October 17, 2014

Government Pensions Should Be Portable, as Well as Sustainable

I was hired by the California Legislative Counsel right out of law school at the age of 25. At the time, I could see myself spending the next several decades there, but I wasn’t ready to commit to the proposition. Unfortunately, in order for my retirement package to be valuable, I would have had no choice but to make a career of it.

California’s retirement system uses a defined benefit plan and would have paid me a generous amount each month during retirement, but only if I spent several decades in the system. If I stayed at my job for less than a decade, my retirement benefit hardly would have been worth the contribution I was paying into the system.

Situations like mine are common where government employees are in a defined benefit system. The following chart illustrates my point by showing benefit growth in the New York City Teachers’ Retirement Plan.

NY teachers pension graph

 

An employee who stays in that system for a full 15 years will only earn $100,000 in benefits, but 15 years later, the value of the benefits will quadruple. These types of formulas often incentivize employees to stay at a job longer than they would like. They also make the position unattractive to new hires who might not want to stay with the job for 20 or 30 years.

Sustainability is the main problem with defined benefit pensions. Unlike with a 401(k)-type retirement system, where an employee invests a definite amount each paycheck and collects the return during retirement, defined benefit plans commit public institutions to vast pension obligations to be paid out years in the future. The discrepancy between promised benefit and actual amount invested means that defined benefit systems are often inadequately funded and can create fiscal crises when pensions mature.

An important side benefit of pension reform is the potential increase in the quality of government workforces. By switching to a more portable system, governments would attract a more experienced and a more diverse workforce. Employees would join government workforces at the middle and end of their careers, bringing valuable private-sector experience with them, and people would feel free to take a government job at the beginning of their careers, even if they weren’t sure they wanted to be there until retirement.

August 26, 2014

How to Attract Jobs, or at Least Not Repel Them

Public officials in Kansas City and elsewhere are eager to be seen as job creators. Almost every taxpayer-subsidized development project, every act of crony capitalism, every public project like a new $1.2 billion airport terminal, $62 million-per-mile streetcar, or convention hotel is discussed in terms of the jobs it will create. Politicians tells us, as they did in the TIF Commission hearing for the Burns & Mac handout, that the city cannot “wait for the free market,” that government must act.

But is government’s use of taxpayer dollars more successful than people making their own decisions?

Economist Enrico Moretti was interviewed on NPR’s Here and Now about his book, The New Geography of Jobs. He was asked about how successfully innovative regions are created and replicated [segment begins at 8:27]:

“[Interviewer] This is the unsettling part of your book: How do cities replicate these innovative job clusters?

“[Moretti] It’s very tough, because if you look historically where the innovation clusters are located, almost none of them [were] created by some deliberate, explicit policy. It’s really hard to engineer an innovation cluster. We talk about Seattle, but if you look at a lot of the clusters, they were all born in very random, often serendipitous, ways. So it’s really hard for policy makers to engineer from scratch.”

There is no magic formula known to bureaucrats or politicians about which companies and industries will be successful in the future. But they use public resources time and again chasing that white rabbit of jobs and growth. And unfortunately, the impact of taxing many businesses to subsidize a few is more often than not a recipe for destroying jobs, or at least keeping them away.

A better investment, as Show-Me has argued for years, is for government’s action to be broad and neutral: keep taxes low for everyone, maintain infrastructure, deliver necessary city services, and ensure quality education. Maybe those aren’t as appealing as large edifices named after politicians, but they are more successful.

August 13, 2014

Streetcar Fever: Is it Now Or Never To Expand The Kansas City Streetcar?

Following the defeat of their expansion plan in Kansas City, today, streetcar proponents are wondering aloud about how to move their project forward – and fast. The mayor has vowed that the city’s leadership is not going tolet it go,” and supporters are considering how to form a new streetcar district that can win prompt voter support.

Clearly, one thing streetcar proponents do not want to do is wait to see the results of the initial streetcar line, but why the rush? Why do city officials think the streetcar expansion proposal is a “once-in-a-lifetime opportunity”? Some streetcar proponents fear that the Republicans might win the presidency and stop giving money to transit, and at more than $50 million a mile, streetcar projects are just too expensive for cities to undertake without federal help. As one streetcar supporter put it, “Do you think President Ted Cruz would fund urban transit?”

The answer to that question is yes, actually, if history is any guide. Below is a chart of federal spending on capital improvements for transit, through two Republican and Democratic presidents.

FedCaptrans

While the Obama administration has increased support for transit, the George W. Bush administration was also a big spender. What’s more, a future Republican administration is unlikely to be catastrophic for transit funding, as almost 80 percent of funds come directly from a federal Mass Transit Account. This account will continue to provide a baseline of transit funding under any new administration.

What streetcar advocates really have to fear is not the defunding of urban transit, but the defunding of streetcars in favor of other forms of transit. Past administrations favored transit projects that reduced congestion or improved mobility, so streetcars received few federal dollars. The Obama administration’s desire to use transit projects to create “livable communities” has made federal streetcar funding possible.

But if the more than 10 planned streetcar projects are as successful as proponents hope – both in terms of development and boosting transit – the next administration (Team Red or Blue) would likely fund more streetcar projects. Only if the streetcars fail to meet expectations, given their massive cost, would federal money dry up for streetcars.

Perhaps it’s that possibility – that streetcars face a tough accounting in future– that has supporters in a rush. What’s certain is that federal transit funding is not going anywhere, and if streetcars are so great for urban areas, the money will be there if Kansas City ever decides to expand its streetcar line. And if streetcars turn out to be an urban planning fad and that funding disappears? Kansas City will be better off for its caution. When it comes to expanding the streetcar, Kansas City residents should feel free to emulate the streetcar and take it slow.

August 12, 2014

That Burns & McDonnell TIF And Vandalism

Earlier this year, the Kansas City Council voted to use tax dollars to subsidize a project for Burns & McDonnell, one of the nation’s largest engineering firms. The Tax Increment Financing (TIF) site — a property featuring a former synagogue and school but otherwise dominated by a large parking lot — is literally next to the company’s world headquarters. We wrote at the time the TIF was being considered that the subsidy would be a poor use of limited public resources, especially for a successful firm that could certainly afford to expand and build upon a vacant property adjacent to its own.

Of course, Burns & Mac got its taxpayer subsidy, in part because of the “vandalism” that had occurred inside the empty buildings. In a hearing before the Kansas City TIF Commission, Scott Belke, the consultant who prepared the blight study, said, “This is one of the most vandalized buildings I’ve seen in my 29 years of work.” Thus, TIF supporters argued, the site and buildings needed to be remediated … with taxpayer support.

Belke admitted in questioning that he has never failed to find a site blighted, and that’s no surprise; we at the Show-Me Institute have been unable to find any case in the entire state of Missouri where a consultant has not considered a proposed TIF site blighted.

So, how were the buildings remediated? They … were bulldozed.

B&Mdemolition

Why was vandalism even considered a reason for blight if the entire structure was going to be razed anyway? Burns & Mac was never going to inhabit the synagogue; the building’s condition was, in practice, irrelevant to what Burns and Mac’s plans were for it: destruction. The only reason the building’s condition was an issue was because it was a foothold for the company to steer taxpayer dollars to its project, through TIF. That’s a cynical and objectionable path to getting city taxpayer money, but that’s business as usual in Kansas City.

Some people believe in the power of TIF, and perhaps it has a role to play in some development projects. But in Kansas City and elsewhere in Missouri, TIF is so frequently used and abused — and not even in legitimately blighted urban areas for which TIF was intended — that the whole enterprise has become a farce: a farce, as in this case, that enriches wealthy developers at the cost of city taxpayers.

July 28, 2014

Do We Need Amendment 7 To Match Federal Highway Dollars?

Representatives from the Missouri Department of Transportation (MoDOT) often warn that without more money, be it from a transportation sales tax or elsewhere, Missouri will not be able to match federal dollars for highways. Essentially, they are saying that if the state does not raise more money, it will leave eight to 10 times that amount in federal dollars on the table. However, these statements fail to clarify that: 1.) the federal dollars going to Missouri are limited, and 2.) the amount Missouri needs to match those funds is nowhere near $534,000,000 per year (the annual amount Amendment 7 would raise).

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Federal dollars for highway improvements is a fixed amount that comes for the federal Highway Trust Fund, which the federal fuel taxes mainly support. The amount that Missouri currently receives is fixed by federal obligation limitations and the proportion that the state received in the past. State lane mileage and vehicle activity mostly determined the portion the state received in the past. Simply put, the amount of money available for state highway projects is mostly fixed, and currently, Missouri does not leave any money on the table. If Missouri decided to spend an extra billion dollars this year, it is unlikely that federal money to the state would increase.

According to MoDOT’s cautious projections, in which the federal government reduces its support to Missouri, the state will begin failing to match federal funds in 2020, leaving $186 million on the table. But to meet that match (of 80 percent federal, 20 percent state) Missouri would only have to increase local revenue by just less than $50 million, nowhere near the current $534 million proposal.

If we assume that the federal government fixes the federal highway funding problems and support does not decrease, the problem of matching funds is larger. By 2022, Missouri would be leaving about $530 million of federal dollars unmatched. However, under that scenario, Missouri would only have to increase local revenue by $130 million per year to get that money.

When it comes to federal dollars, unless there are major policy changes in Washington, the amount Missouri could get for the highways is relatively fixed whether or not Missouri raises taxes. While Missouri may lose the ability to match those dollars in the future, Missouri will eventually need to raise annually between only $50 million and $130 million. If Amendment 7 passes, the federal government will not make it rain; if the amendment fails, the sky is not going to fall.

July 16, 2014

The Report The Airport Advisory Group Doesn’t Want You To See

Granted, that is a cliché title, but we can defend it. Twice, Show-Me Institute staff reached out to the Kansas City Airport Terminal Advisory Group (ATAG) about incorrect claims they were making in their presentations. We know from an open records request that they received our offer, considered it, and then ignored it while trying not to seem like they were ignoring it.

Dave Fowler, co-chairman of ATAG and a former managing partner at KPMG in Kansas City — one of the world’s largest auditing firms, — shockingly wasn’t ever concerned with the cost details. And whenever people provided financial information that did not align with the city’s talking points, it was dismissed. The affordability of the whole scheme was never seriously considered.

Until now.

Joe Miller, a policy researcher at the Show-Me Institute, has compiled all the cost data and concluded that over 30 years, it would be cheaper to renovate the Kansas City International Airport (MCI) twice than to build a new $1.2 billion terminal. Add this analysis to the many other points we’ve raised about the environmental or competitive need for a new terminal and it becomes impossible to find any worthwhile reason to tear down one of the country’s finest airports.

July 8, 2014

The Math Does Not Add Up For Murky Kansas City Streetcar Deal

In a previous post, we commented on how officials from Kansas City and the Missouri Department of Transportation (MoDOT) are hammering out a deal to divert $144 million of the proceeds from the proposed statewide sales tax to the Kansas City streetcar. According to the Kansas City Business Journal and the Kansas City Star, the plan will cap the sales tax increase in downtown Kansas City at 1 percent (0.25 percent for the streetcar Transportation Development District, or TDD, and 0.75 percent for the proposed statewide sales tax).

Source: Kansas City Business Journal

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Speaking of bad math, the cost of the projects in MARC’s chart (above) adds up to $800.4 million, not $775.7 million. So what’s getting cut? Does anyone check these things? 

On the surface, that sounds great for residents of downtown Kansas City (if not elsewhere). Previously, they were asked to pay a 1 percent higher sales tax to get the streetcar expansion. Now, they still pay 1 percent more, but they get other road and transit projects that state taxpayers fund, in addition to the streetcar expansion.

Haven’t seen a deal like that since Billy Mays died. But wait, there’s more!

Actually, the math for that “swap” does not work. The TDD’s 1 percent sales tax was supposed to bring in approximately $30 million a year. If the city reduces that rate to 0.25 percent, it will create a funding gap of almost exactly $210 million. That’s the reason the city was originally asking for $210 million; it was not some random number (although the city is not beyond doing that).

Drop the amount that streetcar gets from the state to $144 million, and a $65 million funding gap opens up. And remember that the original plan already had a $31 million unresolved budget gap. That leaves almost $100 million up in the air, ready to come crashing down on Kansas City taxpayers. Unless there is some other very large source of funding for the streetcar, the TDD sales tax cannot be held to 0.25 percent. It would need to rise to about 0.50 percent to maintain adequate funding (but still not addressing the initial $31 million shortfall).

The underlying problem is the incredible expense of building a streetcar system. Even if the federal government and Missouri taxpayers cover massive portions of the streetcar’s cost, there’s still a significant burden for residents in downtown Kansas City. Residents in the proposed TDD, Kansas City, and state will have to decide whether the streetcar is worth it.

July 7, 2014

Kansas City’s Murky Streetcar Deal Goes Public

During the last couple of weeks, we have commented about the developing story of the closed-door dealings between Kansas City officials and the Missouri Department of Transportation (MoDOT) regarding the future of the streetcar and the proposed 0.75 percent statewide transportation sales tax. We also have pointed out how this process arbitrarily discards the regional priorities that a transparent public process created. Both of these terrible transportation policies are on the Aug. 5 ballot, so naturally Kansas City officials were worried that a whopping 1.75 percent increase in the sales tax for downtown Kansas City might end in mutual defeat.

Kansas City officials cooked up a plan that would make the tax increase a more palatable 1 percent in downtown Kansas City. They proposed a “swap” that would cap the streetcar’s Transportation Development District (TDD) sales tax at 0.25 percent on condition that the 0.75 percent sales tax passed (a total tax increase of 1 percent). In return, they called for $210 million to be diverted to the streetcar to make up for lost revenue. As we noted, that incredible amount of money could only result in virtually no money for other transit improvements or cuts to road funding. The media in Kansas City, despite ample evidence of a burgeoning deal, did not report on the story until the day before the long Fourth of July weekend.

The Kansas City Business Journal finally reported on July 3 that a deal was in the works, with $144 million going to the Kansas City streetcar, accompanied with sharp cuts to other transit and pedestrian improvement projects. That means about 18 percent of all regional transportation funds will be diverted to a questionable development scheme in downtown Kansas City, should the transportation sales tax pass.

FundsMARC2

Both the Business Journal and the Star reported that the plan to cap the downtown tax increase at 1 percent is part of the deal, even though simply arithmetic makes this simple “swap” impossible (as a future post will detail).

This murky deal is the worst type of policy making. The “swap” essentially makes the streetcar policy and the transportation sales tax more politically palatable to those living in downtown Kansas City by making state taxpayers unwittingly pay for a massive share of the streetcar. This is the type of bargain that is only necessary because the state and Kansas City plan to spend huge sums on wasteful “transportation” projects, and only possible because a sales tax means that who pays has nothing to do with who benefits.

June 30, 2014

Blame Canada Washington!

Austin Alonzo, of the Kansas City Business Journal, recently reported that Kansas City Mayor Sly James argued that a door-to-door public outreach effort that Burns & McDonnell will conduct is necessary to meet federal guidelines:

On Monday, Mayor Sly James said the work being performed by Kansas City’s Parson & Associates LLC and Scott Hall & Associates will help the city fulfill a federal requirement to incorporate an environmental assessment into the expansion routes so the city is eligible to receive federal funding.

“If this assessment is not completed, then the city will have no opportunity to receive federal funding,” James said in the statement.

The effort is the subject of an ethics complaint that opponents to the streetcar sales and property taxes have filed, claiming it is electioneering. Alonzo followed up with the federal agency awarding the grants and found there is no such requirement.

No federal mandate requires Kansas City or its contractors to hold door-to-door meetings before part of the city votes on a proposed extension of the streetcar project, according to the Federal Transit Administration.

This is not the first time the mayor and Kansas City officials have been caught trying to blame federal regulators for forcing the city to adopt questionable policies. Steve Vockrodt, at The Pitch, just penned a piece pointing out that the EPA has never cited the Kansas City airport for environmental shortcomings:

City officials distributed a fact sheet in April 2013 that said KCI couldn’t meet U.S. Environmental Protection Agency guidelines for capturing de-icing runoff.

“The current terminal infrastructure does not allow the airport to meet the EPA’s new standards for capturing deicing fluids, which require capturing about 30 percent of the run-off,” the fact sheet reads. “The new single terminal will capture nearly 100 percent of the runoff and resolve Environmental Protection Agency issues the airport is currently facing.”

But there is no such EPA guideline.

Two EPA officials contacted by The Pitch could not identify any published guidelines that call for the capture of 30 percent of de-icing fluids.

And let us not forget the recently ended bid for the GOP convention, in which Mayor James argued that it was necessary to spend hundreds of thousands of dollars, in secret, just to keep up.

The Show-Me State’s Harry Truman once famously quipped, “The buck stops here.” But in Kansas City, Mayor James and Kansas City government officials point the finger elsewhere and the bucks don’t stop at all.

June 27, 2014

Kansas City To Spend 27 Percent Of All Regional Transportation Funds On Streetcar

In a recent article, the Midtown KC Post reported that Kansas City officials reached an agreement with the Missouri Department of Transportation (MoDOT) to fund the proposed streetcar expansion with proceeds from a proposed 0.75-cent statewide sales tax. Under the agreement, the streetcar’s Transportation Development District (TDD) sales tax would be reduced to 0.25 percent. In return, MoDOT would provide $3 million a year in funding for the streetcar.

But anyone who has read the streetcar’s financial plan knows the math for that “swap” does not add up. The streetcar TDD’s sales tax is supposed to bring in almost $30 million a year. If it is reduced to 0.25 percent, the TDD would only raise $7.5 million per year. With an extra $3 million a year from the state, that leaves almost $20 million per year in lost revenue unaccounted for, or $200 million over 10 years. Because the streetcar needs every dime (and then some) of that sales tax money, where is the extra $200 million going to come from?

The answer to this conundrum lies in Resolution 140500, which Kansas City Mayor Sly James introduced on June 19. It proposes spending an incredible $210 million of the 0.75-cent statewide sales tax revenue to fund the streetcar expansion. To get just how incredible of a request that is, consider that the Kansas City region is only supposed to receive a total of $776 million for all of its road, bridge, transit, rail, port, aviation, and greenway projects. In the plan that the regional planning agency (MARC) released, that is almost every dollar the region planned to spend on transit. That original plan had $32 million for the streetcar, but millions more for improvements throughout the entire region.

MARCplanbargain

 

This money grab for what is essentially a development scheme for downtown Kansas City should enrage not only residents in the Kansas City region, but taxpayers throughout the state. For parts of the Kansas City region not called downtown Kansas City, it essentially means no new funds for more cost-effective transit solutions or other more pressing projects. For the state as a whole, it underlines the incredible waste of a transportation sales tax supposedly needed to fix MoDOT’s highway funding problems. That 4 percent of all sales tax revenue raised over 10 years would go to support an incredibly expensive want with dubious development potential makes the proponents of the sales tax, who constantly argue that our infrastructure is crumbling, look like chicken littles.

If reports are accurate, MoDOT may already have made an agreement with Kansas City to divert this vast sum of statewide sales tax revenue, completely upending the open process through which MARC developed its regional plan and entirely contradicting MoDOT’s preliminary list of projects (which Kansas Citians have been asked to fruitlessly comment on) for the Kansas City region. That should indicate to Missourians just what kind of policy the transportation sales tax would create: wasteful, opaque, and catered to special interests.

Lovely Rita’s New Meters

Yesterday, I attended a town hall meeting that the Saint Louis Treasurer’s office hosted regarding citizen feedback on the parking technology field tests in downtown Saint Louis and the Central West End. The city is running these tests in order to modernize parking operations in the city. The vendors included T2 Systems, Aparc Systems, Xerox, and Duncan Solutions. All of the vendors gave impressive demonstrations.

The city should go state-of-the-art with its technological upgrades, no half measures. People have told me, and I agree, that it is annoying to have to go to a centralized meter, pay, wait for a printout, and then go all the way back to the car to place the printout. It is an added pain to go refill the meter when there is heavy rain or snow outside. If the city upgrades its meters, it should either have a meter at each individual space and/or allow people to pay through a smartphone app. At the town hall, all of the vendors stated that they will allow people to pay through a smartphone.

There also should be some flexibility in regards to charging different prices based on the time of day. During busier times, the prices for parking should increase. During quieter times, prices should be lower. This would allow the city to properly react to the demand for parking and hopefully reduce congestion.

However, no matter the appeal of state-of-the-art technology, the city needs to balance that against the costs of the upgrades. Added parking convenience is one thing, but the city should not break the bank for it.

Overall, it is good to see the city looking to upgrade its parking systems. With all that we can do with digital technology, it is about time parking meters join the 21st century.

June 26, 2014

Tell Taxpayers Where Their Money Went

The Republican Party has eliminated Kansas City as a potential host city for the 2016 convention, and with it went any reason for keeping the details of the bid a secret. In April we wrote:

The mayor of Kansas City, Mo., disclosed that the city is ponying up another $65,000 to woo the 2016 Republican convention. Jackson Co., Mo., Wyandotte Co./Kansas City, Kan., and Johnson Co., Kan., also are chipping in an additional $65,000 each. This $260,000 total is in addition to the $100,000 that Kansas City, Mo., already spent. We participated in a KSHB TV story about the spending and asserted that taxpayers ought to be told what is being promised in their name.

At the time, the mayor and the convention committee refused to tell taxpayers how much money the city was spending, where it was going, or how much more was promised. According to the Kansas City Star:

The Star filed a Sunshine Law request with the city and the Kansas City Convention Visitors Association asking for information from the proposal on the potential public cost of the convention.

Both declined, citing state law — and a concern about revealing details of the bid to competing communities.

“We will not be addressing specific questions related to the Finance section of our response,” said an email from Julie Sally, a spokeswoman for the Kansas City convention task force.

City spokesman Chris Hernandez also declined to provide the requested information, as did Mike Burke, the attorney for the KCCVA.

Now that there is no risk of compromising the bid, the city and the KCCVA should reveal what commitments they made, where the money went, and to whom. Their economic impact projections for the convention were pretty wild, too. We would like to see who generated those, and how.

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