July 15, 2014

Breaking: Another Study Backs Up The Show-Me Institute

The Competitive Enterprise Institute grabbed our attention when it released a new report comparing the unfunded pension liabilities of all 50 states. Spoiler alert: Missouri ranks in the middle third (more on this later).

An interesting point raised in the report was that, “…the discount rate used in the valuation of liabilities should be a low-risk rate, ideally as low as the rate on Treasury bonds.” In a Show-Me Institute Policy Study, Andrew Biggs also urged state pensions to use a low-discount rate in valuing their liabilities (the discount rate is the interest rate that pension plans use to translate future liabilities into current dollars). It’s encouraging to know that other institutes are reaching similar conclusions.

However, it isn’t encouraging that this report found that after using a more appropriate discount rate, the amount of Missouri’s unfunded pension liabilities totaled more than 4 percent of Missouri’s entire economy. As of the end of last year, Missouri’s economy was $258 billion; 4.2 percent of that is $10.8 billion. If the state cannot make up that amount, then you, the taxpayer, are on the hook to make up the difference. Table7.1There are other states whose pensions are in much worse shape than Missouri’s, but our state still faces an economic ticking time bomb. Whether dealing with a grenade (Missouri) or a daisy cutter (Illinois), taxpayers will not be happy to be caught in the blast. The Show-Me Institute has written extensively about how Missouri can start to address its pension problems by shifting to more efficient plans such as defined contribution or cash balance plans. Hopefully, this new report can serve as a wake-up call to policymakers that change is needed.

July 14, 2014

‘Right To Try’ Law Gets Gov. Nixon’s Signature

Today is the last day for Missouri Gov. Jay Nixon to veto or sign legislation that the 2014 General Assembly passed. So, with the state’s “Right to Try” proposal still sitting on his desk, I started my workday with a smidgen of trepidation. “Right to Try,” you might remember, would empower patients with terminal illnesses to more freely seek experimental medications in hopes of finding something that could help them.

The concern: Would the governor veto “Right to Try” this year, much like he vetoed the Volunteer Health Services Act last year?

The answer: Nope. He just signed it.

The Governor signed two health-related bills, which will provide Missourians in specific situations with additional options for medical treatment of illness and disease. House Bill 1685 allows drug manufacturers to make available investigational drugs, biological products, or devices to certain eligible terminally ill patients. House Bill 2238 allows the use of hemp extract to treat some individuals with epilepsy and also allows the Department of Agriculture to issue licenses to grow industrial hemp strictly for research purposes. House Bill 2238 contains an emergency clause.

I talked about this bill a lot in the last few months. This was, to me, an obvious opportunity to empower people to make each other’s lives better. The government should open doors for people to care for one another, not erect and maintain barriers to helping each other. “Right to Try’s” enactment is not only a victory of reform-minded policy, but more importantly, it is a victory for Missourians in need.

Congratulations to the Missouri House and Senate for sending the bill to the governor, to the legislators who sponsored the bill and powered this important conversation, and to the governor for making the right decision by adding his support to the unanimous votes of the legislature. Well done.

July 9, 2014

How Much Does A Competitive Transportation System Cost?

Recently, NextSTL began reposting “A World Class Transportation System” by Chuck Marohn. While this recommendation may not hold for future installments, the first of the series deftly describes how the “more is better” mentality drives unsustainable transportation policies. It also points out that projections used to justify new transportation infrastructure projects are often at odds with reality, which we confront in case after case.

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The post shows that in Minnesota (the original focus), the number of vehicle miles driven has leveled off in recent years. This is true in Missouri as well, but some planners have consistently predicted a return to growth, despite low population growth, struggling economies, and increasing fuel prices. Missourians already clock a daily average of 32 miles; even if robust economic growth returns, it is not certain that they would choose to drive much more. Now that less than 3 percent of Missouri workers are carless, one of the largest drivers of traffic growth over the last few decades (more people with more cars) is almost tapped out.

The “more is better” approach to road building is rampant in Missouri, never more so than today. The state just finished a decade of unprecedented spending on its transportation system. Amendment 3 allowed the Missouri Department of Transportation (MoDOT) to spend billions improving the state’s highways and bridges, and the federal Stimulus Act pumped money into roads and everywhere else. Transit, too, has seen massive investment, with more than $2 billion in new capital funding from 2000 to 2012. After all this, we are told that Missouri’s infrastructure is crumbling and that we do not spend enough. What’s clear is that more money spent does not equal money well spent, and that the time has come for Missourians to rethink what an economically sound transportation system should look like.

July 8, 2014

I’ll Scratch Your Back, If You Comply With This Federal Mandate

Last October, my students learned a few vocabulary words — amendment, judicial review, and furlough. The government shutdown created what educators like to call “a teachable moment.” I seized the opportunity to discuss topics such as division of power and how a bill becomes a law. Overwhelmingly, I was asked the same question, “If the federal government is shut down, why am I at school?”

My students then received a lesson about the 10th amendment, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” Because education is not explicitly mentioned in the U.S. Constitution, education is a power that belongs to the states.

Tell that to U.S. Secretary of Education Arne Duncan.

The U.S. Department of Education unveiled its 50-state strategy on Monday. The strategy, a neglected measure of the 12-year-old No Child Left Behind Act (NCLB), readdresses the uneven distribution of effective teachers across low- and high-poverty schools. It requires states to create new plans that address teacher distribution by April 2015, and Missouri is not immune.

For fewer than half the states that submitted plans post-NCLB, many have not been updated in several years. Below is a table from Missouri’s original analysis identifying core academic subjects (math, science, etc.) taught by highly qualified teachers. The data, though last revised in 2006, shows a lower percentage of highly qualified teachers in high-poverty schools.

core acadmic highly qualified percentages

Missouri is one of 42 states to receive a waiver from parts of NCLB, including the infamous accountability decree, “All students will be proficient by 2014.” In May, the Missouri Department of Elementary and Secondary Education (DESE) submitted a request for a one-year extension to the 2012 waiver. DESE will have to renew again next May.

Not coincidentally, the Department of Education’s requirement for updated teacher equity plans will have to be submitted one month prior to DESE’s 2015 extension request. The Department of Education gets equity plans, Missouri gets NCLB waiver. The Department of Education gets unified curriculum, states get Race to the Top money. “You scratch my back, and I’ll scratch yours” seems to be the Department of Education’s M.O.

Of course, teacher equity is an issue that ought to be addressed, but the U.S. Constitution did not grant federal authority over education. This power belongs to Missourians. This whole incentive game the Department of Education is playing isn’t fooling anyone. Teacher equity may be a problem, but federal overreach is a bigger one.

The Math Does Not Add Up For Murky Kansas City Streetcar Deal

In a previous post, we commented on how officials from Kansas City and the Missouri Department of Transportation (MoDOT) are hammering out a deal to divert $144 million of the proceeds from the proposed statewide sales tax to the Kansas City streetcar. According to the Kansas City Business Journal and the Kansas City Star, the plan will cap the sales tax increase in downtown Kansas City at 1 percent (0.25 percent for the streetcar Transportation Development District, or TDD, and 0.75 percent for the proposed statewide sales tax).

Source: Kansas City Business Journal

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Speaking of bad math, the cost of the projects in MARC’s chart (above) adds up to $800.4 million, not $775.7 million. So what’s getting cut? Does anyone check these things? 

On the surface, that sounds great for residents of downtown Kansas City (if not elsewhere). Previously, they were asked to pay a 1 percent higher sales tax to get the streetcar expansion. Now, they still pay 1 percent more, but they get other road and transit projects that state taxpayers fund, in addition to the streetcar expansion.

Haven’t seen a deal like that since Billy Mays died. But wait, there’s more!

Actually, the math for that “swap” does not work. The TDD’s 1 percent sales tax was supposed to bring in approximately $30 million a year. If the city reduces that rate to 0.25 percent, it will create a funding gap of almost exactly $210 million. That’s the reason the city was originally asking for $210 million; it was not some random number (although the city is not beyond doing that).

Drop the amount that streetcar gets from the state to $144 million, and a $65 million funding gap opens up. And remember that the original plan already had a $31 million unresolved budget gap. That leaves almost $100 million up in the air, ready to come crashing down on Kansas City taxpayers. Unless there is some other very large source of funding for the streetcar, the TDD sales tax cannot be held to 0.25 percent. It would need to rise to about 0.50 percent to maintain adequate funding (but still not addressing the initial $31 million shortfall).

The underlying problem is the incredible expense of building a streetcar system. Even if the federal government and Missouri taxpayers cover massive portions of the streetcar’s cost, there’s still a significant burden for residents in downtown Kansas City. Residents in the proposed TDD, Kansas City, and state will have to decide whether the streetcar is worth it.

July 7, 2014

Kansas City’s Murky Streetcar Deal Goes Public

During the last couple of weeks, we have commented about the developing story of the closed-door dealings between Kansas City officials and the Missouri Department of Transportation (MoDOT) regarding the future of the streetcar and the proposed 0.75 percent statewide transportation sales tax. We also have pointed out how this process arbitrarily discards the regional priorities that a transparent public process created. Both of these terrible transportation policies are on the Aug. 5 ballot, so naturally Kansas City officials were worried that a whopping 1.75 percent increase in the sales tax for downtown Kansas City might end in mutual defeat.

Kansas City officials cooked up a plan that would make the tax increase a more palatable 1 percent in downtown Kansas City. They proposed a “swap” that would cap the streetcar’s Transportation Development District (TDD) sales tax at 0.25 percent on condition that the 0.75 percent sales tax passed (a total tax increase of 1 percent). In return, they called for $210 million to be diverted to the streetcar to make up for lost revenue. As we noted, that incredible amount of money could only result in virtually no money for other transit improvements or cuts to road funding. The media in Kansas City, despite ample evidence of a burgeoning deal, did not report on the story until the day before the long Fourth of July weekend.

The Kansas City Business Journal finally reported on July 3 that a deal was in the works, with $144 million going to the Kansas City streetcar, accompanied with sharp cuts to other transit and pedestrian improvement projects. That means about 18 percent of all regional transportation funds will be diverted to a questionable development scheme in downtown Kansas City, should the transportation sales tax pass.

FundsMARC2

Both the Business Journal and the Star reported that the plan to cap the downtown tax increase at 1 percent is part of the deal, even though simply arithmetic makes this simple “swap” impossible (as a future post will detail).

This murky deal is the worst type of policy making. The “swap” essentially makes the streetcar policy and the transportation sales tax more politically palatable to those living in downtown Kansas City by making state taxpayers unwittingly pay for a massive share of the streetcar. This is the type of bargain that is only necessary because the state and Kansas City plan to spend huge sums on wasteful “transportation” projects, and only possible because a sales tax means that who pays has nothing to do with who benefits.

School Vouchers: NOT A Party Issue?

how republicans and democrats feel about school vouchers

When it comes to political issues, Americans often are polarized, except about education. School vouchers are one example. In a recent national survey, the Friedman Foundation for Educational Choice found that almost three-fourths of Republicans and nearly two-thirds of Democrats favor vouchers. The difference between Republican and Democrat Party support was only 11 percentage points. Overall, 63 percent of Americans said they support school vouchers, compared to 33 percent who said they opposed the system.

The survey also found that more respondents perceived Democrats to oppose (54 percent) than favor (46 percent) school vouchers, which contradicts actual findings. This suggests that Americans may think that school voucher programs are a party issue, but in reality, they aren’t.

Last month, Missouri Gov. Jay Nixon vetoed a bipartisan transfer bill that would have allowed students in unaccredited public school districts the opportunity to attend non-religious private schools using public funds. He called the bill, “a dangerous voucher scheme.” He also claimed Missourians do not support school vouchers.

Vouchers are simply a method of giving students educational options. Thirteen states have adopted voucher programs, and yes, Missourians seem to be on board (62 percent favor school vouchers; 32 percent oppose).

The bipartisan effort was an important first step toward providing opportunities to kids with few options — and it was neither dangerous nor scheme-like. Studies such as the Friedman Foundation’s show the majority of Americans (and Missourians) want educational choice no matter which party most closely aligns with their beliefs.

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 2, 2014

Give Tax Cuts A Chance

Taxes IconPerched atop his ivory tower, Paul Krugman, a Nobel Prize winning economist, has declared that the tax cuts enacted by the Kansas legislature in 2012 are a failure. Writing in The New York Times, Krugman avers that “the Kansas debacle shows that tax cuts don’t have magical powers” and that “faith in tax-cut magic isn’t about evidence.” Is the all-knowing economist correct?

(As an aside, it was Mr. Krugman, writing in The New York Times in 2011 who stated that “the V.H.A. [Veterans' Hospital Administration] is a huge success story, which offers important lessons for future health reform.”)

Mr. Krugman’s predictable protestations notwithstanding, there actually is a significant body of empirical evidence finding that, on average, states and countries with lower tax rates tend to grow faster. (See articles in this SMI study.) While economists, like any other group of scientists, debate their findings, there is real-world evidence to believe that reducing taxes can improve the economic lives of a state’s citizens.

Every principles of economics student, even those using Mr. Krugman’s textbook, learns that if you wish to reduce an activity, tax it. Since income taxes are derived from working, basic economic theory predicts that higher income taxes will reduce people’s incentive to work more hours. At the extreme, tax me 100 percent of my income and I’ll just stay home, thank you. So, lowering tax rates in income should reduce this disincentive to work.

Mr. Krugman does not seem to think that lowering taxes matters. The story that Walgreens is contemplating moving its headquarters to Switzerland to lower its tax burden belies that notion. Even if you find this proposed move disturbing, you cannot ignore the simple fact that Walgreen’s likely would not consider relocating if taxes were equal in the two countries. Tax rates really do matter in making economic decisions.

There is no denying the fact that since the Kansas legislature enacted the tax cut in 2012 (it became effective in 2013), the state’s economy has yet to achieve the economic take-off that some promised. Job growth is slower than the national average and, due partly to income shifting in response to the fiscal cliff, the drop in tax revenues in 2014 compared to 2013 has been larger than predicted.

Changes in the tax code cannot be expected to reverse years of weak economic performance overnight. Kansas, like many other states, is still recovering from the effects of the Great Recession. Like most medicines, changes in tax codes should not be expected to deliver immediate cures.

Before Mr. Krugman is anointed as the Cassandra of tax cuts, let’s give the experiment time to take hold. Time will tell, but basic intuition and existing evidence predicts that Kansas’ economic future is brighter today than it would have been without the tax cuts.

The Wisdom of Devoting 27% of Transportation Funds to Streetcars

We have commented before on the possible deal between MoDOT and Kansas City officials to spend an incredible 27% of all regional funds ($210 out of $776 million) from a transportation sales tax on the streetcar expansion. Despite the fact that Mayor James introduced a resolution (140500) calling for just that, not a single traditional media outlet has bothered to ask if a deal exists and what impact that would have on the original, less streetcar-centric plan for the money.

Excluding the unlikely scenario in which MoDOT devotes more sales tax funds to the Kansas City region than originally planned, diverting $210 million dollars to the streetcar will have to come at the expense of other projects proposed for the region. As we commented before, if money for the streetcar comes from the portion of funds allocated to transit projects, little money would be left for anything else.

However, the Mayor’s resolution calls for the implementation of all non-road projects in the original plan ($316 million) along with the $210 million for the streetcar. The only place left to cut from would be road projects, reducing their share from $427 million to $250 million. The resulting policy would dedicate 53% of funding to public transit in a city where less than 2% of the population use it to get to work.

The Kansas City streetcar has very little transportation merit. The proposed streetcar lines can hope to lure 23,200 passengers per weekday at best. That estimate is likely overly optimistic, but let’s assume this is correct. Furthermore, assume that every passenger represents a commuter (although some won’t be) traveling either to or from work. 23,200 passengers would represent 11,600 commuters. Add in the starter line and streetcar commuters, which could total 12,950 per day. That would be impressive and more people than currently use to the entire KCATA bus system in Missouri. Still, even in that most optimistic case, the streetcar would serve only 2% of commuters. 2% of commuters, 27% of all regional transportation funds.

streetcar_vfunding_commute

Streetcar supporters might counter that the streetcar’s primary goal is to move money to downtown Kansas City rather than move people around the city. This is all the more reason the state should be wary of giving transportation money to a development scheme. All the more reason people should consider whether the state needs, or can be trusted with, transportation sales tax revenue.

IFF Provides Map for “Quality” Charter Schools

iff widget

IFF, a nonprofit community development financial institution based out of Chicago, released its latest widget last week. The widget is an interactive map, which allows St. Louisans to directly manipulate variable layers like educational attainment, non-English speakers, poverty, and age. The most stunning layer is zip code rank.

The zip code rank layer shows which St. Louis City zip codes have the most need for quality schools—the lighter the gray, the higher the need. Need is based on what IFF calls the service gap, or the difference between supply (capacity of districts designated as “Accredited” or “Accredited with Distinction”) and demand (students enrolled in district and charter schools). IFF found that St. Louis needs 18, 987 more seats in accredited schools to serve all of its K-12 students. IFF also found that 63 percent of the service gap was concentrated in six neighborhoods. With support from Mayor Francis Slay and St. Louis Public Schools superintendent Kelvin Adams, the institution made a few recommendations, including: Encourage district partnerships with charter schools like KIPP.

This is a recommendation we support. Research points to the effectiveness of quality charter schools in urban areas, but simply saying “we need quality charter schools” isn’t enough.  The next step is to identify what a “quality charter school” is.  Harvard economist Roland Fryer points to five qualities: frequent teacher feedback, data driven instruction, high-dosage tutoring, increased instructional time, and relentless focus on academic achievement.  Schools like KIPP echo Fryer’s findings (KIPP teachers work Monday through Friday from 7:10 am to 5:00 pm and every other Saturday).

Studies like Fryer’s and real world examples like KIPP serve as a road map for building quality charter schools, but the path to quality education starts with parents.  Parents need the right tools to make the best choices for their children, and IFF’s interactive map is one of those tools.

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.

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