March 23, 2015

Increased Fire Tax in Kirkwood? Why Now Indeed!

Kirkwood Bill

A leaflet arguing for a tax increase surprised some Kirkwood residents this month when they found it tucked into their city-issued electricity bills. The tax advertised in the leaflet would up the sales tax rate by 0.25 percent in order to add new cross-trained firefighter/paramedics to Kirkwood’s Fire Department. With the need for municipal fire services in decline and only an increase in EMS cited as justification for the tax increase, I can’t help but wonder if this tax hike would unnecessarily nickel and dime people choosing to spend their money in Kirkwood.

Let’s break this down. Since the 1970s and 1980s, when fire alarms, new technologies, and improved building standards decreased the number and severity of fires in the country, there has been a steady increase in the number of people employed as firefighters. You might think the number of people employed to fight fires would decrease as the need for fire response decreased. You’d be wrong.

To compensate for this decrease in the demand for their services, fire departments began taking on the broader role of providing emergency medical services—that is, driving ambulances and providing on-the-scene support to people involved in accidents. Fire departments might have saved money if they then decreased the number of people employed as firefighters and invested more heavily in paramedics and EMS equipment, which typically cost less, but that didn’t happen.

Here we have a textbook case of mission creep, the tendency of government organizations to gradually shift their goals and expand their purpose. Society no longer needs as many people fighting fires, yet because government lacks an efficient mechanism for linking supply and demand, we continue to spend an increasing amount of tax revenue on fire protection. Government has a tendency to grow, even as needs shrink.

If the city of Kirkwood wants more paramedics, then they should hire more paramedics, not firefighters. Shifting resources to pay for more EMS and less fire services, or even privatizing certain functions, could help pay for this. It’s simply a waste of money to raise taxes to hire workers for an unneeded and more expensive job.

January 20, 2015

Puerto Rico: A Transportation Privatization Example for Missouri

With its reputation for tourism, rum, and sun, many might be surprised to find out that Puerto Rico actually is a leader of using the private sector to improve infrastructure under tight fiscal constraints.

Puerto Rico has entered a privatization boom in the last few years, due mostly to past financial mismanagement. Both the port authority (which owns Luis Munoz Marin International Airport) and the Puerto Rico Highways and Transportation Authority (which is responsible for highways and transit) spent heavily in past decades on projects like the Tren Urbano, a $2.25 billion rail line with low ridership and large operating deficits. After the financial crisis hit, Puerto Rico’s transportation authorities had large debt problems and a transportation system in need of investment.

To simultaneously reduce debt and raise capital for transportation improvements, the government privatized major transportation assets. In 2011, Puerto Rico leased two of its toll roads, PR-5 and PR-22, to Autopistas Metropolitanas de Puerto Rico, LLC. The company paid the government $1.1 billion upfront and agreed to make $350 million in capital improvements.

In 2013, Puerto Rico leased Luis Munoz Marin International Airport, the island’s largest, to Highstar Capital and Grupo Aeroportuario del Sureste SAB de CV, the first such lease of a large airport in the United States. The consortium agreed to pay more than $600 million upfront, along with additional yearly payments. The good news for travelers is that the consortium plans to invest over a billion dollars modernizing what can be a hectic airport.

Aside from major privatization deals, Puerto Rico (in contrast to other U.S. cities) continues to rely heavily on the private sector to operate public transportation. In fact, the most popular form of transit on the island are publicos, small vans and buses that cover much of the island’s metropolitan areas. Publicos are privately owned, and the system has the distinction of being the only primary bus system of a large U.S. city that uses almost no public subsidies. San Juan’s municipal bus system, which operates large city buses, also leverages the private sector by contracting out the operation of its buses to a private company, First Transit.

Missourians should take two major lessons from Puerto Rico’s experience. First, the private sector is capable of maintaining transportation infrastructure. The commonwealth’s largest airport, toll roads, and public transportation system are privately operated. Second, the private sector can provide significant capital for improvements. The lease of Puerto Rico’s toll roads and airport netted $1.7 billion in upfront payments and commitments for an additional $1.35 billion in infrastructure improvements. Missouri residents should learn from Puerto Rico’s example and explore areas where the private sector can help the state improve transportation. Missouri would be better off if these options were explored before the next funding or debt crisis.

November 18, 2014

University City Should Carefully Consider Privatization Proposal; Ignore Special Interests

University City is considering outsourcing emergency medical services (EMS). Predictably, this proposal has been the subject of debate among city council members. Two council members have questioned whether the city should outsource one of its core services, while another member urged the council to remain open minded until they have all the data on outsourcing.

The Show-Me Institute has written favorably about EMS privatization policies in the past. Privatization, when done right, can increase efficiency and expertise, provide improved services to the public, and decrease costs. However, all outsourcing proposals must be carefully considered to ensure privatization is done properly.

The University City Council ought to investigate the specifics of this privatization proposal for how it would affect services and city finances, rather than shooting from the hip and accepting or rejecting a privatization proposal on purely political grounds. Public employees, city officials, and businesses that the city may contract with are all interested parties in any outsourcing effort. When deciding whether to contract out services, the council should do its best to ignore the special interests and focus on the details of how this proposal affects the city as a whole.

Private ambulances have served parts of Saint Louis County for years, and University City might be able to benefit from private ambulances as well.

November 6, 2014

Proposed Property Tax Increase Fails in Columbia

Since the proposed property tax increase failed in Columbia, it seems the city is heading for a disaster of biblical proportions. I mean Old Testament, real wrath of God type stuff. Fire and brimstone coming down from the skies! Rivers and seas boiling! Forty years of darkness! Earthquakes, volcanoes . . . the dead rising from the grave! Human sacrifice, dogs and cats living together . . . mass hysteria! Okay, not really. In fact, if you read my commentary on the ballot measure, you’d know that crime, especially violent crime, and the total number of fires are actually declining in Columbia. This is a good thing.

However, what if you’re among the more than 10,000 residents who feel that Columbia needs a bit more in the way of police and fire protection? I’d say don’t despair. There are other means by which the city can increase revenues without resorting to a property tax increase.

For instance, the city could look at the fire expense reimbursement that it receives for services that it performs for the three colleges located in town. According to the Columbia budget, these reimbursements are declining and have been for the past couple of years. Columbia can renegotiate with these colleges in order to get higher reimbursements.

Columbia also could look into privatizing its water and electric utilities. The sale of these types of utilities can bring in an immediate infusion of cash to cities’ bank accounts. For example, the city of Florissant, Missouri, privatized its water utility in 2002 and received $14.5 million from the sale. More recently, the residents of Arnold approved the sale of their sewer system, which brought the city $13.2 million. Not only can the sale of the utilities themselves bring in more money to the city, but privatization can also expand the city’s property tax base, which would generate more revenue in the future.

The instances of crime and fire have declined in Columbia, yet for those who believe that public safety is underfunded, there are other ways to raise revenue besides a tax increase. Maybe it’s time they explore them.


November 5, 2014

Arnold Residents Vote to Privatize Sewer System

Yesterday, the residents of Arnold voted to privatize their wastewater system by an overwhelming margin (70 percent of voters approved). While some of the larger local and state results may have captured Missourians’ attention, the result in Arnold is a step in the right direction for efficient, responsible government in that city.

Over the last couple months, we have written how privatizing the wastewater treatment facilities will be able to leverage the expertise and capital available in the private sector to provide better services and keep prices down. The sale price, $13.2 million, can be spent to retire debt and to create a rainy-day fund.

But as with all privatizations, effecting a sale should not be the end of public engagement. Arnold residents must ensure that the money from the sale is spent or saved in a wise manner. They also must ensure that city officials hold the private company, Missouri American Water, responsible for providing safe and efficient services.

Should the city be diligent in these areas, the privatization of Arnold’s sewer system has the opportunity to become an example to Missouri of how water treatment, like many public services, can be effectively provided through the private sector.

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 14, 2014

Wastewater Privatization: Case Studies

As Arnold residents prepare to decide whether to sell wastewater facilities in their city to Missouri American Water, they should consider cases where privatizations of this type have already occurred. Water and wastewater privatization in Saint Louis County and Illinois provide some useful comparisons.

Increasing budget constraints and needed upgrades have pushed many cities to privatize public systems in recent decades. A Saint Louis-area example is the privatization of water services in Florissant in 2002. The city divested its water services to Missouri American Water for a total of $14.5 million. The results, as a Show-Me Institute case study on privatization in Missouri noted, were positive:

Florissant took its $14.5 million and immediately budgeted $2,758,000 for street repairs, police projects, and public works projects. It deposited $10 million into a newly created special reserve fund, which served the city for several years after the sale of the water division. The remainder was placed into the city’s existing reserve fund. According to a 2007 city memorandum, “The timing of the sale of the water distribution system was extremely fortuitous and gave the city the cushion necessary to work through the dramatic drop in revenue without correspondingly dramatic service cuts.”

Florissant officials have been satisfied with the service, and Missouri American Water continues to provide water services to large parts of Saint Louis County.

While a wastewater privatization deal has not occurred in the Saint Louis area, many cities nationally have privatized this type of utility. A nearby example is in Mount Vernon, Ill., which contracted with a private company to design, build, and operate a wastewater treatment plant for 20 years in 1986. At that time, Mount Vernon did not have the resources to upgrade its aging treatment plan, thereby running afoul of environmental protection laws and preventing new industry from locating in the city. Environmental Management Corporation (EMC) entered into a deal with the city to build a new treatment plant in return for operating the system for 20 years, retaining and even retraining the existing employees. The city has since extended the agreement to 2023.

As these cases show, privatization of water and wastewater systems can be an effective way of providing public services in fiscally constrained cities.

October 4, 2014

Arnold Wastewater Privatization: The Policy Breakdown

As Arnold residents prepare to decide on whether to sell the city’s wastewater facilities to Missouri American Water for $13.2 million, they should carefully consider both the possible positive and negative results of such a deal and whether the city of Arnold is getting a fair price for its facilities. And while we would argue this is a good deal for Arnold, residents should consider some general criticisms of water privatization deals, which are listed (with opponent responses) below:

Criticism: Privatized water systems mean higher rates for residents. Many cities that have privatized water or sewer systems, including Florissant, Missouri, have seen rates rise, usually faster than inflation.

Proponent response: Wastewater and water system privatizations often occur because cities are faced with expensive, necessary upgrades to sewer infrastructure. Cities that charge a utilities fee that is too low to generate enough funds for large upgrades are forced to decide between a large tax increase or subsidies from the general fund. In the case of Arnold, the city claims it will have to increase rates should privatization not occur. Luckily, Missouri American Water reports that its rate increases will be less than those the city would implement, even with necessary capital improvements.

Criticism: Cities are selling city assets in order to receive short-term cash infusions. This short-term gain will result in high utility fees in the long-term.

Proponent response: Just because cities could spend sales money foolishly, does not mean they will do so. In Florissant, the city spent a portion of the sales proceeds on immediate needs and put $10 million in a rainy day fund. Arnold plans to use proceeds to pay off existing debt, but beyond that residents should ensure that the city does not spend wastefully.

Criticism: Some cities with privatized water systems have seen the drinking water become unsafe. Companies looking to make a profit might cut corners and provide lower service.

Proponent response: Private water and wastewater management has a proven track record in the United States. The vast majority of municipalities that privatize their water or wastewater system end up renewing the contract. Like municipally owned water utilities, in individual cases private companies fail to meet safety standards, but this is not the norm. Also, the issue of water quality is less important under a wastewater system privatization than a water system privatization, for obvious reasons.

The residents of Arnold should carefully consider these questions surrounding the planned wastewater privatization deal, and whether both the funds the city will receive and benefits of private management outweigh the risks of selling a public asset.

August 12, 2014

New Tech To Improve Parking In St. Louis City

Last week, officials with the City of Saint Louis announced their decision to install a new type of parking meter. This is the result of months of a competitive process and trials at specific locations in the city. The winners of the $5 million contract were Xerox and Parkmobile. The city’s plan to update street parking is a win-win situation, with opportunities to implement demand-based pricing as well as maximize the performance of the city’s meter system.


Above is one of the pilot units of Xerox’s solar-powered IPS single-space meters. The meters accept both coins and credit cards (although the minimum time for a credit card purchase is 1 hour). The Parkmobile app allows people to pay over their phone by space number. The app can warn costumers when only 15 minutes remain, and if the overall time limit is not expiring, users can renew their spot over the phone.

Upgrading the city meters can aid both the city’s bottom line and those people looking for parking. For the city, it reduces the cost of enforcement, as officers can know where expired meters are and focus their ticketing efforts. Moreover, the city can use the data from both the meters and the Parkmobile app to measure the performance of certain parking areas, allowing variable pricing to maximize city revenue.

From the perspective of those looking for parking, the city’s effort to properly price and enforce meter limits can mean more available parking. The new meters and Parkmobile app will make payment convenient and mark the end of having to feed the meter. Additionally, the mobile apps and parking meters may allow people to find available parking by providing information on available spaces, eliminating the hassle of cruising for parking, and decreasing urban congestion. Finally, the city is also conducting a study that might result in the removal of parking meters that do not generate enough revenue for their upkeep. That type of optimization, which saves the city and drivers, is long overdue.

For the City of Saint Louis to realize these benefits, officials must be prepared to coordinate data collection to create a more market-oriented street parking environment. If the city can manage that, and take advantage of rapidly improving software capability, these updates will improve the lives of city residents and the city’s bottom line.

June 5, 2014

When It Comes To Privatization In Education, We Say Opaa!


My colleague David Stokes has a terrific paper about the privatization of public services in which he highlights many examples of public/private partnerships that benefit society. I thought of his paper when I read this story about a Kansas school district that recently announced it is privatizing its food service:

A decision made Friday morning by the USD 382 Board of Education will result in some changes in the school cafeteria next August — a greater variety of food, more made-from-scratch items, and a possible reconfiguration of space to enhance food presentation and improve efficiency.

A change more visible to the board and administrators will be a hoped-for move of the food service budget out of the red and into the black.

At a special meeting, the Board approved a contract with Opaa!, a Missouri-based company, to manage food service for the district.

The contract is projected to save the district between $30,000 and $60,000.

Opaa! is a family-owned and operated company located in Chesterfield, Mo. The company is partnering with more than 100 public school districts to provide nutritious meals.

This is another example of how private companies can provide services that public entities once provided. It also goes to show that “privatization” need not be such a scary word in education.

May 15, 2014

Great Idea Will Be Hard Sell In Olivette

I think the proposal by BWB Sports to build a privately operated athletic center on leased public land in Olivette, Mo., is terrific. At the same time, I understand the qualms many Olivette residents may have about the proposal. This looks like a great idea that is too much, too fast; a terrific proposal coming at the wrong time, like Galileo under house arrest or Jason Bateman in “It’s Your Move.”

The proposal is for BWB Sports to lease the land that now holds the Olivette Community Center and athletic fields around it. (My kids have played many team sports on those fields.) The company wants to build ice rinks, lacrosse fields, and more, and operate it as a private entity. BWB officials do not appear to be asking for a subsidy (I’ll amend this post if they are), which is one of the reasons I support this. However, the fact that they are going to lease this land will likely limit the expansion of the tax base, as the city will still own the land. (There likely will be some tax base expansion from business equipment taxes, concession sales taxes, etc.) Not to mention the fact that the company will pay Olivette to lease the land.

So, basically, you have some residents of Olivette telling me that the park and community center really are not in very good shape and desperately need an upgrade. While others – the ones showing up at the meetings attacking the proposal – are demanding that the park be protected and the land preserved.

There is no doubt about one thing – this is not a half-measure. This is a major change to the property that I think would significantly upgrade the facilities and use of the land. The only thing the proposal is missing is an outright sale of the property, which is politically impossible and legally complicated. So they are just leasing it, but I doubt that means much to the opponents.

I hope that Olivette officials can see the long-term benefits in this proposal. But, unlike other NIMBY situations, I see some merit in the residents’ concerns. This is not like recent disputes in Brentwood, Maryland Heights, or South County. I understand why some neighbors are objecting. As I said in my study about privatization in Missouri, park privatization proposals are very contentious for good reason. Outsourcing the management of existing park facilities is not that controversial, but wholesale changes to parks themselves are.

This is the latter. I hope it passes. I think the long-term benefits are significant for Olivette and Saint Louis County. This plan would increase use of the property, grow the tax base (somewhat), inject private money into Olivette recreation instead of counting on tax dollars, and more. But I am not going to attack the opponents as NIMBY-based obstructionists, even the Keynesians among them.

March 28, 2014

Further Remonstrances On Clayton Tax Increases

Last week, I blogged about the Clayton economic development sales tax proposal. While that is a bad idea in and of itself, it is unfortunately part of a much larger package of tax hikes. There are four (four!) different proposed tax hikes for voters to consider on the April ballot. If you think that is a lot, well, . . . it is.

I want to focus here on the property tax aspect. The proposals call for two different bond issues, each requiring a separate tax increase. One is for neighborhood road improvements in Clayton, and one is for improvements to Shaw Park, mostly the ice rink. If they both pass, the property tax increase would be 24 cents per $100 of assessed valuation.

Supporters of this tax hike, and most tax hikes, like to make the numbers seem small. “Only 25 cents added to an average restaurant meal” or something similar. For this tax hike, I keep hearing it is less than $20 a month for an average Clayton home. Fair enough; that does not sound so bad. (Math is $500,ooo home x 24-cent tax increase per $100 of assessed valuation = $228 annually.)

However, Clayton residents benefit from the enormous business concentration there, and businesses don’t get a vote on the tax hike. (They can vote with their feet, metaphorically.) What is the tax hike here on a Clayton business?

Well, we don’t know it by business, but we can easily figure it out by building. Take one of Clayton’s nicest buildings: 7701 Forsyth. If these two property tax increases go through, it’s owners would pay $21,175 more each year. That is $21,000 more to support park and road improvements that will benefit the businesses far less than the residents. (The road bonds are all for neighborhoods, not the business areas.)

Take its sister building, 7733 Forsyth. That property would pay $32,000 more in property taxes under these proposals. This for a building whose owners already pay well over a million a year in property taxes. That means higher rents in Clayton. These higher rates would also apply to business property (factory equipment, copiers, computers) so there would be less capital investment in Clayton, though I admit that effect likely would be very small.

That is $53,000 per year from two buildings that already pay an extra downtown tax assessment that can be used for their central business district streets. (It usually isn’t, but it can be and likely has been in the past.) At some point, asking Clayton businesses to pay much higher property taxes that will primarily benefit the residents is a poor policy choice, in my opinion. At a minimum, the proposal to increase the property tax for park renovations should be shelved in favor of privatizing the rink’s operations (but not ownership) just like the Saint Louis City has done with Steinberg Ice Rink.

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