October 21, 2014

Chart Correction on Show-Me Institute Essay

An astute reader brought our attention to an error in one of our charts. The chart in question was in the foreword that I co-wrote with David Stokes to Professor Howard Wall’s essay discussing the negative effects of earnings taxes on city population and employment growth. There was an error in calculating one of the averages. The corrected chart is below:

Wall Chart 1e

Instead of losing population between 1990-2000, the cities without an earnings tax gained population over that period. This new result strengthens Professor Wall’s conclusion that earnings taxes negatively impact a city’s growth.

July 7, 2014

St. Louis Taxicab Regulations Needlessly Stifle Innovation

Auto IconIn a recent editorial in the Post-Dispatch, the co-owner of a St. Louis area cab company cautions us to remember, when talking about Lyft and Uber, that cab companies can innovate too. While this claim is surely true, the editorial goes on to argue that the heavy regulation imposed on the taxicab market in St. Louis is justified because it protects and benefits customers. These claims are not backed by the evidence.

Opponents of taxicab regulation argue that regulatory bodies like the St. Louis Taxicab Commission (MTC) stifle innovation, but that does not mean they stamp it out completely. Some St. Louis cab companies have begun using apps and other technology to improve service. But small, bureaucratically approved technological improvements do not make the St. Louis taxicab industry innovation friendly.  The MTC controls how many cabs there are, how they operate, and what they charge. That leaves little room for new business models and little incentive for innovative practices.

The editorial itself talks about how innovative cab companies can be while openly bashing innovative pricing practices, like peak pricing, tacitly supporting regulations to stop them.  The author states:

“Cab fares are public and never change. Cab drivers don’t jack up prices in times of high demand.”

Peak pricing for cabs makes perfect sense for both companies and customers. It incentivizes more cabs to drive during times of peak demand and pushes customers to travel during less busy times. That better matches cab supply with demand. And, as many St. Louisans learned on New Year’s Eve, an expensive cab that will give you a ride is better than a cheap cab that decided to stay home. A shallow understanding of innovation and market forces runs throughout the editorial and likely explains why so few St. Louisans can rely on prompt taxi service.

If we believe the author, taxi regulations are all about safety. Suspending the issuance of new taxi permits? All about safety. Requiring that prospective taxi companies provide proof that there’s enough demand for more taxis? All about safety. Requiring a commercial address with 24/7 operations? All about safety. Set pricing? Safety. Barring airport cabs from serving the city? Safety. Dress code? Of course, safety.

The fact is that most of the MTC’s regulations have nothing to do with safety and everything to do with protecting existing cab companies. And while there’s little doubt that innovative taxi entrepreneurs would be able to compete with Lyft or Uber absent the MTC, why bother when you can keep competition out under the guise of protecting the consumer?

July 1, 2014

What’s in a name?

Normandy rose

That which we call an unaccredited school by any other name would perform as well.  William Shakespeare spoke of roses, but his four-century-old logic applies to Normandy Schools Collaborative’s “nonaccredited” status.  The Missouri State Board of Education’s decision to give Normandy a “nonaccredited status” allowed the Board to take control of operations.  It essentially gave the district a do-over, but left many with questions concerning the legality of subsequent decisions:

  1. Can the Missouri State School Board set a tuition ceiling?
  2. Can receiving schools reject transfer students?
  3. Can Normandy prohibit new students from transferring?

These questions stem from the transfer law’s wording regarding unaccredited schools.   The law refers to a “district not accredited”.  According to the state board, Normandy’s new unclassified status of “nonaccredited” is somehow different than “unaccredited” (even though, non is Latin for not, non making this up).  Because of the new classification, schools like Francis Howell decided not to allow transfer students to return.   Using the same rationale, Normandy Schools Collaborative might not receive extra money from the 2015 state budget.  The additional funding is earmarked for intensive reading instruction and pre-K programs, programs meant to help low-performing, unaccredited schools like Normandy.

Normandy has a history of low-performance—low-achievement, high drop-out rates, and low college readiness.  If the goal of the state Board of Education is to give Normandy students access to high-performing, quality schools, calling the district by another name is not the answer.

June 30, 2014

Don’t Forget the Streetcar is Bad Policy

The $500 million Kansas City streetcar expansion plan is back in the news. With the August 5th election on the streetcar’s proposed transportation development district drawing near, media outlets have exploded with anecdotes on the development potential of the streetcar and stories on the city’s (possibly illegal?) public information campaign. But whether the city’s plan to provide door-to-door information on the streetcar directly ahead of the election is legal or not, no one should forget the incredible waste and dubious benefits of a streetcar system.

  • Mass Transit GraphIncredible waste: months ago, we pointed out that Kansas City could buy and operate 100 buses serving 130 miles of routes for the same price as the Kansas City streetcar expansion plan. While critics might claim that buses cannot be compared with streetcars (they can), the basic math is unchallenged. Streetcars, which provide only limited service improvement over buses, are many times more expensive and incredibly restricted in their range.
  • Dubious benefits: Streetcar supporters must have a hard time keeping a straight face when they claim that streetcars have any transportation benefit. Instead they rely on the argument that these projects bring billions in development. The evidence on this proposition is anecdotal at best, as cities with streetcars have heavily subsided surrounding development. Kansas City is already pushing ahead in this tradition, with anecdotes about new developments that are not so believable on closer inspection, and a raft of subsidies at the ready.
  • Everyone will be paying: Even though supporters freely admit that a streetcar is a development scheme limited to a small section of Kansas City, everyone else still gets to pay for it. After all, building a half billion dollar streetcar line can be financially difficult. The proposed transportation development district’s 1% sales tax and new property taxes will cover less than half of the streetcar’s total cost. The rest will come from the federal government, Kansas City residents outside the TDD, and if the proposed 0.75% statewide transportation sales tax passes, the whole state.

Streetcar supporters often make groundless statements about illusive millennials and streetcar economics, but they do make perfect sense when they say that now is a “once-in-a-generation opportunity with the streetcar project.” That’s because once the shine is off the new rails and promises of citywide transformation are unfulfilled, the streetcar will be seen for what it is: just another transit system. Another transit system that is as slow as a bus, but ten times the price. Perhaps that explains the rush to get as much money as possible, as quickly as possible.


June 18, 2014

Missouri State Board Of Education Robs Students Of Educational Opportunities

educational larceny


Larcenist is a strong word to call someone, but that is exactly what Missouri Sen. Maria Chappelle-Nadal (D-Dist. 14) called parents attempting to secure a good education for their children. The senator, who has otherwise been good on the transfer issue, was referring to parents who moved into the Normandy School District to take advantage of the transfer program, which allowed them to send their children to better schools outside the district. “I think it’s educational larceny for people to move into a community from another community just so they can attend another school,” Chappelle-Nadal said.

The Missouri State Board of Education seems to agree. Earlier this week, the board voted to revoke the transfer right of any individual who was not enrolled in the Normandy School District the year before the transfer law went into effect. Now, more than 130 students who benefited from transferring to higher-performing schools have had that right stripped away.

Among the list of bad decisions the state board has made recently, this is among the worst.

First, I find it highly unlikely that 130 students moved into the district with the intent purpose of taking advantage of the transfer program. Most likely, many already lived in the district, but paid to send their children to private schools or they relocated for various other reasons. This was the case for Diane McCrary and Connie Holtrop. You can read their story in this excellent piece by Elisa Crouch.

Nevertheless, let’s imagine that some families did move to the Normandy School District simply to take advantage of the transfer program. They did not violate any law. They simply made a decision to put their kids into better schools.

Now these families have had that opportunity stripped away because it was good for the district’s bottom line. If any educational larceny has occurred, it took place when the State Board of Education robbed these students of the opportunity to attend good schools.


June 5, 2014

Governor Should Veto Data Center Tax Exemption Legislation

The legislative session may be over but that doesn’t mean the lawmaking is done. Missouri Gov. Jay Nixon has a plethora of bills before him at this writing that he can either veto, sign, or let pass into law without his signature. Among them is a battery of sales tax exemption changes that deserve the additional scrutiny the governor is giving them.

When the legislative session started, talk about sales tax exemption changes generally focused on a problem the legislature actually needed to address — whether personal training services should constitute “entertainment” for sales tax purposes. Unfortunately, that evolved into a package of legislation (encompassing several bills) that also included sales tax exemptions for manufactured homes, data centers, electricity transmission, and more. The governor is predicting that the cost to the state for the bills could be upwards of $400 million, with hundreds of millions more in costs at the local level.

Whether that top-line total is exactly correct, it is clear that many of these sales tax carve-outs look a great deal like special interest income tax credits when it comes to the narrowness of the benefits and the political considerations that went into extending them. Indeed, legislators have been trying to direct tax credits to data centers in the state for years now. That the legislature decided to throw money at the industry through a different section of the tax laws comes, unfortunately, as little surprise.

The legislature is right to cut taxes for Missourians, but cutting big special deals for favored industries, whether through tax credits or exemptions, should be a non-starter. More to the point, the governor should veto the data center legislation even though doing so would mean better tax policies — which were bound to the fate of the questionable exemptions — will have to be reintroduced next session. If he does, next year, the legislature should take what the state would have foregone with the business exemptions and apply much of it instead to broad tax cuts for businesses. If the state can do without the millions in revenue assigned to many of these special exemptions, it can continue to do without that revenue — but this time through broad tax cuts. That would be a better policy.

May 16, 2014

The Illusive Millennials: Kansas City’s Hunt For The Perfect City Dwellers

Have you heard of the millennials? They are big spenders and transit takers, would rather live downtown, and don’t mind higher taxes. They are every city planner’s dream, and Kansas City is spending taxpayer money on stadiums and streetcars and bar districts to pack them in. The only problem is, this simplified view of Americans ages 25-34 is a mirage, which city planners use selectively to support wasteful government projects.

Contrary to the rhetoric, millennials are relatively immobile and have lower incomes than generations that preceded them. This most likely is an effect of the credit crunch and economic downturn, which has left many millennials without steady incomes to spend or credit to buy new housing.

Also contrary to rhetoric, millennials are not upending the dominance of the car in American travel. In 2000, 5.4 percent of workers ages 16-34 used public transportation for their commutes. In 2010, that number increased to 6.1 percent. That is an increase for sure, but a rather small one considering the expansion of transit systems in the 2000s and the wealth-reducing effects of the recession. The vast majority still drive. Most trends point to a “car light” preference among young people rather than a dramatic move to transit reliance.

When millennials do move, it appears to be for economic reasons, not whether a city is considered cool or has a streetcar. The list of top 20 millennial destinations (of which Kansas City is No. 14), contains some cities with lots of public transportation (Portland, Washington, D.C.), but also many cities that are derided for urban sprawl (Houston, Atlanta, etc.). While the transit correlation may be spurious, all of the cities popular with millennials are among the top performing metro areas in economic growth. The obvious conclusion is that millennials, like the generations that preceded them, chase economic opportunity, not transit. As a millennial who has moved to cities for jobs multiple times, my experience is that the number of sports teams or streetcar lines matters very little in the decision-making process.

If Kansas City planners really want to attract millennials, they will stop trying to make Kansas City cool and focus on creating more opportunity. The millennials will bring the cool with them. Instead, Kansas City officials use a millennial straw man as support for a fabulously wasteful streetcar and other large government projects. And if we believe an author at the Kansas City Star, the only problem is the city hasn’t approved streetcar expansion fast enough. When it comes to looking cool, Kansas City spares no expense. That is, of course, until those millennials buck the plan and want to rideshare with Lyft. Then it’s more important for the city to protect taxi companies than to look cool.

May 7, 2014

It’s Difficult To Compete With Free

If it were your decision and you could select any type of school, what type of school would you select in order to obtain the best education for your child? This question was posed to 660 Missourians in a poll that the Show-Me Institute and the Friedman Foundation for Educational Choice released this week. In their responses, Missouri voters overwhelmingly demonstrated that it is difficult to compete with free.

Only one-third of respondents indicated they would select the regular public school system. Thirty-nine percent indicated they would select a private school, making it the most common response. Another 21 percent indicated they would choose to homeschool their children or send them to a public charter school.

Q7 Friedman Missouri Poll

These responses stand in stark contrast to reality – nearly nine out of 10 students in Missouri attend public schools. Why this mismatch between preferences and actual choices? Cost and access.

Public charter schools are only located in Saint Louis and Kansas City and are limited on where they can expand. Private schools cost additional money. As anyone with a cursory knowledge of basic economics knows, demand decreases when cost rises. In other words, many parents are more likely to choose a free public school than they are to pay for a private school – regardless of preference.

But public schools do not have to be the only option for parents. Currently, 24 states and Washington, D.C., have school choice programs. Kansas became the most recent state to adopt a private school choice program with the creation of a tax credit scholarship program.

There is a clear desire for expanded educational options in Missouri. Yet, there is entrenched opposition to school choice from education establishment groups. These groups claim to oppose choice because they want to protect students. It seems obvious, they actually oppose school choice because they want to protect their advantage over the costly private competition. That is why economist Milton Friedman once said:

There is no doubt what the key obstacle is to the introduction of market competition into schooling: the perceived self-interest of the educational bureaucracy.

Opposition to school choice stands in the face of clear support among Missouri voters (including rural voters) and in the face of evidence that school choice works.

Paul DiPerna, the research director at the Friedman Foundation, and I discuss the new poll on this segment of Choice Media’s Reform School.

April 1, 2014

KC Streetcar TDD Will Not Raise Enough Money for Expansion

Bus IconAccording to the newest plan for the Kansas City Streetcar expansion, there is a $30 to $50 million gap between what the streetcar’s transportation development district (TDD) will raise and the actual cost of the project.

We have written before that the Kansas City Streetcar is an exceptionally expensive and inefficient transit device. We have also warned that the claims of streetcar induced development are, at best, premature. Now we learn that, according to a streetcar plan that the City Council passed last week, no one knows how Kansas City will pay for the project.

The proposed TDD includes a 1% district-wide sales tax and a new tax for properties within 1/3 mile of the streetcar track. That new property tax ranges from 40 cents per $100 of assessed value, to $1.04 per $100. One might note that the $1.04/ $100 rate is on city-owned properties, which Kansas City residents will pay through taxes somehow. The consultants who created the TDD calculate that available revenue for debt service from property and sales taxes will be $177 million, but the capital costs of the streetcar extension plan are around $515 million.

How does $177 million pay for $515 million? First, the planners assume that the city will pay the utility costs of the project from other revenue, or about $28 million dollars. That lowers the project cost to $487 million. Then, they assume the federal government covers half the plan, which, as the authors point out, is not guaranteed.  That leaves a funding gap of about $53 million. The study further reduces this gap through contributions from the city’s Mass Transportation Sales Tax, which essentially means they will divert funds from KCATA. They also plan to offset costs with rider fares (they optimistically assume revenue of $2,000,000 per year, much better than some other streetcars). With those additional funding sources, the gap is only $31 million.

Where will the streetcar get that extra $31 million? There is no answer to that. The consultants hope that increased economic activity from the streetcar will raise TDD revenue, but that is risky. Among the proposed revenue sources they claim could be used for the streetcar: various federal grants, Missouri state tax credits and grants, the city park capital improvement fund, a city gasoline tax, new TIF districts, private foundation grants, among many others.

To sum it up, a large TDD that imposes a 1% sales tax and property tax increases will not fully fund the streetcar (even with the federal government already paying for half), and the planners know it. Unless the federal government is willing to pay the balance, Kansas City or Missouri tax payers will be expensively called on in some way to make up the difference. All in all, the funding section of the streetcar plan should have been called “here be dragons.”

Don’t Forget About Homeschoolers!

School IconNew Hampshire is one of 14 states that have implemented a tax credit scholarship program for students. Essentially, these programs give tax credits to people who donate to approved scholarship funds. Families can apply to use these scholarships to send their students to schools of their choice. So what is so unique about the program in New Hampshire? It is the only program that allows families to use these scholarships to homeschool their children.

In a new case study for the Show-Me Institute, Jason Bedrick notes that more than half the scholarships awarded in 2013 were used for homeschooling expenses. And the families who enrolled in the program were, for the most part, extremely pleased with the opportunity, more than 80 percent, in fact. Homeschool families also saw more academic improvement than their private school counterparts. They appreciated the fact that they were in control, that they were able to adjust the curriculum according to their children’s needs, and that they had more options for different or harder classes. Many of them mentioned that it helped strengthen family relationships.

I have nine siblings. When I was growing up, my parents wanted to make sure that my siblings and I received an education that met our individual needs. They explored public and private schools and each of us was homeschooled at one time or another. The beauty of homeschooling is that it allows parents to tailor the curriculum for their children. Additionally, homeschooling benefits the state because it saves taxpayers money. However, for families like mine, it can be financially difficult. That is why New Hampshire’s tax credit scholarship program is particularly interesting. It could enable more families to homeschool and benefit both families and the state.

As Missouri looks at options for expanding school choice and implementing tax credit scholarship programs, it should seriously consider expanding these to include homeschooling.

March 14, 2014

Bloodletting In Clayton

For centuries until approximately 200 years ago, bloodletting was a common treatment for illness. If you were sick, you would go get a nice bleeding. We finally learned what should have been obvious: with the exception of one or two illnesses, bleeding was a terrible idea that did more harm than good. The Missouri local tax equivalent to bloodletting is the economic development sales tax.

Government does a terrible job planning the economy, whether it is a Soviet five-year plan or retail TIFs (tax increment financing) in Saint Louis County. Municipal government can improve the local economy by doing the things it needs to do well: police, fire, local roads, etc. It does not need to “develop” our economy, especially because “economic development” in Missouri is synonymous with taxpayer subsidies and corporate welfare.

Clayton, the Saint Louis County seat and the region’s other downtown, is considering an economic development sales tax, along with three other tax increases, on the April ballot. Doing four tax increases at once (four!) is crazy, but the point of this post is just the economic development sales tax.

Clayton has been careful in its use of tax incentives and other economic development tools in comparison to other Saint Louis County municipalities, which admittedly is a very low bar. Clayton deserves credit for that. So I can’t understand why it would propose raising a tax to do more of something it should not do in the first place: government planning of the local economy.

Clayton officials likely would claim that the intention for the new tax funds is not more use of subsidies or more local planning, but a continued focus on business recruitment, retention, etc. I believe them, and in the short run, I am sure that would be true. But, in my opinion, the increased use of, and funding for, government economic development activities will almost certainly be followed by heavier use of various subsidies and tax incentives. Cities such as Clayton should be moving in the opposite direction with less or zero use of these types of programs, not increasing taxes to do things they should skip from the start.

More to come on these four tax increase proposals next week.

December 3, 2013

$150 Million Incentive Package. 8,600 Jobs Paying $75,000 Each. State Income Tax of ~6%, Repaying the State … $39 Million?

Those jobs and salary numbers are according to what a legislator told KSDK Channel 5 News in Saint Louis last night; the station’s story is below. So how exactly will the state of Missouri make back up to $111 million each year under this plan?

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