December 8, 2014

Iowa, Nebraska, and Arkansas Legislators Gear Up for Income Tax Cuts

In 2014 the Missouri Legislature passed a modest income tax reduction which, given its size, by no means solved the state’s tax competitiveness problems. That fact is reaffirmed by the news we’re now hearing from some of Missouri’s neighbors. For instance, in Iowa—where state lawmakers cut taxes as recently as 2013—the income tax reform movement is getting bipartisan support.

State Rep. Tom Sands, R-Wapello, chairman of the tax-writing House Ways and Means Committee, said his preference would be to examine corporate and individual income taxes while exploring ways to simplify the tax system. Senate Majority Leader Michael Gronstal, D-Council Bluffs, said any tax cuts should be focused on helping middle-class Iowans.

“We will most definitely be looking at income tax reform, making the tax code flatter and simpler,” Sands said.

Sands added he hopes lawmakers will offer “substantial and meaningful tax cuts,” although he explained it’s too early to provide a specific dollar estimate because of uncertainties over state revenue.

Iowa is not the only border state looking to make income tax changes. In neighboring Nebraska, legislators (with the help of the Platte Institute) are exploring a round of tax cuts of their own that would also chop the state’s tax on incomes. On Missouri’s southern border, Arkansas is looking to cut its income taxes too, in part by getting the state’s tax exemption culture under control.

“They’re important to you; therefore, they’re important to me,” [Governor-elect Asa] Hutchinson told the [farming] group. “But we are now reaching a point in Arkansas that we need to look beyond more and more exemptions to our tax structure, and we need to look at an across-the-board reduction of our state income tax.”

Missouri lawmakers deserved applause for finally getting a tax cut across the finish line in 2014, but as we said at the time, that small cut alone is not enough to get the state on a firm, competitive footing for the years ahead—precisely because other states in the region weren’t going to stand still on tax relief. News out of Iowa, Nebraska, and Arkansas confirm this.

And make no mistake: The support for tax cuts has never been greater in the Missouri Legislature than it will be in 2015. Legislative leaders should not sit on their hands and let the opportunity pass them by. Our neighbors certainly aren’t.

December 3, 2014

A Guarantee for More Flights Out of Columbia Regional Airport

Recently, Columbia city officials announced that they were coming to a deal with American Airlines for a possible third destination for travelers leaving Columbia Regional Airport (the airport currently has flights to Chicago and Dallas). While the exact details of the agreement had not been released at the time this article was written, it seems likely that an extension of the soon-to-expire $3 million revenue guarantee would be part of the deal.

The revenue guarantee was part of the deal that brought American Airlines to Columbia, and prompted Delta’s departure. The idea is simple: American Airlines is guaranteed a certain amount of revenue from flights out of Columbia. If that revenue level is not reached, the city of Columbia and other regional supporters have to pay the difference. It was supposed to give American Airlines the incentive to test the Columbia market. The new service, if successful, would be profitable enough to convince the airline to operate following the expiration of the guarantee.

There is good reason to be skeptical of this government interference in the commercial aviation market. First, it transfers risk from the private company (which raises the expected value, and hence their incentive to service the route) to taxpayers who may or may not ever use the airport. Second, a revenue guarantee can make it difficult for a competitor to enter the market without the same type of risk reduction. Delta Airlines left the Columbia market for precisely this issue. Third, a revenue guarantee can be difficult to take away without risking service reduction. This is because even if American rarely (if ever) uses the revenue guarantee the insurance that the guarantee provides is part of the financial equation that determines the amount of service.

But ending the revenue guarantee is no easy choice. Small airports across the country are having trouble attracting air service, as national airlines consolidate and reduce less profitable routes (a practice known as “capacity discipline”). Cities without regular flights are at a distinct disadvantage in attracting businesses and residents.

However, Columbia Regional Airport would likely be able to attract airlines without the guarantee, as it did before the city wooed American Airlines. The real issue is how many routes and where the routes would go. City officials have long had grand designs to expand the airport’s reach to the west, build a new terminal, and massively increase total passengers. They were, when they were chasing American Airlines, and likely will remain unwilling to let the private market interfere with realizing those goals. Residents will have to decide if city leaders’ goals are worth subsidizing the airlines and interfering in the transportation market.

December 2, 2014

Highway Funding in Missouri: The Fuel Tax Option

The failure of Amendment 7, the proposed transportation sales tax, in August has left the Missouri Department of Transportation (MoDOT) in a financial bind. In the next few years, the department will no longer have the funds necessary to maintain the quality of the state highway system, much less improve it.

Former proponents of Amendment 7 claim that sales taxes are the best solution for MoDOT’s problems because they are the most politically feasible method of raising large amounts of money. Raising the state gasoline tax (currently 17 cents per gallon)—MoDOT’s principle revenue stream, they say—is not good policy because it is a declining source of funds and it does not poll well. But as we have shown before, fuel consumption has been declining very slowly, and it actually increased in the last year. The erosion in the gas tax’s purchasing power is mostly the result of inflation; Missouri last increased its fuel taxes in 1996, since which time prices have increased an average of 34 percent.

Far from being politically unfeasible, raising the gas tax is actually the simplest method for the state legislature to raise more money for MoDOT. That is because the provision that forces tax increases to go to the voters, the Hancock Amendment, has exceptions for small increases of existing revenue streams. Under the amendment, the legislature can increase revenue in any given year as long as new revenue does not exceed $106 million ($50 million in 1980 indexed to personal income growth) or 1 percent of state revenue looking back two years ($84.2 million for last year), whichever is lower.

Using 1 percent of previous state revenue as a cap, the legislature can collect around an additional $84 million in fuel taxes next year. Missouri currently generates about $29 million per cent from fuel taxes, meaning the state could raise fuel taxes by more than two cents without triggering Hancock requirements. Or, if Missouri followed the example of the federal government and many other states in charging diesel at a higher rate than regular gasoline, the state could raise the diesel fuel tax rate by five cents and the regular fuel tax by one cent and remain under the cap. That would generate an addition $78 million for MoDOT next year.

What’s more, because state revenue has been growing and per-cent fuel receipts have been declining recently, the state legislature could raise the fuel tax in successive years, which could give MoDOT the needed funds to maintain and make necessary improvements to state highways. In fact, this is precisely how Missouri last increased its fuel taxes in the 1990s.

Fuel taxes, as indirect user fees, are a preferable and possible way of funding highways in Missouri. If more money truly is required, the legislature has the option to raise fuel taxes without sending the issue to a ballot and without resorting to new, inappropriate funding mechanisms.

November 27, 2014

We Are Thankful for Transparency

There has been a lot of talk lately about transparency, especially the notion that “lack of transparency is a huge political advantage,” according to an architect of the president’s health care law. Last year, we wrote that we’re thankful for data, and that remains true.

Tied to our love of data is the assumption that government is transparent enough to provide it to us. Citizens of the Show-Me State should expect no less. And in that regard, Missouri is doing okay. In 1973, the state legislature adopted our Sunshine Law, making Missouri one of the first states to adopt such an open meetings law. The law in part reads:

It is the public policy of this state that meetings, records, votes, actions, and deliberations of public governmental bodies be open to the public unless otherwise provided by law.

In 2009 the Blunt administration sought for, and the legislature provided, the implementation of the Missouri Accountability Portal, and the Nixon administration has maintained it. The website allows users “a single point of reference to review how their money is being spent and other pertinent information related to the enforcement of government programs.” Though limited in scope and sometimes difficult to navigate, this site has been good for transparency in Missouri, helping keep citizens informed and the government responsive.

We’ll leave it to others to argue about the intelligence of voters or the political expediency of openness. But here in Missouri we’re grateful for the transparency we have and the data it yields.

November 25, 2014

Warrant Forgiveness: A Step in the Right Direction for Saint Louis County Cities

Recently, 65 municipalities in Saint Louis County announced a warrant forgiveness program for December. In the program, defendants with outstanding warrants can get their warrant dropped if they go to the municipal court that issued the warrant and post a $100 bond. While this is a good thing for many poor residents who have, for whatever reason, failed to attend court, it does not change the underlying problem of cities relying on fines and fees to fund themselves.

We’ve written before about how many Saint Louis municipalities get large, possibly illegal, portions of their revenue from zealous enforcement of traffic laws and local ordinances. Twenty municipalities get more than 20 percent of their revenue from fines and fees, with three cities (Calverton Park, Bella Villa, and Vinita Terrace) deriving more than 50 percent of revenue from those sources.

And should one of the many recipients of these citations need to appear in local court because they wish to challenge the citation or cannot pay the fine (or fix their ticket), it is far from convenient. Calverton Park and Bella Villa both only hold traffic court one evening a month. As an in-depth story in the Washington Post described, many residents, especially the poor, have a difficult time navigating the process.

Allowing defendants with outstanding warrants to set things right is a way of relieving some of the built up stress for locals, but a more long-term solution is to make policing about law and order, not revenue collection, in all Saint Louis County municipalities. That may mean combining police or court services with other municipalities, or if necessary disincorporating cities altogether. At the state level, that could mean strengthening and enforcing the Macks Creek Law. If something isn’t done to fix the underlying problem of burdensome municipalities, this holiday amnesty’s impact won’t long outlive the holidays themselves.

November 24, 2014

More Streetcar Boosterism from the Kansas City Star

The Kansas City Star recently revealed an interactive report on $1.7 billion in existing and possible new developments in downtown Kansas City. Anyone who is interested in some new exciting projects is encouraged to take a look, but be prepared for some streetcar propaganda.

While the Star doesn’t go so far as to claim that the as-yet-unfinished streetcar directly caused all the development, the report heavily implies it. As the Star states,

It also happens to be the geography linked by the new 2.2-mile streetcar line expected to be completed next year. . . . Downtown’s rejuvenation is now rolling into a new era, with the start of the $100 million streetcar line on Main Street.

The interactive report prominently places an outline of the streetcar in the middle of their map, and the companion article finishes with a prompt for more information on the starter line.

In terms of development, the benefits of streetcars are unproven, with public subsidies and city planning preferences pushing investment toward one area of the city rather than generating real growth. Moreover, the anecdotal evidence of development in Kansas City has been problematic at best, as we have shown on multiple occasions.

While the new “report” seemingly shows public and private activity around the streetcar, on closer inspection many of these improvements are not new developments at all and have no connection to the 2.2-mile route. For example, many would question the addition of the as-yet-unfunded Broadway Bridge improvements as a development at all; the bridge is certainly unconnected to the streetcar. Another example is improvements to the Central Library, which while near the streetcar line were completed by the nonprofit Downtown Council in 2004. Also included in the interactive report is the Hilton President Kansas City, which was completed in 2006, well before streetcar planning gathered momentum. Projects completed as early as 2003, and planned projects almost a mile and a half from the streetcar line, are included in the map.

The Star might claim that it is just showing the overall investment in downtown Kansas City over the last 15 years, but then why make the streetcar line the clear axis (and most prominent feature) of the map? If it is being counted as an investment downtown, why is it not represented as a dot like the other investments? If it is just because the streetcar will “connect” new investments, why not prominently feature the Max, 49, and 51 bus? They will and already do connect areas downtown. The implication that the streetcar is a catalyst or a necessary component of development is obvious. It’s also not true.

November 21, 2014

This Sounds Familiar

Cassandra was a Trojan princess who had the gift of prophecy. She foresaw that the abduction of Helen would bring about the destruction of Troy. Her curse was that nobody believed her. At the Show-Me Institute, we weren’t blessed with Cassandra’s ability, but when we look at the future of Missouri’s public pensions, we see potential disaster ahead.

Last year, the Show-Me Institute released a report by Dr. Andrew Biggs of the American Enterprise Institute. The report showed how Missouri public pension plans are underestimating the total amount of unfunded liabilities (total pension obligations that exceed the amount of assets the pension plan has) that they have. In fact, using more realistic assumptions, five of the state’s largest pensions have unfunded liabilities FIVE TIMES larger than what is reported ($54 billion actual vs $11 billion reported). That is a serious amount of money, and if these pensions do not have the assets to cover their obligations, then the taxpayer (you and me) will be left footing the bill.

State Budget Solutions, to my knowledge, does not have the gift of prophecy either. Yet they see what we see when they look at the status of state public pensions. Their new report discusses the unfunded liabilities of every state’s pension system. The content of the report sounds familiar because, like Dr. Biggs, they find that using more realistic assumptions about plan returns, state public pensions are significantly underfunded. According to State Budget Solutions, Missouri’s pensions aren’t among the worst nationally. That doesn’t mean things are good and the state’s pensions don’t need reform. If I’m stuck holding a stick of dynamite, while my neighbor is holding an atomic bomb, it doesn’t mean I’m going to be okay when the dynamite goes off.

Unfortunately, there has been little progress into actually achieving pension reform in Missouri. At the very least, the state needs to work to stop additional liabilities from being added to the already enormous amount the state already owes. Shifting to a defined contribution plan or a cash balance plan would be a good place to start. Then, policymakers can work on addressing the gap between pension assets and the monies these plans owe.

Cassandra warned of danger, and she was not believed. That was her curse. Hopefully, Missouri can avoid Troy’s fate.

November 20, 2014

South County Connector: Still an Opportunity to Toll

Last week, Saint Louis County officials announced that the proposed $120 million South County Connector had been placed on hold. The proposal called for a four-lane route between Hanley Road and River des Peres Boulevard, with the purpose of providing better north-south traffic movement between Clayton and Maplewood. While the project has drawn criticism for aiding sprawl and failing to resolving the region’s major bottlenecks, the major stumbling block was funding the expensive project.

As we wrote when the project was proposed last year, while there are constitutional issues with MoDOT tolling, Saint Louis County is free to do so. If the county were to place high-occupancy toll (HOT) lanes on the connector, they not only would have a reliable local funding source, but also a way to mitigate the problems of induced demand on the new roadway. As we wrote last year:

HOT routes allow high-occupancy vehicles (HOV) free use of the road while charging a fee to solo drivers. . . . Toll roads have reduced congestion and been financially successful in other localities. An example is State Hwy. 550 in Texas, which will connect two major highways with a tollway outside of Brownsville. Local officials believe the highway will serve important transportation needs, and the toll’s estimated revenue of $1 million per year makes the $41 million price tag more manageable. In California, private developers constructed HOT lanes on SR-91 in Orange County. By transferring less essential travel to non-peak times and public transportation, Orange County tollways have reduced peak congestion by more than 25 percent on most roads. The SR-91 lanes have proven successful in reducing congestion and do not take any money from general transportation funds.

That would be a win-win for both drivers and the local taxpayers. In addition, with all the criticism of the proposed connector as unnecessary, a toll-feasibility study might help to show whether there is sufficient demand for a $120 million project. If traffic models show that the connector cannot generate sufficient revenue to cover local expenses (the federal government will likely cover a large portion of the costs), that would be evidence against building the road in the first place.

November 19, 2014

Education: A Way Out

For some students, education is a “way out,” but in places with few educational options, the way out is often a public school that does not meet the needs of its students.

Eighteen states and Washington, D.C., have taken steps to ensure students have more choice in education. New Orleans parents Gerald and Shermane Prosper were able to take advantage of the Louisiana Scholarship program, which allows their son to attend a private school. The voucher program, enacted in 2008, serves low-income students in low-performing schools and provides educational access to more than one-third of students in the state. Show-Me Institute Fellow James Shuls has shown how this type of scholarship program could potentially save Missourians millions of taxpayer dollars.

Watch the video to learn how the Prosper family views education as a pathway to success.

November 18, 2014

University City Should Carefully Consider Privatization Proposal; Ignore Special Interests

University City is considering outsourcing emergency medical services (EMS). Predictably, this proposal has been the subject of debate among city council members. Two council members have questioned whether the city should outsource one of its core services, while another member urged the council to remain open minded until they have all the data on outsourcing.

The Show-Me Institute has written favorably about EMS privatization policies in the past. Privatization, when done right, can increase efficiency and expertise, provide improved services to the public, and decrease costs. However, all outsourcing proposals must be carefully considered to ensure privatization is done properly.

The University City Council ought to investigate the specifics of this privatization proposal for how it would affect services and city finances, rather than shooting from the hip and accepting or rejecting a privatization proposal on purely political grounds. Public employees, city officials, and businesses that the city may contract with are all interested parties in any outsourcing effort. When deciding whether to contract out services, the council should do its best to ignore the special interests and focus on the details of how this proposal affects the city as a whole.

Private ambulances have served parts of Saint Louis County for years, and University City might be able to benefit from private ambulances as well.

November 17, 2014

Ideas for Kansas City Schools: Pay Teachers More Sooner

Kansas City Public Schools (KCPS) is seeking input from parents, school staff, and the community about how it might regain and sustain full accreditation and retain and attract students. To that end, it is forming a School Improvement Advisory Committee (SIAC) and has been seeking applicants to serve in that capacity. Previously, we shared some ideas for strengthening administration and staff. Today, we’d like to suggest at least one change to Kansas City’s teacher pay schedule: pay teachers more sooner.

As it stands, the pay schedule for Kansas City teachers starts low and provides only modest increases in the initial years. Largest pay increases come at the end of a career, in a manner to maximize pension value. As my colleague James Shuls has argued in previous posts, this is a disincentive for new and effective teachers to stay on. Dane Stangler and Aaron North of the Kauffman Foundation wrote in a March 2014 op-ed in the St. Louis Post-Dispatch:

Because most of the pension value accrues in the final years of an educator’s career, the typical new teacher in Kansas City or St. Louis does not benefit from the current system. Based on our research, we estimate the likelihood that a traditional public school teacher in St. Louis stays in the profession long enough to earn the maximum pension benefit to be about 4 percent. In other words, 96 percent of teachers in St. Louis will leave prior to reaching the full benefit and the percentage is comparable in Kansas City (approximately 3 percent).

As a result, new teachers are less likely to stay on. According to the Show-Me Institute’s Michael Podgursky, “After eight years, roughly 70 percent of teachers remain on the job. The eight-year survival rates in STL and KC are far lower, ranging from 10 percent to 30 percent.”

Podgursky’s paper urges more transparency and,

Given the relatively small share of new teachers in Kansas City or Saint Louis who can expect to complete an entire career in either district, as a strategic recruiting tool it makes more sense to raise front-end salaries, 

rather than “generous end-of-career retirement benefits.”

Certainly, there are many reasons why teachers in Kansas City and Saint Louis are much more likely to leave, and creating a more fair pension system will not solve all of them. But one thing we can do in Kansas City is to let new teachers know they are valued early on in their careers and that we want them to stay on.

November 16, 2014

Public Dollars Going to Bike Sharing in Saint Louis?

Bike sharing is growing in popularity across the country. In cities like New York, Miami, Chicago, and Kansas City, bike sharing allows pedestrians to explore the urban landscape without having to use a car, public transportation, or walk. Right now, Great Rivers Greenway (supported by Saint Louis sales taxes) is spearheading a study on bringing a bike share program to Saint Louis.

The study estimates that the cost to implement bike sharing in Saint Louis would range from $12.4 million to $14.7 million over five years. However, they also want to be able to use federal and local taxes to fund the system. That is both unnecessary and unfair.

It is unnecessary because many bike share programs across the United States are funded almost entirely by users and private sponsors, including the Kansas City B-Cycle. Far from being controlled by the city in a top-down fashion, Kansas City residents have taken to crowdfunding bike share stands they want to use. That kind of bottom-up, voluntary approach not only is innovative but it means no one pays for the bike share who does not choose to.

Supporters of public subsidies for bike share make arguments very similar to those made for public transportation, such as reducing congestion and helping people without cars. But while transit’s main beneficiaries are commuters and the economically disadvantaged, bike share’s benefits mostly accrue to the well-off engaged in recreation. As we wrote previously:

survey of riders using Capital Bikeshare in Washington, D.C., found that 95 percent of users held a college degree (56 percent had a masters or doctorate). As for income, 80 percent made more than $50,000 per year and 45 percent earned more than $100,000 per year. For perspective, per capita personal income in the district is about $45,000 and less than half of all residents have college degrees. . . . Furthermore, from data collected in Kansas City, we know that most riders use the bikes on the weekends in the downtown core. In short, a city-supported bike share uses public dollars to support the weekend excursions of highly educated, upper-middle-class residents.

Bike share programs are a great way for cities to provide residents and tourists with a fun and healthy way to see parts of town. However, residents should remember that spending public resources on bike shares is a subsidy to the wealthy and, thankfully, unnecessary.

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