The Missouri Legislature has embarrassed itself once again on the tax credit issue, and this year’s failure to protect taxpayers from out-of-control tax credit spending was particularly excruciating. After the House and Senate conferenced and produced a suboptimal, but passable, tax credit compromise last Thursday, the legislation fell to a filibuster in the Senate on Friday — the last day of the session. The bill had both good and bad elements to it, capping and eliminating some credits (the good) while creating and extending others (the bad). In the net, it would have been an important first round of tax credit reform, albeit a small step.

But even that couldn’t get through the legislature. Like a college sophomore starting an essay the night before it’s due, the legislature produced tax credit legislation at the latest possible moment with the smallest margin for error available. In school, you don’t get a passing grade for “I started late and my computer crashed!” or “My dog ate my homework!” You don’t get an “A” for “effort.” You get an “F” for “failure.”

Missouri’s heavy use of tax credits encourages government to pick winners and losers in our economy, leading to rampant abuse, distorted economic priorities, and tightening budgetary realities. It’s maddening that practically nothing has gotten done on tax credits that have sapped the state’s coffers in recent years — and whose consequences led to more than $400 million in economic development tax credit issuances in fiscal year 2012 alone. Let’s be blunt here: the legislative dysfunction on the tax credit issue is an unmitigated state disgrace. This year I was hopeful that the legislature had finally gotten past its dark tax credit days, whose depths were deeply plumbed with 2011’s Aerotropolis boondoggle.

But apparently not. As someone who takes notes on the floor debates in the state House and Senate, I cannot tell you how many times I heard a legislator say “I don’t agree with tax credits, but . . .,” and then go on to explain why their pet tax credit needed to be extended or created. (This is especially common in the House.) Bona fide tax credit reform supporters and opponents can disagree civilly, but I have little tolerance or patience for policymakers who are all hat and no cattle on this issue — happy to carve out special tax credits for their special groups as they blithely gore other credits. That’s the worst kind of hypocrisy. Sen. Jolie Justus, a tax credit supporter, was right on Friday to criticize such behavior from the floor of the Senate, and I’ve independently noted the same sort of behavior Justus observed.

The legislative intransigence on tax credits is stomach churning. Coupled with the governor’s leadership void on basically every issue, the legislature’s inaction on tax credit reform is a shameful low note of the session. Taxpayers deserve better than this shabby treatment.

In April, I testified before the Missouri Legislature about the importance of reaffirming the free speech rights of government employees. Senate Bill 29, which changes how union dues are collected and are used for political purposes, just passed the Missouri House with an 85-69 vote. The legislation’s next stop is the governor’s desk.

Currently, Missouri requires public union employees to opt-out of having dues money removed from their paychecks that could be used for political objectives with which the employee may disagree. Under the reform, union members would presumptively keep those dollars unless they opt-in to paying for the union’s political activities. That is a better system that supports employees’ free speech rights.

I am glad to see it get through the legislature, and I look forward to seeing whether the governor agrees that union members’ money is their money first, not the union’s. Kudos, Missouri Legislature.

Tony’s Kansas City has had the story about some in Kansas City who are considering changes to the city charter in order to strengthen the role of the mayor. This is as good an opportunity as any to remind people of all the work we have released on the issue of local government in Kansas City.

My main charter recommendation for Kansas City government is to remove the peculiar designation that makes each at-large councilmember also represent one of the council districts. There are benefits to at-large elections (lower overall spending), but they are reduced if you make at-large officials also represent a district. Just let the at-large reps serve at-large and the district reps serve the districts.

It will be interesting to see what concrete proposals come out of this. Will the role of the mayor be increased at the expense of the council or the city manager? It is basically impossible to implement a true “strong mayor” system like Chicago (or, for a Missouri example, like Florissant — neither is really a good comparison) and maintain an influential city manager. But there certainly can be smaller steps taken to strike more of a balance. I cannot wait to hear what those steps may be.

U.S. Sen. Elizabeth Warren (D-Mass.) wonders why we do not pay workers a minimum wage of $22 an hour (hat tip: The Corner). Regarding that $22 an hour, Sen. Warren probably is referring to this study by the Center for Economic and Policy Research (CEPR) that showed what the minimum wage would be if it had kept up with increases in worker productivity. However, one key thing that Sen. Warren fails to notice is the source of that increase in productivity.

The study linked to above talks about average productivity. Average workers do not earn the minimum wage. This study does not track changes in the productivity of workers who make at or below the minimum wage. Isn’t it possible that the largest increases in productivity have been among more skilled employees who already earn above the minimum wage?

Also, if workers do not feel that they are being fairly compensated, they are free to look for employment elsewhere.  In non-monopolies, employers have to compete for workers and thus offer a competitive wage in order to attract and keep talent. Christina Romer, President Barack Obama’s former chair of economic advisers, made this point in her analysis of increasing the minimum wage: “Robust competition is a powerful force helping to ensure that workers are paid what they contribute to their employers’ bottom lines.”

Minimum wage laws simply amount to “compulsory unemployment,“ as they make it illegal to hire a worker below the prescribed minimum. At an hourly minimum of $22, an employer loses money if he or she hires anybody who produces less than $22 of value an hour. One Missouri small business owner stated that he “would fire one employee, maybe two” if the minimum wage increases to $22. That is quite a lot, given that he only employs three people. Politicians understand all of this, which is why they typically propose only modest increases. After all, if the forgoing economic critique is flawed, why not raise it to $100 an hour?

Raising the minimum wage is an attractive idea to many voters (at least on the surface). Yet, it really is not an effective way to help poor families. According to David Neumark, in his 2012 study for the Show-Me Institute, “. . . minimum wages may do little or nothing to help poor and low-income families.” People from both sides of the ideological spectrum have issues with raising the minimum wage, and increasing it all the way to $22 an hour would just be silly. Let’s focus on ways to truly help the poor.

Last year, I wrote at Hot Air about an important free speech case that the U.S. Supreme Court had just handed down. Knox v. Service Employees International Union dealt with the manner in which unions could automatically deduct dues from public employee salaries and apply those dollars toward the union’s political purposes. Knox dealt with a narrow fact pattern, so extrapolations of the Court’s findings to future fact patterns will not be perfect, especially given the status of the case law.

The substantive question addressed in the Court’s opinion really boils down to this: should the burden be on a public employee to opt-out of an automatic salary deduction program whose proceeds could fund a union’s political activities? Or should the burden be on the union to get employees to opt-in? Are these “free speech dollars” taken from the employee’s paycheck presumptively the employee’s, or presumptively the union’s?

It appears the Court sees those dollars as presumptively the employee’s. Justice Samuel Alito, writing for a 7-2 majority, articulated the problem inherent in these opt-out arrangements very clearly:

Unless it is possible to determine in advance with some degree of accuracy the percentage of union funds that will be used during an upcoming year for chargeable purposes — and the SEIU argues that this is not possible—there is at least a risk that, at the end of the year, unconsenting nonmembers will have paid either too much or too little. Which side should bear this risk?

The answer is obvious: the side whose constitutional rights are not at stake.

Protecting the First Amendment rights of all of Missouri’s citizens is an issue that should always be of great import to the legislature. Allowing public employees to specifically opt-in, rather than opt-out, to support a union’s political activities would reaffirm this purpose.

More generally, public-sector unions pose a different set of fiscal and philosophical problems that private-sector unions do not, and those problems are related to the speech issues in play here. Public-sector unions can oftentimes choose, in fact or in practice, who will be across the table when they negotiate their contracts. Their political activism and power allows them to negotiate sweetheart deals that private-sector employees could never obtain, and taxpayers end up picking up the bills for those deals.

That is one of the reasons Missouri’s pension obligations are so foreboding (see the study we released addressing the issue). Private-sector unions are (usually) circumscribed in their negotiating power by the health of the companies with which they work. Public-sector unions are not as constrained and can simply work to vote in representatives — on school boards, in fire districts, and elsewhere — that will generously spend other peoples’ money on them. That power is in no small part underwritten by the unions’ ability to directly draw money from employee salaries and, I believe, in violation of the free speech rights of many public employees.

Thus, on both free speech and fiscal grounds, it is eminently appropriate that the Missouri Legislature would step in and reassert that public-sector union power has limits. High among those limits is the First Amendment rights of those the state employs. Employees who want to donate to the union’s political activities should be able to donate to them as they would choose to donate to any other organization, but the state should presume that those speech dollars are the employee’s first, not the union’s.

A Knox-informed reform that would reassert the rights of public employees would be a modest one, but it would effectively hit at the larger problem of the special deals that public-sector unions get which private-sector unions and the non-unionized could never leverage. Such a change would be a positive step for the state and its employees, both fiscally and constitutionally.

President Barack Obama delivered his State of the Union address last night and in it, he called for raising the federal minimum wage to $9 an hour. “This single step would raise the incomes of millions of working families,” he said.

This an appealing sentiment, but Prof. David Neumark’s 2012 study for the Show-Me Institute, “Should Missouri Raise Its Minimum Wage?” found that “research for the United States on state minimum wage increases generally fails to find evidence that minimum wages help the poor.” This is because the minimum wage targets low-wage workers and not low-wage families.

In 2008, 12.7 percent of all workers earning the federal minimum wage ($7.25) were in poor families, while 44.6 percent of workers earning less than $7.25 were in families that earned more than three times the poverty line. In their book “Myth and Measurement: The New Economics of the Minimum Wage,” authors David Card and Alan B. Krueger admit that the minimum wage is a “blunt instrument” for reducing poverty.

Not only would raising the minimum wage be ineffective in helping poor families, it would also mean that many businesses will hire fewer workers because of increased labor costs.

On the surface, increasing the minimum wage is an attractive idea. However, doing so does not help those who need it. The market should set wages, not the government.

Voters in the city of Saint Louis will decide on Tuesday if they would like to reduce the size of the Board of Aldermen from 28 to 14 (not including the president of the Board, which remains the same under either scenario). I think this would be a good change for the city. Why, you ask, would it be a positive change? Well, check out this op-ed on Proposition R and dive into the joy of debates about government structure.

For more information on the general question of government structure in Missouri, check out my policy study and this essay on the subject.

The Metropolitan St. Louis Sewer District (MSD) has an enormous bond issue on the ballot next week, for $945 million! Even in a post-bailout America, that is a lot of money.

I do not know how I am going to vote on this issue. The project is going to be done and rates are going to increase either way. If the bond issue passes, rates will increase slowly, but bond financing will have to be added to the total costs. If the bond issue fails, rates will increase more substantially right away, but we would not have to pay an estimated $200 million in bond financing costs. (My $200 million estimate comes from the bottom of page 7 here.) Pay more now or pay more later. I am probably leaning toward paying more now, but each voter is going to have to make that choice for himself or herself and their families, and I certainly understand those wanting to take a more long-term view.

I do not blame MSD for this. Kansas City is going through a very similar process, as are cities around the country. I blame unnecessarily strict EPA rules designed to prevent occasional releases of sewage during extremely heavy storms and to eliminate the use of combined sewers. I also blame time and the aging process.

Nobody wants sewage releases, and everyone wants safe water. The issue arises when federal regulators require local sewer authorities to spend billions of dollars for comparatively small increases in water quality. Perhaps cost should not matter because it is for the kids. But we do not live in fairyland, we do not spread magic dust, and costs do matter; as does regulatory overreach.

Could MSD have done a better job in recent decades updating the system to prepare for this? Almost certainly, but at some point it was going to be necessary to do a massive upgrade of an old sewer system; EPA regulations or not. The EPA regulations will do what the federal government usually does: take an issue and make it larger, more expensive, more litigious, and more intrusive. But that is our fault for allowing the federal government to grow to a size where it gets to dictate so much of our lives; it is not MSD’s fault.

People who are better able to comment on the technical, engineering aspect of the issue should feel free to chime in via the comments.

A Kansas City citizens’ commission that the mayor appointed recently released a draft report on changes to the city’s municipal revenue structure. Not surprisingly, for a commission stacked with former city and county employees, the report avoids anything substantive or radical. When you load up a finance commission with lawyers — and do not put one economist on it — this is what you are going to get. Here are some brief comments on the good and bad ideas in the report.

Kansas City’s business and occupational license system is very complicated (p. 41-42). The Citizens’ Commission on Municipal Revenue (CCMR) has decided to continue its work with a singular focus on simplifying and improving the license system. It has identified the problem, and seems serious about a solution. Kansas City would greatly benefit from these changes that would treat businesses equally and require less work to administer.

Dedicated taxes with sunset provisions are good things. However, it is possible to go too far with dedicated taxes, and Kansas City has probably done so. For example, Kansas City previously, and unnecessarily, chose to dedicate its entire 1 percent baseline sales tax to capital improvements (p. 29-30). The committee is right to suggest that Kansas City loosen the requirements for that tax so that it can be used for more general purposes.

One of the major disappointments in the report is the refusal to take on Tax Increment Financing (TIF) (p. 18). It is difficult to see how a commission tasked with reviewing municipal revenues could overlook TIF beyond a meekly-worded warning that Kansas City carefully evaluate future TIF projects.

One of the most audacious suggestions was, to be fair, not included in the final recommendations.  The commission considered suggestions to end earnings tax refunds to non-residents for work out of the city (p. 26). Put another way, the city wants to tax the income of people who do not live in Kansas City for work they did not do in Kansas City.  The fact that the commission even considered ways to keep tax money it does not have a moral or legal right to is disturbing.

One tax idea that has widespread agreement among economists is the benefits of land taxation to fund local governments. Land taxation is fair, consistent, has very limited economic distortion, encourages investment, and is easy to collect. Kansas City is the only local government authorized to collect a land tax in Missouri. So, what does the CCMR want to do with the single-best tax that Kansas City enacts? Get rid of it, of course, and replace it with higher sales taxes (p. 36-37).

Kansas City has a tax that other cities in Missouri should envy and economists would almost universally encourage. And this is what the CCMR wants to eliminate.

The mayor wishes to enact the changes suggested in this report by putting it on the ballot later this year. I hope the city council thinks twice before replacing less harmful taxes like the land tax with broader, higher, and more damaging substitutes.

We do not often wade into the waters of election policy, but frankly, election policy is intimately related to the free-market objectives we promote. Although voters are one step removed from the chambers that decide most policy issues, the only way elected representatives can fairly represent the will of the people is if the representatives themselves have been fairly elected. Debasement of the electoral process through fraudulent voting subverts the will of voters and disenfranchises voters themselves. And yet on Monday, Mother Jones called the states’ moves to get their arms around the problem and implement stronger ID requirements “loathsome.”

Let’s be clear: Voter fraud is real. Especially in recent weeks, the push has been on to paint “voter fraud” as some sort of manufactured controversy, but as someone who has worked in this field, I can assure you, it is not. From county officials telling poll workers that people can vote with a credit card as their ID — they cannot — to the use of absentee ballots fueling fraud, there is not only ample room for voter fraud to take place through the very structure of the voting process, but there have been cases of voter fraud suspected and prosecuted in the state just in the past few years.

Voter fraud can swing elections, especially close ones. If voter fraud constitutes 2 percent, or 1 percent, or even 1/2 percent of the vote total, how many races does that affect? How many statewide and local races have you seen decided by a point or less, and how likely is it that none of those races turned on fraudulent votes?

Every vote should count, every vote should be protected, and every attempt to distort the will of the electorate with the casting of illegal ballots should be turned back. Preventing voter fraud through reasonable identification measures that we already accept to drive cars, board airplanes, and enter some government buildings is not an undue burden on voters’ rights to vote. Rather, it is a burden on voters’ rights to allow the floodgates of voter fraud and abuse to remain open.

The Kansas City Star reports that a bill to create a land bank in Kansas City is one step closer to becoming law. If the bill passes, the land bank would have the power to incur unlimited debt, bid against private buyers at tax auction, and — most disturbingly — be able to say no to private buyers who want to buy vacant city property.

The legislation has out-of-state advocates. Dan Kildee, the head of a nonprofit that has advocated for land bank legislation in numerous states, is quoted in the Star extensively. Kildee told the Star that a land bank could acquire abandoned property in order to keep it out of the hands of private speculators. This statement ignores the fact that if a land bank is acquiring property because it thinks a better buyer will come along in the future, then the land bank itself will be acting as a speculator.

We have seen this model fail in Saint Louis. The Saint Louis land bank, also known as the Land Reutilization Authority, has existed for more than 40 years. In that time, it has amassed about 10,000 parcels of vacant land. My research showed that during the past eight years, the Saint Louis land bank rejected almost half of all formal offers to purchase its property. The most common reason for rejection was that the property was being “held for future development.” Sadly, the hoped-for development rarely materializes.

Instead of taking heed of the 40-year-old failure in our own state, legislators are willing to bet Kansas City’s future on glorified accounts of a land bank’s operations in Michigan. That land bank, the Genesee County Land Bank, has been trying to sell vacant property for less than a decade. When I have testified about the failure in Saint Louis, legislators and lobbyists quickly state that Saint Louis is “different” than Kansas City. Why, exactly, is the short-term record of a land bank that is more than 500 miles away more relevant than the long-term failure of a land bank in our own state?

Saint Louis Alderman Fred Wessels has filed a lawsuit regarding Saint Louis City Treasurer Larry Williams’ privatization of the city’s parking meter operations. One may certainly wonder if this lawsuit is political? Mr. Williams made the change to privatize the parking meter collections three years ago and the lawsuit was just filed now, two months before the two men (and several others) face off in an election for the city treasurer position.

There are some public services that should never be privatized, some that should always be privatized, and some that depend on certain factors. Parking enforcement is in the “always” category. Contracting out the enforcement of parking meters is something that the private sector can easily do, and should do. There is no reason parking enforcement jobs should be on the public dime, with the benefits, pensions, etc., that are included in government jobs. Mr. Williams deserves a great deal of credit for making this change and reducing the political imprint of his office to save taxpayer dollars. If Alderman Wessels was really so offended by the manner in which the privatization occurred, I think he should have contested the move long ago.

The Reason Foundation has done some excellent work on all types of parking privatization. To be clear, Mr. Williams has not gone nearly as far with this privatization effort as Chicago did – where the entire city street parking operations were contracted out. All Williams did was contract out the collection of money from meters – the city still controls the rates, meter placement, etc. I do not support privatization law enforcement functions, but meter enforcement is hardly that. I view meter collection as a support service to law enforcement, like the mechanics who work on the police cars or the clerks who manage the department documents. You do not need a police officer to do it, and you do not need a government employee to do it.

Now, if Mr. Wessels wants something to legitimately criticize Mr. Williams for, how about the dearth of readily available data on the city treasurer’s office? This post would have been a longer and more detailed defense of the city treasurer’s privatization effort if I had easy access to the budget data from the office. (This is a blog post, not a policy study, so I do not have the time to gather data which should be up on the city website.) The city’s budget division only has very cursory information available on the treasurer’s office and the parking meter fund. So, whomever among the five candidates for the office wins in April, I hope they improve the available information for the office.