December 18, 2014

More On the Minimum Wage

To a lot of people, increasing the minimum wage makes sense. Honestly, who doesn’t want low-income workers to make more money? Yet, if you actually take a look at minimum wage laws, you’ll notice that they don’t really help people as much as advertised. In fact, these laws actually can hurt the people they are meant to help. A new study (H/T The Corner) by Jeffrey Clemens and Michael Wither further reinforces these points.

In their study, Clemens and Wither examined the impact of the federal minimum wage increases during the Great Recession (2007-2009). They found that not only would low-skilled workers be less likely to have jobs after the minimum wage hikes went into effect (a finding also supported by the CBO), but the hikes also would lead to an overall decline in these workers’ incomes even after accounting for the increased wages of those workers still employed.

This leads to another problem with increasing the minimum wage: decreased economic mobility. The study’s authors found that increasing the minimum wage reduced the chances of low-skilled workers eventually reaching salaries of $1,500 a month (they determined that $1,500 a month was the threshold for lower-middle-class salaries). Clemens and Wither believe that this reduction in mobility occurs because an increased minimum wage results in fewer jobs being available for poorer workers. According to the authors, this lack of job opportunities means that there are fewer chances for these people to accumulate the skills and experience necessary in order to earn higher wages in the future. This is conjecture on the authors’ part, but it makes sense if one thinks about it.

At a cursory glance, the minimum wage is a good thing. Unfortunately, there are two sides to the minimum wage, and when you take the other side into account you see that it hurts more than it helps. This study’s review of the academic literature finds that increasing the Earned Income Tax Credit (EITC) would be a better alternative for low-income families than raising the minimum wage, something that we have been saying for a while now.

 

November 21, 2014

This Sounds Familiar

Cassandra was a Trojan princess who had the gift of prophecy. She foresaw that the abduction of Helen would bring about the destruction of Troy. Her curse was that nobody believed her. At the Show-Me Institute, we weren’t blessed with Cassandra’s ability, but when we look at the future of Missouri’s public pensions, we see potential disaster ahead.

Last year, the Show-Me Institute released a report by Dr. Andrew Biggs of the American Enterprise Institute. The report showed how Missouri public pension plans are underestimating the total amount of unfunded liabilities (total pension obligations that exceed the amount of assets the pension plan has) that they have. In fact, using more realistic assumptions, five of the state’s largest pensions have unfunded liabilities FIVE TIMES larger than what is reported ($54 billion actual vs $11 billion reported). That is a serious amount of money, and if these pensions do not have the assets to cover their obligations, then the taxpayer (you and me) will be left footing the bill.

State Budget Solutions, to my knowledge, does not have the gift of prophecy either. Yet they see what we see when they look at the status of state public pensions. Their new report discusses the unfunded liabilities of every state’s pension system. The content of the report sounds familiar because, like Dr. Biggs, they find that using more realistic assumptions about plan returns, state public pensions are significantly underfunded. According to State Budget Solutions, Missouri’s pensions aren’t among the worst nationally. That doesn’t mean things are good and the state’s pensions don’t need reform. If I’m stuck holding a stick of dynamite, while my neighbor is holding an atomic bomb, it doesn’t mean I’m going to be okay when the dynamite goes off.

Unfortunately, there has been little progress into actually achieving pension reform in Missouri. At the very least, the state needs to work to stop additional liabilities from being added to the already enormous amount the state already owes. Shifting to a defined contribution plan or a cash balance plan would be a good place to start. Then, policymakers can work on addressing the gap between pension assets and the monies these plans owe.

Cassandra warned of danger, and she was not believed. That was her curse. Hopefully, Missouri can avoid Troy’s fate.

November 6, 2014

Proposed Property Tax Increase Fails in Columbia

Since the proposed property tax increase failed in Columbia, it seems the city is heading for a disaster of biblical proportions. I mean Old Testament, real wrath of God type stuff. Fire and brimstone coming down from the skies! Rivers and seas boiling! Forty years of darkness! Earthquakes, volcanoes . . . the dead rising from the grave! Human sacrifice, dogs and cats living together . . . mass hysteria! Okay, not really. In fact, if you read my commentary on the ballot measure, you’d know that crime, especially violent crime, and the total number of fires are actually declining in Columbia. This is a good thing.

However, what if you’re among the more than 10,000 residents who feel that Columbia needs a bit more in the way of police and fire protection? I’d say don’t despair. There are other means by which the city can increase revenues without resorting to a property tax increase.

For instance, the city could look at the fire expense reimbursement that it receives for services that it performs for the three colleges located in town. According to the Columbia budget, these reimbursements are declining and have been for the past couple of years. Columbia can renegotiate with these colleges in order to get higher reimbursements.

Columbia also could look into privatizing its water and electric utilities. The sale of these types of utilities can bring in an immediate infusion of cash to cities’ bank accounts. For example, the city of Florissant, Missouri, privatized its water utility in 2002 and received $14.5 million from the sale. More recently, the residents of Arnold approved the sale of their sewer system, which brought the city $13.2 million. Not only can the sale of the utilities themselves bring in more money to the city, but privatization can also expand the city’s property tax base, which would generate more revenue in the future.

The instances of crime and fire have declined in Columbia, yet for those who believe that public safety is underfunded, there are other ways to raise revenue besides a tax increase. Maybe it’s time they explore them.

 

November 5, 2014

Thoughts on Gov. Nixon’s Rams Press Conference

With the Rams poised to do a power run out of town, are public officials planning to blitz unwary taxpayers and their pocketbooks? Earlier today, Gov. Nixon huddled with the press discussing his game plan on how to keep the Rams in Saint Louis. Due to an arbitrator’s ruling, the Rams are allowed to shift to a year-to-year lease on their current stadium in 2015 since it is not “top-tier.” During the press conference, Gov. Nixon announced that he would be appointing former A-B executive Dave Peacock and Clayton attorney Bob Blitz to research options designed to keep the Rams in Saint Louis.

Details on any proposal are light, but Gov. Nixon did say that Saint Louis will remain an NFL city and that “we’re going to be partners here” in regards to upgrading the stadium. He mentioned that current funding streams will be available once payments on the original dome expire. Presently, the city, county, and state spend a combined $24 million annually on paying off the debt accrued in building the Edward Jones Dome. Gov. Nixon also was quick to point out economic benefits that having a sports team would bring.

I agree with Gov. Nixon’s desire to keep the Rams in Saint Louis. I too hope they stay, but if taxpayers are going to approve further public subsidies to the Rams, they should do so with their eyes wide open. It’s one thing if people want to pay to keep the Rams in Saint Louis because of a desire for increased civic pride or prestige. It’s another thing to claim that subsidizing construction will lead to economic growth for the area. In fact, public financing of a new stadium will not lead to increased economic growth. A study conducted by Robert A. Baade and Victor A. Matheson found that “Researchers who have gone back and looked at economic data for localities that have hosted mega-events, attracted new franchises, or built new sports facilities have almost invariably found little or no economic benefits from spectator sports.”

Again, I want the Rams to stay in Saint Louis, but I don’t want my tax dollars to be used to keep them here. New stadiums in New York and San Francisco are both 100 percent privately financed. Why should the Rams be treated any better?

Spring Internships With the Show-Me Institute

Internship Banner Spring 2015

The Show-Me Institute is now accepting applications for our spring 2015 internship program. All the information you need about the internship is available here. Please submit the required application by Dec. 5. The spring intern positions can be full- or part-time.

October 29, 2014

Some Thoughts on the Proposed Olivette Charter Amendment

Next Tuesday, voters in Olivette will decide on whether to approve Proposition 1, which states (in part):

Any real estate, now or hereafter owned by the City of Olivette or any agency or instrumentality of the City, which is principally used or held out for use as a public park, shall not be sold, leased, given away or otherwise disposed of, and shall be used only as a public park, nor shall any structure be built in any such park to accommodate activities not customarily associated with park use or outdoor recreation, unless such sale, lease, disposal, gift or structure is approved by a majority of the qualified electors voting thereon.

To say this language is broad is like saying the Great Wall of China is long. True, but it is also kind of an understatement.

I get why people would be in favor of this measure. They want to have a say in case the city wants to do something drastic, like sell a public park. However, the problem with this amendment covers more than just selling a park. If passed it would require the city to seek voter approval if the city wanted to lease park management to private operators for a whole assortment of activities.

For example, if Olivette wanted to let a private operator open a restaurant on park grounds, like Saint Louis does for the Boathouse in Forest Park, then it would have to be approved by the voters. If Olivette wanted to let a private company open an ice rink in one of their parks, like Saint Louis does with Steinberg Skating Rink, then it would have to go to the voters. There are other successful examples of  private groups operating recreational services,  like Saint Louis does with the golf courses in Forest Park. Olivette residents won’t have to worry about golf courses, but they just go to show that if Proposition 1 is passed then any lease or contract will have to go to the voters.

The ultimate decision on whether to adopt the charter amendment is up to the residents of Olivette. I believe that voters should have a direct say if, for instance, a city decides to sell their municipal parks. However, I also think that city officials should have more leeway when it comes to leasing the park or contracting for services.

October 21, 2014

Chart Correction on Show-Me Institute Essay

An astute reader brought our attention to an error in one of our charts. The chart in question was in the foreword that I co-wrote with David Stokes to Professor Howard Wall’s essay discussing the negative effects of earnings taxes on city population and employment growth. There was an error in calculating one of the averages. The corrected chart is below:

Wall Chart 1e

Instead of losing population between 1990-2000, the cities without an earnings tax gained population over that period. This new result strengthens Professor Wall’s conclusion that earnings taxes negatively impact a city’s growth.

October 19, 2014

Missouri Is One of the Top States . . . in Corporate Welfare

Typically it’s a good thing to be ranked high. That’s certainly the case for college football and the Forbes 400. However, a high ranking isn’t always a good thing. According to a report from the Mercatus Center (H/T AEI), Missouri has given $5.2 billion in subsidies to private businesses. This gives Missouri the dubious distinction of being the ninth most generous state in terms of corporate welfare. Now, I like being in the top 10 as much as the next guy, but not for this reason.

Statesubsidies-600x431

Tax credits and enterprise zones are among the items included in calculating the total amount of subsidies provided to these companies. We have written extensively on how these and similar programs do not generate the type of growth that supporters of these programs claim. Unfortunately, policymakers seem to be big fans of these types of subsidies, as are the companies that benefit from receiving them.

Guess which company is the biggest beneficiary of corporate welfare. I’ll give you a minute. Need a hint? They build airplanes. Give up? I’ll show you.

C3-Top-20-Parent-Companie-vero_0

Boeing collects more in corporate welfare than the next two companies combined. Missouri did its part in improving the company’s bottom line when it gave Boeing a massive handout so that it would locate additional aircraft manufacturing here. However, the state is unlikely to get enough money in return in order to justify these subsidies. To generate sufficient returns, Boeing’s investment in the area would have to be in excess of what they made in profits for all of last year. Color me skeptical that they’ll make an investment that large.

Instead of giving out all of this taxpayer money to specific businesses, why doesn’t the government just cut taxes for all businesses? The state would make itself more attractive to businesses, and it would avoid the management problems that occur with these tax credits.

October 7, 2014

The Sad State of Missouri’s Labor Force Participation

Like the Transformers, there is more to the standard unemployment rate than meets the eye. You might have heard that the national unemployment rate fell to 5.9 percent in September. On the surface, this is good news. However, the unemployment rate is determined by dividing two numbers. The first is the number of people unemployed (those out of work and actively seeking it). The second number is the labor force (the number of those working plus the number of those who are not working, but are actively seeking work). At AEI, James Pethokoukis explains how a smaller labor force can affect the unemployment rate.

According to data collected by The Liberty Foundation, Missouri’s Labor Force Participation Rate (labor force divided by population) has declined since 1999. The foundation’s figures also offer breakdowns by gender and race.

LF-99-13

This means that a lot of the drop in Missouri’s unemployment rate can be explained by the increasing number of people who have given up looking for a job. The two charts below show this phenomenon.

URMO-08-13

LFPR-08-13

I wanted to see what the unemployment rate would be in 2013 if these discouraged people continued looking for work at the same rate they did in 2008. According to my calculations, Missouri’s annual unemployment rate in 2013 would be 12.5 percent instead of the officially listed rate of 6.5 percent. That’s a big difference. If anybody out there is touting how well Missouri is recovering, show them this number. It might give them a moment of pause.

It’s been stated before: Missouri is not doing well economically. Since the recession ended, the Show-Me State has had trouble recovering. This decline in the labor force masks just how bad things have been from an employment standpoint. If Missouri is to get back on track, a lot needs to be done.

 

September 24, 2014

On a Scale of 1-10, It’s 15

Dollars an hour, that is. There is a continuing push in Saint Louis and other cities throughout the country to improve the pay of low-wage workers. That is a noble sentiment and I, for one, hope that wages do go up. In fact, I want wages to go up for everybody. However, increasing the minimum wage is the wrong way to go about it.

If proponents are successful in raising the minimum wage to $15 an hour, there will be a lot of pain. First, such an increase will cause job losses. A Congressional Budget Office (CBO) report estimated that if the minimum wage went up to $9 an hour, 100,000 jobs would be lost. If the wage went up to $10.10 an hour, the number of jobs lost would increase to 500,000. If the CBO is correct about job losses, one shudders to think about how many jobs would be lost if the minimum wage went up to $15.

Is the loss of so many jobs worth the increase in wages for those workers who manage to keep their jobs? That’s a question for proponents to consider. They also should consider the fact that many people who work for minimum wage are not poor. Why mandate raises for them while risking job losses for the same people wage-hike proponents are trying to help?

There is a better way to help poor families. Both the CBO report and Professor David Neumark’s 2012 study on the minimum wage find that the Earned Income Tax Credit (EITC) is a better alternative for helping poor families than increasing the minimum wage.

The EITC is a refundable tax credit that provides direct cash assistance to low-income families. The tax credit is more effective at helping poor families because it is specifically targeted toward them. The minimum wage is not. For example, a teenager working a minimum-wage job whose father is a corporate attorney and whose mother is a surgeon would receive the same monetary benefit as a single mother of two working at McDonalds. That would not be the case with the EITC. If Missouri and other states really wanted to help poor families, expanding the EITC would be a more effective tool than increasing the minimum wage.

September 4, 2014

Is the Super Bowl a Super Boost for Local Economies?

The Kansas City Star published an article reporting on the creation of a task force whose goal is to bring the Super Bowl into Kansas City. My colleague Patrick Tuohey did a great job explaining how claims of large economic impacts to Super Bowl host cities have been overstated. However, there is more to the story than just saying the economic impact of a Super Bowl is overstated.

Does the Super Bowl have any positive net economic impact on a host city?

The answer is it can, but it probably won’t. In a 2009 study, Michael C. Davis and Christian M. End found that hosting a Super Bowl has no economic impact on a city’s real per capita income, and in some cases it can have a negative effect. Robert A. Baade, Robert Baumann, and Victor Matheson examined the economic impact of mega-events (including the Super Bowl) in Southern Florida from 1980 to 2005. During that period, three cities (Tampa Bay, Miami, and Jacksonville) hosted the Super Bowl a total of seven times. The Super Bowl had a statistically significant positive impact on the city’s economy in only one instance (Tampa in 2001). Dennis Coates found that Houston saw increased sales tax revenue because of the Super Bowl in 2004. But the next year in Jacksonville, the Super Bowl was found not to have had an economic impact.

This takes us back to the Kansas City Super Bowl task force. Why is the state in the business of trying to lure the Super Bowl to Kansas City? Couldn’t a private group of interested residents and businesses sell the city as a Super Bowl destination just as well? Possibly, but the state can offer the NFL subsidies. However, just because the state can do something, doesn’t mean it should. Economists in general oppose sports subsidies because, “The large and growing peer-reviewed economics literature on the economic impacts of stadiums, arenas, sports franchises, and sport mega-events has consistently found no substantial evidence of increased jobs, incomes, or tax revenues for a community associated with any of these things.”

It’s true that there could be intangible benefits to hosting a Super Bowl, like increased exposure to the outside world. Yet, is there any concrete measure on what kind of return the city would see from such exposure? Will businesses or residents move to Kansas City because it hosted the Super Bowl? I don’t know, and the burden of proof should be on those arguing for government subsidies.

Kansas City is a great football town, and I agree with Joe Clifford when he says, “The Super Bowl’s tremendous.” However, I don’t think the residents of Kansas City nor the rest of Missouri should pay for the privilege.

 

 

August 23, 2014

The Pension Problem Non-Teaching Personnel Pose

In a recent post, Education Policy Research Assistant Brittany Wagner discussed a new study examining the large growth in non-teaching personnel in schools. The study found that over the past 60 years, schools have increased non-teaching personnel positions by 702 percent.

Besides their salaries, 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.

One way to prevent a situation like the one described above is to shift these pension plans away from a defined benefit plan (PEERS) to more effectively structured plans like defined contribution plans, hybrid plans (a plan that is a mix of defined benefit and defined contribution), or cash balance plans.

Maybe the addition of new non-teaching hires over the past 60 years is justified, but maybe it isn’t. School districts are making the public pension bomb bigger, and if they aren’t going to defuse it, shouldn’t school districts at least give the taxpayers, who are ultimately on the hook if these pensions can’t make their payments, some evidence to support their increase in hiring?

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