October 16, 2014

Brakes Still On for Uber and Lyft

After living in Saint Louis for several years, I’ve learned from experience that cabs are unreliable and too expensive for many individuals on a tight budget. As a college student who has used Uber many times in other cities, I know that Uber and Lyft bring more competition into the market and lower prices for consumers while still providing them with a safe and efficient service—elements that are nonexistent in the Saint Louis taxicab market.

This past week, when the St. Louis Metropolitan Taxicab Commission (MTC) unanimously approved Uber’s application to function as a third-party dispatcher for existing premium sedans, I was initially excited, figuring that cab services would be cheaper and easier to use. My excitement, however, was misguided, as the commission’s recent decision still puts the brakes on any meaningful competition that Uber and Lyft would provide.

The MTC, “in its continuing endeavor to provide safe, high quality taxi service to St. Louis,” has retained and added regulations that will prevent Uber or any other ridesharing company from offering anything but an expensive, premium service. Some examples of these regulations include:

  • The price of a premium sedan must be greater than $33,000.
  • The price of a premium SUV must be greater than $42,000.
  • The vehicle cannot be more than six model years old while in service.
  • For-hire services must have a non-residential business address.

It gets worse. Aside from controlling the downstream pricing of ridesharing services, the MTC still plans to tightly control the supply of premium sedans available to Uber through the issuance of permits. Initially, the MTC will only issue 26 permits for premium services, and only five will be rewarded to new, single-vehicle operators. The rest will go to existing sedan companies that can afford three or more sedans. These smoke and mirror tricks, designed to make it appear that the MTC is becoming friendlier to other services and companies, are in reality reinforcing the restrictions on the entry and pricing of the taxi market.

These arbitrary restrictions become even more evident when trying to order an Uber. When I attempted to order a car through the Uber app, the message appears that “no Black cars are available.” So even after the changes, trying to use Uber is just as difficult as when they were barred from entering the market. Clearly, the MTC’s decision is not doing anything to fulfill their duty of providing enough supply to meet the demand.

The Columbia Police Department and Pennies from Heaven

As Columbia residents prepare to decide whether to increase the budget of the police department through property tax increases, they might be interested in how the police department spends the funds available today. In the video below (begin viewing at 8:43), from Last Week Tonight with John Oliver, Columbia’s chief of police explained how the department used funds derived from civil asset forfeiture. Reducing the tax burden for Columbia residents, however, was not one of those uses.

Without addressing the propriety of civil forfeiture laws, a department does not inspire confidence when it claims it needs more taxpayer dollars although it spends the proceeds of assets seized from residents on “toys,” as though they were “pennies from heaven.” Columbia residents might consider whether the funds the department currently receives are prudently managed before more is allocated.

October 15, 2014

Ain’t No Sunshine: What’s Going On Behind Government’s Closed Doors?

This month, the Missouri State Auditor’s office released a report on state and local government compliance with Missouri’s Sunshine Law. The Sunshine Law requires government bodies to keep meetings open to the public, provides procedures and safeguards when a meeting needs to be held in private, and imposes other requirements on government bodies to ensure transparency. According to the auditor’s report, state agencies and local governments across the state are not complying with these laws.

The report includes numerous violations of public records and public meeting requirements. The following government bodies failed to abide by the proper procedure for making meetings closed to the public:

capital

  • Gentry County
  • City of Savannah
  • Ste. Genevieve County
  • City of Liberal
  • Southern Dallas County Fire Protection District
  • Daviess County
  • City of Brentwood
  • Department of Public Safety/State Emergency Management Agency
  • City of Buckner
  • City of Diamond
  • Cedar County
  • Caldwell County
  • McDonald County
  • Lake Lotawana Community Improvement District
  • Vernon County
  • Montgomery County
  • Kansas City Board of Police Commissioners
  • Clark County
  • Stone County
  • The School District of Springfield, R-XII
  • Monarch Fire Protection District
  • Natural Resources/Soil and Water Conservation Program
  • Higher Education/Southeast Missouri State University
  • Madison County

Most of the government bodies that failed to keep meetings open were cities and counties, but some of these bodies, including the Kansas City Board of Police Commissioners, the Department of Public Safety/State Emergency Management Agency, and the Southern Dallas County Fire Protection District, are charged with ensuring public safety. The Kansas City Board of Police Commissioners, for example, failed to comply with the provisions of Missouri law that require a body in a closed meeting to properly document issues discussed, to discuss only authorized topics during the closed meeting, and to properly disclose the final disposition of matters discussed in closed sessions.

Government bodies have the power to deprive us of life, liberty, and property. They are charged with providing public safety and education services that Missourians depend on. They are given the power to extract payment for these services whether an individual wants them or not. The open government requirements of Missouri’s Sunshine Law are essential safeguards against abuse of government power.

Increasing the Health Care Supply to Meet Health Care Demand

Robert Graboyes is a senior research fellow for the Mercatus Center. Later this month Dr. Graboyes will release a report about health care innovation, which I intend to talk about at some length on this blog. In the meantime, I want to re-up the Reason video from earlier this year. The video features Dr. Graboyes talking about a wide array of reforms that would get care to the neediest among us. If you’ve read our work before, you’ve probably heard of many of the recommendations he talks about, including regulatory, Medicaid, certificate of need, and scope of practice reforms. I highly recommend the video, particularly the section about prosthetics and 3-D printing, which captures well how quickly the market for health care could change in the coming years.

October 14, 2014

Wastewater Privatization: Case Studies

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

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

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

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

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

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

Free-Market Health Practitioners Get a Group

Late last month, supporters of the newly established Free Market Medical Association (FMMA) converged on Oklahoma City for the organization’s first ever annual conference. As the name suggests, the organization is intended to bring doctors and providers together to share ideas and defend “the practice of free market medicine without the intervention of government or other third parties.” Given the sorts of reforms American health care needs these days, the FMMA’s entry onto the national stage is a welcome one.

Along with noting the FMMA’s existence, there’s also a reason worth teasing out for why the FMMA held its first conference in Oklahoma City. The short answer is “it’s where the FMMA’s organizers are based,” but a more complete answer is it’s where some very interesting free-market business models are being put into practice.

Advocacy of free market health care is the longtime passion of Dr. Keith Smith, co-founder of the Surgery Center of Oklahoma [and the FMMA]. The center began to post fixed prices for common medical procedures years ago, and has provoked widespread admiration within the medical profession for efficiency, reasonable cost and frequent support for those who are less fortunate.

At the Surgery Center, Dr. Keith Smith and Dr. Steve Lantier have established an operational structure and market-oriented billing as explicit alternatives to the third-party payer systems that now dominate U.S. health care.

The center posts online an up-front price for medical procedures in diverse areas of practice, including orthopedics, ear/nose/throat, general surgery, urology, ophthalmology, foot and ankle, and reconstructive plastics. In all, a total of 112 procedures are listed.

Translation? Transparent pricing plus direct pay works out to a pretty good business model premised on competition and service. Price transparency is huge because it’s generally pretty difficult to price shop in the U.S. health market, in part because the third-party payer system disincentivizes it, and because many providers aren’t willing to publish those prices. That makes it difficult to force prices down through competition. Posting prices should be common practice in the industry; unfortunately, it’s not.

It’s good to see folks in the movement getting organized when it comes to demonstrating that, yes, free-market reforms to health care do exist and can work. In the coming months, Show-Me readers will hear a lot more about free-market health care alternatives. Stay tuned.

October 13, 2014

That’s Why We Need More School Choice

Lorrine and Naomi Goodloe. Photo by Robert Cohen, rcohen@post-dispatch.com

Lorrine and Naomi Goodloe. Photo by Robert Cohen, rcohen@post-dispatch.com

As someone who studies the issue of education policy quite closely, I can tell you there are many compelling academic reasons for supporting school choice. Studies consistently show that school choice programs save taxpayers money. Moreover, students who utilize school choice programs tend to benefit academically. Although I have read tomes on the value and benefit of school choice, none have made the argument for school choice as clearly and succinctly as the recent St. Louis Post-Dispatch piece by Jessica Bock, “After Troubles at Normandy Middle, a Return to Francis Howell.”

Bock tells the story of Naomi Goodloe a seventh-grade student in the midst of the drama surrounding the interdistrict school choice program in the Normandy School District. Goodloe attended sixth grade in the Francis Howell School District. However, enabled by the State Board of Education, Francis Howell elected to not allow transfer students to return this year. Thus, Goodloe was relegated back to school in Normandy. As Bock writes:

Lorrine Goodloe believed it might be better in Normandy schools this year, and told her daughter so.

But barely two months into the school year, Naomi Goodloe has left Normandy again, bruised and now behind in her seventh-grade studies.

The path back to Francis Howell wasn’t easy. In fact, it only came as the result of a court order.

After weeks of asking to go back to Saeger [Middle School in Francis Howell], Lorrine Goodloe made phone calls and determined Naomi might still be able to get back to Francis Howell. Attorneys hired by the Children’s Education Alliance of Missouri, a school-choice organization financed by investment banker Rex Sinquefield, would go to court for Naomi’s right to return, as they have for others. The judge granted the orders based on his ruling in August that the state board had violated rules when they changed Normandy’s accreditation.

When Naomi returned to her Francis Howell school, she was greeted warmly by her friends. “Everybody gave me hugs, and they dragged me around the school, letting everyone know ‘Naomi’s back!’” she said. She is now receiving the education that she desires and the education that she deserves.

Families should not have to be passive consumers of whatever their local school is offering. Parents should be equipped to choose the school that is going to meet their needs. That is the beauty of school choice, and that is why we need to expand options for all of Missouri’s school children. If you haven’t already, read Bock’s entire piece.

 

Uber Arrives in Columbia

Last Thursday, Uber launched its service in Columbia, Missouri. The innovative and rapidly expanding ridesharing company will start by offering free rides to residents while the company works out regulatory issues with the city government.

Uber and other similar ridesharing companies have the potential to efficiently improve transportation options in midsize cities like Columbia. Low population densities and dispersed development can make it difficult to provide useful transit options without wasting public resources on underutilized routes. But with market-based ridesharing companies like Uber, Columbia residents will have more ways to get around without owning a car simply through the increased utilization of the cars they already own.

As we noted in a previous blog post, Columbia’s antiquated for-hire vehicle ordinances were written to deal with taxis, limousines, and buses; how Uber would be classified is difficult to determine, much as was the case in Saint Louis and Kansas City. But while regulators in Missouri’s two largest cities have fought tenaciously to make ridesharing expensive or illegal, Columbia’s government seems to be interested in carving out a place for Uber, with some stipulations. One city official stated:

My main concerns are the insurance that Uber drivers carry, background checks conducted by Uber and the condition of the vehicles. . . . We are going to include regulations about those aspects in the agreement.

The same official indicated that regulatory changes would be ready in November.

If Columbia’s government can limit its regulations to safety concerns, and not control pricing and entry, residents will be able to benefit from the increased transportation options Uber and other ridesharing companies can provide. Whether Columbia ultimately will follow through, and choose innovation over regulation, remains to be seen.

October 9, 2014

Who Pays When a Private Toll Road Goes Bankrupt?

We have written in support of financing highway improvements through public-private partnerships (PPPs) before, most recently in regard to the bankruptcy of the privately leased Indiana Toll Road. In that case, a private international consortium paid $3.8 billion in upfront lease payments to operate the Indiana Toll Road for 75 years. Although the company failed, it would be hard to argue that Indiana residents did not come out ahead.

However, many opponents of PPPs on toll roads point out that if the projects are funded through federal Transportation Infrastructure Finance and Innovation Act (TIFIA) loans, a bankruptcy means that federal taxpayers are on the hook. While this concern is legitimate, a broader view of TIFIA shows that it promotes limited government spending and is no argument against leasing toll roads.

TIFIA, originally passed in 1998, was designed to provide gap financing for large ($50 million-plus in most cases) transportation infrastructure projects that have a dedicated funding source but would have difficulty getting full financing without federal backing. The program allows projects to receive a line of credit of up to 33 percent or a loan of up to 50 percent of the project budget.

TIFIA provides partial financing only for infrastructure improvement projects. Typically, PPPs for highway improvements consist of multibillion-dollar construction plans that are financed through a mix of private equity, state highway funds, toll revenue bonds, and TIFIA loans. This means that the act of leasing a toll road (as was the case in Indiana) could not be financed through TIFIA.

However, the federal government takes on some risk; typically, 10 percent of all loaned money must be budgeted to cover possible default. However, this is not a situation of moving from no federal financing to massive federal financing, but rather from a situation in which the federal government is expected to provide 80-90 percent of all funding to a situation where it provides 50 percent or less of financing. That fact, coupled with the necessity that all non-TIFIA senior debt for a project be investment grade, means TIFIA encourages more economically sound highway projects with fewer taxpayer dollars.

Assume Missouri decides to rebuild I-70 (a $3 billion project) as a toll road, using TIFIA loans to finance a PPP. If I-70 generates sufficient toll revenue, the federal taxpayer dollars would not be used. If revenue falls short, private investors lose their investment and the federal government may lose some money in debt restructuring. But the alternative (I-70 were rebuild as freeway) requires the federal government to provide 80-90 percent of the funding, with the rest coming from state taxpayers. If such a project were funded at all, it would likely require tax increases in Missouri.

This thought experiment demonstrates that PPPs, financed in part through TIFIA, may provide more transportation infrastructure at much lower taxpayer cost.

October 8, 2014

Charter School Dropouts: Accountability Reform

beauty school

“To be successful with kids that come to you at 19 reading at a fifth-grade reading level, there are things you have to do differently,” said Ernie Silva to an audience at the Missouri Charter Public School Association (MCPSA) Conference on October 2.

Silva’s words reflect his experience with what he refers to as “reengaged students.” According to Silva, these students, who are between the ages of 16 and 22, require a school model that is structured differently from the system that currently exists. One component of that model is a change in accountability measures.

Students in public charter schools are currently held accountable for learning the same information as students in public schools. This includes charter schools that exclusively serve high school dropouts or at-risk students. Since schools are all judged by the same criteria, schools that actually benefit impoverished communities are forced to close because of academic underperformance.

DeLaSalle Charter School is the only remaining alternative high school in Missouri. In reality, there are a number of alternative high schools across the state, but students who attend these schools, in separate buildings, are often counted in the overall school district’s scores instead of judged separately. This is unfair, as alternative charter schools like DeLaSalle cannot so easily mask the performance of at-risk students because they only serve at-risk students.

In August, proponents of DeLaSalle were worried about the charter’s unsatisfactory state standardized test scores. But do End of Course (EOC) exams that measure one grade level’s worth of learning measure what a student at an alternative high school knows?

Not really. As Silva pointed out, a student at 19 who tests at a fifth-grade reading level requires something different. Such a student may go from a fifth-grade reading level to a ninth-grade reading level in one year, but a test that measures the student at an 11th-grade reading level would not capture this growth.

This is, yet again, another one-size-doesn’t-fit-all lesson for education. One accountability system does not fit all schools. For schools that serve dropouts and at-risk students, an accountability model that puts more of an emphasis on academic growth is a much better fit.

 

October 7, 2014

The Sad State of Missouri’s Labor Force Participation

Like the Transformers, there is more to the standard unemployment rate than meets the eye. You might have heard that the national unemployment rate fell to 5.9 percent in September. On the surface, this is good news. However, the unemployment rate is determined by dividing two numbers. The first is the number of people unemployed (those out of work and actively seeking it). The second number is the labor force (the number of those working plus the number of those who are not working, but are actively seeking work). At AEI, James Pethokoukis explains how a smaller labor force can affect the unemployment rate.

According to data collected by The Liberty Foundation, Missouri’s Labor Force Participation Rate (labor force divided by population) has declined since 1999. The foundation’s figures also offer breakdowns by gender and race.

LF-99-13

This means that a lot of the drop in Missouri’s unemployment rate can be explained by the increasing number of people who have given up looking for a job. The two charts below show this phenomenon.

URMO-08-13

LFPR-08-13

I wanted to see what the unemployment rate would be in 2013 if these discouraged people continued looking for work at the same rate they did in 2008. According to my calculations, Missouri’s annual unemployment rate in 2013 would be 12.5 percent instead of the officially listed rate of 6.5 percent. That’s a big difference. If anybody out there is touting how well Missouri is recovering, show them this number. It might give them a moment of pause.

It’s been stated before: Missouri is not doing well economically. Since the recession ended, the Show-Me State has had trouble recovering. This decline in the labor force masks just how bad things have been from an employment standpoint. If Missouri is to get back on track, a lot needs to be done.

 

User Fees Stop Pass-through Traffic from Getting Free Ride

In debates over the ill-fated Amendment 7, which proposed a statewide transportation sales tax, opponents often pointed out that if Missouri used sales taxes to pay for roads, trucking companies essentially would get a free ride. Indeed, large trucks, which can do thousands of times the damage of a regular vehicle, make up a significant portion of traffic on Missouri’s interstates. In retort, proponents of using sales taxes to pay for highways have consistently stated that we all benefit from trucking, and that raising prices on commercial vehicles using Missouri highways will simply lead to those companies passing on their higher costs to Missouri consumers. However, Missouri freight data severely challenges this notion.

In the Missouri State Freight Plan, drafted by the Missouri Department of Transportation (MoDOT), 2011 data showed that truck freight totaled over 500 million tons, carrying goods valued at approximately $711 billion. Proponents of using sales taxes to pay for highways argue that if it costs more to move those 500 million tons (by increasing user fees for commercial vehicles), shipping companies will charge higher prices to haul goods, leading to higher prices for Missourians.

However, setting aside the counterargument that charging shipping companies for the highways they use promotes efficient supply chains and local production, the fact is the vast majority of trucking freight in Missouri is not bound for Missouri. For example, of the 500 million tons of freight traffic in 2011, only 39 percent of that freight is either inbound or intrastate trucking. Forty-six percent of traffic by weight simply passes through Missouri. In terms of value of the goods transported, only 26 percent has a destination within Missouri while 61 percent of goods by value transit the state.

truck traffic MO

This means that if Missouri were to use general sales taxes—or any other type of non-user fee—to subsidize highways, the downstream price benefits would mostly accrue to consumers and producers in other states. Having commercial vehicles pay the actual costs of maintaining the highways might mean that prices rise on Missouri goods, but most of the effect would be exported to other states.

That’s why user fees are almost always preferable, when feasible, to general taxation; the cost of using the highway is internalized into the cost of the good, no matter where the final consumer lives. The use of general taxation to pay for highways would lead to higher prices for Missourians, who would provide a subsidized ride for shipping companies and artificially cheap products to residents of other states.

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