary and secondary levels.

catholic school enrollment

With rising costs of private school tuition and concerns about public school quality, parents choose free alternatives to public schools, often charter schools. These parents do not necessarily prefer non-secular education. As Carnegie Mellon University economics professor Maria Ferreyra showed, the number of parents who want to enroll their children in private [Catholic] schools is greater than the number of parents who can afford it.

For this reason, some Catholic schools “convert” to charter schools in order to continue serving low-income communities. In “Sector Switchers,” authors Mike McShane and Andrew Kelly analyzed this phenomenon.

They found that Catholic schools that become charter schools somewhat maintain their brand. They keep “…discipline, high expectations, and formation of moral values in students,” and throw out, “the financial issues that have plagued Catholic schools…”

The authors reached two conclusions: (1) switching leads to higher enrollment, and (2) switching increases minority student enrollment. Still, questions remain about how this practice will affect cities such as Saint Louis.

If you want to take part in the discussion, join the Show-Me Institute for the Friedman Legacy Day Policy Breakfast this Thursday. The event will include a presentation from McShane and panelists Matt Hoehner, Educational Enterprises regional executive director, and Corey Quinn, president of De Le Salle Middle School.

Do We Need Amendment 7 To Match Federal Highway Dollars?

Representatives from the Missouri Department of Transportation (MoDOT) often warn that without more money, be it from a transportation sales tax or elsewhere, Missouri will not be able to match federal dollars for highways. Essentially, they are saying that if the state does not raise more money, it will leave eight to 10 times that amount in federal dollars on the table. However, these statements fail to clarify that: 1.) the federal dollars going to Missouri are limited, and 2.) the amount Missouri needs to match those funds is nowhere near $534,000,000 per year (the annual amount Amendment 7 would raise).

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Federal dollars for highway improvements is a fixed amount that comes for the federal Highway Trust Fund, which the federal fuel taxes mainly support. The amount that Missouri currently receives is fixed by federal obligation limitations and the proportion that the state received in the past. State lane mileage and vehicle activity mostly determined the portion the state received in the past. Simply put, the amount of money available for state highway projects is mostly fixed, and currently, Missouri does not leave any money on the table. If Missouri decided to spend an extra billion dollars this year, it is unlikely that federal money to the state would increase.

According to MoDOT’s cautious projections, in which the federal government reduces its support to Missouri, the state will begin failing to match federal funds in 2020, leaving $186 million on the table. But to meet that match (of 80 percent federal, 20 percent state) Missouri would only have to increase local revenue by just less than $50 million, nowhere near the current $534 million proposal.

If we assume that the federal government fixes the federal highway funding problems and support does not decrease, the problem of matching funds is larger. By 2022, Missouri would be leaving about $530 million of federal dollars unmatched. However, under that scenario, Missouri would only have to increase local revenue by $130 million per year to get that money.

When it comes to federal dollars, unless there are major policy changes in Washington, the amount Missouri could get for the highways is relatively fixed whether or not Missouri raises taxes. While Missouri may lose the ability to match those dollars in the future, Missouri will eventually need to raise annually between only $50 million and $130 million. If Amendment 7 passes, the federal government will not make it rain; if the amendment fails, the sky is not going to fall.

July 24, 2014

Charter Schools – More Bang For The Buck!


Whether it is chips at the grocery store or miles per gallon, it’s always good to get more for less. This is especially true in education. That is why a new report by the School Choice Demonstration Project at the University of Arkansas is so important. A team of researchers, led by Patrick Wolf, Ph.D., calculated the return on investment of public charter schools. In other words, they looked to see if charter schools are providing more bang for the buck. It turns out they are.

Charter schools throughout the country, and especially in Missouri, spend less per student than traditional public schools. Charter schools, on average, also outperform their traditional counterparts. By combining these facts, the researchers calculated that the productivity advantage for charter schools in math and reading was 40 and 41 percent, respectively.

So, what do you call it when you get better outcomes for less money? I call it a big win for students, parents, and taxpayers.

July 23, 2014

St. Louis Taxicab Commission Giveth With One Hand, Taketh With The Other

The St. Louis Metropolitan Taxicab Commission (MTC) has long stifled competition in the name of customer safety. The MTC controls market entry, tells cab and sedan businesses how they can operate, and sets prices. When Lyft launched in Saint Louis, MTC officials claimed they needed to shut down the app to protect customer safety, despite Lyft’s extensive insurance policy, background checks, and vehicle inspections. Now, with Uber preparing to launch in Saint Louis, the MTC is at it again, proposing more regulations to shut out competition.

Yesterday, the MTC approved changes to the taxicab code that would ostensibly allow a company such as Uber (although not Lyft) to operate in Saint Louis. The MTC altered the section of the code concerning premium sedans, which previously were quite onerous, with the implication that Uber can now pursue a license as a premium sedan company. Previously, premium sedans were required to bear written placards with the names of their customers, premium sedan companies could not start a business with fewer than three sedans, and (critically) sedans had to contract services at least 60 minutes in advance of pickup. The MTC voted to remove or relax these restrictions.

While some restrictions are gone, other competition-stifling regulations remain. Sedan companies still must obtain a Certificate of Convenience and Necessity (CCN) for $2,500, essentially asking companies to prove that Saint Louis needs cab service. Furthermore, the MTC still requires that each individual vehicle be licensed as a vehicle for hire (in Uber’s or Lyft’s cases, a premium sedan) with all the controls the MTC places on the appearance and operation of such vehicles.

While Uber might be able to operate with the code changes, it would be severely limited by regulations that the MTC plans on addingFirst, the MTC is still considering making sedans charge a minimum fare of $25 per trip, although the final decision on this takes place later this month. This essentially limits Uber to its premium, black car service. Second, all sedans now have to pay a permit renewal fee of $500 per year. That is more than double the current cost of renewal for sedans and almost five times the fees required for cabs. Uber has cried foul, correctly calling these practices anti-competitive.

The restrictions on sedans in the taxicab code never had much to do with safety, and it is good to see the MTC repeal some of these regulations. However, the additions for a minimum fee for sedan services and onerous renewal requirements have no safety merit whatsoever. Their only possible purpose is to prevent Uber or Lyft from operating an on-demand, cheap vehicle service that might compete with existing taxicabs. Once again, the MTC has shown its true mission is not customer safety or satisfaction, but rather control over the Saint Louis taxi industry.

July 22, 2014

Show Me Better (Part 2): Certificate Of Need And Access To Care

One of the benefits of free markets is their ability to match buyers with sellers. Potential customers assess the supply of goods and services, the parties agree to the prices, and, generally speaking, purchases are efficient – delivering comparable value to both parties.

Unfortunately, Missouri’s certificate of need (CON) program may be erecting barriers to the market functioning efficiently when matching care providers and care consumers. A recent working paper by the National Bureau of Economic Research examined how hospital entry deregulation in Pennsylvania affected the market for cardiac revascularization. Because Pennsylvania eliminated its CON program in 1996, economists were able to compare clinical outcomes before and after the program’s repeal — the ideal conditions by which to conduct an experiment. The researchers found that “free-entry improves the match between underlying medical risk and treatment intensity” and “improved access to care.”

Another study conducted in the same state, on the same topic, found that the post-deregulatory market did a better job at matching the appropriate procedure to the appropriate risk level. After deregulation, better doctors also saw an influx in demand for their services.

Removing the CON program in Pennsylvania empowered patients to attain better care from better doctors. Certainly, a market uninhibited by cumbersome regulations does a better job at matching the right patient to the right procedure, performed by a better doctor, than a nine-member regulatory board. Missouri could follow Pennsylvania’s lead in doing away with the micromanagement and creating a system conducive to competition and innovation.

This Illustration Of Missouri Pension Enhancements Says It All


Today, the Show-Me Institute released a new case study by Robert Costrell, professor of economics and education policy at the University of Arkansas. His paper, “Teacher Pension Enhancement In Missouri: 1975 to the Present,” illustrates how state lawmakers have consistently enhanced retirement benefits for teachers. These enhancements have helped create the system we have today, which has an incredible spike in benefits around a teacher’s 25th year and many other flaws.

For more information about pensions, I encourage you to check out our “Missouri Government Pension Fast Facts.”









July 21, 2014

Amendment 7: The Tax That Keeps On Taxing

According to current projections, the proposed Missouri Amendment 7, or 0.75-cent transportation sales tax, would raise $5.4 billion for roads, bridges, and other projects over the next 10 years. The Missouri Department of Transportation (MoDOT) has been active in promoting a list of those projects, showing how it would spend the largess. But what is less publicized is that many projects on that list receive the sales tax funds contingent on local governments also bringing money to the table. In many cases, projects approved for state sales tax money require local governments, and their taxpayers, to provide tens or even hundreds of millions of additional dollars.

Take the example of the Saint Louis area. The City of Saint Louis is set to get $25 million for a streetcar that goes from downtown to the Central West End. That might not be such a bad deal, if it were not contingent on Saint Louis coming up with an additional $271.5 million to complete the plan. The sales tax will also provide $40 million to the city for bus rapid transit, but only if Metro can come up with an additional $40 million. In return for $20 million for an I-64/22nd St. Parkway interchange (mostly to the benefit of the Northside Redevelopment Project), the city and developers have to provide an additional $8.9 million. All told, in return for $270 million in state sales tax money, the City of Saint Louis has to find an additional $323 million from other funding sources. That’s $1,016 for every man, woman, and child living in the city.

The story is similar in Kansas City. The city will get $144 million for the streetcar, contingent on it finding the rest of the half billion needed to make the project happen. While Kansas Citians have long been aware of, and been familiar with plans to fund, the streetcar, this is not so for other projects. Kansas City will receive $24 million for a bike path from Pleasant Hill to Kansas City, if it can find $48 million locally. For those counting, that’s a $72 million bike path. Altogether, projects that the sales tax would fund require $459 million in additional funding from the Kansas City area.

The result of these policies is that after taxes have gone up statewide, purportedly to save our “crumbling” highways, local governments may have to increase taxes even further to secure funding for projects on MoDOT’s list. Amendment 7 is the tax that keeps on taxing.

Show Me Better: Assessing Certificate Of Need In Missouri

One of the most obvious examples of a massive government burden on our health care system is the Affordable Care Act (Obamacare), but Obamacare does not have a monopoly on onerous government regulations in Missouri. In fact, some state-run regulatory programs, such as certificate of need (CON), may also play a role in increasing the cost of care and decreasing access to care for some of the state’s neediest patients.

A certificate of need is a legal document the state issues to allow a health care provider to expand, modify, or construct certain health care facilities. In Missouri, a nine-member committee reviews applications for certificates of need and administers them in accordance with its own rules. For example, last year, the Lafayette Health Center received a CON to construct a new $40 million hospital. Based on the committee’s rules, Lafayette likely paid the review committee a hefty $40,000 application fee.

One of the original purposes of the program was to guarantee health care access by limiting competition in a particular region. Proponents assert that, with less competition, the likelihood of a hospital going out of business will be reduced, hopefully ensuring a sufficient level of care for citizens near the health care provider. Yet, empirical evidence suggests that CON programs neither control costs nor improve health outcomes. Indeed, they may actually hamper access to care and patient choice, at least under some circumstances.

If the certificate of need law could be hurting the people it was intended to help, should it be reformed? Abandoned? These questions are central to why we, as Missourians, ought to take a serious look at the necessity and efficacy of the state’s CON program. In future posts, I will review how CON regulations impact health care costs, access to care, and clinical outcomes.

July 18, 2014

Op-ed: Proposed Amendment 7 Is Bad Policy

Today, the St. Louis Business Journal printed my commentary on why the proposed Amendment 7, which would implement a 0.75-cent sales tax to pay for Missouri’s roads, is bad policy.

The op-ed corrects some of the misconceptions that exist about Missouri’s highway system, particularly the idea that the state’s roads and bridges are “crumbling.” While Missouri’s transportation infrastructure can improve in many areas, the fact is that the highway system is in good shape whether you compare it to other states or simply the condition of Missouri’s roads 10 years ago. There is no crisis that should scare Missouri voters into supporting a policy that is destructive and inequitable.

The Missouri Department of Transportation (MoDOT) does have a funding problem, but paying for highways based on how much people shop, instead of how much they drive, is unfair and economically unsound. A better solution is to raise the gas tax or implement tolls on major highways.

If You Haven’t Registered For Our July 31 Friedman Legacy Day Events, What Are You Waiting For?



For a number of years now, we have partnered with the Friedman Foundation for Educational Choice to celebrate the life and work of Nobel Prize-winning economist Milton Friedman. In his 1955 piece, “The Role of Government in Education,” he introduced the modern concept of the school voucher. He wrote:

Governments could require a minimum level of education which they could finance by giving parents vouchers redeemable for specified maximum sum per child per year if spent on “approved” educational services.

Parents would then be free to spend this sum and any additional sum on purchasing educational services from an “approved” institution of their own choice. The educational services could be rendered by private enterprises operated for profit, or by non-profit institutions of various kinds.

Later in his life, he became an even stronger advocate for empowering parents through school choice.

This year, in honor of his efforts to expand school choice, we are hosting two Friedman Legacy Day events.

The first is at 8:30 a.m. in Saint Louis at De La Salle Middle School. Mike McShane, a fellow at the American Enterprise Institute, joins us for an interesting discussion about private schools closing and re-opening as charter schools.

The second event is at 6:30 p.m. at the Kansas City Central Library. Economist Mark Skousen will share stories of his long friendship and debates with Milton Friedman.

We hope you will join us for at least one of these events. For more information, please visit the events tab on the Show-Me Institute website.


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