New Council members brush off Chamber of Commerce - Columbia ...

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8 April 16, 2011 Columbia Business Times | ColumbiaBusinessTimes.com vOICES From the Roundtable Nixon should rescind billion-dollar rail bid, focus on road woes Al Germond Al Germond is the host of the "Columbia Business TImes Sunday Morning Roundtable" every Sunday at 8:15 a.m. on KFRu. Algermond@gmail.com While watching our state’s highways crumble and hearing the widespread calls for budget cutbacks, Gov. Jay Nixon has come up with a pothole of a plan. The governor has applied for nearly a billion dollars in federal funds for various dubious passenger rail projects. The Nixon administration is seeking federal funds spurned by several other states to shore up railroad passenger service on the 283-mile transstate line AMTRAK has used since 1971. Another allocation, perhaps more appropriately sought, is for initial planning of a true high-speed rail line linking St. Louis and Kansas City — presumably electrified and running through Columbia. “Attention! Listen up, Columbia and Boone County!” Like the stationmaster of old calling out arrivals and departures, this might revive plans to build what in 1933 was referred to as the shortest rail connection between Missouri’s two largest cities — a 232-mile route that would have passed through the Columbia area. The project dating back 80 years included construction of two new bridges across the Missouri River, for which all approvals had been secured. Of course, the Great Depression squelched the whole idea. Columbia, Boone County and its various adjuncts need to pay attention and be sure they’re at the table when this high-speed rail comes up for discussion. Rail fans love to recount the euphoria in this country after World War II, when dozens of privately funded railroad companies poured hun- dreds of millions of dollars into passenger equipment and the infrastructure these new cars rolled upon. The thrill and any prospect of profitability were largely gone by 1955, undone by burgeoning highway and airline competition, onerous taxes on structures and right-of-way and costly union “featherbedding” practices. “High speed” at the time was an illusion at best in North America: 80 mph was the exception, and an average speed of 50 mph was typical on the majority of passenger lines. On the other side of the Atlantic, France was showing the world what grande vitesse was really all about. On March 29, 1955, state-owned SNCF’s Alstrom electric locomotive No. CC-7102 was clocked doing 206 miles per hour (331 kmph) on a straightaway between Bordeaux and Dax in the Landes department. That established a speed record that stood for more than 50 years. Then came the construction of the first ligne à grande vitesse (LGV) on a new dedicated right-of-way between Paris and Lyon, followed by other new high-speed lines and upgrades. Although 300 kmph (186 mph) is the advertised speed of France’s TGV trains, most of the ordinary electrically propelled trains in that country attain average speeds between 100 and 120 miles per hour. But this is in France, a country about the size of Texas with 13 times the population of Missouri. Here, questions must be raised about making significant investments in the old Missouri Pacific Econ Matters Inflation is here? Let’s take a look under the hood Joseph Haslag Haslag is a professor of economics at the university of Missouri. For anyone who has filled a gas tank during the past three months, there is no denying that the price is marching upward. Based on this observation, inflation is here. After increasing by less than one percent between November 2009 and November 2010, the Consumer Price Index has recorded annualized rates of change equal to 4.8 percent in both December and January and 6 percent in February. So the United States’ most recognized measure of inflation indicates an uptick in the inflation rate. First, it is important to define what we mean by inflation. Economists see inflation as a sustained increase in the price index. Is three months a sustained increase? In my view, three months is not long enough to be a sustained increase. I do not want to rest my entire case on the number of months. Let us take an encompassing approach to the current situation. One factor that bears on the inflation conclusion is the circularity of it all. When one looks at the seven major components of the CPI, the main reason why the inflation rate has increased is because of the transportation component. In other words, the measured inflation rate is rising because energy prices have been increasing. Three months with rising inflation rates, owing chiefly to one major category, especially one that is historically quite volatile, makes me more comfortable calling this a non-inflation. Energy price increases can last for several months. In addition, energy is a ubiquitous input in world production and can therefore account for higher costs and higher prices for other goods and services. Once the energy price increase is completed, there are no sustained cost-push forces to act on the price of the market basket of goods and services. Economists see inflation as a sustained increase in the price index. … In my view, three months is not long enough to be a sustained increase. Another thing is the absence of protection sought by financial market participants. Sustained inflation is built into people’s forecasts. In other words, someone expecting prices to rise at a 10 percent rate during the next year will need more than a 10 percent return on even the safest assets held during the year. It’s a whole-time-value-of-money thing. Despite the recent increase in oil prices, the returns on Treasury bills have been remarkably line. Is the idea to atone for the nearly 30-year period that began in the 1930s when the MoPac was bankrupt and operating under the tutelage of a receiver? This is, largely, a single track rightof-way that’s more than 50 miles longer than it needs to be, sensitive to river flooding in places and more than 30 miles from Columbia, central Missouri’s largest city. One dreams of the construction and operation of a true high-speed electrified rail line between St. Louis and Kansas City with Columbia in between. Another dream speaks of high-speed, all-electric service between Hannibal and Branson that connects Columbia, Jefferson City, the Lake of the Ozarks and Springfield. Both new lines would be reliable customers if the Callaway II nuclear plant is ever built. Following French practice, Missouri’s new TGV line would mean laying down a brand new dedicated right-of-way laced with an overhead network of 25,000 volt catenary wires along a corridor that would be proximate to Interstate 70. The latest news from France tells us that high-speed rail progress has been slowed by the world economic malaise and the stupendous and continuously rising cost of construction. Billions of euros. No, tens of billions of euros is the anticipated cost to upgrade with all new right-of-way between Tours, Bordeaux and Toulouse with another new line proposed between Bordeaux, Bayonne and Hendaye on the Spanish border. Cities such as Poitiers and Angoulême are already annoyed because the new line will skirt (continued on Page 12) low and constant during the past year or so. Lest you believe that the Federal Reserve policies are keeping one-year Treasury bill rates low by creating lots of money, note that the return on oneyear Treasury bills was 14.7 percent in August 1981. The return on one-year Treasury bills has not exceeded one-half percent since the end of 2008. My point is that people buying Treasury securities are not bidding up the return to insure themselves against the sustained inflation. Perhaps, inflation has not worked its way past the threshold that marks the kind of sustained rates that are embedded in market interest rates. Despite compelling evidence, we do observe Washington-dwellers citing inflation. Rhetoric aside, it would be folly to ignore the potential for inflation that exists. If inflation is always and everywhere a monetary phenomenon, the Federal Reserve has accumulated a lot of kindling to fan inflationary fires. Printing money was adopted when the financial crisis first began and the Federal Open Market Committee enacted quantitative easing II last fall. Thus far, the absence of higher inflation likely means that demand for money matched the supply. Demand for money can be rather tricky though, and a nimble Federal Reserve must be prepared to undo the previous easing to keep inflation away. For us, the results come from an extremely complicated set of interactions among people operating in the economy. It might be worth watching those rates on United States’ Treasury securities. v
vOICES County view Local governments revise formula for sharing road, bridge costs Ed Robb Robb is Boone County’s presiding commissioner In 1993, the voters of Boone County approved a new one-half-cent sales tax dedicated to road and bridge maintenance and improvements. The tax has been re-approved by voters twice: first in 1997 and most recently in 2007. In return for this new revenue source, the county rolled back the road and bridge property tax levy from 29 cents to 5 cents per $100 of assessed valuation effective January 1, 1994. The rate was subsequently reduced to 4.75 cents as of January 2005. Passage of the new sales tax also required the enactment of a new revenue allocation formula. Under the property tax, taxing entities in the county shared the property tax receipts according to state statute. Cities, towns and villages received a rebate equal to 25 percent of the receipts generated within their boundaries, and the Centralia Special Road District received a rebate of 80 percent. Because property tax receipts were now much lower, the county initiated two new allocation categories: revenue replacement and revenue sharing. The revenue replacement portion was calculated as 1.5 times the amount that the old 29-cent levy would have generated, less any property tax rebates. The revenue sharing portion was an application-based distribution based on the merits of requests received from cities and the CSRD. The projected distributions for the 2011 fiscal year are summarized in the following table. Revenue: Rebates Replacement Sharing Total 228,456 1,734,298 550,000 2,512,754 The problem with this allocation formula is that the bulk of the shared revenue is based on the growth of the property tax, while the source of the funding is based on the growth of sales tax receipts. During the early years, 1995 to 1998, this posed no problem because the sales tax grew faster than the property tax, 31 percent and 15 percent respectively. From 1999 to 2010, however, the opposite occurred, with property tax receipts growing at an average annual rate of 5.2 percent compared to 2.9 percent for the sales tax. The net result has been a continual erosion of the funding source for county road and bridge projects. When the county's share of sales tax receipts plummeted to 66 percent in 2008 compared to the historical average of 81 percent, all parties agreed that changes in the distribution formula were necessary. Work began on the new formula in September 2009 with the formation of a revenue sharing subcommittee comprised of members from the county, the CSRD and the cities of Ashland and Columbia. The goal of the subcommittee was to draft a new distribution mechanism that recognized the funding needs of all parties while simultaneously tying the necessary revenues to the growth of the sales tax. A preliminary draft of the new formula was presented to all parties in December 2010. Subsequent comments and feedback were then incorporated into the draft to produce what is hoped to be the actual formula that will be adopted in April. Guest Column Independent contractors serve our community Dave Griggs Co-author Dave Griggs, owner of Flooring America These days, for small-business owners like me, access to independent contractors can sometimes serve as a lifeline to stay afloat. At other times, they are essential for continued growth. In either case, our local economies depend on the service of independent contractors — professional men and women who serve their community, provide for their families and deliver skilled services to businesses like mine. Hiring independent contractors is very commonplace in countless industries across the country. From computer software engineers, ER physicians, hair stylists, power plant engineers to the carpet and tile installers whom my business depends on, independent contractors are everywhere and fulfill an important function, which often includes creating much-needed jobs for others. Despite the fact that there are 10 million independent contractors in the United States — attributing $473 billion in personal income — the federal government is attempting to overregulate their independent status. Pushed by labor interests at both the national and state level, the campaign against independent contracting, if successful, will have severe consequences on an independent contractor’s ability to grow and prosper and a company’s ability to hire locally on a pay-for-performance basis. For more than 36 years, I have been granted the opportunity to carve out a successful entrepreneurial niche in Columbia. In addition to serving customers, my business serves a wide range of markets including retail sales, construction, insurance, real estate and contract and commercial work. Hiring independent contractors not only significantly cuts overhead expenses and helps ease the burdens of small businesses, but it also allows me to be far more responsive to my customers’ needs while allowing installers the flexibility of being their own bosses and pursuing their own entrepreneurial ambitions while creating jobs for their helpers. As many Missourians struggle with persistent unemployment, higher prices and slow income growth, the focus should be on creating jobs, not taking them away. Independent contracting is a winning combination for businesses and citizens alike. The hardworking people of Missouri should have the freedom to turn obscurities into opportunities. Why independent contracting is under attack • States are facing a financial “double-whammy.” • More citizens demanding unemployment/ worker’s comp benefits • Fewer contributions/contributors to these funds because of job loss • The IRS is focused on finding opportunities to raise more revenue. Although the property tax rebate portion of the new allocation formula remains unchanged, the revenue replacement and revenue sharing portions are significantly different. Unlike the old formula, both are directly tied to the level of net new road and bridge sales tax receipts. Under the proposed new allocation mechanism, the county would retain 82 percent of net new road and bridge fund receipts, with 18 percent distributed to cities and the CSRD. The new revenue replacement is calculated as the actual difference between the mandatory rebate and the level of property taxes that would have been collected at the maximum levy allowed by state statute rather than the 29-cent levy under the old formula. For 2010, the maximum rate ceiling was 26.49 cents per $100 of assessed valuation. The new revenue sharing segment is divided into three pools: one based on competitive applications and the other two based on relative assessed valuation. The proposed distributions for the 2011 fiscal year are summarized in Table 2. Revenue: Rebates Replacement Sharing Total 228,456 1,045,053 1,172,643 2,446,152 The net effect of the new formula is to move approximately 2.5 percent of net new sales tax receipts from city to county projects. Additionally, the county will also recognize all existing multi-year revenue sharing agreements. And unlike the old formula, the new version will be subject to annual review. v • Labor unions are seeking to reverse declines in membership and member dues. They are pressing state regulators and legislators to classify independent contractors as employees that can be organized into unions. “For decades the IRS has played a game of find-thefreelancer at businesses where independent contractors remain on the payroll for months or even years. Companies, especially small ones, increasingly rely on such workers because they offer greater flexibility — and because they're cheaper. Employers can save as much as 30 percent on wages by avoiding payroll taxes, unemployment insurance, worker's compensation coverage and benefits they provide regular employees.” — Anne Field, Bloomberg Businessweek, April 2010 v Who are independent contractors? Wikipedia defines an independent contractor as a person, business or corporation that provides goods or services to another entity under terms specified in a contract or within a verbal agreement. Independent contractors range in size from one-person operations to large organizations with many employees. According to the U.S. Bureau of Labor Statistics and Chamber of Commerce, an estimated 10.3 million people work as independent contractors, or about 7.4 percent of the U.S. workforce. 9 April 16, 2011 Columbia Business Times | ColumbiaBusinessTimes.com
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