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 28, 2014

Cost of Compliance to Rise for Missouri Wastewater Treatment

Recently, the EPA released a decision letter approving most of the changes to the Missouri Department of Natural Resources’ (MDNR) water quality standards. While this will bring the state in closer compliance with the federal Clean Water Act, the new rules mean pollution limitations will be extended to thousands of lakes and tens of thousands of miles of rivers not previously under strict regulation. That will mean higher costs for Missouri’s water treatment utilities.

According to a report issued by MDNR, upgrading the state’s wastewater treatment plants to meet strict federal standards will cost between $430 million on the low end and $1.2 billion on the high end. However, most municipalities did not set high enough utility fees to cover the cost of regular improvement projects when regulation was more lenient. With the cost of needed upgrades now looming, localities will be forced to find more funds, which means wastewater utility rates, or other forms of local taxation, are likely to increase statewide in the near future.

Conforming to higher water quality standards in the most economical manner possible has pushed many municipalities across the nation and in Missouri to privatize their water utilities. Cities usually receive an upfront payment for leasing these systems, and while the private owners often raise rates, the increase is usually less than what the public utilities planned to do absent of privatization.

The city of Arnold in Jefferson County is considering just such a privatization plan partially in response to these types of costs. We have written before how this deal can benefit Arnold financially, and should it succeed, the privatization plan could become a model for other municipalities as they decide how to deal with increasing regulatory burdens for water treatment.

October 25, 2014

Saint Louis Municipalities: Who Is in Trouble With Macks Creek Law?

In previous posts, we have discussed the problem of small Saint Louis County cities supporting themselves through fines and fees, essentially using the police and courts as revenue generators. A report released by Better Together shows the scale of the problem. Twenty municipalities, mostly in North Saint Louis County, generate more than 20 percent of their total revenue from fines and fees.

Munis_blog

 

The largest portion of these fines usually comes from traffic violations and related penalties. But a state law, known as the Macks Creek law, is supposed to cap traffic fines to 30 percent of a municipality’s operating revenue. Fines in excess of 30 percent are to be redirected to schools, and failure to comply can result in suspension of local traffic jurisdiction. While this cap should arguably be lower, the state should first enforce the cap that already exists. But proper enforcement within Saint Louis County may be lacking.

chart22

 

As the chart above demonstrates, eight municipalities within Saint Louis County collect more than 30 percent of their revenue from fines, and in some cases much more. These cities may not be in violation of the Macks Creek law if much of their fine revenue is from non-traffic-related citations. However, all eight cities are home to notorious speed traps and have small populations from which to generate non-traffic citations. For instance, Calverton Park, Bella Villa, and Pine Lawn would need to issue more than $200 of non-traffic-related fines per resident in order to comply with the Macks Creek law. That seems unlikely.

That is perhaps why Bella Villa, Pine Lawn, and Saint Ann (along with Ferguson and six municipalities outside of Saint Louis County) are having their municipal courts audited by the state to ensure that they are “about justice and not revenue.” That may be a hard case for those cities to make.

October 24, 2014

Bring Dead Capital to Life

Think of that spare bedroom left vacant by children leaving the nest. Think of that empty passenger seat in most cars as they clog traffic in our major cities. To an economist, those are unused bits of capital: The room could be rented out, satisfying someone’s need for a short-term stay in town; that car seat could be occupied by someone heading in the same direction as the driver. Such unused sources of production are, simply put, dead capital.

Arthur C. Brooks, president of the American Enterprise Institute, recently argued that significant amounts of such dead capital could be brought to productive life if only local governments would stop protecting vested interests and allow entrepreneurs to invigorate their local economies.

How? There are new, exciting companies that empower individuals to improve their economic condition and, at the same time, improve the productivity of capital. One example is the ridesharing service Uber. Uber brings together those with empty passenger seats and those needing a ride across town. My experience (unfortunately, not in Saint Louis) is that Uber rides showed up faster than traditional taxis and that the drivers were more attentive to my needs. Because Uber drivers are rated by riders even in transit, poor drivers can lose business for inadequate service. Competition drives out poor performers.

Airbnb is a market solution to the problem of underutilized housing capital. With excess bedrooms in the United States, why not allow the owners of those empty rooms to satisfy the needs of individuals seeking a place to stay for a night or two? The needs of those willing and able to pay for a room are served and the owner is rewarded with, especially in these still-difficult times, an extra bit of income.

Unfortunately, a maze of state and local regulations block Uber and Airbnb from operating in many locales. “Governments have their own golden opportunity,” Brooks writes, “to exercise creativity in service of the common good, whether that entails rethinking anachronistic zoning laws or adjusting tax policies that treat someone’s spare bedroom the same as a Marriott suite.”

If bringing dead capital to life is good for the economy, isn’t it time for politicians and regulators to awaken to the potential benefits that such services can provide?

October 23, 2014

Saint Louis County Municipalities: Should More Consider Disincorporation?

In the months following the tragic events in Ferguson, there has been increasing scrutiny on the policing practices in small North Saint Louis County cities. The argument, best made by Radley Balko of the Washington Post, is that micro-cities in Saint Louis County are using local police to shake down poor residents in order to support otherwise unnecessary government.

St. Louis County munis

While we would argue that municipality size is certainly not everything, it is undeniable that many cities in Saint Louis County rely heavily on fines and court fees. One way of curtailing this sort of abuse is the rigorous implementation (or strengthening) of the Macks Creek law, which caps the amount of income a city can receive from traffic fines to 30 percent.

Missouri is preparing to audit some North Saint Louis County municipalities (along with cities in other counties) to ensure that they are not violating this law. However, the enforcement (or reform) of the Macks Creek law is up to statewide officials and voters. What’s more, if the law is vigorously enforced tiny municipalities might be forced to turn to large property tax increases or face insolvency. But local residents do not have to wait on statewide actions or accept a parasitic government. Voters can, and in the past did, disincorporate a city.

Under Missouri law, the residents can disincorporate their municipality if they: a. Gather 50 percent of residents’ signatures calling for an election on disincorporation; and b. 60 percent vote for disincorporation. At that point, the city would receive its basic services (including police and courts) from the county, unless they decide to join with another municipality.

Cities in Saint Louis County have disincorporated before, and recently. Just a few years ago, the poster child for a dysfunctional, traffic ticket-financed municipality was actually a middle-class, 95 percent white city in South Saint Louis County named Saint George. Major police scandals resulted in the city disbanding its police force, and residents ultimately voted to disincorporate in 2011. In 2013, the tiny (pop. 447) city of Uplands Park also held a vote on disincorporation, but that bid failed to reach the 60 percent mark.

The strategy of disincorporation is not without controversy. Loss of local representation, especially in areas with high minority populations, might be more worrying to some residents than fine-seeking officers. The approach also has limitations, as a municipality that funds decent public services mostly by fining pass-through traffic may serve voters’ interests while causing wider harm to the metropolitan area.

Most municipalities in Saint Louis County, including smaller ones, do not attempt to run their governments through aggressive police citations and court fees. However, residents should know that a local government that fails to provide for the common welfare (or openly harasses the poor) can be removed. A wider knowledge, if not actual use, of that option may result in more responsible city governance in Saint Louis County.

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.

October 16, 2014

The Columbia Police Department and Pennies from Heaven

As Columbia residents prepare to decide whether to increase the budget of the police department through property tax increases, they might be interested in how the police department spends the funds available today. In the video below (begin viewing at 8:43), from Last Week Tonight with John Oliver, Columbia’s chief of police explained how the department used funds derived from civil asset forfeiture. Reducing the tax burden for Columbia residents, however, was not one of those uses.

Without addressing the propriety of civil forfeiture laws, a department does not inspire confidence when it claims it needs more taxpayer dollars although it spends the proceeds of assets seized from residents on “toys,” as though they were “pennies from heaven.” Columbia residents might consider whether the funds the department currently receives are prudently managed before more is allocated.

October 15, 2014

Ain’t No Sunshine: What’s Going On Behind Government’s Closed Doors?

This month, the Missouri State Auditor’s office released a report on state and local government compliance with Missouri’s Sunshine Law. The Sunshine Law requires government bodies to keep meetings open to the public, provides procedures and safeguards when a meeting needs to be held in private, and imposes other requirements on government bodies to ensure transparency. According to the auditor’s report, state agencies and local governments across the state are not complying with these laws.

The report includes numerous violations of public records and public meeting requirements. The following government bodies failed to abide by the proper procedure for making meetings closed to the public:

capital

  • Gentry County
  • City of Savannah
  • Ste. Genevieve County
  • City of Liberal
  • Southern Dallas County Fire Protection District
  • Daviess County
  • City of Brentwood
  • Department of Public Safety/State Emergency Management Agency
  • City of Buckner
  • City of Diamond
  • Cedar County
  • Caldwell County
  • McDonald County
  • Lake Lotawana Community Improvement District
  • Vernon County
  • Montgomery County
  • Kansas City Board of Police Commissioners
  • Clark County
  • Stone County
  • The School District of Springfield, R-XII
  • Monarch Fire Protection District
  • Natural Resources/Soil and Water Conservation Program
  • Higher Education/Southeast Missouri State University
  • Madison County

Most of the government bodies that failed to keep meetings open were cities and counties, but some of these bodies, including the Kansas City Board of Police Commissioners, the Department of Public Safety/State Emergency Management Agency, and the Southern Dallas County Fire Protection District, are charged with ensuring public safety. The Kansas City Board of Police Commissioners, for example, failed to comply with the provisions of Missouri law that require a body in a closed meeting to properly document issues discussed, to discuss only authorized topics during the closed meeting, and to properly disclose the final disposition of matters discussed in closed sessions.

Government bodies have the power to deprive us of life, liberty, and property. They are charged with providing public safety and education services that Missourians depend on. They are given the power to extract payment for these services whether an individual wants them or not. The open government requirements of Missouri’s Sunshine Law are essential safeguards against abuse of government power.

September 6, 2014

Saint Louis County: Does It Have Too Many Municipalities

Many municipalities in Saint Louis County, large and small, rely on fines that harm their populations to fund local government. This week, the Washington Post published a story illuminating how clusters of small municipalities, each attempting to fund their governments through citations, turn parts of the county into a minefield for cash-strapped residents.

Saint Louis County contains 90 municipalities, some with less than 1,000 residents. Many of the smaller municipalities are in North Saint Louis County and rely heavily on traffic tickets and court fees. For example, Beverly Hills (population of 571) issued more than 3,000 tickets and collect more than $200,000 in court fees last year. Charlack, a small city in North Saint Louis County (population 1,362), derives 29 percent of its revenue through traffic fines alone. By contrast, most cities in Missouri receive less than 5 percent of their revenue from fines and fees.

speedtrap

But size is not everything. As the Post article points out, even the larger municipalities in North Saint Louis County are guilty of issuing numerous citations. Florissant (population 52,000) issued almost 30,000 traffic tickets for more than $3 million in fines last year, accounting for 13 percent of its revenue. Saint Ann, notorious for its I-70 speed trap, expects that 36 percent of its revenue ($3.3 million) will come from fines and court fees in 2014.

Furthermore, small Saint Louis County municipalities do not all rely so heavily on fines. For instance, Grantwood Village (population 863) only issues around 120 traffic tickets a year. In 2012, it collected only $34,000 in fines and fees. Black Jack, a small municipality in North Saint Louis County (population 6,920), receives less than 5 percent of its revenue from fines. What do Grantwood Village and Black Jack have in common? They both contract out police from Saint Louis County and do not operate their own police departments.

A combination of necessity and opportunity likely drives cities, large and small, to pursue aggressive citation policies: the necessity arising from a dearth of other funding sources, the opportunity from having a piece of Missouri’s highway system.

Fining residents to generate revenue, instead of promoting public order, is not the way to achieve good governance in Saint Louis County. In future blog posts, we will discuss these problems further and explore ways residents and policymakers can reform local governments.

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 27, 2014

Of Super Bowls and Economics

Following the passage of a resolution in the state legislature, the Missouri Department of Economic Development has convened a Super Bowl Task Force to consider what Kansas City needs to do to attract the annual event. According to The Kansas City Star,

“‘I can think of no better place to host the Super Bowl than Kansas City, the best football town in America,’ [State Senator Paul] LeVota said in a statement. ‘We’ve got incredible fans and a city more than capable of handling such a huge event.’

“Not only would the fans love it, but the economic impact would be enormous, he said.”

Ah, there is that elusive term, “economic impact.” It is thrown about to justify all sorts of government spending, but it is little examined by media and little understood by the taxpayers whose money will be used. We recently reviewed similar claims about Kansas City’s effort to attract the GOP convention. In that piece, we cited a Daily Beast story about the recent Super Bowl in New Jersey:

“So, there’s no economically sound way to predict a Super Bowl’s impact before the event and those that try have been proven wrong again and again. But don’t expect that to stop the cheering from the few with the most to gain. When asked for a more detailed analysis of Super Bowl XLVIII, the host committee demurred, but assured in a statement, ‘Super Bowl XLVIII is expected to be an economic boom [sic] for the region.’”

A 2006 study conducted by the College of the Holy Cross, “Mega-Events: The effect of the world’s biggest sporting events on local, regional, and national economies,” analyzes past Super Bowl impacts. The report concludes with a sobering warning to those who would embark on such expenses:

“The most important piece of advice that a local government can take regarding mega-events, however, is simply to view with caution any economic impact estimates provided by entities with an incentive to provide inflated benefit figures. While most sports boosters claim that mega-events provide host cities with large economic returns, these same boosters present these figures as justification for receiving substantial public subsidies for hosting the games. The vast majority of independent academic studies of mega-events show the benefits to be a fraction of those claimed by event organizers.”

Hosting a Super Bowl in Kansas City would be a great opportunity to show off our city to the rest of the world. Afterall, the term “Super Bowl” was coined by Chiefs owner and American Football League founder Lamar Hunt. But regional boosters need not wear blinders. At what cost does such an event cease to be worthwhile, especially when so many basic services in Kansas City already seem to be falling by the wayside? If we’re going to bring people to the City of Fountains, let’s at least make sure we can afford to operate the fountains.

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.

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