According to the Reason Foundation, New York Governor Mario Cuomo said about privatization, “It is not a government’s obligation to provide services, but to see that they are provided.” That statement perfectly sums up the inspiring choice by Kansas City leadership to study and consider the potential to make greater use of the private sector in Kansas City’s infrastructure management and delivery.

I want to be very clear from the beginning that Kansas City is NOT considering full-scale privatization of its infrastructure, as I recommended the city of St. Louis do with its water division. Kansas City leaders will study the potential for contracting with private partners to manage facilities, including wastewater treatment, parking, and more. Today’s Kansas City Star has a very good story about yesterday’s committee meeting (which I attended). Mayor Mark Funkhouser and the members of the committee deserve a great deal of credit for their willingness to consider these possibilities for the taxpayers and residents of Kansas City.

This type of operations and management (O&M) outsourcing can have great benefits for the city and its people. Oklahoma City has had great success after outsourcing its wastewater treatment plants in 1984. Anyone who thinks that this type of original thinking always fails or hurts taxpayers simply needs to look at the success in Oklahoma City for the other view. Like anything, these types of efforts can be executed either well or poorly. Although privatization failures exist, Oklahoma City represents only one example of success out of many. I look forward to sharing them with you as this discussion moves forward.

The Show-Me Institute is sponsoring a debate between me, Research Assistant John Payne, and Policy Analyst David Stokes on the subject “Are Conservatives and Libertarians Natural Allies?” The debate will be held at 6:00 p.m. today at Dressel’s, located at 419 N. Euclid in Saint Louis’ Central West End.

Since the end of World War II, libertarians have typically been considered a part of the right, in a “fusionist” alliance with traditional conservatives. However, a number of libertarians have questioned the usefulness of this longstanding relationship in light of the dramatic growth in the size of government and restrictive social policies instituted by self-described conservatives in government.

Both Stokes and I want to see dramatic reductions in the size of government and the roles it plays, but we disagree on the strategy for achieving those goals. Stokes will argue in the affirmative that libertarians’ best hope is to ally with conservatives — the only other group he sees as trying to limit the size of government. I will take the negative, contending that, despite their rhetoric, the conservative commitment to limited government is only skin-deep.

Outside of our employment at the Show-Me Institute, I serve as the Missouri state chair of Young Americans for Liberty, and Stokes is the Republican committeeman for Clayton Township in Saint Louis County.

Join us tonight (Thursday, Sept. 30) at Dressel’s in the Central West End for food, drinks, and discussion. (Cash dining and bar.)

KSDK is running a nice little story about the entrepreneurial success of the Billy Goat Chip Company in Saint Louis:

It all started in 2002 as a side item at their restaurant, but it didn’t take long to realize it was a stand-out item rather than a side. So they closed their restaurant and decided to focus on chips.

“What we’re trying to do is bring out the potato,” Lyons says.

Of course each chip is sprinkled with a magical dust, then bagged, boxed and hand delivered to more than 150 places [...]

It’s not as if these guys hope to one day dethrone Lays.

“Our focus is to be Saint Louis’ potato chip. We want to stay hand made, handcrafted, the local guy,” Lyons added.

I recently purchased my first bag of Billy Goat Chips. Although they cost more than most chips, I have to say that it was worth every penny and more. The company is a good example of how smaller companies can survive and even thrive while competing against corporate giants if they offer a superior product. Lays and Ruffles may be cheaper, but their industrial style of production prevents them from offering the best product possible.

The beauty of the free market is that it allows for both options to exist. People who want or need to conserve money can opt for cheaper, mass-produced chips, while others concerned more with quality than price can purchase craft chips like Billy Goat, and people are always free to make a different choice the next time they visit the supermarket. Contrast this with the government, where, at best, a majority imposes its will on the whole population, and those choices are extremely difficult to undo. It is easy to understand why government controls should be limited to only those areas where they are absolutely necessary.

This old article from the Sacramento News & Review contains some interesting sentences about sub-prime credit:

While the Chicago Outfit may have been a bit heavy-handed in its debt-collection practices, the interest rate the crew charged for a loan was a bargain. A bargain, that is, compared to the fees charged by the numerous payday loan outfits in Sacramento and throughout the state.

Carlisi and company extended short-term credit, or “juice loans,” for fees that pencil out to an annual interest rate of 260 percent. The Outfit may be disappointed to learn that they were working for chump change. Had they waited a few years, and then come out West, they could have become payday lenders and made some real money.

Although the gratification of physically collecting a loan isn’t allowed, in California it’s perfectly legal for a state licensed payday lender to charge up to 5,474 percent annual interest in this rapidly expanding niche lending business.

I’ve been meaning to comment on this for a while, because this is really fascinating data. Readers who peruse the article from which this excerpt is lifted will note that the author uses this statistic to argue that payday rates are excessive and exploitative. Well, perhaps, but this data doesn’t render that claim obvious. The fact that payday loan rates are higher than loan shark rates could simply suggest either that payday lenders face higher costs of enforcement, higher default rates, higher transaction costs, lower-quality information, or some combination of these factors.

It’s easy to see how a legitimate, white-market business would have higher overhead costs than a black market loan scheme, if for no other reason than that a white-market business must handle contractual disputes with tools furnished by the legal environment. No such encumbrances burden black market creditors. As former Show-Me Institute Policy Analyst Justin Hauke put it in an op-ed: “At least with a payday lender, default is settled in court. In the black market, it usually involves a crowbar.” In this sense, the higher prices of payday loans likely reflect the premium that consumers are willing to pay for safety.

According to this Post-Dispatch article, only the worst-performing schools were eligible for recent School Improvement Grants awarded by the U.S. Department of Education. With grants ranging from $50,000 to $1.7 million per school, these funds are intended to help schools whose students’ proficiency in reading and math falls within the lowest 5 percent in the nation.

In Saint Louis, 21 schools will receive funds, with the requirement that they undergo drastic changes of administration, such as replacing half of the teaching staff. These funds, not to mention the thoughtful revamping of educational systems that are clearly not working, represent the possibility for positive change in the worst schools — but is it really likely to improve education? From the article:

But state education officials in Illinois warned districts that the more academically troubled schools would have a better shot at getting the grants. They plan to help schools work on reform plans to prepare for the 2012 grant competition.

That’s right, there will be ongoing competition to prove which school is the least competent, and hence the most deserving of improvement grants. It doesn’t take a high-quality education to see that this will provide an incentive for low-quality schools to encourage their students to languish until their test scores approach the fifth percentile.

This reminds me of a one of Lawrence Reed’s Seven Principles of Sound Public Policy: If you encourage something, you get more of it; if you discourage something, you get less of it. (Here’s a video of Reed delivering this as a speech at a Show-Me Institute event in 2006.)

Today in the Wall Street Journal, economist Gary Becker writes about what would make China’s economy grow at an even faster rate. From the editorial (emphasis mine):

No country in the modern world has managed persistent economic growth without considerable reliance on private enterprise and decentralized private markets. All centrally planned economies failed to achieve sustained development, including the Soviet Union before its collapse, China before market reforms began in the late 1970s, and Cuba since Castro’s revolution in the late 1950s.

This is advice that the state government in Missouri should take to heart. Through the use of programs like targeted tax credits, TIF, and the LRA’s land holding policy, the government in Missouri attempts to plan the economy and consequently stunts its growth.

Missourians and the Chinese alike would experience more economic growth if the government allowed private enterprise and the decentralized market to function.

From USA Today, “Merit pay study: Teacher bonuses don’t raise student test scores”:

Offering middle-school math teachers bonuses up to $15,000 did not produce gains in student test scores, Vanderbilt University researchers reported Tuesday in what they said was the first scientifically rigorous test of merit pay.

Some 296 middle-school math teachers — two-thirds of the district’s middle-school math teachers — volunteered to participate in the experiment. Half were placed randomly in a control group, while the rest were eligible for bonuses of $5,000, $10,000 or $15,000 if their pupils scored significantly higher than expected on the statewide exam known as the Tennessee Comprehensive Assessment Program.

Except for some temporary gains for fifth-graders, though, their students progressed no faster than those in classes taught by the 146 other teachers.

The PDF for the study is available online.

As a merit pay advocate, I’d love to disparage these results as the product of some unsound methodology, but I can’t, in good faith, do that. This seems like a relatively clean experiment. Yet merit pay supporters need not abandon their cause. The study provides good answers, but the questions may be too narrow to be fully relevant. For example, in evaluating the responsiveness of teachers to potential performance bonuses, the study approximates what a labor economist would call elasticity of effort but not elasticity of labor supply. Put differently, the study suggests that the performance of existing teachers may not change in the presence of performance incentives but the study does not consider the dynamic changes in the overall teaching pool that may result from implementation of merit pay programs. More research must be conducted to evaluate whether merit pay attracts a better pool of educators who, in turn, have positive impacts on student performance.

I wasn’t aware that Saint Charles was considering banning bicycles, but, thankfully, the measure didn’t pass.

Individuals may move freely in Saint Charles on a bike for the time being, but this may unfortunately change in the future. According to a KMOX article, the committee will consider two alternatives:

One would require permits for large cycling events, another would color-code certain roads to let cyclists know how dangerous they are.

Every action involves risks. It’s not the job of government to protect individuals from behavior that has internalized risks. If a person happens to view biking as very dangerous, then he or she can choose not to do do it. I bike in Saint Louis frequently, and I accept the associated risk as a free adult. I also drive my car, which also has risks — it’s possible that I could crash into a telephone pole, or another car.

Does it follow, then, that local governments should ban biking in urban areas because it is dangerous? No. To the contrary, government and urban planners often encourage biking over driving in urban areas. Biking in Saint Louis city is pretty dangerous, but the city encourages me to do it. Biking in downtown Minneapolis is similarly risky, but the local government sponsors a public bike sharing program, as I observed during my last visit.

If a local government were serious about saving its residents from physical harm, it would ban cars in addition to bikes, and it would also ban planes from flying in the airspace because one could potentially fall out of the sky and land on somebody.

Furthermore, banning bicycles would likely have the unintended consequence of making biking more dangerous. In today’s status quo, drivers look out for bicyclists because hitting one with their car will lead to severe consequences, such as getting sent to jail or paying a steep fine. If bikes were banned, drivers would be less likely to keep an eye out for those bikers who decide to brave the roads anyway.

I recommend this article about the president of the Federal Reserve Bank of Kansas City. If you are the type of person who visits Show-Me Daily regularly, then you are the type of person who will enjoy this article in Bloomberg Businessweek.

By “enjoy,” I don’t necessarily mean “agree with everything in it,” but the piece raises a number of interesting points and provides a great bio of a very powerful Missouri economist. Thanks to the Kansas City Star for the link.

The Sunday edition of the Post-Dispatch ran an interesting story about the proliferation of food trucks in Saint Louis and other cities across the country. Not surprisingly, the mobile restaurants have come into conflict with their more traditional competitors:

For restaurateurs or aspiring chefs, the food truck can pave an easy route into the business. The capital and overhead costs are lower, and the mobility is an advantage: They can meet their customer base where they live and work.

But many “fixed” restaurants say this gives food trucks an unfair edge, siphons away business and can ultimately depress rents and erode tax bases. Some see food trucks as vultures, swooping in and stealing customers.

In New York City, a merchants association complained to a city official, who earlier this year introduced a bill that would revoke a food truck’s license if it gets three parking tickets within a year. In Los Angeles, officials are looking at limiting food trucks to certain prescribed zones or charging a kind of rental fee, in addition to vending permit fees. In Washington, lawmakers are considering a proposal that would prohibit food trucks from parking within 60 feet of a competitor.
[...]
Food truck vendors, meanwhile, say these measures would unfairly limit business.

“The issue is: Are we a capitalist society and do we believe in competition?” said Kristi Cunningham, who sells more than 1,000 cupcakes a day from her van in Washington. “… We pay sales tax, we pay a fee to be a street vendor and we pay all the other fees associated with running a business.”

Earlier in the article, Todd Waelterman, director of Saint Louis’ street department, claims that “[t]he vendors make the neighborhoods come alive. We want that kind of activity,” but “[w]e don’t want an ice cream truck in front of a Baskin-Robbins. Those bricks-and-mortar people pay taxes.” This is the wrong attitude to have about new forms of economic activity. Although brick-and-mortar restaurants pay more in property taxes than the food trucks, they both pay sales tax. Regardless, the government’s mission should not be to simply maximize its own revenues. Furthermore, there’s no reason why an ice cream truck shouldn’t be competing against Baskin-Robbins. If the truck is able to offer consumers lower prices, higher-quality ice cream, better service, or some combination of the three, it’s better for people to have the option of buying from them. Even if the ice cream truck ultimately puts Baskin-Robbins out of business, that just means that consumers no longer value Baskin-Robbins highly enough to justify its existence, and the building, capital, and labor it used should be redirected to making goods and services consumers want more.

Unfortunately, it appears that the city will attempt to “balance” the interests of the food trucks and restaurants with some new regulations on vendors:

The city of St. Louis, for years, has issued 10 vendor permits, most of them to food carts of the kind seen around Busch Stadium. Most of the permits were $25 and allowed vendors to roam in any of the city’s seven vending zones.

But earlier this year, the city instituted a new policy that will require vendors to bid on particular spots. The change caused an uproar among city vendors who had long assumed they were grandfathered in and could wander around as they wanted, Waelterman said.

On Oct. 15, the bidding will begin. Waelterman explained that his department would take bids on as many as 12 locations. But for mobile vendors, the city isn’t putting a limit yet and will assess each bid on a case-by-case basis.

“It’s not a pure high-bid deal,” he said. “It’s what you can do for the city. It’s what we’re lacking. What your truck looks like.”

In other words, politicians and bureaucrats will be directing business activity, not entrepreneurs and consumers.

Supporters of film tax credit programs argue that these programs generate more revenue than they cost. Over at Mound City Money last week, David Nicklaus highlights a study recently released by the Senate Fiscal Agency in Michigan that provides evidence to the contrary. It concludes that the film tax credit program in Michigan does not pay for itself.

The following is an excerpt from the study (emphasis mine):

Significant confusion appears to exist regarding the public and private costs and benefits of the credits. Statements in the press regarding the benefits of the Media Production Credit typically highlight the increases in private sector activity and measure them against the public sector cost (often without accounting for the impact of lowering other public expenditures to offset the lost revenue from the credit). This comparison creates confusion about the impact of the credit on the budget. The nature of the credit and the resulting activity is such that under current (and any realistic) tax rate the State will never be able to make the credit “pay for itself” from a State revenue standpoint, even when the credit generates additional private activity that would not have otherwise occurred.

Public discussion of the Media Production Credit also has confused the nature of the credit, often leaving taxpayers with the impression that the credit represents foregone revenue that the State would not have otherwise received. The amount of the Media Production Credit, however, is unrelated to a taxpayer’s liability. The credit represents a subsidy for production activity and is unrelated to any provisions in law that impose liability on the taxpayer. Because the credit is refundable, the State not only foregoes the revenue it would have otherwise received but also pays additional money to offset the costs of the production.

The study includes some striking statistics:

• In 2009, each job created by the film tax credit program in Michigan cost taxpayers between $44,561 to $193,333.
• in FY10–11, Michigan will spend $125 million on film credits, and this will generate merely $13.5 million in new tax receipts. This equals a net fiscal cost of $111.5 million.

Nicklaus linked to an article by Josh Barro discussing the study, which is also worth reading.

After my testimony before the Missouri Tax Credit Review Commission on Wednesday, co-chair Steve Stogel asked me which specific programs I would cut. Although I believe that Missourians would be better off if all development tax credit programs were eliminated, I realize that we live in a world of second-best solutions and that eliminating them all may not be politically feasible. If I had to choose which programs to eliminate, the film tax credit program would be among the very first. (This is unsurprising; by my count, I have written 18 blog posts about the specific subject of film tax credit programs on Show-Me Daily, not to mention an editorial.)

Policymakers often look to the economic development strategies used in other states and try to emulate them. It just so happens that Wisconsin recently scaled back its film tax program, and Iowa decided to eliminate its program, too. When will Missouri face the facts and do the same?

There has been a controversy during recent months surrounding three downtown Saint Louis night clubs whose rowdy patrons have been accused of causing repeated disturbances and arrests, including multiple shootings. All three clubs were threatened with losing their liquor licenses, but two of the clubs have cleared their hearings, and a third, Lure, continues to face the possibility of losing its liquor license. Some of the controversy springs from conflicting accounts of whether or not rowdy brawlers actually came out of Lure, while many insist that Lure is being unfairly targeted because of its African-American customers on the establishment’s hip-hop-themed Thursday nights.

One group that is fighting to close down Lure is the Partnership for Downtown St. Louis, headed by Maggie Campbell. According to downtown Saint Louis business owner Bob Ray in his letter to the editor printed in the St. Louis Post-Dispatch, the Partnership for Downtown St. Louis is trying to overstep its rightful authority as a civilian group. From his letter:

The Partnership for Downtown St. Louis is seeking to participate in the approval and revocation of liquor licenses downtown.
[...]
I am shocked by the subjective nature of the Partnership’s process. The Partnership does not have an official policy detailing the criteria or evidence required to trigger the revocation process. When asked whether a nongovernmental membership organization with no public accountability should have the right to oversee the revocation and issuance of liquor licenses, Ms. Campbell said that the Partnership considers closing down a business to be its right under the First Amendment.

David Stokes has discussed in this blog the unlawfulness of revoking liquor licenses as punishment for unrelated infractions, such as customers smoking cigarettes in areas where they are banned. The Partnership for Downtown St. Louis seeks to take this a step further, by placing the power to grant or revoke a license into the hands of one group of civilians. There is already an established legal process for dealing with dangerous businesses or persons who disturb the peace. If a particular business makes it through this process with its liquor license intact, it is not the job of the Partnership for Downtown St. Louis to take that license away.