February 23, 2012

Putting Land To Productive Use

In light of the problems Saint Louis faces with respect to land utilization (see my colleague Audrey Spalding’s investigative research into the Saint Louis Land Reutilization Authority – LRA – and land banking), it was refreshing to wake up this morning to the news that Saint Louis has reversed course and will now allow Saint Louis University to build an ambulatory care center at the old Pevely office site at Chouteau Ave. and Grand Blvd.

The Facebook page for Save The Historic Pevely Complex references numerous prior plans to rehab the complex using historic tax credits (emphasis mine):

The Pevely Dairy complex is on the National Register of Historic Places. Under our city’s preservation ordinance, such buildings should not be demolished if they are structurally stable and have rehabilitation potential. The Pevely buildings are both, as evidenced by the numerous plans to rehab them using historic tax credits prior to SLU’s purchasing the site in August 2011.

A search of the Missouri Accountability Portal and the Show-Me Living tax credit tool, however, indicates that no development tax credits have been issued to SLU for this project. Imagine that. A new development project in Saint Louis apparently not in need of state tax credits!

As discussed in my previous post on this topic, the goals of social progress and economic growth direct our attention to the future. While a healthy respect for the past is not a bad thing, given the current state of the city’s economy, a new ambulatory care center is more important than a brick smokestack and a declining building. The sentimental value of the Pevely site and its smokestack, while endearing, pales in comparison to the value of a modern medical facility to the Saint Louis community.

So let’s continue to train our sights on the future, and leave the image of the Pevely site to scrapbook photo montages and warm reminisces.

February 10, 2012

A Steaming Pile of Pension Debt

How many of you are making progress climbing out of your personal debt hole? The financial meltdown of 2008 should have taught us the lessons of excessive debt and living beyond our means. Yet even if we are now making progress in balancing our personal finances, have you considered other debts that lurk in the shadows? Such as public pension debt? If not, ask yourself how much pension debt we, the taxpaying citizens of Missouri, actually owe to state government retirees.

Begin by thinking of a pension fund as a pool of investments (like stocks, bonds, etc.) that are purchased from money that employers contribute. These contributions and investments hopefully grow enough over time to cover the future retirement benefits of retired employees. But when employers fail to remit sufficient contributions, and when investments do not grow fast enough, the amounts of money available to pay retirement benefits fall short of the promised benefits. When this occurs, you have an unfunded liability. And because we are discussing public pension funds (where the government is the employer) future taxpayers are on the hook for the unfunded liability. And a looming fiscal crisis ensues.

We have reviewed the most recent comprehensive annual financial reports of five large statewide public pension funds in Missouri. The unfunded liabilities of each are listed below:

Missouri State Employees Retirement System (MOSERS): $2.4 billion

Missouri Local Government Employees Retirement System (MOLAGERS): $900 million

Public School Retirement System (PSRS): $5 billion

Public Education Employee Retirement System (PEERS): $500 million

County Employees Retirement Fund (CERF): $130 million

That is a total of just under $9 billion in unfunded liabilities that we owe to current and future public retirees! That is $1,500 per man, woman, and child in Missouri. And this includes only five public pensions (while these are among the largest public pensions in Missouri, there are approximately 130 public funds at the local and state level). This debt exceeds Missouri’s total general revenue collections for fiscal year 2011 ($7.1 billion, see the table on page 10 of the governor’s fiscal year 2013 executive budget). Taxpayer, beware. How many of the remaining 125 pensions operate in the red and how much do we really owe after they are accounted for?

Now, of course, if the economy and stock markets recover, the picture improves somewhat. But not by as much as you may suppose. Stay tuned for further discussions on that point.

January 26, 2012

School Reform: Have We Reached The Boiling Point?

Parents continue to demand solutions to failing schools in Missouri. As an example, five Saint Louis firefighters recently sued three suburban school districts for failure to enroll their children under the Missouri Supreme Court’s Turner decision. One of the firefighters is spending $20,000 per year in Catholic school tuition just to avoid sending his children to Saint Louis public schools. This is in addition to taxes he has paid to fund the very school district that has failed him and his family. Like many families in similar situations, this family pays twice for securing the benefits of the “free public schools” that are guaranteed in our state constitution.

My post last week discussed a lawsuit between the Kansas City Public Schools and five suburban school districts regarding the implementation of the Turner decision. In a nutshell, Turner requires surrounding districts to enroll students who live in unaccredited (failing) school districts (i.e., the Saint Louis and Kansas City public schools and the Riverview Gardens School District). In effect, this is a limited school choice option under Missouri law.

Practically speaking, one issue is, how can the suburban districts in Kansas City and Saint Louis handle the potential influx of urban students? A recent survey estimates that approximately 13,500 students may flee Saint Louis schools for Saint Louis County under the Turner law. That is close to one quarter of school-age children in Saint Louis city. Pressure to abandon the Saint Louis public schools is apparently growing.

While it is easy to get caught up in the apparent chaos, why don’t we disengage for a second and reflect on the deeper issues; specifically, the failure of urban education in the Saint Louis and Kansas City public schools. Perhaps the Turner decision is a blessing of sorts, compelling both the legislature and the courts to address head-on comprehensive school reform, not only for our urban districts, but for all districts in Missouri.

Teacher tenure reform, collective bargaining, charter school expansion, school closure, and expanded school choice are on the table. The legislative session is just beginning to heat up. Perhaps Turner was merely the first act in an unfolding multi-act drama. If so, the script should promote an increase in accountability for teachers and school districts, and an expansion of school choice, including choice of private and parochial schools for students in failing public schools.

January 16, 2012

Clumsily Lurching Towards Comprehensive School Choice In Missouri?

The Kansas City Star has reported a delay in the lawsuit between five suburban school districts and the Kansas City Public Schools. The five districts allege that Kansas City Public is not following the law in paying the tuition expenses of students that transfer from the unaccredited district, as allowed under a state law and a Missouri Supreme Court decision (Turner v. School District of Clayton). The law, as it currently stands, grants students in unaccredited districts the choice to transfer to accredited districts and public schools in the same or adjoining county. The unaccredited district pays tuition to the receiving district for the transferees.

But let’s not get bogged down in the legal details here. Instead, notice how the law represents one giant step for students, yet one small step for Missouri school choice (my apologies to Neil Armstrong). Why is this so?

First, under the law, the unaccredited status of a school district triggers the right to school choice. While this is fine as far as it goes, what about students who suffer academically in failing schools in accredited districts? If the evil to be remedied is students victimized by failing schools, then the law should target all failing schools, not merely schools in unaccredited districts.

Second, the Missouri law limits transfers to other public schools in close proximity. Why not extend school choice to any public or private school in the state of Missouri? In this way, students will have greater choice, and increased opportunities, to reach their dreams and to receive a first-class education. Ask yourself: Why not?

January 9, 2012

Helping Business Help Us

There has been a lot of political talk about fairness lately, with the notion that businesses and consumers are often on opposite sides.  Really?  There are steps Missouri lawmakers can take that would be fair and beneficial to both, and maybe a boost to the faltering state economy.

In its effort to change the business climate in Missouri, the Missouri Chamber of Commerce and Industry has identified three broad policy initiatives for the current legislative session. According to Chamber president Daniel Mehan:

“Among the list are issues left unresolved last legislative session that will be advocatied (sic) by Missouri’s top business associations and employers: workers’ compensation reform, employment law, and tort reform,” Mehan says.

Within the context of these broader policy initiatives, the following topics are among the most important issues the Chamber addressed. As briefly discussed below, each deserves careful consideration as a reform measure that can foster economic growth in Missouri.

  1. Making Missouri employment discrimination law consistent with federal law. Businesses face confusing and parallel obligations under federal and state laws. Making Missouri law consistent with federal law reduces confusion and lowers compliance costs for businesses, which in turn lowers the cost of doing business in Missouri. Consumers and businesses then share the benefits of lower costs.
  2. Capping damages in employment discrimination cases. Caps make future business costs more certain and predictable. Although the plaintiffs’ bar does not favor this idea, no one is closing the doors to the courthouse. Policymakers should carefully weigh the benefits and costs and make the decision that best advances business competitiveness and the administration of justice.
  3. Exempting co-employees from liability for injuries sustained in workers’ compensation cases. Currently, employees injured by co-employees at work may sue the latter for damages outside the workers’ compensation system. This gives rise to costly disputes among employees, disruptions in the workplace, and an increase in employer costs (not always monetary). Also, multiple lawsuits for the same injury may occur as the injured employee sues both his employer in workers’ comp and his co-employee in circuit court. Time, money, and effort may be economized by requiring injured employees to maintain a single suit in a workers’ comp venue.

Again, these are but a sample of current issues impacting the business climate in Missouri. These issues are important in that each imposes additional costs on businesses in Missouri. As a result, consumers and households may suffer because they will face higher prices, fewer goods, and lower employment. Remember, we are all in this together, despite what some others may say or imply. Isn’t it possible that sometimes what is good for business is good for the people?

December 22, 2011

When Progress and Preservation Collide

Successful cultures arise from a dynamic process that balances a healthy respect for the past with an optimistic regard for the future. In this sense, progress may be understood as successive series of creative destruction and new growth. Among the many benefits of growth is an expansion of the tax base. In this world, an excessive pining for the past and the preservation of its symbols stymies growth and our future prosperity. Today, Saint Louis is confronted with this very issue. Some preservationists are attempting to block the construction of a new medical facility in Saint Louis. Their reason: to preserve the decrepit symbol of a bygone era at the expense of the city and its taxpayers.

The St. Louis Post-Dispatch recently reported the St. Louis Preservation Board’s denial of a demolition permit to Saint Louis University (SLU) to raze the vacant Pevely Dairy headquarters building at the corner of Chouteau Ave. and South Grand Blvd. (you probably recall the Pevely smokestack). SLU officials intend to build a surgical center at the site, but now claim that the historic building may scuttle their plans if the building is not leveled and removed.

Before moving on to more pressing matters, perhaps a brief review of the tax implications is in order. Saint Louis public records indicate that the two parcels in question (1001 South Grand Blvd. and 3626 Chouteau Ave.) generate approximately $93,000 in annual property tax revenues for the city. See here and here. The future tax status of the properties, however, is uncertain (I called SLU’s controller, Gregory Haney, but he declined to express his opinion or share his knowledge on the subject). If the properties fall under SLU’s non-profit status, then SLU may be tax-exempt (similar to SLU’s 200 North Grand property). On the other hand, if property ownership vests in a for-profit entity, similar to Tenet Health System’s ownership of property underlying Saint Louis University Hospital, then taxes will likely be assessed and collected.

In either case, the city still stands to gain revenues if the surgical center is developed. This would arise from earnings taxes on new jobs created at the facility (although we have advocated for the elimination of the earnings tax and for alternative payments in lieu of taxes from tax-exempt non-profits, this blog post deals with the facts and law as they currently exist). For the sake of example, at 1 percent on taxable earnings, 124 jobs at $75,000 annual salary generates $93,000 in revenues, which compensates for the loss of property tax revenues under the tax-exempt scenario, but provides additional incremental revenues to the city under the alternative scenario. In either case, both the economy and the tax base are increased, which is a good thing.

While the tax implications are interesting, perhaps the more fundamental question is why are preservationists so insistent on saving the aging Pevely headquarters building? The history of progress is replete with tear-downs and rebuilds. Progress necessarily implies creative destruction, replacing old with new. Sometimes you have to let go of the past if you are to embrace the future. The past is but a distant memory. Happiness, prosperity, and success are forward-looking concepts that reside, if at all, in the future. Saint Louis, embrace the future, not the past. The Preservation Board should reconsider its decision.

December 13, 2011

Show-Me Institute Book Club: Join Us This Wednesday

Frederic Bastiat once wrote:

Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole — with their common aim of legal plunder — constitute socialism.

Provocative enough for your tastes? Do you vehemently disagree? Is Bastiat a kook? Come join us for spirited discussion and snacks this Wednesday; Bastiat is our topic.

The Show-Me Institute’s Book Club meets the second Wednesday of each month at our headquarters, located at 4512 West Pine Blvd. in the Central West End. Meetings begin at 7 p.m. and typically last until 8:30 or so. See link for more information. 

Please bring a friend. Hope to see you there.

November 21, 2011

Special Interests Inhibiting Joplin’s Recovery?

Remember the May 22 tornado that ripped through Joplin? There were 161 people killed and more than 7,000 residences destroyed.  The Associated Press has reported a 17-fold increase in building permits for the city of Joplin since the tornado:

The city has issued an average of $35.4 million in permits per month since the tornado. Before the tornado, the city averaged just over $2.1 million a month in building permits.

Despite this evidence of a robust private market, the Missouri Housing Development Commission has:

. . . committed about $100 million in tax credits and loans over the coming decade to spark the construction of low-to-moderate income rental units and single-family, owner-occupied homes in the Joplin area.
At least two issues come to mind. First, are taxpayer-funded tax credits necessary to rebuild Joplin? After all, human history proves that individuals and private markets are more than capable of rebuilding housing and infrastructure following natural disasters. Second, even if one were to concede the efficacy of public subsidies, there is no doubt in my mind that public dollars, once committed to disaster relief, must be spent on behalf of the public in an efficient and responsible manner. That leads to the crux of the matter.
The housing commission will require contractors, as a condition of receiving rebuilding tax credits, to pay the federal prevailing wage to their construction workers. And the controlling federal pay scale for occupations has quadrupled in some cases, as the St. Louis Post-Dispatch reported:
[A] Sept. 30 revision of the federal wage rules significantly increased those amounts. For example, the federal prevailing wage for a carpenter in the Joplin area rose from $7.98 an hour to $21.47 an hour plus $12.65 in benefits. The federal prevailing wage for a roofer in the Joplin area rose from $7.25 an hour, which matches the general federal minimum wage, to $21.30 an hour plus $8.08 in benefits.
So what is the purpose of the tax credits? If it is to get the most bang for the buck in providing critical assistance to low- and middle-income residents, efficiency requires waiving the wage standard for this project. The $100 million only goes so far, and artificially elevated wages means fewer homes built under the tax credit program. On the other hand, the tax credits and prevailing wage changes may have mixed purposes, not all of which seek what truly is best for the displaced and less fortunate in Joplin.

November 16, 2011

Good Faith — Bad Result

The Missouri Supreme Court recently heard oral arguments in American Federation of Teachers v. Ledbetter. At issue is whether a public school district has a legal “duty” to collectively bargain in “good faith” with a teachers’ union. Currently, districts typically recognize and meet with their teachers’ designated representative, but are under no legal obligation to agree to specific proposals that the union proffers.

In its opinion leading to the supreme court hearing, the intermediate court of appeals noted the following:

. . . no Missouri court has expressly interpreted Article I, section 29 [of the Missouri Constitution] to contain a duty of good faith . . .

If the Court, in a fit of judicial activism, writes a “duty to bargain in good faith” standard into the state constitution, school districts, once vested with substantial discretion from the legislature to manage their affairs, will suffer tremendously. For example, rejections of union proposals will now spawn threats of lawsuits. Districts will hire attorneys to assess the liability risks of decisions once left to the discretion of the districts’ officials. Good faith, in this context, is an invitation to litigate. And litigation diverts scarce resources and money from the districts’ core mission: to educate our children.

Interestingly, the Missouri Legislature has rejected five attempts to statutorily adopt a good faith standard (see footnote 4 in court’s decision). Haven’t the people spoken through their elected representatives? The Court should heed this message and reject a duty to bargain in good faith standard for Missouri’s public school districts.

September 27, 2011

Did Hamilton, Madison, and Jay Overstate Their Case for Adopting the U.S. Constitution?

Please join us for the Show-Me Institute Book Club on the second Wednesday of each month for scintillating discussions and free snacks. We are currently exploring The Federalist Papers by Alexander Hamilton, James Madison, and John Jay. Meetings begin promptly at 7 p.m. at the institute’s headquarters (4512 West Pine Blvd. in the Central West End). 

Questions to ponder if you dare:

Did Hamilton, Madison, and Jay overestimate the soundness of the federal design when advocating for the adoption of the U.S. Constitution? Why did Frederic Bastiat carry such a negative view of morality, law, and government? Has our federal government succumbed to many, if not most, of the corrosive influences Bastiat identified as likely to corrupt civil society?

Please join us for a lively discussion of life, liberty, and the pursuit of happiness. You may email the Book Club at bookclub@showmeinstitute.org. RSVPs are appreciated.

September 16, 2011

Missouri’s Ticking Pension Time Bomb? Will the Money be There?

Those who follow this blog are aware of the Show-Me Institute’s interest in Missouri’s 130-plus public pension systems. Tens of thousands of current and retired government employees and their families are depending on their pensions. If these fail, taxpayers will pay one way or another.

Kansas City recently began investigating its pension systems. You may access our previous coverage here and here. Recently, outside consultants to its Pension System Task Force recommended that taxpayers pony up an additional $23 million per year “to make the city’s pension funds more financially stable.” Apparently, the city may now make current and future taxpayers pay for the sins of prior administrations. They are passing the buck onto future generations of taxpayers and their children.

Perhaps greater Missouri should pay heed. According to the Cato Institute’s recent work, Missouri’s public pension plans are grossly under-funded when accounting for reasonable expectations of future economic conditions. Think about the impact this may have on the tens of thousands of state employees and retirees and their families, if and when they are unable to support themselves on their broken pensions. They deserve better. Taxpayers have reason for concern as well. Ultimately, the state loses credibility when it breaks its promises. And under that scenario, everyone is a loser.

Kansas City and Missouri are far from alone. WLBT TV-3 out of Jackson, Mississippi, reports that the state pension fund, the Public Employees Retirement System (PERS), is now guided by a 12-member commission. The commission is empowered to:

…examine the financial, management and investment structures as well as determining the legality of modifying the system. All in an effort to dodge a potential problem in the long run.

Mississippi Gov. Haley Barbour notes that PERS is funded at only 60 percent of where it should be and pays out benefits that exceed its structural limits. Kudos to Mississippi for beginning the discussion on sustainability and reform.

Fortunately, some of our sister states have gone pro-active, confronting the looming crisis. The Center for State & Local Government Excellence has just released a study of five successful pension reforms in Iowa; Oregon; Vermont; Gwinnett County, Georgia; and Houston, Texas. Although not perfect, these reform efforts provide some hope that pension stakeholders can meet and iron out their differences. Here’s hoping that Missouri joins the party before midnight strikes. Better late to the party than dead broke on the outside looking in.

September 6, 2011

Kansas City’s Continuing Fight for Pension Sustainability

Kansas City continues its mighty struggle to save its children and future offspring from the possible ravages of  pension-induced bankruptcy. The city has commissioned, for this purpose, its Pension System Task Force. In a recent Kansas City Star editorial, the paper notes, with healthy skepticism, the appearance of defined benefit proponent Hank Kim before the task force. According to the authors, Mr. Kim strikes a rather glib pose when addressing the issue:

While many states and cities are altering their defined benefit plans because of money woes, Kim doesn’t sound that worried.

•Kansas City task force chairman Herb Kohn has said the city should aim to have its pension systems funded at 90 to 100 percent. As of 2010, though, three systems were under 80 percent, a far cry from the 96 percent average in 2002.

Kim isn’t nearly that aggressive.

In May, when talking about the 78 percent funding average for state pension plans, Kim said that “78 percent is a number we’re very comfortable with.” In fact, he has indicated that a 70 percent level is fine, too, because Fitch Ratings considers that adequate.

Counterpoint: The Government Accountability Office calls for at least an 80 percent funding level. So do many pension managers.

Kansas City taxpayers deserve honest answers to a host of questions, not least of which is whether the city’s pension managers have adopted a reasonable discount rate in determining the current funding levels needed to sustain future payouts to retirees and their families. In today’s uncertain financial environment, is an 80 percent funded level benchmark reasonable? Should the pension systems continue to assume historical market return averages of 8 percent when determining current funding levels? If one were to substitute a more reasonable rate, given market performance over the last decade, of say 4 percent, then the degree to which the systems are currently underfunded grows.

Our children deserve our immediate attention to this matter. Missouri currently has approximately 130 state and local public pension plans.  What assurances are there that these are solvent in the mid- to long-term? Of course, one may counter, the systems are audited under the law. But so was Enron!

You may trust, but first verify.

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