October 15, 2014

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.


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.



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.

October 6, 2014

The Decline of Carpooling in Missouri: Time for a Rebound?

The discussion around urban transportation is usually confined to how planners can get people out of cars and onto public transportation. But perhaps the most cost-efficient way of getting people out of their cars is not to build a train, but rather to get them in someone else’s car. While governments can claim limited success in boosting transit ridership, carpooling has been on the continuous decline for decades. However, with new technology abetting the rise of the sharing economy, carpooling could be due for a resurgence, if governments allow it.

Carpooling is the second most popular method of commuting in Missouri. In 2013, around 9 percent of Missourians carpooled to get to work, more than five times the number that used transit. Carpooling and ridesharing are undeniably efficient. More people per car mean lower pollution per person and less congestion on highways, all utilizing the existing resource that more than 90 percent of Missouri households own: a personal vehicle.

Despite advantages, carpooling is an increasingly less popular form of commuting. As recently as 1980, one in five workers carpooled. That percentage fell quickly between 1980 and 1990, and has continued to slowly decline.


The culprits of carpool decline are mostly market-based: more people own cars, population and work centers are more diverse, work schedules are more variable than in the past. Declining carpooling rates in the United States also may be due to structural changes to the U.S. economy (carpooling is far more prevalent for those in the manufacturing sector). However, government policies may be preventing the rebound.

If increasing wealth of Missourians and an increasingly diverse economic environment have led to the decline of ridesharing, new technology that matches potential drivers with riders represents a market-based opportunity for carpooling to rebound. Far from encouraging the rise of a car-sharing economy, Saint Louis and Kansas City have attacked companies that make use of this new technology to protect vested taxicab interests.

If cities in Missouri are serious about reducing congestion and pollution, they should focus more on encouraging carpooling and ridesharing, not just expanding transit. And like many other cases, the best policies are for the city to reduce regulation, stop trying to plan the economy, and let the market operate.

October 4, 2014

Arnold Wastewater Privatization: The Policy Breakdown

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

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

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

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

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

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

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

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

October 3, 2014

Kansas City Airport Effort Still not Transparent

After a year considering the need for a $1.2 billion new terminal at MCI airport, the final report issued on May 30 to Mayor Sly James by the Airport Terminal Advisory Group (ATAG) leaves much to be desired—both in its thoroughness and accurate representation of the facts. On page 15, the report still asserts that airport funds cannot be used for the “City’s financial needs related to sewers, hotels, neighborhood development, unfunded pension obligations et.al.” This is demonstrably false; the city does use airport funds for other needs.

Even if the report is factually flawed, it aspires to ensure good government. On page 30, the report recommends more transparency:

In addition to KCAD [Kansas City Aviation Department], the City should provide for additional oversight to maintain transparency and improve two-way communication. This oversight (possibly in the form of an informal oversight committee) would be responsible for insuring City involvement and help to oversee the process over the next two years. The oversight committee could also assist in vetting the planning and design process and communicating it to the Mayor of Kansas City, Kansas City Manager, City Council, as well as the general public and local businesses.

Several months have passed, and none of this has been acted upon. It was ignored on the day the City Council received the report. Mayor James said in the July 10, 2014, City Council business session that discussed the report (remarks begin at 37:52):

The question was, as currently configured, does KCI meet the needs of Kansas City now and into the future? And if not, what are our options? Now, the options are being determined now by the airlines as they are in consultations—secret, private consultations—with the Aviation Department. That is their job. They will determine how much money they want to spend. And when they determine how much money they want  to spend they will pretty much tell us what they think we ought to do.

So much for transparency. Also, so much for the work of the ATAG in the first place; a year’s worth of work and $100,000 spent on consultants seems to have been wasted. (As for the financial costs and benefits of a new terminal, the Show-Me Institute has issued its own report.)

Kansas City leaders need to make sure that the mistakes of the past are not repeated. While it is good that the airlines are involved—they should have been all along—it does not bode well that the process is again opaque. When the time comes to present options to the public, the truth still may be that, according to Kansas City Star editorialist Yael Abouhalkah, “Director Mark VanLoh does not have the public credibility to lead on this extremely crucial project.” The voters of Kansas City have spoken clearly on this matter, and they deserve to get the transparency and accountability necessary for good public policy.

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