February 27, 2015

Study Reveals Gains in Four-Year Grads, Community College Doesn’t Fair as Well

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Last month, President Obama unveiled a plan to make two-year community college “free and universal” for all. Show-Me Institute Distinguished Fellow James Shuls was quoted by St. Louis Public Radio, “To simply say we’re going to give away free community college sounds better than it actually is. You’re not pulling community college out of a hat, like a rabbit that a magician’s pulling out. Somebody’s paying for it.”

In Missouri, high school students already are able to receive subsidized community college. The A+ Scholarship Program incentivizes high school students to perform tutoring hours, to maintain a record of good citizenship, and to graduate with a GPA of 2.5 or above. In exchange, students attend community college “for free.” The program cost the state $30.4 million in fiscal 2014, but is community college worth the cost for Missouri taxpayers?

The National Student Clearing House Research Center looked at six-year completion rates for students across state lines in both two-year and four-year institutions. The research center’s findings differ from other studies in that students who transfer to another institution in or out of state are counted in the home state’s graduation rate. For Missouri, these new data boost the total completion rate for students who start at four-year institutions from 39.24 percent to 63.17 percent. This is significantly higher.

For students who start at community colleges and finish elsewhere, the increase in completion rate is less drastic. The data below show the six-year outcomes for students who start at two-year public institutions in Illinois, Kansas, and Missouri.

State Total Completion Rate Finished at Starting Institution Finished at Different 2-Year Finished at Different 4-Year Subsequent Completion at 4-Year Total 4-Year Completion Still Enrolled at 2-Year Not Enrolled Anywhere
Illinois 43.81 29.69 3.44 10.67 9.31 19.98 15.44 46.76
Missouri 39.87 24.24 5.73 9.90 7.92 17.82 14.82 45.31
Kansas 47.87 27.60 4.14 16.13 9.08 25.21 16.02 36.12

The completion rate for students who start at two-year institutions in Missouri is less than 40 percent. Only 17.82 percent of students starting at two-year community colleges complete four-year degrees. After a six-year period, a little over 45 percent of community college students were not enrolled anywhere.

Similar to other states, Missouri’s community colleges do not seem to be successful at retaining students or preparing them for four-year degree programs. Why should taxpayers spend more? Because as Shuls pointed out, “free community college sounds better than it actually is.”

Do User Taxes Pay for Highways?

The Post-Dispatch recently published an op-ed from the Center for America Progress (CAP) that argues that all forms of transportation, including highways, are highly subsidized. The article specifically states that 46 percent of Missouri’s major roads do not pay for themselves. Because all modes are subsidized, the author suggests Missouri should stop dedicating road user taxes to highways. This would allow the state to “balance” its transportation spending, namely by spending more on transit. But if we compare highways to transit, there is no balance either in terms of importance to Missouri’s economy or the amount of public subsidy.

In terms of sheer importance to the state economy, there is no contest between the Missouri state highway system and transit. The state highway system carries virtually all cross-state traffic, most commuters, and $711 billion of freight annually. Transit carries a tiny sliver of commuters in the state’s largest cities. Even in Saint Louis City and County, where the state’s transit network is most dense, less than 5 percent of commuters use transit.

What of subsidies? In 2013, the largest source of non-user funding the Missouri highways received was from the now chronically underfunded federal highway trust fund. In that year, Missourians sent the federal government about $877 million in road user funds and got back about $938 million to spend on highways. That’s a $66 million subsidy. Add in local spending and other small sources of non-user fees, and Missouri’s subsidies for all highways is around 10 percent.

How, then, can CAP claim that 46 percent of major highways do not pay for themselves? First, the study CAP issued broke highways and arterial roads into sections, which may not be an appropriate way of measuring the cost-effectiveness of highways. One should note that, on this measure, 54 percent of the system either broke even or was in the black (36 percent). Second, CAP’s study does not look at all forms of indirect user fees, including permit fees and other non-fuel taxes. Using incomplete data from the FHWA (which counts bonds and reserves that may be based on user fees as non-user revenue), At most, 24 percent of Missouri’s highway spending is not derived from user fees. That means, even with no tolling and the fifth lowest gasoline tax in the nation, user fees manage to pay for at least 76 percent of highway costs.

With transit in Missouri, taking 2013 as an example, fares only covered 16 percent of total costs. In years with major construction, this number falls below 10 percent. And while CAP claims 46 percent of highway segments are in the red, every segment of Metro, including MetroLink, is deep in the red. The best bus routes (counting only weekdays in Metro’s highest ridership months) recover 82 percent of its operating costs from fares. Most routes perform much worse, with a third of all routes receiving subsidies in excess of 80 percent of their operating costs. The numbers are no better in Kansas City.

Comparing the systems, it is clear that highways could be paid for entirely with user fees, especially if rigorous cost-benefit analysis is used to evaluate new highway projects. We argue for this all the time. Transit is a different story. It would be essentially impossible for Metro to break even using fares, which would have to quintuple in order to cover just its operating costs. As that would make a reduced monthly pass $195 and a regular pass $390, it is safe to say people would stop riding Metro altogether before it broke even.

CAP essentially would have Missouri take user revenue from the system virtually all Missourians use and depend on in order to give more money to a system that very few use despite incredible subsidies. CAP’s plan is fiscally irresponsible and endangers the future of transportation in Missouri.

February 26, 2015

VanLoh Just Wants a New Terminal

You don’t have [all the information] yet. We don’t even have it yet. I know what I want because I want a new airport.

With those words at Thursday morning’s Northland Regional Chamber of Commerce meeting, Aviation Department Administrator Mark VanLoh nicely summed up the reason that Kansas City taxpayers have been embroiled against their will in a discussion about building a $1.2 billion new terminal: He just wants it.

VanLoh has been criticized for his clumsy public campaign for a new terminal. And now, perhaps as part of a new approach to getting what he wants, he is revising history. At Thursday’s meeting, he clearly gave the impression that the airlines had to be dragged to the negotiation table.

What the 2013 [plan] did . . . was bring the airlines to the table because they saw something in Kansas City. Something was going to happen and they wanted to be part of it. And we welcome them to the table; we are meeting to this day with the airlines. I know the mayor’s Terminal Advisory Committee recommended a new terminal based on the evidence they had. And of course the Aviation Department recommends a new terminal based on what we know, but we wanted to get back with the airlines.

This does not square with the reported facts. In November 2013, Austin Alonzo of the Kansas City Business Journal reported that “Southwest was not satisfied with its minimal inclusion in vetting the airport proposal before VanLoh presented it to the City Council earlier this year.” The Kansas City Star reported that the airlines then sought to use their lease extension agreement to secure participation in future airport planning.

VanLoh is also overstating his role as champion of the people. He said on Thursday morning that the airlines were surprised to learn how passionate Kansas Citians are about the airport’s convenience, and that the Aviation Department would fight any design that didn’t preserve that convenience. Yet in April 2013 testimony before the city council, VanLoh’s consultants argued that the airport offered a “poor passenger experience.”

That’s when Mayor James advised the Aviation Department that they wouldn’t curry favor with the public by beating up on the airport. The talking point was removed. But even in Thursday’s chamber presentation, VanLoh argued that the perception Kansas Citians have about short walking distances is an “optical illusion.” Regardless of MCI’s convenience, it certainly isn’t the public’s belief that VanLoh is championing. He is merely doing whatever he thinks it takes to get what he wants.

VanLoh said that he expects to have a recommendation before the city council by the end of summer.

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Constitutional Law Expert Joshua Hawley Weighs in on Obamacare at Policy Forum

Joshua Hawley, a professor of law at the University of Missouri, was gracious enough to join the Show-Me Institute in Columbia last month to talk about a wide array of health care and Obamacare issues, including King v. Burwell, a case before the Supreme Court the week of March 2.

Much could be said about Hawley. A graduate of Stanford and Yale Law, Hawley went on to clerk for Chief Justice John Roberts. He was one of the attorneys for Hobby Lobby in last year’s Burwell v. Hobby Lobby case, and he has been a highly sought-after speaker on a wide variety of legal and historical matters for a number of years. His book, Theodore Roosevelt: Preacher of Righteousness (2008), is available on Amazon. Hawley also happens to be a graduate of my alma mater, Rockhurst High School, in Kansas City.

His talk is definitely worth your time. A short version is embedded below, and the complete talk can be found here.

The Great L.A. Gambit

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The battle for the L.A. market is joined! According to NBCSanDiego, the Chargers are working with the Oakland Raiders. Their goal: a new stadium in the L.A. area (Carson, California, to be precise). Of course, their home cities can talk them out of it, for the right price.

It’s not shocking that teams other than the Rams might want to move to Los Angeles. L.A. is the country’s second largest media market, and with that comes a lot of TV money. However, still color me skeptical about the whole thing. I think (and I’m not alone) this is more of a ruse for the Chargers and the Raiders to extract sweetheart stadium deals from their home cities. The Chargers have been trying to get a workable proposal from San Diego for the past 14 years. They’ve even recently published some remarks to the San Diego stadium task force regarding what it wants in any new proposal. Needless to say, it’s quite a lot.

I think the Rams’ L.A. proposal is more serious. Why? Because of Stan Kroenke’s silence regarding the Rams’ latest proposal, or anything for that matter on what exactly he wants in order to stay in Saint Louis. The Chargers are giving San Diego an idea of what it is they’re looking for in a new stadium, Mr. Kroenke isn’t.

No matter the likelihood of the Chargers’ or the Rams’ proposals succeeding, I think that neither team should receive public subsidies. If billionaires want new stadiums, they should pay for them themselves. I don’t think taxpayers should get the bill, especially since there won’t be any economic return to them for doing so.

L.A. seems to be the place to go to for teams that can’t get a new stadium. Will policymakers be scared into throwing more money at teams in an attempt to prevent them from leaving? Maybe, but that doesn’t make it a good idea.

 

February 25, 2015

Changes to Macks Creek Law Making Their Way Through Missouri Legislature

Since the events in Ferguson last year, there has been an increasing push from across the political spectrum to do something about the way some Missouri municipalities use fines and fees to fund city government. Reports show that 20 municipalities in Saint Louis County, mostly clustered in North County, collect more than 20 percent of their revenue from fines and fees. Eight collect more than 30 percent, in possible violation of the less than rigorously enforced Macks Creek Law.

Munis_blog

Starting late last year, Missouri has finally started to see action to curtail the use of police forces as tax collectors. In August, the state launched an audit of four Saint Louis County municipalities, and in December the state attorney general sued 13 municipalities for failing to abide by Macks Creek Law.

Enforcement of the existing Macks Creek Law is long overdue, but now a new state bill (SB 5) greatly strengthens the law. The bill would, within two years, bring down the total amount of general revenue a city could receive from fines and fees to 10 percent, excluding smaller cities outside of populous counties like Saint Louis. The bill makes it clear that any amended traffic fines would count toward that percentage. Furthermore, fines collected on Missouri interstates in excess of 5 percent of general revenue would also not be able to be collected by municipalities. As for enforcement, the bill makes it clear that municipalities have to provide an annual addendum to the state auditor regarding its compliance with the measure. Failure to comply triggers a vote for municipal disincorporation.

Some local officials claim that this law hurts municipalities, since the fines protect public safety. This argument falls flat because revenue collected in excess of SB 5’s provisions is simply remitted to the state, which in turn gives that money to the school systems in the county of the municipality in question. If police in local cities need to fine people to protect health and safety, they can still do so. But SB 5 takes away the narrow financial interests of the city government.

SB 5 passed the Missouri Senate and has now reached the house.

School Visit Series: A Charter With a Second Chance

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Dorothy Curry and Sue Jarvis had a dream—build a school that helps at-risk children reach their full potential. Their vision came to life in the form of Gordon Parks Elementary, a charter school in Kansas City, Missouri. While most urban charters serve low-income students, Jarvis and Curry wanted to serve the neediest of those children. In its early years, according to current Executive Director Steve Fleming, the majority of the school’s applicants were funneled through Operation Breakthrough, a charity where the founders volunteered.

The organization describes the children it serves:

Over 20% of the children are homeless or near homeless, living in battered women’s or homeless shelter or transitional living programs. Often they sleep on the sofas of friends or relatives, sometimes even living in cars, rundown hotels or abandoned buildings. Many of our children are in foster care or other placements due to abuse, neglect, or other family crises.

IMG_9725Serving one or two children with these types of hardships is difficult enough, but Gordon Parks was serving only children with these hardships. In 2013, the State Board of Education decided that Gordon Parks had to close down. One of the reasons Missouri Department of Elementary and Secondary Education (DESE) Communications Coordinator Sarah Potter gave in an email to the Missouri Times was, “very low academic performance—in the bottom five percent of the state.”

The school fought back, taking DESE and the state board to court. The judge ruled in favor of Gordon Parks, “saving the school” from closing.

Although Gordon Parks has shown improvement in the past year, there are still challenges to serving the city’s neediest students. A Gordon Parks kindergarten teacher told Kansas City Public Media in January, “They need the structure, they need the individualized instruction, they need the love, they need the care. They need everything that we offer them and more.”

Gordon Parks was given a second chance, but there’s nothing preventing the state from penalizing schools that choose to serve a similar population of children. This is a shame, because schools like Gordon Parks provide a much-needed service.

Fleming said, “There’s some unique challenges that you have in the urban core, but we treat our kids like they’re our kids. We try to help them learn and grow and develop, and try to help them be good citizens. They’re our future.”

Kansas City Repays Money It Says It Cannot Take

renaultAbout a year ago, on February 13, 2014, Kansas City Mayor Sly James told radio listeners that the city cannot take money from the airport.

[Fees] that are generated at the airport stay in the airport, to take care of the needs of the airport. . . . The money from the airport can’t be used for streets and sewers and none of that. . . . Airport money stays with the airport. If you don’t spend it on the airport, it doesn’t get spent.

He repeated it in his State of the City address in 2014 and again when his Airport Terminal Advisory Group issued their report. In that report, the advisory group repeated the claim, asserting on page 15,

Another common misperception was that funds or profits from the Aviation Department (legally organized and maintained as a Kansas City Enterprise Fund) could be used by the City of Kansas City to fund other municipal purposes unrelated to Airport operation.

The problem is that none of this is true. The city borrowed money from the airport in 2010. Then, during this mayor’s tenure, the city renegotiated the debt to extend the life of the loan to 2016.

Need more? Look no further than page 179 of the mayor’s own Submitted Budget for FY 2015-16, which includes $500,001 for “Aviation Loan Repayment.”

KC FY2015-16 SubBudget

The mayor may have his own opinion on the airport, but he cannot have his own facts, much less two sets of facts.

February 24, 2015

Fuel Taxes Back on the Table in Missouri

Recently, two Missouri House Bills (HB 995 and HB 738) proposed to increase fuel taxes in Missouri to fund the state highway system.

The Missouri Department of Transportation (MoDOT) has been ringing the alarm bell for years about the impending shortfall in the funds necessary to maintain Missouri’s state highway system. With the failure of Amendent 7 last year, MoDOT unveiled its 325 Plan, which shows how the state would prioritize its declining construction budget. While much of the vital portions of state highways could be maintained in the condition they are in today, more than 20,000 miles of state highways would fall into disrepair.

Much of the problem lies in the gradual deterioration of the user-fee funding base of MoDOT, specifically the state fuel tax. The fuel tax last increased in 1996, and Missouri now has the country’s fifth lowest regular gasoline tax and fourth lowest diesel fuel tax.

But now that could change. HB 738 would scrap the cent per mile fuel tax altogether and replace it with a per gallon tax equal to 10.6 percent of the wholesale per gallon price of gasoline, based on regular six-month averages. The result of moving to a percentage calculation is if the fuel price remains low, at say two dollars wholesale, the fuel tax would be about 21 cents a gallon. But at a price of three dollars, the fuel tax would be around 31 cents a gallon. At three dollars a gallon, MoDOT would have an extra $400 million to spend on the state highways over what the 17 cent gas tax currently raises.

HB 738’s method of calculating the fuel tax would, at higher gas prices, essentially wipe out MoDOT’s funding problems in one fell swoop and ensure that as input costs for MoDOT rise (because of higher fuel costs), so does funding. However, it also means that, as pain increases at the pump for the average Missourian, taxation piles on.

In contrast, HB 995 proposes to simply raise the fuel tax by two cents beginning next year. That would raise approximately $78 million in new revenue, 70 percent of which ($55 million) would go to MoDOT (the other 30 percent goes to cities and counties for their transportation needs). Because those funds can be used to match federal dollars on a 4:1 basis, that two cent tax increase could retain $230 million federal transportation dollars.

HB 995, while not immediately solving all of MoDOT’s problems, has its own advantages. The comparatively small increase in the fuel tax gives consumers time to adjust to the changes and would not increase taxation as fuel costs rise. Furthermore, the increase is small enough that it is likely not to trigger the state’s Hancock Amendment, meaning it could pass without going to a public vote. With the addition of tolling the state’s most expensive projects, small increases in the existing fuel tax rate could give MoDOT what it needs.

A fuel tax, unlike sales taxes, is a fair and economically sound way of funding roads. It is good that the legislature is looking into updating its user funding base, although it should also consider whether the response is appropriate to the need.

Ideas for Kansas City Schools: Focus on Teachers

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Last night the Show-Me Institute partnered with the Kansas City Federalist Society for a panel discussion on the Future of Education in Kansas City. Panelists included James Shuls of the Show-Me Institute, Doug Thaman of the Missouri Charter Public School Association, Amy Hartsfield of the Kansas City Public Schools (KCPS) Board of Directors, Andrea Flinders of the American Federation of Teachers, and John Murphy of the Missouri Catholic Conference. The event was well attended, and the discussion lasted two hours; I think everyone would agree that it was educational.

One topic of discussion was pay for teachers. Flinders asserted that Kansas City teachers are paid lower than the state average. She is most likely correct, and there is something we can do to fix it. In previous posts we suggested reforming teacher pay schedules to increase the incentive for teachers to stay on.

But the district actually can pay teachers more if it cuts back on hiring non-teacher personnel. According to my colleague Brittany Wagner,

Over the past 60 years, schools have increased non-teaching personnel positions by 702 percent. [A report] also found the U.S. spends more than double what Korea, Mexico, Finland, Portugal, Ireland, Luxembourg, Austria, and Spain spend on non-teaching staff salaries and benefits.

Recall that upon arriving Superintendent John Covington asserted that the district was too big, and in 2010 KCPS closed 30 buildings and eliminated 1,247 full-time equivalent positions. Doing so freed up a great deal of money. According to Wagner,

One study showed that if non-teaching personnel grew at the same rate as the student population, American public schools would have an additional $24.3 billion annually.

This impacts pensions as well, which is far greater than the immediate cost of this educational bloat on salaries. Show-Me Researcher Michael Rathbone writes,

Non-teaching personnel also accrue pension benefits through the Public Education Employee Retirement System of Missouri (PEERS). According to the PEERS annual report, “PEERS is a mandatory cost-sharing multiple employer retirement system for all public school district employees (except the school districts of St. Louis and Kansas City), employees of the Missouri Association of School Administrators, and community college employees (except St. Louis Community College).” Members of the plan and their employers both contribute to the pension.

Over the last five years, the unfunded liabilities (liabilities minus assets) of this plan have increased by more than $64 million. Pension benefits like PEERS benefits are guaranteed and must be paid out. If PEERS can’t make those payments, taxpayers (i.e., you) will have to.

By spending too much on non-teacher personnel, KCPS is draining resources from both funds to pay teachers in the short term and teacher pension funds in the long term. Cutting back on non-teacher staff—or perhaps just restricting growth—would allow school districts to better meet their financial responsibilities to teachers and to demonstrate a real commitment to the children in the classroom.

February 23, 2015

Lackluster Outlook for Saint Louis in 2015

The PNC Financial Services Group provides economic forecasts for those areas in which it has a significant business footprint. The Saint Louis area is one of those areas. While the PNC forecast for 2015 covers several measures, let’s focus on jobs and income.

The economists at PNC predict that the unemployment rate in Saint Louis will continue its slow decline, falling to a little over 6 percent by year’s end (see accompanying chart). Even so, job growth in services is expected to slow as the year progresses, and manufacturing jobs are not expected to show much change over 2015. According to its regional outlook, when comparing potential job growth from the trough of the recession through 2015 across a number of Midwest metropolitan areas, PNC ranks Saint Louis well behind such cities as Indianapolis, Chicago, and Milwaukee.

StLouis_2015-1

The PNC report, which provided both charts shown here, also predicts that while household income will continue its post-recession recovery, improvement will be slow. As shown in the chart, PNC predicts that median household income in Saint Louis will increase from about $54,000 to approximately $56,000 between the end of 2013 and the end of 2015. This is less than a 2 percent annual rate of increase. As noted in the PNC report, “Income growth in St. Louis still lacks the job market support necessary to break out to a much stronger pace.”

StLouis_2015-2

Why Cities Are Bad at Bargaining With Sports Teams

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Don’t look now, but there’s a land rush for the Los Angeles pro football market. Saint Louisans will already be familiar with Stan Kroenke’s plan to move the Rams to a stadium in Inglewood. But now the San Diego Chargers and Oakland Raiders, unhappy that their localities are not coughing up public funds for new stadiums, are also publicizing a plan to move to L.A.

Three teams will not be playing in the Los Angeles metropolitan area, but it allows all three franchises to simultaneously frighten local politicians into spending public dollars on a stadium. From an owner like Stan Kroenke’s point of view, it’s a win-win scenario. If the NFL allows him to move the Rams, his team will instantly gain $1.5 to $2.5 billion in value. And if he can’t (or never wanted to), Missouri has already planned to fund half the costs of a new stadium without any negotiation at all.

For Missourians, local officials have essentially locked residents into two possibilities: 1) approve around $400 million in public dollars for a new stadium, or 2) lose the Rams. Of course, the Rams might move regardless and Kroenke might demand more than $400 million to stay, but that’s what comes from committing the state to half the costs as the opening offer.

This situation is a perfect example of how poorly local officials fare when they bargain for taxpayers against billionaire-owned sports franchises. Where Stan Kroenke can credibly appear ready to leave the Saint Louis market without firm public subsidies, local officials declare how necessary the Rams are to the state. While Kroenke can strengthen his position and fail to negotiate, local officials need to be seen as trying their hardest to make sure Saint Louis is an “NFL city,” even when that means negotiating against themselves.

In essence, Stan Kroenke can look at this like a business negotiation. But local politicians are not spending their own money and have to be concerned about portraying an image of effectiveness and bolstering civic pride, making them poor bargaining agents for regional economies.

Even when there is no threat of a team leaving a lucrative market, pro teams can still reap public subsidies by threatening to move to different municipalities in the metro area. While it might not hurt the Chicago regional economy one bit if the Bears played in Rosemont (a nearby suburb), it would hurt the city’s tax revenue as recreation dollars flow to a different part of the region. Whether the team’s option is moving across the country or the county, pro franchises almost always have the best alternative to a negotiated agreement vis-à-vis local governments.

The best bargaining tool local officials can have is a skeptical voter base that understands that pro franchises do not create economic development or urban regeneration. Residents can vote against public dollars for entertainment venues. That constrains the local officials and sends a clear message to the NFL that Saint Louis is a great sports market, not a great mark.

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