February 12, 2015

The Star Responds to Show-Me Daily Post

We were gratified to learn that members of the Kansas City Star editorial board read our humble blog. In a Wednesday afternoon column, Yael Abouhalkah took on the matter of the costly Power & Light District to respond to our post the previous day on the same topic.

Abouhalkah starts off where our post on the matter leaves off, a 2006 quote from then-Mayor Kay Barnes about how they’ll be seen as “geniuses” for saddling the city with a $15 million annual debt. He then moves on to conclude that, well, that’s okay.

City officials took bold moves to finally try to eliminate a lot of blight and reinvest in a more vibrant downtown through the Power & Light District, hoping it would lead to even more reinvestment in the city’s central core, wooing residents and companies.

While the downtown area has seen an uptick in residents, the city at-large is floundering. Even the creative-class millennials that we hear so much about are coming to Kansas City in much lower numbers than our peer cities. Some even suggest the trend of young educated people moving to urban areas has peaked.

As for jobs, even Abouhalkah admitted on last week’s episode of Ruckus that there hasn’t been job creation downtown. Tax revenue from restaurants and hotels has not kept pace with inflation, and the number of liquor licenses and bartender permits has decreased over the past several years. So much for a successful entertainment district. But hey, they respond, we built pretty buildings. (And built them near the Star‘s headquarters!)

As for a solution, Abouhalkah suggests more of the same:

Looking forward, I hope the city has learned its lesson and will help build a convention hotel with the lowest possible use of taxpayer subsidies.

Sadly, such sentiment is nothing more than the triumph of hope over experience. Time and again we read of awful city-negotiated deals like Power & Light, Citadel, and Burns & McDonnell while the real city core is left to fend for itself. We can’t wait another nine years for columnists to regret their current support of the latest taxpayer-subsidized scheme.

The mayor and city council seem to be waging a border war of their own, but instead of fighting neighboring states or cities, they’ve pitched downtown versus the rest of the city in an economic civil war.

February 11, 2015

How to Ensure Springfield Teachers’ Voices Are Heard

In many school districts, teachers are left out of the collective bargaining process simply because they do not belong to the right teachers association. Recertification elections can give these teachers a voice by requiring an association that acts as the exclusive representative to periodically run for reelection in order to maintain this privileged status.

A good illustration of this problem can be found in Springfield, Missouri. Springfield School District has long had teachers represented by both the Missouri State Teachers Association (MSTA) and the Missouri National Education Association (MNEA). In 2010, MNEA won an election awarding it the privilege to be the exclusive representative for teachers in collective bargaining sessions with the district. This meant that MNEA, and only MNEA, could negotiate with the district on behalf of the teachers.

Your_Vote_Counts_BadgeWhen MNEA excluded nonmembers from discussions on whether to ratify the new union contract, MSTA sued. And lost. As the exclusive representative, MNEA is free to represent workers the way it sees fit. It does not have to include members of a rival union in its deliberation process.

Still, this may not seem very fair to a longtime MSTA member who only recently lost her ability to participate in internal school district politics because of the exclusive representative election. But with recertification elections, her voice can be heard even if her teachers association is not currently the exclusive representative.

With recertification elections, in order for an association to continue to act as the only association able to negotiate on behalf of employees, that association must be re-elected every couple of years. This would prevent an association from winning an election once, and then representing employees for years after the association has lost most of its supporters. It also would empower employees who belong to another association, because the exclusive representative would either have to do a good job of representing everyone’s interests or risk being voted out of office and replaced with a competitor.

Recertification elections are a lot like American democracy where a new party can be put in control of Congress every two years. Congress is by no means a perfect institution, but by requiring our representatives to stand for regular elections, we ensure some level of accountability. Teachers who feel that they don’t have a say in negotiations with their employer, such as MSTA members in Springfield, should clamor for recertification elections. It may be one of the best policy reforms we have that preserves existing rights while empowering workers to hold their representatives accountable.

The Big Bad Bet

People of goodwill can debate some of the proper functions of government, but I think most of us can agree that gambling with taxpayer money is not one of them. Yet that’s what is happening with this Rams stadium situation. Public officials are betting that a new stadium will be a winner for the region and for taxpayers.

Yesterday, Gov. Nixon announced that Ameren and Terminal Railroad have agreed to make adjustments to their assets (moving power lines and rail lines) so that the proposed new stadium on the riverfront can be built. I guess he thinks that’s good news, and it would be if it was the only thing standing in the way of a private developer wanting to build a new stadium on the riverfront, but that’s not the only thing.

The key ingredient to this project moving forward is that we are going to have to cough up more of our money ($405 million to be exact) to help finance this thing. Now it’s possible that such an investment could be worth the price tag if it will lead to redevelopment of the surrounding area. That’s what the governor believes. What’s the evidence that there will be redevelopment? It didn’t happen when we financed construction of the Edward Jones Dome. Why is this time different?

Gov. Nixon also stressed that if we did nothing, the city and state would lose out on millions in income tax revenue. It’s true, players do pay earnings taxes, but how much more money will we have to spend in order to make sure we still get those income taxes? Overall, will taxpayers see more in added tax revenue than the amount they had to pay in subsidies? It’s possible, but it’s also equally (if not more) likely that taxpayers would lose money. That’s why this whole thing feels like gambling, but at least at the casino you know the odds before you play. That’s not the case here. How much will players’ salaries grow (which influence income tax revenue)? How many people from out of state will visit the region to watch the Rams (this affects how much new sales taxes we get)? These questions and many more will affect the amount of added revenue the region will receive. It’s an awfully big risk to be taking with public money, and honestly we shouldn’t be giving a billionaire (Rams owner Stan Kroenke) taxpayer money on the hope that we MIGHT see a positive return.

Yesterday’s press conference was supposed to be an encouraging sign for those who want to keep the Rams here in Saint Louis. For me, it looked like someone was putting down a big marker on the roulette table with our money on the line. No matter if the project lands in the red or the black, in the end Stan Kroenke is going to be getting green.

February 10, 2015

Illinois Makes Union Fees Voluntary for Government Workers

illYesterday, the governor of Illinois signed an executive order making union fees voluntary for government employees. Government unions are likely to challenge the order, but it is a significant gain for workers who do not want to pay for representation by an association to which they do not belong.

Why doesn’t Missouri follow suit? In our state, government workers, such as police and firefighters, are often required to pay for union activity, whether or not they want to be a member of a union. Many police and firefighters in this situation gladly accept representation by their union and would be happy to pay voluntarily. However, the government should not force workers to pay for services they don’t want.

Sometimes workers end up paying for two unions at the same time. In Saint Louis, the St. Louis Police Officers Association (SLPOA) has mostly represented white police officers, while the Ethical Society of Police has historically acted for African-American police. Recently, SLPOA won a union contract that allowed it to force payments from all rank-and-file officers. This action forced members of the Ethical Society to choose between leaving the employee association that they wanted to represent them or paying dues to two unions at once.

Illinois’ new order is a serious gain for liberty. Missouri could enact similar reforms. Indeed, doing so would protect the rights of police and firefighters who do not want to be forced into paying for the services of a group that they haven’t voted for and don’t want as representatives. For those government workers who protect us, it’s the least we can do.

Show-Me Study Featured in New Book

Tax subsidies for economic development were designed to go to poor areas that actually needed development. But that is not how they are used in Kansas City, Missouri. My colleague Patrick Tuohey and I showed that, in regards to Tax Increment Financing (TIF) in Kansas City, the vast majority of TIFs and other economic development subsidies went to wealthier areas such as Country Club Plaza and the Power & Light District.

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The folks of the Urban League of Greater Kansas City have included our essay in their new book, Picture of Health: 2015 State of Black Kansas City. They are having a book release party at the Kansas City Public Library-Downtown Central on February 12 at 5:30 p.m. The event promises guest speakers and authors discussing topics such as racial equality. If you’re in the area, consider going. If not, I encourage you to get a copy of the book.

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 9, 2015

Kansas City, Millennial Magnet?

In a previous piece, we examined some of the research dealing with millennials, where they choose to live and whether any associated growth will be long lasting. In a New York Times story claiming that millennials are seeking urban areas, a think tank called City Observatory listed the top U.S. cities and their population aged 25 to 34 who had a four-year degree.

If you only look at the close-in downtown neighborhoods, defined by the study as those “within 3 miles of the center of the central business district,” Kansas City saw an increase of 63 percent over the past 12 years. Compared to our peer cities, this is impressive. (See Table 1.) So supporters of using taxpayer dollars to subsidize development might argue their profligate spending is working.

Table 1: Downtown Population; 25-34 with Four-Year Degree
City 2000 2012 Pct.Chg.
St. Louis 3.094 7,371 138%
Indianapolis-Carmel 3,235 5,386 67%
Kansas City 2,640 4,294 63%
Denver-Aurora 20,985 31,678 51%
Oklahoma City 2,173 3,048 40%
Louisville-Jefferson Co. 4,418 5,683 29%

But the data about cities as a whole is not so positive. Of those same cities, Kansas City as a whole ranked last in growth of this sought-after population. (See Table 2.) The average population increase for this demographic in all 51 cities was 25.2 percent. Kansas City came in below that.

Table 2: City-wide Population; 25-34 with Four-Year Degree
City 2000 2012 Pct.Chg.
Oklahoma City 39,114 61,331 56.8%
Denver-Aurora 163,367 239,524 46.6%
Indianapolis-Carmel 74,073 96,633 30.5%
Louisville-Jefferson Co. 41,679 53,489 28.3%
St. Louis 108,723 138,806 25.8%
Kansas City 89,205 107,061 20.0%

City leaders have put their faith in an idea about urban millennials that may or may not be legitimate. In doing so they have diverted funds from projects and services throughout the city to build and maintain things downtown such as the streetcar and Power and Light District. But any subsequent population growth downtown is dwarfed by population stagnation elsewhere.

The argument over attracting urban dwellers is hotly contested. Regardless of who is right, Kansas City is not seeing much success, and economic development is more cannibalization than growth. Residents in the north, south, and east should be wary of sacrificing their own needs in favor of a downtown strategy that so far isn’t working.

February 4, 2015

The Myth of the Urban Millennial

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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 31, 2015

Union Cronyism and the Board of Aldermen

108696481_construction_worker_holding_hard_hat_articleI was driving home from work the other day and listening to “Back Stabbers” by the O’Jays on 88.1. At the end of the song, the DJ gave some commentary, “The back stabbers. They smile in your face. It could be the milk man, it could be one of your friends, or it could be the St. Louis Board of Aldermen.”

I didn’t catch why my DJ was upset with the Board of Aldermen, but one reason Saint Louisans are upset with the board right now is their decision to consider a bill that purportedly limits minority businesses from bidding on county government contracts.

The bill mimics regrettable legislation passed by the county in 2012 that requires bidders on construction contracts of $25,000 or more to maintain their own Department of Labor-approved apprentice program. The catch is that union contractors are often the only bidders who can meet this requirement.

When the county council adopted its bill in 2012, my colleague David Stokes wrote,

While some non-union companies do participate in apprentice programs through industry organizations, union-affiliated companies still have a decided advantage in meeting the requirements of this new bill. This is a blatant ploy to guarantee that union companies will win all county bids. . . .

Using the council’s authority to prevent non-union contractors from even attempting to participate in county projects is an egregious misuse of power. It is bad enough that this will increase costs to taxpayers, but the use of government for political favoritism is simply indefensible and immoral.

Just as it was two years ago, this type of legislation still appears to be a naked attempt by elected officials to please a powerful special interest.

Law should facilitate open access, such that access to public institutions is not contingent on personal relationships and political connections. Law should be structured to apply to everyone equally. By favoring unionized contractors over non-unionized contractors, this bill fails in providing a neutral rule. It reeks of cronyism, and it is the sort of thing Saint Louisans are right to be upset about.

January 29, 2015

It’s Groundhog Day for Saint Louis and NFL Stadiums

The story is everywhere: Saint Louis is in danger of losing its NFL team because the city’s current stadium is outdated. With the team on the verge of moving, state officials have developed a plan for a new publicly financed state-of-the-art stadium, but it may be too late. The owner sees greener pastures out west, and, after year upon year of subpar play on the field, fan support is tepid. They may not support using public dollars to finance a new domed stadium.

Screen shot 2015-01-29 at 3.57.42 PM

That’s right, this story is not about the Rams; it’s about the St. Louis Football Cardinals circa 1988. But the stories are so similar that, if the Post-Dispatch were to change the date, a few proper nouns, and replace “dome” with “open-air stadium,” they could easily republish articles written decades ago.

If Saint Louis’ position is analogous to the one it experienced in 1988, there is much reason for caution. Back then the conventional wisdom was that domed stadiums were the future and open-air venues were a thing of the past. As one Post-Dispatch writer put it, “A domed multi-purpose building, involving an enlarged convention center, would not be the white elephant of an isolated, open-air athletic stadium.”* Despite the last-ditch stadium proposal, the Cardinals moved anyway.

But that did not stop plans for a dome. Then, as today, regional leaders claimed that having an NFL team was a boon for the local economy and city pride. Thus, building a new stadium was the “progressive” action, and it was needed to “compete for sports, convention and political bucks.”* In the area of urban development, the Post-Dispatch published articles about how the RCA Dome transformed downtown Indianapolis, hinting at similar results for Saint Louis. In a demonstration of an uncritical, keeping up with the Joneses mindset that too often guides municipal governance, one prominent stadium plan supporter commented, “You know, the other cities that have built domes are not totally stupid.”* When state and local residents voted to go forward with a publically financed dome, one Post-Dispatch columnist claimed that it “all sounds like a dream.”*

Now the dream is over. While Saint Louis eventually lured the Rams in 1995, it did so with a sweetheart deal that has been described as the “worst lease ever,” part of which frees the Rams to leave the city after only 20 years. The dome, which was described as “cutting-edge” and even “intimate”* in 1995, is regularly maligned. In fact, talk of the dome being out of date began as early as 2007, just 12 years after it was completed. As for urban regeneration, other than the heavily subsidized developments on Washington Avenue, progress has been limited and certainly not centered on the dome.

The history of the Edward Jones Dome demonstrates the pitfalls of using public dollars to chase the NFL. Perhaps that will cause Missourians and public officials to be more skeptical of the new stadium proposal. But then again, you know, the other cities that have built open-air stadiums are not totally stupid.

January 28, 2015

The Wonderful Evergreen Clause

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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 26, 2015

Kansas City Embraces Baristanomics

Streetcars, entertainment districts, new airport terminals, Republican confabs, Super Bowls, creative-class millennials, and convention hotels all have grabbed headlines in recent months in Kansas City. Certainly they are evidence that city leaders think they can spend, spend, spend their way into wealth. But they are also evidence that Kansas City has embraced something my colleague at the Show-Me Institute dubbed “Baristanomics.” Baristanomics is the theory that lifestyle spending can revitalize an urban economy.

It doesn’t work.

Richard Florida first proposed the idea that cities need to attract the so-called creative class in order to survive. His prediction was not borne out by time. But like all good economic theories, zealous adherents aren’t swayed by plain evidence. Here in Kansas City, leaders still talk about attracting this creative class with streetcars despite the fact that the evidence tells us that even the millennial-age cohort is no less likely to own cars than their peers in past generations. They act the same way any group does: They move to regions that offer jobs.

A study of successful innovation hubs even demonstrated that among those that have been successful there is no winning government strategy—success does not lend itself to a simple formula.

Boosters of Baristanomics point to the slight growth of downtown residents to show the success of the city’s profligate spending. As another high rise is proposed for downtown—and subsidized with taxpayer dollars—the high availability no doubt will drive prices into the basement. Laying aside the question of whether such modest growth is worth the huge cost to taxpayers, it is clear that Baristanomics has not produced the jobs necessary to keep people downtown. Downtown residents commute out of the core for work—something that writers elsewheredubbed Urban Inversion. Basically, Kansas City is turning itself inside out.

Without jobs—baristas, hotel concierges, and restaurant staff notwithstanding—any measure of success will be short lived if Kansas City isn’t attracting jobs. In fact, the growth of residential development is coming at the cost of commercial and industrial growth potential as one-time office buildings and warehouses are converted into trendy lofts. Furthermore, many of those living spaces were built or renovated with tax abatements or subsidies that will make them much less attractive in 25 years when they end.

Cities do not form around coffeeshops and large entertainment venues. (If they did, where is the development around the Truman Sports Complex? There are barely hotels over there.) People generally live where they work, and if Kansas City continues to be an unattractive place to build a business, all the hip speakeasies and entertainment subsidies will amount to nothing more than curious finds for future archeologists.

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