One problem with the debate over payday loan regulation in Missouri and elsewhere is a lack of sustained focus on data. Regrettably, both opponents and proponents of regulatory legislation within the state seem to cling reflexively to familiar, abstract narratives and consequently fail to engage the public with meaningful evidence to support their assumptions. To alleviate this problem, I am compiling this list of literature — both sympathetic and unsympathetic to the payday loan industry — to enrich the public dialogue. If any of you know of more quality literature on the topic, please add to this post in the comments.

1. Payday Holiday: How Households Fare after Payday Credit Bans (ungated), Donald P. Morgan and Michael R. Strain.

   “Compared with households in states where payday lending is permitted, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate. North Carolina households have fared about the same. This negative correlation—reduced payday credit supply, increased credit problems—contradicts the debt trap critique of payday lending.”

2. The Economics of Payday Lending (ungated), John P. Caskey, Swarthmore College.

   General overview of payday lending industry and basic issues. Written for a lay audience.

3. Do Payday Loans Cause Bankruptcy? (ungated), Paige Marta Skiba and Jeremy Tobacman.

   “Though the size of the typical payday loan is only $300, we find that loan approval for first-time applicants increases the two-year Chapter 13 bankruptcy filing rate by 2.48 percentage points.”

4. Factors Affecting the Location of Payday Lending and Traditional Banking Services in North Carolina (ungated), Mark L. Burkey and Scott P. Simkins.

   Explores the geography of payday loan institutions. “A key finding is that after controlling for many covariates, race is still a powerful predictor of the locations of both banks and payday lenders.”

5. The Profitability of Payday Loans (ungated), Paige Marta Skiba and Jeremy Tobacman.

   “Despite charging effective annualized rates of many thousand percent, we find lenders’ firm-level returns differ little from typical financial returns. The data are consistent with an interpretation that payday lenders face high per-loan and per-store fixed costs in a competitive market.”

6. Quantifying the Economic Cost of Predatory Payday Lending (ungated), Keith Ernst, John Farris, Uriah King:

   “Our analysis of quantitative data reveals that payday lenders collect the vast majority of their fees from borrowers trapped in a cycle of repeated transactions, where borrowers are forced to pay high fees every two weeks just to keep an existing loan outstanding that they cannot afford to pay off.”

7. A Comparative Analysis of Payday Loan Customers (gated), Edward C. Lawrence and Gregory Elliehausen.

   “By analyzing the data collected in a national survey of payday customers, this research allows policymakers to better understand what type of consumer borrows from payday lenders, for what purpose, and what the true benefits and costs are. The results confirm a strong demand for payday loans that satisfy a real financial need within a certain segment of the population.”

8. Mayday Payday: Can Corporate Social Responsibility Save Payday Lenders (ungated), Carmen M. Butler and Niloufar A. Park.

   “In this article we ask what the best ways are to maximize the wealth of the payday lending industry while limiting the industry’s harmful impact on consumer communities? We assert that payday lenders will likely demonstrate greater corporate social responsibility only after there is a change in the laws that govern the industry coupled with industry-wide reform in corporate governance.”

9. Restricting consumer credit access: Household survey evidence on effects around the Oregon rate cap (ungated), Jon Zinman.

   “Borrowing fell in Oregon [after interest rate caps] relative to Washington, with former payday borrowers shifting partially into plausibly inferior substitutes: bank overdrafts and late bill payment. Additional evidence suggests that restricting access caused deterioration in the overall financial condition of Oregon households. Overall the results are consistent with restricted access harming, not helping, consumers on average.”

10. Consumers’ Use of High-Price Credit Products: Do They Know What They Are Doing? (gated), Gregory Elliehausen:

    This paper asserts that consumers of payday loans are sufficiently rational. A caveat, however, is that rationality is a just a process and does not imply that “good” decisions are made.

Some op-eds include:

• In Defense of Usury (gated), by Dean Karlan and Jonathan Zinman
• Congress Takes Aim at Payday Loans (ungated), by Robert DeYoung
• Payday Loan Reform Bad for Borrowers (ungated), by Justin Hauke

The last of those op-eds was written by a former employee of the Show-Me Institute. Perhaps unsurprisingly, my views on payday loans are fairly similar to his. Taking an economic view, I’m concerned that regulatory reform will be unable to limit payday loan harms effectively without driving the market underground. Taking a political view, I view payday loan consumers as sufficiently rational and believe that a government (at least in this arena) has more of an imperative to maintain free, private contracts than to protect the politically weak.

This notice may be too late for those of you who read our blog to tune in, but for those of you Columbia readers who encounter this blog entry right after I post it and find yourselves near a radio, be sure to tune in to The Eagle 93.9 FM at 4:33 p.m. to hear research assistant John Payne talk about unemployment and possibly our new study of the relationship between taxes and economic growth.

For those who missed the application deadline for the Koch Summer Fellowship, there is still an opportunity to work at the Show-Me Institute this summer! Today, the institute announced its summer 2010 internship program, which will take place at our new central west end office location, and will run from approximately mid- to late May until late August.

As a “small-shop” think tank, interns at the Show-Me Institute have the opportunity to be involved in all sides of the organization: assisting scholars with research, writing op-eds, blogging, and event planning. Internship positions are full-time and interns are paid on an hourly basis.

Show-Me Institute staff writer Audrey Spalding interned at the institute for a year before being hired as a full-time staff member. She credits the institute with giving her valuable job skills. “I can confidently say that without my Show-Me Institute internship, I would not have the research skills I now have. I filed more than 500 freedom of information requests as an intern.”

Applications are due by April 15, and applicants will receive notification by late April.

Here at the Show-Me Institute, we have been following the North Face / South Butt lawsuit with great interest. Many of us know the father of the South Butt founder’s line of fine clothing, and think the entire lawsuit by North Face to be ridiculous. So, last month on my annual family ski trip to Colorado, I could not resist getting a few pictures taken of me in my South Butt T-shirt. Needless to say, the North Face store in Beaver Creek seemed the perfect location to snap a few photos. Enjoy, and I hope everyone at the South Butt keeps up the fight for truth, justice, and humorous relaxation.

Click to enlarge.

Sorry for the late notice, but two Show-Me Institute staffers will be making appearances later today — one on the radio, and one in person.

Research assistant John Payne will be a guest on the Freeman Bosely Jr. morning show on KATZ 1600 AM, once again talking about the St. Louis–area Metro transit system. His segment is scheduled to start somewhere between 11:00 and 11:15 a.m. If you want to listen but are not in St. Louis (or don’t have a radio), you can listen online at www.gospel1600.com. You can also read John’s op-ed about MetroLink expansion and watch his recent appearance on Fox 2 news.

Also today, policy analyst Dave Roland will be the keynote speaker at the Missouri Libertarian Party Convention in Jefferson City! He’ll be speaking about the importance of capturing the hearts and minds of Missourians in our efforts to spread the ideas of liberty and take practical steps toward increased freedom. The Show-Me Institute doesn’t engage in electoral politics, but we’re always happy to share our ideas with others — so, Democrats, Republicans, Greens, what have you, be sure to let us know when you’d like us to speak at your events, as well. We’d love to talk to you.

Charles Jaco just finished taping an interview with Show-Me Institute research assistant John Payne, about the Metro mass transit system in the St. Louis area. At least some portion of it is slated to appear in tonight’s FOX 2 news broadcast at 10:00. Be sure to tune in. [UPDATE: The video is now online.]

For more information about St. Louis transit, read Payne’s recent op-ed about MetroLink, which also ran on the Riverfront Times blog and in the St. Louis Business Journal. His commentary attracted some attention from a Metro board member, who responded on our blog, followed by a short rejoinder by Payne.

The Show-Me Institute ran a trio of pieces in October 2008 about transit funding in St. Louis, considering the problem from different angles. We’ve also been fortunate enough to publish a few pieces analyzing Kansas City light rail plans, by transit scholar Randal O’Toole and policy analyst David Stokes. Although these latter pieces considered the issue specifically as it relates to the Kansas City area, many of the broad observations about light rail costs and efficiency apply just as well to St. Louis.

I wanted to note that Alderman April Ford-Griffin called me today to discuss the proposed open space map that NorthSide Regeneration Regeneration LLC submitted as part of its plan for a $8.1 billion development of the city of Saint Louis.

I have written about how owner-occupied homes appear to be slated for open space, as are some area businesses.

When I asked Ford-Griffin about the fate of Fehlig Brothers Box & Lumber, a 137-year-old area business that, according to NorthSide’s plans, will become open space, she said that much detail can’t be read into the company’s plans.

“That is a concept,” she said. “That is not a document where you take it and say this is what’s going on this block and this is what’s going on that block,” she said.

You can read the updated report, with Ford-Griffin’s comments, here.

On Feb. 23, I wrote about the proposed “open space” that NorthSide Regeneration LLC, has planned for the company’s $8.1 billion development of the city of Saint Louis. According to NorthSide’s plans and other publicly available documents, at least four owner-occupied homes are slated for open space.

When discussing the possibility of eminent domain, NorthSide representatives, including developer Paul McKee and attorney Paul Puricelli, have stated that eminent domain won’t be used to take owner-occupied residences. The specificity of the qualification “owner-occupied residences” should make anyone looking into the project take pause. After all, there are many types of properties that are important to lives and livelihoods that aren’t owner-occupied residences — for example, businesses. In the latest Show-Me Report, I profile Fehlig Brothers Box & Lumber, a business slated for open space.

First, I’d like to thank Hugh Scott for his response to my op-ed arguing against expansion of the MetroLink system. I doubt we will ever see completely eye to eye on the subject, but an informed dialogue can still be illuminating for everyone involved.

Before I respond directly to any of Scott’s points, let me just clarify something that may have been unclear from the op-ed (a 700-word format does not allow for full explanation of every point): I was not arguing against the proposed half-cent sales tax. My point was that we should not expand the MetroLink system into areas with relatively low population densities because the lines would have low ridership and be even more heavily reliant on tax dollars than current lines.

Scott observes that the flexibility of buses is a disadvantage as well as an advantage, a point well-taken. Light rail is undoubtedly better than buses when it comes to understanding routes. However, the question is whether that disadvantage outweighs the advantages of flexibility and lower costs that buses provide, and my answer is that it depends on population density. The denser an area, the more rail should be preferred to buses, and vice versa.

With regard to the possible lines of MetroLink expansion, Scott is perfectly right that Metro does not plan on expanding the system without federal funds to diffuse the costs of constructing the line(s). However, even if a new line would not cost area taxpayers a cent to build, it could still be a bad deal for them if very few people rode it and they were then on the hook for operating costs. Again, my argument is that the best method of forecasting ridership is through population density. Aside from the north-south corridor, none of the proposed lines come close to matching the densities found along the current lines.

Finally, I agree that MetroLink performs well against the light-rail systems of other cities, but that is a relative metric when the question should be an absolute one: Do the benefits justify the costs? Even existing lines do not meet the profit-loss test used in the private sector, so light-rail systems are not efficient by our most common metric for success. Perhaps we need another absolute standard we could use to determine which light-rail lines are successes and which are failures, but for now the best that can be said is that it is unclear whether the benefits of MetroLink expansion would outweigh the costs.

The Show-Me Institute recently released an op-ed by research assistant John Payne titled, “Adding New MetroLink Lines Too Costly, Inefficient.” The piece appeared on the Riverfront Times blog on Feb. 15, along with comment from the paper, and ran in the St. Louis Business Journal on Feb. 19.

We recently received a thoughtful response from Hugh Scott, III, who has been a member of Metro’s Board of Commissioners for nearly five years, commenting on Payne’s op-ed. In the interest of furthering dialogue about important issues like public transit funding, his entire letter appears unedited below:

As even noted anti-tax advocate Glenn Beck acknowledged on his show yesterday, (2/22/10) some taxes are necessary. In the case of public transit, I would maintain that taxes supporting these systems inure to the economic benefit of metropolitan areas. Public transit enables people to commute to jobs and transit centers provide a critical mass of customers for businesses located near them. Not only does Metro employ 2000 St. Louisans but it assists countless thousands of workers to get to jobs in healthcare, retail, manufacturing and distribution. For many of these commuters, no public transit would mean no job.

Show-Me Research Assistant John Payne misses the mark in his article, “Adding New MetroLink Lines Too Costly, Inefficient.” While he tacitly agrees that public transit is important for our community, he advocates opposition to the proposed referendum for a ½ cent sales tax on the April ballot. The focus of his criticism is on the part of the proposal which suggests some the addition of light rail corridors. Extending light rail is however, not the major thrust of the proposal.

Throughout its history, BiState (Metro) has not had sufficient dedicated taxes to support its operations. It has relied on the beneficence of the City of St. Louis and the adjoining Missouri and Illinois counties, the States of Missouri and Illinois, and the Federal government to provide operating subsidies. Some of these entities have been generous over the years. Others have been quite parsimonious. In all cases, awarding of funds is arbitrary and Metro must beg for money from its stakeholders on an annual basis. If Metro is expected to operate in a business-like manner, it must have a stable reliable source of revenue. This, in fact, is what the April 6 ballot proposal is really all about.

When the last tax measure failed in a very close vote in November of 2008, Metro was forced to cut 40% of its bus and train service and 400 staff members. This resulted in the loss of at least 5000 jobs in our community. While half of these cuts were quickly restored due to the receipt of emergency funds from St. Clair County and the State of Missouri, deeper cuts will be necessary if the proposed tax is not approved by the voters. With the approval of the new tax, pre-2009 service will be restored and the current system will be able to operate on a stable financial footing for the first time in memory.

Other short term (1-5 year) priorities include implementation of a bus rapid transit system similar to the “higher speed bus routes” advocated by Payne, adding amenities such as a “smart card” fare system, and beginning planning for more light rail. These programs will be implemented only after the pre 2009 service is in place and only when funds are available. The five year plan does not call for construction of new light rail corridors.

Putting a light rail extension in service will take a minimum of ten years. It will also require large amounts of federal funds in order to build. Metro does not believe that the community should “foot the bill” for any Metrolink expansions without the majority of the funds being provided by the federal government. Instead Metro is asking for funds to begin the planning process so that when federal funds become available for light rail expansion, St. Louis will be in line. It only makes good sense to spend some money on planning. Otherwise, federal money for light rail will go to other cities and St. Louis will be left out.

Payne tries to make a case for increased bus service as opposed to more light rail. He asserts that buses are a better form of transit because they are cheaper and provide more flexible route opportunities. This was precisely the argument made by former BiState CEO, Col. Rudolph Smyser in the 1960’s when he ordered the shutdown of the last of the street car lines in St. Louis.

While it may be argued that buses are superior to light rail from an economic standpoint, flexibility of routes is precisely the problem with buses. Businesses which might prosper by being near a transit stop do not locate near bus stops because a bus stop might easily move to another street or corner. Many non-transit dependent customers will not ride buses because it is often difficult to know where the bus is going. With streetcars, subways and light rail, one need only look at a map showing landmarks or look down the track to know where the car is headed.

In some ways, Metro has successfully mitigated the confusion caused by changing bus routes by creating a hub and spoke system integrating buses and light rail. Thus a person who boards a bus that says “Clayton Station” can expect to travel to the Clayton Metrolink station. Similarly, a passenger who boards our most heavily traveled bus route, Grand Avenue, can be confident the bus will travel north or south on Grand without deviating. In a sense, our increased market share in buses may be in part attributed to our lack of flexibility with routes not the reverse.

In conclusion, Metro has built a world class transit system which integrates bus and rail service quite successfully. While our population density might be low for light rail travel our market share compared to peer group cities is very high. Light rail continues to gain popularity from non-transit dependent riders and nationally, our market share is in the top three cities in our ten city peer group. The April ballot proposal is about preserving this fine system. Our first priority must be to stabilize the existing system. Future planning is always important but it comes further down the list of priorities.

The purpose of this post is to walk through the math that Dr. Joseph Haslag and Abhi Sivasailam used in their case study, “Previous Estimates Overstate ‘Fair Tax’ Rates, Harms,” in an effort to be completely transparent.

First, they estimated the average family size in Missouri:

average family size = (size of Missouri population) ÷ (number of resident filers)

= 5,778,901.81 ÷ 2,626,773.55 = 2.2

Next, they estimated the size of the average rebate value, using the federal poverty threshold approximation associated with a family of 2.2, which is $15,393:

average rebate value = federal poverty threshold approximation × sales tax rate proposed in HJR 36

= $15,393 × 0.0511 = $786.58

Then, they estimate the cost of the rebate system, which is equal to the amount of rebates awarded:

(average rebate value) × (number of families qualified for the rebate) = (cost of rebate system)

$786.58 × 2,626,773.55 = $2,066,167,540

Lastly, they compute τ, the revenue-neutral tax rate:

τ = (government revenue + cost of rebate program) ÷ (aggregate personal consumption)

τ = ($7,117,761,408 + $2,066,167,540) ÷ $158,531,333,333 = 0.0579313171 = 5.793 %

where government revenue equals the sum of individual income, corporate income, and sales taxes.

We see that the size of the tax base, β, decreases if the amount of exemptions increase. This indicates that the sales tax needs to be assessed on a broad base in order to for the rate to remain low. By decreasing the number of exemptions that exist in the status quo, Missouri can establish a sales tax rate that’s lower than other estimates have suggested.

In their case study, Haslag and Sivasailam explain that expanding the list of services that are taxed would not result in a dramatic increase in the cost of living. In a previous post to this blog, Sivasailam elaborated on this concept:

[I]t’s important to understand that a change in the tax code implies a change in incentives. People and firms alike respond to these changing incentives in many ways, including altering their supply and demand of goods and services. With that in mind, the claim that the prices on all goods and services would increase by the tax rate is misleading.

Today, the Missouri Budget Project published a piece that attempts to address the Show-Me Institute study about the “Fair Tax” by Dr. Joseph Haslag and Abhi Sivasailam. There are a number of points of contention that I will identify here.

• The Missouri Budget Project misattributes numbers to the Show-Me Institute.

  The Missouri Budget Project claims that the Show-Me Institute revised its number to from 5.11 to 6.25 percent. This second estimated percentage belongs to former state Rep. Ed Robb, not to a Show-Me Institute publication. Furthermore, Robb’s calculations were his independent evaluation of a specific piece of legislation, not a reference to the Show-Me Institute study written by Dr. Haslag and Abhi Sivasailam.

• The Missouri Budget Project takes the exemptions out of the tax base, but they do not take them out of the rebate amount. Also, they don’t communicate why these products and services are inappropriate to tax and should therefore be exempted.
• The Missouri Budget Project ignores the issue of growth rate in its calculations.

  Assuming a rate of growth is standard procedure, and the Show-Me Institute study includes one, but Missouri Budget Project does not. Are they assuming a zero percent growth rate?

  Dr. Haslag elaborated on this point of contention in his comment responding to “Matt” on a recent blog post by David Stokes:

  The strongest case for PCE, in my view, is that reducing the tax rate on income results in faster growth. Neither MBP nor you have offered an alternative that increases the economy’s growth rate. No doubt, the tax on PCE is distortionary. To do the right experiment, we need a model of economic growth that accounts for facts observed in the world. The Ak model does so. Moreover, the economy’s equilibrium growth rate is a function of the income tax rate. By my calculations, reducing the income tax rate adds more than one-half percentage point to the state’s annual growth rate. This growth more than offsets the excess burden associated with the tax on consumer spending.

• After taking exemptions out of the tax base, the Missouri Budget Project applies the the amount of the rebate to a broad base. This is a very big difference.

  Dr. Haslag responds to this in the same blog comment:

  Along those lines, every time something is exempted, the rebate must shrink since the rebate is based on the concept of a refund on things that people buy that are subject to the tax. If you want to talk about accuracy, you should be aware that MBP and others have fixed the rebate while shrinking the tax base. In other words, they change the definition of the tax base and apply that definition while keeping the old definition of the tax base when they compute the rebate. There are two equations in two unknowns and the definitions must be the same across the two equations. MBP, citing ITEP, violate this definition across the two equations.

• The debate between the Missouri Budget Project and the Show-Me Institute concerns the size of the tax base and the size of the rebate, not the arithmetic.

  Dr. Haslag again:

  Since my calculations are made as transparent as possible, you can check my math. No one is questioning the accuracy of my arithmetic. Indeed, you are asserting my assumptions are wrong. Under your premises, my assumptions are wrong. I do not accept your premises. I digress, but I want things to be as transparent as possible.

It’s laudable that Missouri Budget Project is increasing its effort at making its analysis more transparent. At least its newest piece provides more detail about how the organization arrived at its estimate.

My recent post about how government agencies in Missouri spent $2,047,457.28 on Credit Card Fees and $17,940.49 on Late Payment Penalty Charges during 2009 has generated some interest! The KC Prime Buzz blog and the Political Fix blog both linked to it.

The Political Fix blog initially titled its article “Missouri state agencies fact check blogger,” later changing it to “Credit check: State agencies dispute Show-Me Institute figures.” Both titles misrepresent the truth. The numbers that I reported were produced by Missouri government agencies, not by the Show-Me Institute or myself. The data in the “Show Me: The Spending” web tool comes directly from the Missouri Accountability Portal, which contains information reported and distributed by the state of Missouri.

I spoke with Lorna Domke, outreach and education chief for the Missouri Department of Conservation, who checked with her accounting office and discovered that funds had been misallocated. In an email, she provided the following clarification to me:

Our contracting services for our Permits sales system (”POS system”) should have been through an object code #2496, “other business services.” That category should have had $1.789 million put in it instead of in the object code #2487, “credit card fees.”

Her numbers check out. I isolated these numbers in the Show-Me: The Spending web tool, and then I exported the relevant data to Excel to combine into the following graph. In 2009, the department’s expenditures on credit card fees increased by about $1.7 million and its expenditures on “other business services” decreased by the same amount.

According to her email, the correct FY09 credit card fees total should have been $31,616 and the correct FY08 credit card fees should have been $32,439.

I also asked Ms. Damke if she could define this category for me, because some of our blog readers raised questions about which types of fees it might contain. In the email, she provided the following clarification:

“Expenditures for the fees incurred when accepting payment by credit card.”

Credit card companies will charge the vendor (our Nature Shops in our case ) a fee of a few% of purchase plus 20 or 30 cents per transaction for each purchase, depending on the agreement. So our credit card fees are only for paying the credit card company for being able to accept credit cards for payments. They do not include any interest, late fees, etc.<just the regular fees for accepting credit cards.

At the Show-Me Institute, we’re glad to see that the Department of Conservation admitted that it made a mistake in coding its expenditures. It would be nice if they could get it right the first time. It would also be nice if other departments would also check their numbers. As reported on the Political Fix blog:

Department of Public Safety officials said the figure is misleading, and does not represent late payments from the department.

The Department of Public Safety should check with its own accounting office, because that’s the origin of the numbers that I reported.

[NOTE: After an article in the St. Louis Post-Dispatch's Political Fix blog covered this entry, and after speaking to an official from the government department in question, Christine Harbin wrote a follow-up entry that contains updated information. — Editor]

As if enough taxpayer money weren’t already going toward banks!

The expenditure for all of Missouri’s government agencies combined increased from $381,553.98 in 2008 to $2,047,457.28 in 2009, which represents an increase of 436.61 percent.

The breakdown between agencies is particularly puzzling. In 2009, the Department of Conservation in Missouri paid $1,818,208 in credit card fees. This represents an increase of 1,141.25 percent from 2008’s expenditure. It dwarfs the amount of credit card fees that the secretary of the state’s office and the Department of Natural Resources paid, which was $183,894 and $30,854, respectively. The amount paid in credit card fees by the other agencies combined was $14,501, which is nevertheless $14,501 too much.

Total of Spending on Credit Card Fees by Agency (in 1,000s)

When I look at the trend of this information over time, I am speechless. What is going on here?

Trend of Spending on Credit Card Fees by Agency (in 1,000s)

I discovered a similarly disturbing trend when I looked at the amount of Late Payment Penalty Charges by government agency. The public safety department spent $17,494.22 in 2009, which represents an increase of 43,168 percent over the previous year! The total for all Missouri government agencies in this category increased from $327,432.60 to $17,940,490 during this period, which is an increase of 5,379 percent.

Total Spending on Late Payment Penalty Charges by Agency (in 1,000s)

In my opinion, this is the quintessential example of government waste and fiscal irresponsibility. The amount of money that the government spends on things like credit card fees and late payment penalty charges should be zero. This figure doesn’t include the amount of products and services that these government agencies purchased. It also doesn’t include the amount of interest that they were charged. This number consists solely of the extra fees that were incurred on government credit cards. Can any of our blog readers explain the dramatic increase in either of these numbers? I’m really interested to know.

I discovered this information while playing with the Show-Me Institute’s recently-launched web tool, “Show-Me: The Spending.” I encourage our blog readers to play with the site and see what else they can uncover related to Missouri’s government spending.

Using the Show-Me Institute’s “Show-Me: The Spending” online tool, I discovered some curious trends in the Missouri state budget. One that caught my eye was the budget for the office of the governor, which increased from $165,000 in 2008 to $1,132,000 in 2009:

One category of spending that showed a huge increase was “professional services,” which jumped from $8,000 to $428,000. The main component of this increase is “attorney services,” which cost the office of the governor $401,281. I did a quick Google News search to see if there was any media coverage explaining this increase, but no luck. Attorney services are probably necessary in some capacity, so the question is: What specifically is responsible for this steep escalation in spending?

Another large portion of this budget increase is funding for travel, which grew from $53,000 to $281,000, the largest amount spent on travel since 2000:

According to an article in the Columbia Missourian from last June, state flight records show that Gov. Jay Nixon flew on about 50 days during his first four and half months in office. As the article notes, this adds up to about one flight every three days. I have to wonder whether this amount of travel is really necessary. What’s more, the article in the Columbia Missourian also notes that Nixon has frequently charged the cost of his airplane travel to other government agencies. The governor’s explanation, when asked about this back in June, is that during these particular trips, he spent time highlighting the issues that are handled by those various other departments. Maybe this is justified in certain circumstances, but on one particular occasion, 11 different state offices, including the Departments of Agriculture and Revenue, split a $1,295 bill so that the governor and the first lady could fly to the Missouri-Kansas basketball game on March 1 (their host was Kansas Gov. Kathleen Sebelius). Even if this is deemed to be a necessary expense, which seems unlikely given the current economic climate, why wouldn’t it fall under the governor’s office travel budget?

The almost sevenfold increase in the total budget for the governor’s office is inconsistent with his claims of fiscal responsibility in the State of the State address. And the current governor isn’t the only one who has overseen questionable budget increases; there was a dramatic spike in the 2006 travel budget of former Gov. Matt Blunt, as well. The lesson here is that Missourians should keep a watchful eye on government finances, and that it is important for all Missouri officials to examine their budgets carefully in order to eliminate unnecessary expenses.

I attended the Show-Me Institute’s forum on Missouri’s tax system in Columbia yesterday, which featured a spirited debate about the most efficient and equitable method of taxing Missourians. Show-Me Institute scholar Ed Robb defended a “Fair Tax,” and argued that by replacing the state income and corporate taxes with a somewhat higher and broader sales tax (with an exemption for the poor), Missouri could significantly boost its economic growth, making us all better off. However, Amy Blouin of the Missouri Budget Project countered that the sales tax would have to be much higher than Robb estimates in order to offset all the revenue the state would lose by eliminating other taxes. Finally, Mizzou economics professor Jeff Milyo made the case that the type of taxation is not nearly as important for economic growth as the level of taxation (lower taxes result in higher growth), but a sales tax might be marginally preferable over an income tax because it is lower and broader.

I am by no means an expert on this issue, but one of Blouin’s arguments against the sales tax struck me as odd. Blouin contended that if we replaced all other taxes with one simple sales tax right now, it could tie Missouri’s government to recession levels of revenue, which are much lower than normal. The first problem with that is a tax on consumption should not be any more sensitive to economic fluctuations than a tax on income — both rise and fall with the business cycle. In fact, the Show-Me Institute’s executive vice president Joseph Haslag, who is also an economics professor at the University of Missouri–Columbia, has argued that sales taxes tend to be less volatile than income taxes.

More importantly, however, even if the Fair Tax were to lock Missouri’s government into a relatively low level of taxation, what’s wrong with that? According to this chart I generated using our new “Show-Me: The Spending” tool, government spending in constant 2009 dollars has grown from $14 billion in 2000 to $19.1 billion last year — an increase of more than 35 percent.

Even as revenues fell in 2009, spending still increased at a rate of 9 percent during 2008. Maybe if revenues were to remain low, politicians and bureaucrats would learn more quickly that they cannot spend tax dollars with no thought for the long-term consequences.

Thanks to the Columbia Missourian today for publishing my op-ed about dental therapists and professional licensing laws in Missouri. It’s an issue we have debated here on the blog before.

Today, the Show-Me Institute launched four new online tools that enable Missourians to track state spending, employee pay, tax credits, and stimulus projects. These tools take state-provided datasets and make them understandable and intuitive for just about anyone. You can create your own graphs or quickly compare detailed information among state agencies.

In my opinion, there couldn’t have been a better time for Missourians to have these tools. At 7 p.m. today, Gov. Jay Nixon will deliver his State of the State address. Given the continuing decline in state tax revenues, Nixon could soon announce another round of budget cuts, on top of the hundreds of millions already cut from the state budget this fiscal year.

Sen. Jason Crowell has argued that tax credits should be part of the state budget process, instead of allowing government agencies to dole out credits with little regard for how much the state can afford to give out each year. And, of course, state agencies and local governments across the board have accepted hundreds of millions in federal “budget stabilization” dollars, which lets them stave off cuts, for now.

Our online tools can help you put these issues into perspective.

Although a $200 million round of budget cuts may seem drastic, state expenditures in 2009 were up more than $1.5 billion from 2008 (see the “Spending Overview” tab). As for state tax credits, I was surprised to see that the amount issued each year varies wildly (see the “Overview” tab) — from a high of more than $500 million in 2006 to less than $150 million in 2009. Most startling is the amount of federal money that state agencies and local school districts are leaning on. The Department of Elementary and Secondary Education has spent nearly $350 million of federal budget stabilization money, and has less than $100 million left (See the “Spending & Revenue by Program” tab).

The data behind these tools will be updated each week, which means you can check back periodically to see what’s new. It’s my hope that these tools are an easy way to keep up with what the state is actually doing, instead of the latest political rhetoric.

The 1-percent earnings tax on Kansas City and St. Louis residents and workers has received a lot of press as of late. The Kansas City Star published an article about the “city’s crucial earnings tax.” Christine Harbin recently posted about the earnings tax in Kansas City, pointing out how a land tax would be better than an earnings tax, because it would encourage landowners to utilize their property productively. The St. Louis Post-Dispatch wrote about the earnings tax from another angle, mentioning Show-Me Institute President Rex Sinquefield and the institute’s research on the tax.

The Post-Dispatch editorial used a loaded term, “public safety tax,” to describe the earnings tax, not because it pays for the Metropolitan Police Department — it doesn’t — but because its revenue is coincidentally equal to the Police Department’s budget. This is not the first time the Post-Dispatch has taken a contrary position regarding the earnings tax than Show-Me Institute writers, though it has toned down its rhetoric since August. The new article discusses a need for a replacement tax for the earnings tax revenue, neglecting to mention that the Show-Me Institute has suggested a replacement: the land tax.

Specifically, Show-Me Institute publications have suggested a two-tiered land tax that would impose separate taxes on property and buildings. Land is fixed in quantity, so this would encourage long-term development. In the long run, rescinding the earnings tax could cause the St. Louis city population to double.

Both St. Louis and Kansas City have watched their city populations and businesses stagnate while their suburbs have grown, and the earnings tax is one contributing component that needs to be addressed. Petition proposals have been approved to collect signatures for the St. Louis earnings tax to be reconsidered on the ballot, with the stipulation that a revenue replacement needs to be found. For St. Louis, the land tax makes the most economic sense as that replacement. When an editorial claims that eliminating the earnings tax is infeasible, it’s important to take into account the potential of the land tax to provide a less-distortionary source of revenue and ultimately promote future economic growth.

Missourinet reports on the recent back and forth between supporters and detractors of a change in Missouri tax code. The change, proposed by House Joint Resolution 56, would eliminate the current income tax and replace it with a broad 5.11-percent sales tax. Detractors — specifically, the Missouri Budget Project — have claimed that this policy would be disastrous for businesses and consumers alike. To address some of their longstanding concerns, the Show-Me Institute recently released a study written by Dr. Joseph Haslag and I, in which we computed the necessary rate for a broad sales tax to maintain revenue neutrality after replacing the income tax. We then proceeded to demonstrate how this rate would not have the disastrous effects on standard of living and private-sector vitality that critics claim. Our arguments have yet to be fully engaged.

In Missourinet’s piece, Amy Blouin, executive director of the Missouri Budget Project, claimed:

“Childcare … that’s going to be taxed,” said Blouin. “Educational services, tutoring, private K-12 education if your kids are in a private school – a Catholic school – you’re going to pay this on those schools.”

Former Missouri Budget Director Jim Moody echoes Mrs. Blouin’s concerns and worries about the effects of the expansion of the tax base:

“That [includes] hospitals, doctors, everything in medical care,” said Moody. “So you’re going to tax, at 5.11 percent, things you’re not currently taxing – prescription drugs, medical care, hospital visits, nursing homes.”

They’re right. It’s true, all those goods and services will be taxed under the change, along with several others that have historically been exempt from taxation. Unfortunately, Blouin and Moody fail to appreciate that tax changes do not happen in a vacuum. This is a subtle point, but — as we have argued before — although the prices of these newly taxed goods would increase by the sales tax rate, several changes would simultaneously occur elsewhere in the economy to make consumers better off.

To begin with, its important to understand that a change in the tax code implies a change in incentives. People and firms alike respond to these changing incentives in many ways, including altering their supply and demand of goods and services. With that in mind, the claim that the prices on all goods and services would increase by the tax rate is misleading. In the long run, prices would increase at most by the tax rate, but this increase would be dampened by microeconomic changes.

Prices would indeed increase, but consumers would also become richer following the repeal of the income tax, and some of that reclaimed wealth would be used to protect against price increases stemming from the sales tax. Meanwhile, lower corporate and personal income taxes would create strong incentives for the inflow of people and investment funds to the state. In the long run, this translates to higher employment, higher incomes (which shield against price increases), and, ultimately, greater revenues from sales tax receipts.

In the process of presenting her case against the tax change to the state legislature, Blouin has suggested that 95 percent of Missourians would be hurt by HJR 56. It’s difficult to follow her reasoning. It is clear that 100 percent of Missourians would be affected by this policy change, but the claim that 95 percent would be hurt is unsubstantiated by the evidence. In the study I cowrote with Dr. Haslag, we presented a model that we used to compare tax burdens under both the current income tax rate and the proposed sales tax rate. We even used our own computation of the sales tax rate, 5.96 percent, which is higher than that suggested in the bill. We found that the break-even point was $60,000. At this income level, the burden under both tax systems was comparable. Because only 28 percent of Missouri tax filers in 2008 earned incomes higher than $60,000, the 95-percent figure that Blouin cites seems highly suspect. Hopefully, she will clarify her arguments and engage our own.

We have had a rather busy week or so in the media. More important than the past, though, is the future — so everyone in St. Louis please listen in tomorrow morning during the 10 a.m. hour, when Professor Joe Haslag will be appearing with McGraw Millhaven on the Big 550, KTRS, to discuss income and earnings taxes.

Also, I appeared last night on KMOV Channel 4 in St. Louis to talk about the Show-Me Institute’s several state income tax studies that were conducted by others here. (Why did I do the interview if others did the work? Because I was the only one available at that exact time, that’s why.)

There have also been a number of stories about the earnings tax in the Kansas City Star. In the interest of brevity, I’ll just link to the one column in the Star that favorably discusses the idea of replacing the earnings tax with a land tax. Another piece takes a less glowing approach, but we appreciate the Star taking the debate seriously.

Dave Roland was quoted in the St. Louis Post-Dispatch with his thoughts about the government spending millions to retrain St. Louis auto workers for the anticipated green jobs of the future. You can probably guess how he felt about the insane proposition that the government has any idea what the jobs of the future are.

Finally, our research assistant Josh Smith did his first radio interview with the Eagle, 93.7 FM in Columbia, about the proposal to require a prescription for all sales of medicine containing pseudoephedrine. Needless to say, Josh (and I) think that proposal is wrong, to put it politely. I should clarify that it was Josh’s first radio news interview while he has been with the Show-Me Institute. He has been on the radio before. In fact, I am pretty sure he was the seventh caller when he was in fourth grade and won tickets to the New Kids on the Block Show. He is still pretty psyched about that. …

Ray McCarty of the Associated Industries of Missouri recently wrote an op-ed, “Film tax credit needs a real shot,” in the Springfield Business Journal as a rebuttal to my op-ed on the same subject. I realize that I have already written extensively about this, but I’d like to take this opportunity to respond to the points that McCarty made.

First, it is more than likely that the money spent by filmmakers via tax credits would have been spent anyway in the market, by private individuals. If a hotel hadn’t rented a room to a member of the film production crew, they could have rented it to somebody else. If the restaurant hadn’t seated the producers at a table, they could have given the table to another party. I think that it is fallacious to assume that, had it not been for the tax credits, these Missouri resources would have been unemployed.

McCarty writes:

Harbin also misses the fact that the movie industry is nontraditional.

Saying that something is a fact does not make it a fact. The only thing that makes an industry like filmmaking “nontraditional” is the fact that the government has intervened to such an extent that it has distorted the market. Health care is another industry that is often described as nontraditional, but as I have described previously on this blog, health care is subject to the same market mechanisms as any other industry.

McCarty also writes:

Lastly, Harbin mentions that it may be better for Missouri to leave the filmmaking to other film states “like California.” She may not know this, but California found itself weakened between 1998 and 2000. Between those years, the U.S. lost $10 billion worth of film productions to Canada, which passed film tax incentives. Southern California alone lost about 35,000 jobs due to the shift to Canada.

It makes economic sense that California would produce fewer films because it had to compete with states and other countries. Filmmakers like Jason Reitman are smart businesspeople, and they will go wherever they can get the best deal. I disagree that this refutes my statement that Missouri shouldn’t feel that it has to compete with other states for filmmaking, however.

Michigan has pursued the filmmaking industry particularly aggressively, and its state legislature is already discussing repealing the program. Missouri would be smart to specialize in producing according to its comparative advantage (i.e., in products that aren’t filmmaking), and then realize gains from trade with those states. Missourians will still be able to enjoy the benefits of the product (i.e., film), and at a much lower cost (i.e., the price an admission ticket at a movie theater vs. the price of subsidizing the production).

As another advantage of producing according to its competitive advantage, Missouri would have an opportunity to differentiate itself. Instead of producing the same products and services as other states do, Missouri could produce the goods and services that are uniquely Missourian.

Furthermore, McCarty did not dispute my argument that targeted tax credits hurt businesses in non-favored industries. By providing special advantages to a select industry, targeted tax credits force everyone else in the market to compete at a disadvantage. In a previous blog post on Show-Me Daily, Dave Roland explains this better than I do:

True economic development happens best when governments allow businesses to compete on a field that offers no special advantages to any of the players. The government does a grave disservice to its citizens when it assumes the responsibility for picking winners and losers in the market, rather than letting businesses succeed or fail on their own merit.

Another argument of mine that McCarty does not address is the one relating to the supreme opportunity cost associated with film tax credits. What else can Missouri do with this money? What is so special about the film industry, in contrast to other industries? Why doesn’t Missouri target hog farmers or economic research analysts or education or infrastructure?

Maybe in a couple of years, each state in the union will offer tax credits that are targeted to filmmakers, thereby negating the artificial comparative advantage that currently exists in states like Missouri. I can only hope.

The Show-Me Institute’s Dave Roland was recently quoted in an article about charter schools in the Springfield News-Leader. He communicates some benefits:

“Part of the reason (traditional public) schools have gotten into the situation they are in — having quality problems — is they effectively have a captive audience. They don’t have to earn students,” said Dave Roland of the Show-Me Institute, a think tank that promotes free-market solutions to public policy.

“Wealthy parents already have the option of moving into the best school districts, or the best zoning within districts,” he said. “The idea of school choice is we make sure low-income parents have the same range of options.”

Last summer, I had the privilege of being a Koch Summer Fellow for the Show-Me Institute. It was a terrific experience, and I recommend it to anybody who is interested in public policy and liberty. The Charles G. Koch Summer Fellow Program flew me (and the other 81 fellows) to Washington, D.C., for a week at the beginning and end of the summer, where we listened to lectures about liberty, participated in career workshops, made group policy presentations, and had an overall good time.

For the other eight weeks of the program, I interned at at the Show-Me Institute in St. Louis. As a state-based organization, the Show-Me Institute gave me more opportunities to research and write about policy issues than I would have had at a larger national organization. There were also weekly deadlines for the KSFP program, writing op-eds and letters to the editor, and watching online lectures.

And why should you care about my summer internship experience?

The Koch Summer Fellowship Program (run through the Institute for Humane Studies) is accepting applicants for next summer! Any college or graduate student interested in free-market public policy (whether at the federal or state level) should apply. (Make sure to specify the Show-Me Institute as a preferred destination on your application!)

This 2010 program lasts from June 5, 2010, to August 13, 2010. As a state-based fellow, you receive:

A $1,500 stipend for the duration of the fellowship

Travel allowance to and from D.C. (for both of the week-long seminars)

Housing allowance

The deadline for applications is January 31, 2010, and admissions are rolling. APPLY TODAY!

We don’t generally use Show-Me Daily to ask for your support — instead, we keep it consistently updated with new observations about public policy and economics, and encourage the lively discussions in our comment threads. It’s worth noting, however, that this blog is made possible by individual contributions from people like you. The end of the year is rapidly approaching, and a small donation to support our work would be a tremendous help in furthering the cause of freedom in Missouri.

The economy has been tough lately, as politicians respond to fiscal crisis by spending ever larger amounts of tax revenue and still clamor for more. It’s important to be frugal, but we must remind you that although the economy is still stalling, our work in fighting for fiscal sanity is not in recession. It’s more important than ever that friends of freedom stand against the latest tide of public opinion — against economic illiteracy and government handouts, against higher taxes and even higher spending, against the kind of burdensome regulation and red tape that hampers market growth and prevents price mechanisms from allocating labor and capital efficiently. If we want the economy to recover, it will take a powerful voice calling for economic freedom. The more people who support the Show-Me Institute’s efforts, the louder that voice will grow.

It doesn’t take much. A donation of as little as $25 will help us: conduct the best in academic-caliber economic research; spread the word about the value of free markets and individual liberty through speaking events, our websites, and in group discussions; promote government transparency and accountability; and reach out to the many people who are on our side but don’t yet know we’re here. The best ideas in the world only provide results if people hear them and act on them, and that’s more likely to happen if we stand together.

So, during this holiday season, if you’re trying to find a gift for the person who has everything, try an investment in freedom. The rest of our prosperity hinges on that freedom. It’s also the kind of gift you can give to yourself.

If you’d like to know more about the ways in which you can help the Show-Me Institute fulfill its mission of “advancing liberty by promoting market solutions for Missouri public policy,” contact Rebecca Bruchhauser: (314) 726-5655 or rebecca.bruchhauser@showmeinstitute.org

Thanks.

Steve Walsh on Missourinet linked to my recent op-ed about filmmaker tax credits in Missouri, which is a subject that I have blogged about before.

Thanks to John Combest for linking to the post.

As our regular readers will remember, on Nov. 18, the Show-Me Institute published a study that discusses recent research on the impact that charter schools are having on students’ academic achievement. At that time, we sent the study to newspapers across the state, along with an op-ed I had written discussing its findings. As is the case with any op-ed, my ability to address nuances in the research was dramatically limited by the need to keep it short enough for newspapers to consider publishing it. Thus, I was unable to go into great detail about the various studies and instead focused on the primary goal of the piece: making people aware of this new study so they could consider it for themselves.

When the Springfield News-Leader expressed interest in running the op-ed, they asked me to trim it down by 50 words so that it would fit their publishing parameters. As I hope readers will see, an op-ed’s final form rarely allows the author to offer a comprehensive picture of all the information they would convey if space were no constraint. Perhaps as a result of this necessary brevity, some of the News-Leader’s readers have posted a few skeptical comments about my op-ed, so I’d like to take this opportunity to respond to the points they raise.

The first issue I’d like to address is that of my motives for writing on this topic. The commenter writing under the name “Ray Smith” suggested that I am part of a general effort to “undermine public education,” and that I have simply seized upon President Barack Obama’s “Race to the Top” initiative (which, in part, promotes the expansion of charter schools) as an opportunity to promote my own agenda.

I do have one comprehensive, all-encompassing agenda when it comes to the subject of education, and I don’t care who knows it. I want to make sure that all parents have the greatest possible range of options when it comes to deciding where their children will be educated. While I, myself, am a proud product of an excellent public school system, it does not matter to me in the slightest if parents prefer traditional public schools, charter schools, parochial schools, or secular private schools. All that concerns me is that children get the best available educations — and I firmly believe that the greatest likelihood of achieving that goal is to fashion education policy in such a way that parents can vote with their feet if they decide a school is not meeting their child’s needs.

As should be clear, many parents do not believe that their local traditional public schools are the best educational option for their children — and, with that being the case, it makes the most sense to help those parents find alternatives that will serve their families better. I suggested in my op-ed that, to the extent that charter schools expand the range of options available to parents, they serve as a step toward this goal. Thus, expanding charter school availability represents good policy. In my mind, it is merely a bonus that the best academic research is showing that most (though far from all) charter schools are performing as well as or better than their traditional public school counterparts when it comes to certain measures of academic achievement.

Which brings us to Mr. Smith’s suggestion that I believe charter schools to be a “magic bullet” that will solve the education problems rampant in our state — and his intimation that I was ignoring evidence that I did not like. To the contrary, when writing the op-ed, I wanted to make sure that I pointed out the evidence in our own study that calls into question whether charter schools always generate better results than traditional public schools. Mr. Smith correctly points out that the Stanford study shows that a significant number of the nation’s charter schools appear to be attracting students, even though the schools do not currently appear to measure up to their traditional school counterparts in regard to academic achievement as measured by standardized tests. The reason I addressed the Stanford study in the op-ed was because the authors of the recently released Show-Me Institute study did not have access to research that isolated Missouri’s charter schools, and I believed that it would be valuable to highlight the fact that, in spite of the Stanford study’s broader findings, the data do suggest that Missouri’s charter schools are performing better than most.

Here at Show-Me Daily, I can address the Stanford study’s findings a little more broadly. For charter opponents, of course, the suggestion that some charter schools are not improving their students’ academic achievement is a clear signal that these schools need to close. Maybe … but maybe not. I have previously stated on this very blog that I do not generally oppose the closure of especially bad charter schools. But the facts also bear out that official action is not necessarily needed to close these schools, because in cases where the situation is truly bad, parents will voluntarily move their children to a different school and that bad school will fail for lack of funding (much as any other business would).

Also,as I note in the op-ed, parents consider a wide array of factors when deciding where to send their children to be educated — and, for many parents, academic achievement may not be the most important factor. So, if a charter school lags a little bit behind its traditional charter school counterparts in academic performance, but dozens of parents still want to send their children there, maybe government officials shouldn’t force its closure. After all, we don’t allow government officials to tell wealthy parents what factors they can consider in choosing a school for their children, so why should we assume that government officials are within their rights to tell lower-income parents what factors they can consider?

And, finally, I will add that I would actually prefer that Missouri not seek “Race to the Top” funding. In my opinion, the Tenth Amendment should preclude the federal government from interfering with educational matters, because they have always been reserved to the states. While I do think it would be good policy to expand the availability of charter schools in our state, if Missouri’s legislators are not persuaded that a particular policy is the best idea for our families, they certainly shouldn’t adopt it simply because the federal government is dangling money out there as an incentive.

Our own Dave Roland published an op-ed in the Springfield News Leader today, “Reports say charter schools aid state’s struggling students.” He discusses a recent study by the Show-Me Institute demonstrating that the proliferation of charter schools is a desirable policy for Missouri and for the country.

Thanks to John Combest for the link.

I’ll be a guest on Charlie Brennan’s morning show on KMOX tomorrow from around 9:30–10:00 a.m. What will I be discussing? I’m glad you asked. …

Although we haven’t yet discussed it on the blog, I hope that all of our readers are aware that the St. Louis Police arrested Gustavo Rendon, husband of the president of the North Side Community Benefits Alliance. Why? Because he was distributing fliers that opposed the NorthSide redevelopment project recently approved by the city. Even worse, he just happened to be doing so outside the church of Alderwoman April Ford-Griffin, a staunch supporter of the project. So, two police officers arrived, threatened to put his kids in foster care if he didn’t stop distributing the fliers, then arrested him.

The charge? Affixing advertisements to private property.

Fortunately, the city attorneys quickly realized that the ordinance under which they arrested him didn’t, you know, prohibit what he was doing. And even if it had prohibited distributing fliers that communicated purely political ideas, the ordinance probably would have been unconstitutional anyway. So, today they announced that they were dropping the charges.

The bigger problem, which I hope to address with Mr. Brennan, is that Mr. Rendon’s arrest is suggestive of a much larger problem: powerful people trying to stop citizens from having their say on important public issues. In this case, it was police officers arresting someone for communicating opposition to a redevelopment project. In Jim Roos’ case, a city agency is trying to destroy a sign calling for an end to eminent domain abuse. In the Northeast Ambulance and Fire Protection District, officials tried to fine and ban from future meetings certain taxpayers who protested the district’s insane spending. And, of course, the Missouri Municipal League is using taxpayer money for a lawsuit with the primary goal of keeping off the ballot a constitutional amendment that would go a long way toward ending eminent domain abuse in the state — because they know it will pass if citizens are allowed to vote!

So, like I said, tune in tomorrow morning as Charlie Brennan and I discuss these issues. Who knows, there might even be some interesting surprises involved. And, if you can’t listen to tomorrow’s show, keep an eye on the Policy Pulse website, where Audrey Spalding is continuing to do excellent work reporting on abuses of taxpayer money and government authority.

Uh oh. News media and bloggers have been reporting all week about federal stimulus dollars going to fictitious congressional districts. The website Watchdog.org reported that, nationwide, the fictitious districts are receiving $6.4 billion in stimulus money.

I did some reporting of my own over at Policy Pulse, the Show-Me Institute’s news site, and found that four fake congressional districts had cropped up in Missouri to receive more than $900,000. KMOX picked up on the story here.

Was it fraud? Not really. The Recovery.gov website has a little data integrity problem. Federal grant and contract recipients are responsible for making their own reports of project progress. After a 20-day review period, the self-reported information is posted online. Apparently, federal agency employees can only alert a recipient that reporting errors exist; only recipients can fix them.

The reason we’re seeing so many fake districts is that recipients are required to choose a congressional district from a drop down menu. They can choose between a range from 00 to 99. And it looks like some recipients just guessed.

I looked through the data on Tuesday,which you can download in raw form here (scroll to the bottom of the page), and although fake congressional districts make for good headlines, I think there’s a bigger issue.

Contract and grant recipients aren’t required to report a project name, description, or status. In fact, for Missouri alone, 2,258 grant recipients and 76 contract recipients left all three fields blank. Yet only 18 of those were flagged for correction.

If Recovery.gov is really supposed to promote government transparency and accountability, why not require that federal stimulus recipients report what they’re actually doing with the money?