The Contrarian has a great article over at MSN.com about the loathsome taxpayer bailouts that occur every time something fails in modern America. I recommend it without hesitation.

I will be a guest on The McGraw Show, with Mr. Millhaven himself, this Monday morning on KTRS — The Big 550 AM. I will be talking about whatever McGraw wants to talk about, be it ethanol, tax incentives, or earnings taxes. I am excited to be appearing on the show — please listen in, if you can!

In 1982, the state of Missouri decided to give more money to schools, and to lower each school district’s property tax levy.

The first part, giving more money to schools, is working well enough. For the 2005–06 school year, the state handed out about $839.5 million from the designated-for-schools one-cent sales tax. That’s up from the $634 million it gave to schools in 1983–84 (both figures adjusted for inflation to 2008 dollars).

But school districts have, through local elections, bypassed the state’s effort to keep property taxes down. While local property taxes are lower than they were before 1982, they have crept up from a little more than $2 to about $4.

To give schools more money, the state levied a one-cent sales tax, in legislation known as Propsition C. Each year, revenues from that tax are collected and divvied up among each public school student.* Very roughly, that comes to about $845 per student, according to Roger Dorson, director of finance for the Missouri Department of Elementary and Secondary Education.

The money is then sent out to schools, but it comes with strings. Half of the Prop. C money is new money for schools — a gift, if you will. But the other half is more complicated.

When a school district takes the second half of the Prop. C money, it must “roll back” the local school property tax levy. By how much? Well, enough to lower its tax revenues by the amount that the state gave it. For example, if a school district were given $1 million from the state, it would have to lower its levy so that it took in $500,000 less in property tax revenues.

Effectively, the state was trying to move some of the burden of funding schools from property owners to the people who spend more.

But school districts have gone to the ballot box to get more money, on top of what the state began to give them in 1982. Since Prop. C took effect, school districts have been asking voters give up the state-mandated reduction in local property taxes.

Voters have said yes. As of this year, 430 school districts (of 524) have full waivers, according to Dorson. That means those districts do not — and, unless their voters asked for it, will never — have to reduce their property taxes because of Prop. C revenues.

I won’t say that Prop. C rollbacks are unfair. After all, district voters are the ones who approve them (though which voters vote is something to watch out for). But it is apparent that the state’s goal to keep local property taxes low is slowly eroding. And that a statewide sales tax now helps foot the ever-growing cost for schools.

* In determining state aid, each school calculates its average daily attendance. Students are weighted differently if they come from low-income families, are not native English speakers, or are special needs students. After those factors are taken into account, the state awards aid based on each school district’s “Weighted Average Daily Attendance.”

Sixty-five percent. If you get it on a test, you’re barely scraping by. If you get it as turnout in a presidential election, you’re thrilled.

In fact, Missouri’s average county turnout in the 2004 presidential election was just about that — 65.12 percent. But that’s in the highest-profile election in the United States. So, what happens in local school board elections? Well, obviously, turnout dips. Or plummets.

In a June 2008 CNN/Opinion Research Corporation poll, 83 percent of Americans said that education was either ‘extremely important’ or ‘very important’ to them in making their decision on who to vote for this November.

If education is so important to so many people, selecting the president is just step one, right? We should expect to see high turnout in local elections, too, because it’s those elections in which voters ostensibly have the most direct influence on their own local education policy.

In Missouri school districts, at least, the exact opposite is true.

Continue reading "Extremely Important?" »

The Post-Dispatch reports that 2 million Americans will get a raise today. Why, you ask? They probably bet on the Brewers. … Actually, today the federal minimum wage increases by 70 cents, to $6.55 an hour. This is the second of three annual increases that will bring the minimum wage up to $7.25 an hour.

A raise for 2 million Americans sounds like a wonderful thing, almost too good to be true. Indeed, the Post-Dispatch reports one of the negative side effects:

The bad news: [...] some small businesses will pass the cost of the wage hike to consumers.

This is one of many things businesses can do to cope with an increase in any of their costs, whether or not that increase takes the form of labor costs, but this isn’t the only option. Suppose you run some sort of business that employs minimum wage workers, such as a restaurant or a car wash. Keep in mind that in running this business, your main goal is to maximize your profit — within the bounds of the law, of course.

Now, suppose the minimum wage rises, increasing your labor costs. What do you do to keep your profit as high as possible? Well, what would you do if anything else you bought increased in price, like, say, gasoline? You’d probably find a way to buy less of it, either by cutting back entirely or by finding some workable substitute. In this case, you would be trying to find ways to cut back on the use of unskilled labor in your business.

There are numerous ways to cut back unskilled labor. The Post-Dispatch already mentioned one: raising prices. How does this cut back on unskilled labor, you might ask? Higher prices will drive some consumers away, so your business won’t need as much unskilled labor as before.

There are also many substitutes for unskilled labor. You could hire someone more skilled, or replace the worker with machinery of some sort. Something as simple as adding a timer onto the fryers at a restaurant can cut the amount of labor needed to produce fried food.

Your could also find ways to decrease compensation without decreasing wages. Cutting benefits is one example. Or, you could remove some costly “luxury” like air conditioning, making the work environment less pleasant in the process.

The main question is, how much of each of these effects actually occurs? If businesses find ways to significantly cut the use of unskilled labor, unemployment among that group will rise, and perhaps so will unemployment in general. If businesses opt primarily to raise prices, low-income individuals will be hurt the most. If businesses instead cut non-monetary compensation, or reduce workplace amenities, the increase in wages seems to be a wash. A classic Show-Me Institute study has even more detail.

The intended goal of a minimum wage, of course, is to reduce poverty by helping low-income families. However, the minimum wage is a terrible policy tool for accomplishing that goal. According to another one of our classic studies, the typical minimum wage worker is still in school, living with a relative, and part of a family earning $57,000 a year. On the other hand, the typical poor worker is older, out of school, earning $9.58/hour, and the sole earner in a family with children. They are poor not because of low wages, but because they don’t work very many hours. In fact, only 25 percent of low-wage workers are below the poverty line. As a result, the study estimated that Missouri’s increase of the minimum wage to $6.50 would only reduce poverty by less than half of a percentage point.

Increasing the minimum wage won’t do much for most of the people it is intended to help, because it does a poor job of targeting them. Something that targets poor families explicitly and directly, like, say, the earned income tax credit, is far more effective at reducing poverty.

This article from the St. Charles Journal is a few days old, but it’s still an interesting read. The subject: Tom-Jan Meeus, a journalist from the Netherlands who is traveling around the United States, and writing about politics and culture here. The article describes some stories Meeus has reported on recently, and one of them is the midwifery issue in Missouri. Meeus notes that midwifery has gained wider acceptance in the Netherlands:

“My two kids were born with the help of the midwives,” he says.

The author of the article seems more interested in Meeus’ predictions about Obama, and quickly moves on to discuss politics and the upcoming election. The comments to the article, though, pick up on the midwife issue. Here’s what “Natalie” has to say:

I love that he interviewed the woman and her midwife. Very cool. That is definitely a big issue right now, whether women here will have the freedoms women have in other states and countries, and the access to skilled and personal care during pregnancy and birth.

I rarely find myself arguing that Missouri should resemble Scandinavian countries, but on the question of freedom for midwives and expecting parents, I’ve got to agree. Oh, and we could use more parental choice in education, too.

Steelman fields another question of interest over at the Post-Dispatch:

Brian R.: Urban decay and poverty is a problem that has been ignored in Missouri for far too long. As governor, what will you do to stimulate positive economic activity and lift people out of homelesness and poverty in North St. Louis and Kansas City? Additionally, how do you plan to address rural poverty?

Sarah Steelman: That is a very good question. I believe that any economy, including local economies, have to be allowed to grow themselves. One of the main problems in both Kansas City and St. Louis is the earnings tax. This 1% tax is levied nowhere else in Missouri. In St. Louis, you need look no further than the hole next to Busch Stadium to know that the status quo is not working. In addition, no major corporate headquarters has moved to downtown St. Louis in 50 years. The state should support economic growth in our cities.

She is just on fire this afternoon, isn’t she? The earnings tax is a terrible idea, and should be eliminated in both Kansas City and St. Louis. As Steelman notes, the earnings tax deters businesses, as well as people, from moving into affected areas. If tax revenue is needed, there are much less distortionary means to raise it, such as through a tax on sales or on the value of land.

Over at the Post-Dispatch, gubernatorial primary hopeful Sarah Steelman participated in a live Q&A session with the readers. Here is one interesting question:

Joe Hodes, St. Louis: Ms. Steelman,

I was inclined to vote for you until I saw your ad on the ethanol mandate. While corn ethanol has been shown to play a tiny part in driving up food prices (far less than foreign demand, oil prices and speculation), it has driven DOWN the cost of gas by 10 cents or more a gallon.

There have been over a dozen studies by universities, economists, researchers and even the energy industry showing that ethanol REDUCES the cost of gasoline–Missouri’s E10 mandate leads MO to have the CHEAPEST GAS in the nation.

Yet you say in your ad that the ethanol mandate has caused gas prices to rise. No one–even ethanol’s other critics–has been foolish enough to make such a counter-factual statement.

How could you get your facts so wrong?

Thanks,

Joe Hodes
St. Louis, MO

The mandate may be keeping the price of gas 10 cents lower than otherwise, but this gain is lost once you take into account the decreased efficiency of ethanol. E-10 fuel is 2.5 percent less efficient than regular gas, meaning it takes more fuel to go the same distance that normal gasoline would allow. If you want to drive 100 miles with a car that gets 20 miles per gallon, with ordinary gas costing $4 per gallon at the pump, it will cost you $20 for 5 gallons.

With E-10, fuel only costs $3.90 per gallon at the pump, but you now need 5.125 gallons to travel 100 miles, costing you $19.99. A paltry savings of one cent. But this analysis so far doesn’t even take into account the ethanol subsidy that Missouri taxpayers pay. That subsidy is currently 51 cents per gallon, and will fall to 45 cents when the new farm bill takes effect. So, it would actually cost you an additional $2.61 to drive 100 miles, but that cost is paid in taxes instead of at the pump. So, it comes to $22.60 for the same trip. If all actual costs were shown at the pump, E-10 would be priced at 41 cents per gallon more than normal gasoline.

Here is Steelman’s response:

Sarah Steelman: The facts speak for themselves. The studies from the Missouri Corn Growers and others don’t take into account the subsidies that we pay on our tax bills for ethanol. Secondly, they don’t take into account the decreased fuel efficiency of ethanol, meaning that you have to fill up your tank more times to go the same distance. I would invite you to read the Show-Me Institute’s recent study on the topic. The Show-Me Institute, unlike other groups, does not have a financial interest in ethanol. The Show-Me Institute study states that the ethanol mandate will cost Missourians over $1 billion over the next decade. This figure doesn’t even take into account the increased price of food caused by the mandate. I am the only candidate willing to stand up against the special interests who forced the ethanol mandate on our state. If ethanol can stand on its own two feet, let it do so in the free market.

Check and mate. The study in question, detailing the real costs involved with Missouri’s ethanol mandate, can be found on the Show-Me Institute website.

This is a continuation of my prior post about the history of school finance in the United States.

The adage holds: Nothing is free. When states began to pay school districts to educate children, the money came with regulations — and those regulations drove the system of attendance reports, standardized testing, and school administrators that we have today.

After school districts began taxing their communities to pay for schools, states started to step in, according to Elwood Cubberly in his book Public Education in the United States. And the moment a district began to depend on state money, it had to cope with the threat of the state taking that support away.

What began as a small effort by states to funnel land — as well as revenues from liquor and marriage licenses — to schools has expanded enormously. The state pays out more than $3 billion per year to Missouri school districts alone, according to numbers from the Department of Elementary and Secondary Education.

Continue reading "Strings (or, With State Dollars Come Bureaucracies)" »

The Kansas City Star has a story on the failures of the planning process in Kansas City’s Beacon Hill neighborhood. I encourage you to read it carefully. Now, I have never, to my knowledge, been to Beacon Hill. But this entire story is a perfect example of the failures that come when the government steps in to plan things that should be left to the free market and individual choice.

The historically revitalized neighborhoods in Saint Louis, such as Soulard and Lafayette Square, did not come about because of a government plan. They happened because free people made choices and put time, money, and effort into their neighborhoods. The government did not “plan” for Lafayette Square becoming what it has become, and it certainly did not mandate its development with legal contracts, etc. (I am certain that there are similar neighborhoods in Kansas City that have been revitalized in the same way as Soulard.) I will admit that the government does provide historic tax credits that encourage much of the revitalization, and they should continue to do that in historic parts of Missouri.

But the city should not get to “choose” who is allowed to buy property. From the Star article:

He and two other buyers were chosen to purchase and fix up the homes.

Even if the city had owned the homes by then, they should have taken the best offer. Somebody who wants to “mothball and flip it” might be doing just as much for the economy as someone who gets a lot of government tax money to subsidize revitalization. The Kansas City planners have no way of knowing what the best long-term plan is, and they have apparently not been making cost-effective decisions (emphasis added):

Beacon Hill so far is known mostly for exorbitant spending of federal dollars on two bungalows in the 2500 block of Tracy Avenue.

Government should stick to governing, rather than trying to predict the future and take risks with public money. That should be left to the private sector.

School board members negotiate how much school district employees earn. They’re the ones who determine salary raises for teachers, and they’re the ones who choose a district’s superintendent and how much he makes.

So, who chooses the school board members?

Voters. But some of them have more on the line than others. A school district is one of the few places where employees have some say in choosing the people who will ultimately affect the size of their paychecks.

Continue reading "How Much Say Do They Have?" »

After 38 ½ years of service, Barbara Trzeszkowski reported for her last day of work on Monday at the Keansburg Board of Education. If her contract with the district withstands a number of legal and governmental challenges, the superintendent will ease into retirement with a $740,876 severance package that the state’s top education official compared to the “golden parachute” awarded to retiring Fortune 500 executives.

That’s the first paragraph (emphasis added, in all of this post’s quotations) from a New York Times article about superintendent pay in New York. After hearing more about Trzeszkowski’s contract, according to the article, New York politicians were outraged at the taxpayer expense involved in such an enormous retirement package.

Trzeszkowski’s benefit package is plump, to say the least:

In the next few weeks, Ms. Trzeszkowski, 60, was scheduled to receive $14,449 for unused vacation days, the first third of the $170,137 she had amassed in unused sick days, and the first 20 percent of $556,290 in severance pay. This was in addition to the $103,889 annual pension she was to collect from the district for the rest of her life.

To put this into perspective, many Missouri contracts I’ve seen have caps on the number of unused vacation or sick days for which a superintendent can collect pay. But some don’t. Several Missouri superintendents earn more than the $170,137 Trzeszkowski collects. However, the factor sending her benefits sky-high is the 38 and a half years she spent with her district, about 10 of which were as superintendent, the others as a teacher.

What can I say? The numbers speak for themselves. She is set to receive a great deal of money for the rest of her life in exchange for working for a single school district for more than 38 years.

Is it a fair trade? After all, Trzeszkowski certainly was loyal to her district. Was it her job to draw attention to the size of her benefit package? Well, at the very least, her school district’s board of education should have known better when negotiating her contract. At least one of them didn’t, according to the article:

Although he seconded the motion to approve Ms. Trzeszkowski’s five-year contract in February 2004, James Cocuzza, a former board member who is now a borough councilman in Keansburg, said he did not remember it.

“For 15 years, I always fought for zero increases in taxes,” he said. “I don’t see myself giving away three quarters of a million dollars.”

While Mr. Cocuzza said he regrets not paying more attention, he added that he was probably not alone in allowing such contracts to slip through.

“Let’s be honest,” he said. “We’re not professionals. That’s what we have the attorneys and negotiators for. But wait until the state checks out all the other districts and sees the contracts that got through. I bet they all got nice packages.”