July 22, 2014

This Illustration Of Missouri Pension Enhancements Says It All

Costrell_2014_Figure_2

Today, the Show-Me Institute released a new case study by Robert Costrell, professor of economics and education policy at the University of Arkansas. His paper, “Teacher Pension Enhancement In Missouri: 1975 to the Present,” illustrates how state lawmakers have consistently enhanced retirement benefits for teachers. These enhancements have helped create the system we have today, which has an incredible spike in benefits around a teacher’s 25th year and many other flaws.

For more information about pensions, I encourage you to check out our “Missouri Government Pension Fast Facts.”

 

 

 

 

 

 

 

 

July 18, 2014

Op-ed: Proposed Amendment 7 Is Bad Policy

Today, the St. Louis Business Journal printed my commentary on why the proposed Amendment 7, which would implement a 0.75-cent sales tax to pay for Missouri’s roads, is bad policy.

The op-ed corrects some of the misconceptions that exist about Missouri’s highway system, particularly the idea that the state’s roads and bridges are “crumbling.” While Missouri’s transportation infrastructure can improve in many areas, the fact is that the highway system is in good shape whether you compare it to other states or simply the condition of Missouri’s roads 10 years ago. There is no crisis that should scare Missouri voters into supporting a policy that is destructive and inequitable.

The Missouri Department of Transportation (MoDOT) does have a funding problem, but paying for highways based on how much people shop, instead of how much they drive, is unfair and economically unsound. A better solution is to raise the gas tax or implement tolls on major highways.

If You Haven’t Registered For Our July 31 Friedman Legacy Day Events, What Are You Waiting For?

McShane

 

For a number of years now, we have partnered with the Friedman Foundation for Educational Choice to celebrate the life and work of Nobel Prize-winning economist Milton Friedman. In his 1955 piece, “The Role of Government in Education,” he introduced the modern concept of the school voucher. He wrote:

Governments could require a minimum level of education which they could finance by giving parents vouchers redeemable for specified maximum sum per child per year if spent on “approved” educational services.

Parents would then be free to spend this sum and any additional sum on purchasing educational services from an “approved” institution of their own choice. The educational services could be rendered by private enterprises operated for profit, or by non-profit institutions of various kinds.

Later in his life, he became an even stronger advocate for empowering parents through school choice.

This year, in honor of his efforts to expand school choice, we are hosting two Friedman Legacy Day events.

The first is at 8:30 a.m. in Saint Louis at De La Salle Middle School. Mike McShane, a fellow at the American Enterprise Institute, joins us for an interesting discussion about private schools closing and re-opening as charter schools.

The second event is at 6:30 p.m. at the Kansas City Central Library. Economist Mark Skousen will share stories of his long friendship and debates with Milton Friedman.

We hope you will join us for at least one of these events. For more information, please visit the events tab on the Show-Me Institute website.

Skousen

July 15, 2014

Breaking: Another Study Backs Up The Show-Me Institute

The Competitive Enterprise Institute grabbed our attention when it released a new report comparing the unfunded pension liabilities of all 50 states. Spoiler alert: Missouri ranks in the middle third (more on this later).

An interesting point raised in the report was that, “…the discount rate used in the valuation of liabilities should be a low-risk rate, ideally as low as the rate on Treasury bonds.” In a Show-Me Institute Policy Study, Andrew Biggs also urged state pensions to use a low-discount rate in valuing their liabilities (the discount rate is the interest rate that pension plans use to translate future liabilities into current dollars). It’s encouraging to know that other institutes are reaching similar conclusions.

However, it isn’t encouraging that this report found that after using a more appropriate discount rate, the amount of Missouri’s unfunded pension liabilities totaled more than 4 percent of Missouri’s entire economy. As of the end of last year, Missouri’s economy was $258 billion; 4.2 percent of that is $10.8 billion. If the state cannot make up that amount, then you, the taxpayer, are on the hook to make up the difference. Table7.1There are other states whose pensions are in much worse shape than Missouri’s, but our state still faces an economic ticking time bomb. Whether dealing with a grenade (Missouri) or a daisy cutter (Illinois), taxpayers will not be happy to be caught in the blast. The Show-Me Institute has written extensively about how Missouri can start to address its pension problems by shifting to more efficient plans such as defined contribution or cash balance plans. Hopefully, this new report can serve as a wake-up call to policymakers that change is needed.

June 6, 2014

Breaking: New Study Supports Old Show-Me Institute Study

I admit that I like to spend a good portion of my spare time at the casino. I gamble even though I know that the odds favor the house. At least I’m gambling with my own money. Public employee pension systems, on the other hand, make bets with other people’s money. Increasingly, they are taking riskier bets in the hope of hitting the jackpot. That’s what the Pew Charitable Trust found in their  new study. As the study’s authors show in the figure below, public pensions are shifting away from safer investments (e.g., U.S. Treasuries and Corporate Bonds) and toward riskier assets (such as equities and commodities) that are expected to deliver higher returns on investment.

Pension Asset Allocation

This behavior is taking place in Missouri. For example, in the late 1990s, the Missouri Department of Transportation and Highway Patrol Employees Retirement System (MPERS) had 42 percent of their assets in fixed income and cash. Equities and alternative investments such as real estate made up the rest. Now, MPERS has 22 percent of its assets in cash and fixed income.

The pensions are doing this “to deliver higher long-term returns in order to keep funding costs low . . .” In fact, in one of our previous policy studies, Andrew Biggs noted this phenomenon when examining how Missouri’s public pensions value their liabilities: “U.S. public sector plans, by contrast, have taken on greater investment risk, because doing so allows them to lower the accounting value of their liabilities and put off difficult decisions such as raising contributions or lowering benefits.”

I don’t have a problem with a pension plan seeking higher returns, but if these investments don’t deliver as hoped, then Missouri taxpayers will be on the hook to make up the shortfall. That is why I favor retirement plans such as defined contribution plans or cash balance plans that limit the exposure of the taxpayers to investments failing to generate expected returns. Hopefully, we can make a shift before one of these risky bets fails to pay off.

U.S. public
sector plans, by contrast, have taken on
greater investment risk, because doing so
allows them to lower the accounting value
of their liabilities and put off difficult
decisions such as raising contributions or
lowering benefits

June 3, 2014

Show-Me Institute Presents: Missouri’s Economic Record In The 21st Century

During good times and bad, Missouri is failing to keep up economically with its neighbors. In the Show-Me Institute’s new essay, “Missouri’s Economic Record In The 21st Century,” by Rik Hafer and me, see why we give Missouri’s economic performance during the current century a grade of “D” and how such a record could mean serious trouble for future Missouri residents. Please give it a look.

May 9, 2014

Missouri’s Tax Reform Journey Has Only Just Begun

Taxes IconFor Missouri’s tax reformers, this was one big week. Sure, the legislature passed the state’s first individual income tax reduction in nearly a century. But Tuesday’s override vote also signaled that the sands in the Missouri capitol are finally shifting toward sound, market-oriented, and growth-promoting tax policies, and away from Jefferson City’s business-as-usual tax policies.

As an organization that has helped lead tax reform efforts in Missouri for many years, the Show-Me Institute is pleased to see the legislature take this baby step of reform. Make no mistake — this is a very modest tax cut, and smaller than we preferred. But to be clear, this tax cut serves as a mile-marker on the path of greater reforms.

Thanks to the hard work of countless supporters of the free market, that pathway of reform is now opening wide. Policymakers are finally recognizing that the words “free market” actually mean something . . . and that free markets actually matter.

When we at the Show-Me Institute say that we believe in free markets, what we’re really saying is that we believe in people. We believe in people to invest in themselves and their families and to make this state a better place to live. We believe in that bottom-up solution which puts its faith in our people, not a top-down plan that puts its faith in the government. We believe in you.

And we believe this week’s tax cut is just the first step on the road to enduring, people-empowering tax reform in this great state. We look forward to the future, and we hope you’ll join us on our journey to make our state even better.

April 17, 2014

Pennsylvania’s Tax Credit Scholarship Program…Winning!

This week, the Show-Me Institute released our third and final case study about tax credit scholarship programs in other states: “Pennsylvania’s Education Improvement Tax Credit Program: A Winning Educational Partnership.”

The study’s author, Andrew LeFevre, is well acquainted with Pennsylvania’s tax credit scholarship program, having served as the executive director of the REACH Alliance and the REACH Foundation, statewide school choice organizations. He wrote:

In 2001, Pennsylvania became the first state in the nation to enact a highly innovative public-private partnership in the form of an education tax credit aimed at corporations. Since then, the popular Educational Improvement Tax Credit (EITC) Program has provided more than 430,000 scholarships to students from low- and middle-class families . . .

In 2012-13 alone, the program provided more than 68,000 K-12 and pre-K scholarships. “The EITC Program has accomplished what many have been advocating for years: a way for the business community to be involved in children’s education and provide more schooling options,” LeFevre said.

I encourage you to check out this new case study along with our studies about tax credit scholarship programs in New Hampshire and Arizona. I also invite you to learn more about tax credit scholarships by attending our event on April 25, “Expanded Opportunities: A Discussion About Tax Credit Scholarships.”

Lindenwood_Event_Banner

April 11, 2014

Mark Your Calendars For Our April 25 Tax Credit Scholarship Event

Lindenwood_Event_Banner

When I speak about tax credit scholarships, I get a lot of questions: What is a tax credit scholarship? How would that work? What are the chances of that passing in Missouri?

If you want to find out the answer to these and other questions, join us on April 25 at Lindenwood University in St. Charles, Mo. We are partnering with the Hammond Institute for Free Enterprise at Lindenwood University to present a dynamite event, “Expanded Opportunities: A Discussion About Tax Credit Scholarships.”

Jason Bedrick, of the Cato Institute, and Jonathan Butcher, of the Goldwater Institute, will present information about how these programs are working in other states. You can download their recent case studies for the Show-Me Institute about the New Hampshire and Arizona programs directly from our website.

Attendees also will be able to take part in a panel discussion with Missouri Sen. John Lamping (R-Dist. 24), Sen. Maria Chappelle-Nadal (D-Dist. 14), Missouri Speaker of the House Tim Jones (R-Dist. 110), and Rep. Michael Butler (D-Dist. 79).

RSVP online, mark your calendars, tell your friends, and join us on April 25.

March 19, 2014

A Victory For Government Accountability In Kansas City

When the Missouri Legislature considered creating a land bank for Kansas City, the Show-Me Institute was opposed. We argued in testimony before the legislature that the existing Jackson County Land Trust was as effective as any similar agency across the country. We testified that:

There does not appear to be any evidence that the Jackson County Land Trust is doing a poor job of getting vacant property back into private, productive use.

Considering the Saint Louis example, any effort in Kansas City was likely to fall prey to Kansas City politicians who might direct the city to hold onto property on behalf of favored constituents or special interests. We are glad to report that the Kansas City Land Bank has addressed these concerns. On March 3, the Board of Commissioners adopted the following resolution:

The Land Bank supplements the Code of Ethics with the additional requirement, that any Commissioner that receives a contact from an elected official or staff lobbying for or against particular application for a property held by the Land Bank shall disclose such contact to the Land Bank staff within a reasonable time thereafter, and shall disclose that contact to the other Commissioners prior to voting upon the particular application for which such contact was made.

The board also will start listing the reasons for any application rejection in the minutes so that applicants and others can understand the commissioners’ decision-making process. This is a great win for transparency in government, and we congratulate the land bank board for taking this important step.

February 21, 2014

Next Wednesday: A Public Discussion About Kansas City International Airport

As the Kansas City Business Journal reported, Kansas City’s City Council recently passed an ordinance that requires a public vote on any proposal that would demolish or replace the current terminal structure at Kansas City International Airport. The ordinance also bars the use of public dollars to campaign for or against any future proposal. That means that the Kansas City Aviation Department’s proposed new $1.2 billion single terminal plan cannot go forward without the approval of voters in Kansas City.

We at the Show-Me Institute have written about the new terminal plan many times. We have expressed skepticism at the lack of alternatives to the expensive new terminal plan. Our research has pointed out the danger of the airport assuming so much debt. We also have cast doubts on the Aviation Department’s alternative repair cost estimates.

Now that the law states that the public must approve any new terminal plan, it is more important than ever for residents to be informed regarding the costs and benefits of the new terminal plan.

With that goal in mind, the Show-Me Institute hosts a meeting about the future of Kansas City International Airport from 6:30 to 8:30 p.m. on Wed., Feb. 26 at the Kansas City Public Library (Central location: 14 W. 10th Street in Kansas City). Show-Me Institute Western Missouri Field Manager Patrick Tuohey and I will present our research about the proposed new terminal plan and answer the public’s questions. This is a free event so sign up today to attend and receive valuable information about the airport plan that does not come straight from the Aviation Department.

February 17, 2014

Show-Me Institute Presents: Missouri Transition Costs And Public Pension Reform

The Show-Me Institute has talked about the need to reform public employee pension plans so they are financially secure and more attractive to potential hires. However, some public pension reform opponents believe that closing these plans would be risky and result in added transition costs.

In our new policy study, “Missouri Transition Costs and Public Pension Reform,” Andrew Biggs, a resident scholar at the American Enterprise Institute, addresses these concerns. Biggs argues that “claims of transition costs are at some times, overstated and, at other times, entirely mistaken.” After reading the study, you will find that fears about supposed transition costs are no reason to stop efforts to move public employees into an improved pension system. Please give it a look.

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