February 25, 2015

Kansas City Repays Money It Says It Cannot Take

renaultAbout a year ago, on February 13, 2014, Kansas City Mayor Sly James told radio listeners that the city cannot take money from the airport.

[Fees] that are generated at the airport stay in the airport, to take care of the needs of the airport. . . . The money from the airport can’t be used for streets and sewers and none of that. . . . Airport money stays with the airport. If you don’t spend it on the airport, it doesn’t get spent.

He repeated it in his State of the City address in 2014 and again when his Airport Terminal Advisory Group issued their report. In that report, the advisory group repeated the claim, asserting on page 15,

Another common misperception was that funds or profits from the Aviation Department (legally organized and maintained as a Kansas City Enterprise Fund) could be used by the City of Kansas City to fund other municipal purposes unrelated to Airport operation.

The problem is that none of this is true. The city borrowed money from the airport in 2010. Then, during this mayor’s tenure, the city renegotiated the debt to extend the life of the loan to 2016.

Need more? Look no further than page 179 of the mayor’s own Submitted Budget for FY 2015-16, which includes $500,001 for “Aviation Loan Repayment.”

KC FY2015-16 SubBudget

The mayor may have his own opinion on the airport, but he cannot have his own facts, much less two sets of facts.

February 16, 2015

Balance Through Transparency – Part 3

I previously wrote about the problems with overly adversarial government labor relations. This wasn’t to say that a cozy relationship between government and government unions is always a good thing either.

Fox-HenAnother firefighter I spoke with, who wished to remain anonymous, seemed to think the situation in the Saint Louis region was much worse. He told me that at more than one fire protection district the board routinely asks shop stewards for permission to make personnel decisions. According to him, the union packs fire district boards and management positions with people who answer to the union, which, in effect, gives the union control over the management.

Undoubtedly, the union representing firefighters in Saint Louis County, IAFF Local 2665, has another perspective to contribute. It has not yet responded to any of my requests for comment, but I believe there are multiple sides to this story, and I look forward to hearing from them.

It can be tricky to find the right balance in government labor relations. On the one hand, industrial strife leaves citizens dependent on, and paying for, shoddy government services. On the other hand, too cozy a relationship between a government and a government union yields a “fox in the henhouse” situation, where taxpayers get fleeced by a private entity with exclusive control of a government entity. The trick is to find balance. And the best way to achieve balance is to open up the process to the public and let Brandeis’s policeman sort things out.

February 13, 2015

Finding Balance Through Transparency

One of the biggest issues in public policy today has to do with the collective bargaining agreements, or CBAs, that are negotiated between some government unions and the government entities that employ union labor. These agreements can have huge implications for our communities’ future budgets and, ultimately, our tax levels.

That’s why recent, troubling news out of Saint Louis County should concern anyone interested in good, effective, and financially secure government. I’ve spoken to a number of firefighters in Saint Louis County recently, and the stories I’m hearing are not good: self-dealing, intimidation, fire district board members using bulletproof vests in their meetings. Something has gone awry.

In response to this strife, some fire districts are trying something new. At Monarch Fire Protection District, instead of holding collective bargaining meetings behind closed doors, the board has decided to open up the process to the public, as Missouri’s Sunshine Law requires them to do with most other meetings. So far the results have been promising.

So why isn’t this already standard practice with government collective bargaining? After all, collective bargaining meetings are deliberative processes where public officials set public policy, including employee compensation, work rules, and grievance procedures.

BrandeislMissouri Sunshine Law (a.k.a. Open Meetings and Records Law) provides that public government bodies may close meetings, records, and votes to the extent they relate to a negotiated contract until that contract is executed or all proposals are rejected. Hence, government bodies close collective bargaining sessions with government unions under the theory that collective bargaining is a contract negotiation.

Collective bargaining is a contract negotiation of sorts, but it is not the same as contracting with an outside firm. Collective bargaining is a negotiation between staff and management over internal operations. Because policy can be set in these bargaining sessions, exempting government collective bargaining from the Sunshine Law is a mistake, especially when the public is concerned about labor relations at a government entity upon which they depend.

U.S. Supreme Court Associate Justice Louis Brandeis famously wrote,

Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.

Expanding the scope of Missouri’s transparency laws to cover collective bargaining meetings and access to government records would be one good way to alleviate the labor relations problems we’re seeing in the public sector.

February 10, 2015

A Tale Full of Power & Light, Signifying Nothing

PowerLight_KCPL

Kansas City leaders want to point to downtown as a great monument to government planning. Look at the revitalization, they say. But given the high cost of the investment and the low return in jobs and businesses, taxpayers should be wary of this so-called success.

We’ve written recently on the premise underlying the investment of downtown and found it lacking. The very notion that those sought-after millennials are moving to urban areas is contested. That they are doing so in Kansas City in any fashion worthy of public cost is demonstrably false. That the city is seeing any financial benefit to the development is likewise risible.

Even the Kansas City Star, which has championed the profligate spending downtown, had to report on the failure:

Nick Benjamin of Cordish, executive director of the Power & Light District, thinks the debt shouldn’t overshadow all the positives, and in other ways the city’s investment has more than paid for itself.

“The point of Power & Light and the city’s investment wasn’t solely for Power & Light,” he said. “It was to revitalize downtown. It’s hard to argue that’s not happening.”

It’s happening? Certainly, the city has paid for very expensive buildings that weren’t there before, but what about this “revitalization”? We wondered if there was any way to justify the expenditures for the Power & Light District based on the number of entertainment venues or jobs or the tax revenue they generated. Given that the city is on the hook for $15 million each year to cover business losses, any increase would have to be substantial. Unfortunately, there appears to be no growth in any of our measures.

According to the city’s Comprehensive Annual Financial Report (CAFR), tax revenue from hotels and restaurants grew 16.56 percent, from 2006 to 2014. According to the inflation calculator at the Federal Reserve Bank of Minneapolis, inflation for that same period was 17 percent—meaning revenue growth from Kansas City hotel and restaurant tax was exactly flat.

In response to a Sunshine Request to the Regulated Industries Division in Kansas City, we learned that from 2007 to 2014 the number of businesses possessing licenses to sell liquor dropped over 13 percent from 870 to 769. Likewise, the number of employee liquor permits, such as those required of bartenders, dropped 7.5 percent from 11,767 to 10,937. In both cases these declines were slow and steady over time.

Kansas City did not get a hockey team or a basketball team out of the downtown development. It did not get a concert venue that it didn’t already have in Kemper. It did not see a net gain in jobs or businesses. It did not see an increase in tax revenue. However, it did get more debt to be paid out of city coffers—meaning less money for roads, parks, and public safety. And the city will be paying that debt for a long time. According to the same Star piece:

Even with a double-digit bump in sales, it’s not nearly what was anticipated in 2004, when consultants projected that new city and state tax revenues paid by the district’s residents and businesses would be able to cover the debt.

“I don’t think there will be a point at any time in the foreseeable future, probably the next 20 years, where it actually pays for itself,” acknowledged City Manager Troy Schulte.

Back in April 2006, the Kansas City Star quoted then-Mayor Kay Barnes:

“We’re going to look like geniuses” in five or 10 years, Barnes said. The city is paying low interest rates for projects that are capable of paying off the debt, she added.

Whoops! If this is genius and the downtown development is a success, it is the sort of genius and success that Kansas City cannot afford.

February 4, 2015

The Myth of the Urban Millennial

140502-millennials-mn-1050_360088ebbf3a5feb2b25c6f6d91dbe5a

The debate over what millennials want continues to rage in Kansas City and elsewhere. City leaders are spending gobs of taxpayer money on entertainment districts, streetcars, and subsidized housing in hopes that the so-called creative class will flock there. But the evidence to support such efforts is weak and growing weaker with time.

The New York Times published a column recently about where young college-educated people are choosing to live. The author wrote:

[A]s young people continue to spurn the suburbs for urban living, more of them are moving to the very heart of cities — even in economically troubled places like Buffalo and Cleveland. The number of college-educated people age 25 to 34 living within three miles of city centers has surged, up 37 percent since 2000, even as the total population of these neighborhoods has slightly shrunk.

Yet a Wall Street Journal piece, published just last week, reports:

A survey released Wednesday by the National Association of Home Builders, a trade group, suggested otherwise. The survey, based on responses from 1,506 people born since 1977, found that most want to live in single-family homes outside of the urban center, even if they now reside in the city.

A recent article in Business Insider suggests that the era of young professionals living in urban areas has peaked:

But a decade from now, the landscape will look very different. Millennials will pair up and have kids and want space. Cities, particularly the megacities like New York and Chicago, aren’t likely to become more affordable.

Demographics are destiny. That big bulge of younger millennials visible in the population pyramid is going to be hitting the prime age range for marriage and having kids in the next few years, and it’s likely that many of those new families will move out to the burbs (or further!).

The true cost of revitalizing downtown may be more than the city can bear. Kansas City cannot afford to operate its own fountains and is cutting funds to public safety services. It cannot cover bad investments without taking money from the airport, it neglects the real urban core, and it relies on charity to meet basic city services. Kansas City needs to have a debate on these economic development assumptions, especially because there is so little money left to give away.

January 28, 2015

The Wonderful Evergreen Clause

file000714742220
Imagine you had a contract with your employer that could never be altered unless both you and your employer agreed to the changes. Imagine this contract was a windfall for you, giving you a four-day weekend, up to three months paid vacation each year, and the ability to retire early with a great pension. That might be great for you, but would it be fair?

If you live in the Saint Louis Metropolitan Area, as a taxpayer you might be the employer bound to such an agreement. The beneficiary of this arrangement? Your local firefighters union.

Nicknamed “evergreen clauses” because they make a contract last forever, these contract provisions are popping up in government collective bargaining agreements across the country. And they create a situation where elected officials cannot alter the pay, benefits, or work rules captured in a union contract unless the union agrees to this change. In practice, this means that pay and benefits can be ratcheted up in years when public finances are good and the union controls public officials, but pay and benefits cannot be brought back down when the union loses its influence or public coffers are tapped.

In West County, the Monarch Fire Protection District has tried to change the terms of its contract with International Association of Fire Fighters (IAFF) Local 2665, but it is limited by an evergreen clause. At issue in the contract are provisions that state:

  • There will be no duties (other than an alarm) assigned to safety staff after noon of each working day. Each working day is a 24-hour shift.
  • A firefighter/paramedic works three days in each nine-day period (two-to-three days each week).
  • A firefighter/paramedic with 15 years of service (most of the shift staff) is entitled to 27 days of paid vacation each year. Working nine days a month, this comes to about three months of vacation a year.
  • In addition to vacation days, a firefighter/paramedic also receives paid days off in the form of sick days and “Kelly” days.
  • Sick leave accrues over time and can be “cashed out” for pay.

Perhaps these provisions made sense when they were adopted several years ago, but now the fire district, and by extension the taxpayers, are powerless to change them.

Contracts like this shift the power of government away from the democratic process to the government union benefiting from the contract. Missouri citizens should consider whether they really want their government to have the power to bind itself to a contract indefinitely.

At the time this story went to print, the firefighters union had not responded to our request for comments.

January 22, 2015

Open Collective Bargaining at Monarch

Firefighter Turnouts-Gear Rack
In October 2013, the Monarch Fire Protection District implemented a new approach to collective bargaining with the union representing rank-and-file firefighters. Rather than hold meetings on pay, benefits, time off, and work rules behind closed doors, the board of the fire district decided to make these meetings open to the public.

With open collective bargaining, any citizen, journalist, or Monarch employee interested in the process could show up to a meeting and see the demands made by the union and the board. In theory, this process would keep demands in check, tactics civil, and allow the public to see how government decisions are made.

One might think that a more transparent process for determining how a government entity delivers services and spends taxpayer money would be welcomed by all; however, it appears that the union did not like the arrangement.

“The union lawyer tried stunts to close the meetings to the public,” says Jane Cunningham, one of three members of the fire district board.

According to Cunningham, when collective bargaining was held behind closed doors, it was easy for the union to get whatever terms they wanted in the contract. In essence, the union was able to exert complete control over the fire district because it had majority control of the board and could collectively bargain without public scrutiny.

No one would suggest that private-sector collective bargaining should occur in public forums. That’s because the terms and conditions of private employment are, well, private. But the public has an interest in what public employees are paid, both because taxpayers are picking up the tab and because the right balance of compensation is important to getting good service without being overcharged.

Now that open collective bargaining is in place at Monarch, it appears that the union is no longer getting exactly what it wants in collective negotiations, and community interests are being better served.

Will other government entities open their collective bargaining negotiations? Only time will tell. For now it appears that Monarch is taking a step in the right direction with this innovative approach to government transparency.

At the time this story went to print, the firefighters union had not responded to our request for comments.

January 9, 2015

Thoughts on the Latest Rams Press Conference

With the recent news that Rams owner Stan Kroenke is planning to build a new football stadium, the chances of the Rams leaving Saint Louis have increased substantially. Late last year, Gov. Nixon appointed a two-person team whose mission was to investigate options for keeping the NFL in Saint Louis. The team, which consists of former Anheuser-Busch executive Dave Peacock and Clayton area attorney Bob Blitz, presented their report on Friday. Below are key points raised in that report:

  • Plans are for a new stadium located on the riverfront, north of Lumiere Casino and northeast of the Edward Jones Dome.

Stadium2.0

  • The stadium also would be available for professional soccer.
  • It would be a public asset owned by a public entity and leased to the team. Also, the new stadium would come with a new lease, 30 years or more.
  • Cost estimate: $860-$985 million, at least half of which would be privately financed (minimum $200 million from Stan Kroenke and another $200 million from the NFL).
  • No new tax burden, although there would be public money involved.
  • Estimated completion date: 2020.

After listening to the press conference and going over some of the points raised here, I have my misgivings about this project. First, I would like to know specifically where the money is coming from to pay for this new stadium. During the press conference, Peacock said that the sources of public financing would not be ascertained until there was a commitment from the NFL and from the Rams on moving forward with this project. Second, the $860-$985 million price tag would only be for the new stadium. Additional money (it wasn’t said how much) would be needed to upgrade the current Dome so it will be a full-time convention center. How are we going to pay for that as well?

My biggest misgiving is the fact that we will be publicly subsidizing this thing at all. Kroenke’s proposal in Los Angeles would be completely privately financed. Why should the public put up money when Kroenke can afford to pay for the costs himself? The most recent trend in stadium construction is toward private investment. That’s what happened in San Francisco and New York, so why should Saint Louis be different?

I know it is easy to be wowed by beautiful pictures of sparkling developments like the one above. Yet, nice pictures aside, these kinds of plans do not produce the economic benefits that would make these developments worthwhile. I want Saint Louis to remain an NFL town, but I don’t want to spend taxpayer dollars to do it.

January 7, 2015

What Do Home Care Union Executives Really Want: A Wage Increase for Their Workers or a Union Contract?

residentialworker1On Christmas week, while many Missourians were exchanging presents or grabbing Chinese food, members of the Missouri Home Care Union were hard at work lobbying the governor. Ostensibly seeking higher pay for the home care attendants the union represents, the union placed carolers outside the governor’s mansion singing Christmas songs with lyrics altered to convey their message. Irving Berlin’s “White Christmas” became “I’m Dreaming of a Fair Governor,” and St. Louis Public Radio captured union members singing several bars of “home care workers are coming to town.”

The odd thing about this press junket is that the governor wants to give home care workers the pay increase the union is asking for, but the union objects to the method the governor proposes to give home care workers this pay bump. From the governor’s Office of Administration:

“The governor supports the wage range provision of the labor agreement between the Missouri Quality Home Care Council and the Missouri Home Care Union that provides a pay raise for home health care workers. To ensure the wage range provision of the agreement has the full force and effect of the law, the administration will be implementing the wage range recommendation through an administrative rule.”

Jeff Mazur, executive director of the union, responded by calling the governor’s proposal to enact the pay raise “unnecessary and unwise.” It appears union executives like Mazur are really after a governor’s order implementing a collective bargaining agreement. We’ve seen this before in other states.

Home health care unions, like the Missouri Home Care Union, formed to represent home care attendants who received Medicaid funding for acting as a personal assistant of a person in need of care. In many states, such as Illinois and Michigan, once home care unions were formed, they negotiated a union contract that forced all home care workers to pay a portion of their check to the union, whether or not the worker wanted union representation.

Imagine you’re enrolled in Missouri’s home care program and you’re getting a check from the government to help offset the cost of taking care of a disabled relative. Now imagine that the state bound you to a union contract against your will, and a portion of your check is going to union executives and their pet political causes.

Governor Nixon is right to be cautious of the union’s demands. If Missouri is better off increasing payments to people enrolled in the home care program, it can do so without entering a collective bargaining agreement. Such collective bargaining agreements can have bad consequences for the home care assistants subject to them, who often cannot afford to have their benefits tapped into by a union that they do not support.

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.

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