When governments compete against their citizens
Saint Paul Legal Ledger Capitol Report
July 20, 2009
John LaPlante

With the governor's cuts in state aid to local governments the topic of the month, it's a good time to ask what local units of government are doing -- and ponder what they should be doing.

We give governments unique powers and ask them to do unique things. For example, I've been exploring some local parks, noticing the features they offer and how they differ from each other.

Yet governments sometimes act as if they are commercial enterprises. For example, some Twin Cities-area units of government operate water parks that resemble amusement parks more than the municipal pool of years gone by.

Anoka County operates Bunker Beach, which advertises itself as having "Minnesota's largest wave pool." Apple Valley's Family Aquatic Center has less extensive offerings, but you can rent it for your exclusive use after hours. Eagan's Cascade Bay has, in addition to the usual water park features, a miniature golf course. Shoreview has the Topics Indoor Water Park.

So extensive and important are government-owned water parks that of the 18 Minnesota water parks listed by the Web guide About.Com, four (or 22 percent) are owned by a government agency.

If golf is your passion, Explore Minnesota says there are 498 golf courses in the state. Roughly half of the courses I have played golf at are owned by cities or another unit of government. Some of them, such as Superior National Golf at Lutsen, receive plaudits from industry magazines such as Golf Digest. But those awards can't overcome the fact that golf may be the least essential of non-essential government services.

After all, it's not as though you have to belong to a private club to golf. Explore Minnesota says that 90 percent of the state's courses are open to the public.

When winter comes, the commercial enterprises continue. The Three Rivers Park district, an independent unit of government in the west metro area, operates Hyland Ski & Snowboard area in Bloomington.

Under the authority of a special state law, Duluth operates its own ski hill, Spirit Mountain, that receives tax subsidies from a special tourist tax. The city tried to get federal stimulus money for snow-making equipment, saying it would create jobs. (The city didn't get the money.)

What do water parks, golf courses, and ski hills have in common? Aside from offering recreational opportunities, they are examples of businesses in which governments compete against citizens in a business in which the benefits (of playing in the water, playing golf, and skiing or snowboarding) accrue largely to the people engaging in the activity.

Whether we're talking of recreation or other lines of business, government-owned enterprises enjoy several advantages. They don't pay property taxes, and they can rely on the public treasury if needed.

When government goes into business, it may offer a bargain to its customers, but it imposes costs on everyone else. First of all, it discourages private citizens from going into business for themselves. They also expose taxpayers to financial risks, particularly for capital-intensive businesses such when cities start a broadband service.

Even if they don't need explicit subsidies from the treasury, government-owned enterprises impose opportunity costs. A piece of land owned by government is money that can't be used for a business that will pay taxes and employ people.

Public enterprises can also face a conflict of interest. More than 230 cities in the state own liquor stores, which means that one of four Minnesota cities is in the business of selling hooch. The City of Apple Valley addresses the conflict on its website this way: "While the purpose for municipal sales is to promote moderation and control in the sale and use of alcohol beverages, the municipal operations can also be profitable and generate income for the community." Some residents, no doubt, are uncomfortable at the thought of profiting from the sale of alcohol.

The conflict between these two goals is most blatantly evident in one New Hampshire rest area I visited. On one side of the parking lot is the conventional rest-area building with toilets and information for tourists. On the other side is the state-owned liquor store. "Hey kids, let's stop at the rest area and buy some Old Grand-dad before we visit Grandpa!" At least we don't have that situation here in Minnesota.

Sometimes local governments compete with home-grown businesses that have become household names elsewhere. Minneapolis is home to Caribou Coffee and Saint Paul is home to Dunn Brothers Coffee. Each business now operates in 10 or more states. But the Central Library, of the Saint Paul Public Library, offers its own coffee shop, and I suspect other libraries do the same.

In the business of fitness centers, LifeTime Fitness has gone national, but the City of Eagan, among others, operates its own fitness center.

Citizens grant government powers to government because they are essential to the public good, and having private citizens provide them is problematic. Police powers, to protect us from force and fraud, are one example. So is the responsibility to provide clean drinking water.

Serving up a fancy cup o' Joe? Not so much.

Labels: Legal-Ledger

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Smaller Classes Lead to Better Schools? Not Quite.

For many students, the new school year will begin within a month. So here's a reprint of an article I wrote elsewhere about a popular but flaws method of improving schools.

September 24, 2007
Is small beautiful? Evaluating classroom size

A perennial fad in education policy is the idea that smaller class size improves student achievement. In 2002, Florida went so far as to write a class-size program into its constitution. Earlier this year, governors in states as politically diverse as New York and Utah embraced smaller class sizes in their state-of-the-state speeches.

School districts, meanwhile, warn that the public’s failure to endorse larger tax bills will lead to larger classes. The logic is simple enough. Teachers are important. A smaller class lets a teacher pay more attention to each student. Ergo, students in small classes do better.

There’s one problem, though. We know less than we should about the effects of class-size reduction, given its financial and opportunity costs.

Perhaps the most well-known study of smaller classes was Project STAR, conducted in Tennessee during the late 1980s. More than 6,000 students in 79 schools from rural, suburban and urban schools were involved. They were placed into one of three types of classrooms: a smaller class (on average, 15 students), a larger class (22 to 25 students), and a larger class with a full-time teacher’s aide. The experiment continued for several years, though only one-third of students continued in the same kind of classroom for three or more years. The students, who entered the project as kindergarteners, were given two different tests, and the numbers were crunched in various ways.

The researchers concluded that students benefited from being in smaller classes. Inner-city children gained the most. For students overall, most of the gains came in a student’s first year in smaller classes; by the eighth grade—long after students had left the experiment—the gains over other students were minimal.

The National Education Association, the nation’s largest teachers’ union, applauded the findings. (As well it should: a smaller workload is in essence a pay raise.) “The results: At every grade level, in every subject, at rural, suburban, and urban schools, children in small classes outperformed their peers on standardized tests every time.”



Doubters

As far back as 1996, though, doubts have crept in. The California Research Bureau warned that “since other recent demonstrations around the country have not shown results as dramatic as those found in Tennessee, any evaluation regarding the effects of class size reduction on student performance should be viewed with caution.”

Chief among the critics has been Eric A. Hanushek, an economics professor who has worked at Yale University, the University of Rochester in New York and Stanford University (and as deputy director of the Congressional Budget Office during the 1980s). Hanushek has lodged several complaints about the methodology of Project STAR, including its lack of a pre-test. It’s hard to know how well a treatment works (in this case, smaller classes) if you don’t have a benchmark to start with. He has also argued that lower-achieving students tended to drop out of the project, thus inflating the results.

Ludger Woessmann, of the Institute for Economic Research, a German organization, and Martin B. West, a research fellow at Harvard, took a cross-national approach to the question. In 2006, the European Economic Review published findings from a study of theirs that examined countries including the U.S., several in eastern and western Europe and Asian countries like Japan, Singapore and Korea. Their work found that important “class-size effects are observed only in countries with relatively low teacher salaries.” (The U.S. is not considered a low-salary country.)

Carolina Milesi and Adam Gamoran, both sociologists at the University of Wisconsin, concluded in one of their studies that there was “no evidence of class-size effects on student achievement in either reading or mathematics.” Further, they found this was true across several demographic categories, including socioeconomic status.

Practical Questions

Even if we brush off criticisms of Project STAR, there are serious questions about its merit as a guide to policy. For one, it’s very expensive. According to the Education Commission of the States (http://www.ecs.org), the federal government’s Class Size Reduction Program spent $3.5 billion on class-size efforts in a single school year, 1999-2000. In addition, the program, established in 1998, is providing roughly $1.2 billion a year to help states hire and train new teachers as part of an overall goal of lowering class size in grades one to three to at most 18 students per classroom nationwide—still higher than the Project STAR number.

But finding money to hire more teachers is just the beginning. Smaller classes work only if they are taught by quality teachers. Reducing class size by diluting the quality of the teacher pool—which a rapid expansion in the number of teachers could easily bring—is a self-defeating measure.

Class-size reduction efforts can reduce the quality of teachers in another way. Smaller classes mean more classrooms, which means significant one-time capital costs and increased and ongoing maintenance costs. Where will those funds come from? It would likely come from money that could be used for increasing teacher pay, increasing teacher training and purchasing additional technological tools, to start with.

If there’s one reform idea that seems to have nearly universal support, it’s that teacher quality must be improved. There are of course competing ideas of how that can be done. Merely ramping up the number of teachers, though, favors quantity over quality.

Labels: K-12 education, Legal-Ledger

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States grading themselves on the curve
Since the latest issue of Education Next mentions how some states set low standards for schools, it's time to bring up an article I wrote on the subject last year. Nothing much has changed since then.

November 5, 2007
'No Child' leading to grade laxity

We all know about the old problem of “grade inflation.” Lately, when it comes to following the federal No Child Left Behind law, some states have been getting into the act.

Under NCLB, every state must test students to make sure each is proficient in mathematics and reading by 2014. But the law gives each state a lot of flexibility: States are free to use their own tests to comply with the law. They can also determine what score constitutes “proficient.”

That’s where things get interesting.

The Thomas B. Fordham Institute (www.edexcellence.net) is a Washington, D.C.-based organization that is generally pro-school choice. (The Institute is unrelated to Fordham University in New York.) Yet unlike school choice advocates who assail NCLB or a federal role for education, Fordham supports both the law and national (though not necessarily federal) testing.

In October, the Institute released a report that criticized states for having lax testing standards. The title of the report—“The Proficiency Illusion”—gives away the game.

The report starts with the story of a mythical family in Michigan. Susie Smith, a fourth-grader, scores very low on the state math test and yet is declared proficient. Her parents, seeing only the “proficient” label, are pleased, thinking that she is on track to doing well throughout her school years.

As a result of her state’s very low standard, however, her performance, and that of her school, is inflated. As a result, say the Fordham authors, “if Susie lived in California or Massachusetts or South Carolina, she would have missed the ‘proficiency’ cut-off by a mile.”

Imagine not just a single Smith family, but a school of Smith children, and you have a school that despite doing well by the standard of NCLB, isn’t learning much. Imagine a state of such schools, and you have a state that is systematically dumbing-down education.


Methodology
Given that states have their own tests for NCLB compliance, how did the Institute come to criticize Michigan? What prompted it to applaud both Massachusetts and South Carolina, two states not normally spoken of in the same category in education?

Twenty-six states administer the MAP (Measures of Academic Progress), which is produced by the Northwest Evaluation Association (NWEA, http://www.nwea.org). In simplest terms, the analysts from the NWEA compared a state’s performance on the MAP with its reported performance for No Child Left Behind. Then they determined which MAP percentile a student would have had to achieve to be labeled “proficient” in each state. They is the “cut score.” One limit of the report is that the MAP is given in only 26 states.

The analysts then asked three questions of each state, including “How easy is it to be proficient?”

Colorado set the lowest bar. As a matter of policy, it declared that students scoring “basic” on the state assessments would be declared “proficient”—a higher level of performance—for the purposes of NCLB. Under the law, that was its right.

Not surprisingly, the cut score for Colorado was very low. Colorado’s third-grade students had to score in only the 6th percentile on the MAP to be deemed “proficient.” The state with the highest expectations was Massachusetts. In the Bay State, a fourth-grade student who was in the 76th percentile was not considered proficient. (The cut off: 77th percentile.)

On the whole, Minnesota is more rigorous than average for both math and reading, with third grade the only grade where the state falls below the average. But for grades four through eight, Minnesota cut scores are higher than the sample average. Its least demanding cut score was third grade reading, in which the state ranked 16 out of 26. Its most demanding cut score was fifth grade mathematics, which placed at fourth out of 26.

Even so, there’s some laxity in Minnesota standards. The most demanding standard was fifth grade mathematics. There, scoring proficient on the Minnesota Comprehensive Assessment II translated into the 54th percentile on the MAP. The least demanding test was third grade math, which required only a performance at the 26th percentile.

So what does this mean for parents, voters, educators and lawmakers? For all the protests and heartache of NCLB, we’re not necessarily getting much return. States are setting the bar low, and in some cases, setting it very low. As China, India and other countries enter the world economy, though, being “better than Mississippi” doesn’t cut it anymore.

The focus on increasing student achievement is good. The stated purpose of improving the performance of all students, especially the lowest performing ones, is just. But No Child Left Behind, at least as practiced, is falling short.

The law could reap many social and economic dividends if it actually produced results. But the number of loopholes in the law, including the ability to set low thresholds for proficiency, should give observers pause. It may turn out that the most enduring legacy will be the law’s demonstration of the limits of standards-based education reform.

Labels: K-12 education, Legal-Ledger

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From "A Nation at Risk" to "Cities in Crisis"

School's out for summer. But for many kids, school's out forever--and they still don't have a diploma. Here's an article I wrote about the problem of high school dropouts.

May 5, 2008
From "A Nation at Risk” to “Cities in Crisis"

First we had "A Nation at Risk," launched a new era of school reforms. Millions of dollars and almost 25 years later, we have, according to a new report on high school dropouts, "Cities in Crisis." The more things change … the more they stay the same.

This new report is from America’s Promise Alliance, a child-welfare advocacy organization founded by former Secretary of State Colin Powell.

The report has received a lot of attention. One reason is the sheer scope of the problem that it outlines: 1.2 million students should graduate with a diploma each year, but don’t. While some people do just fine without a diploma, dropouts as a whole tend to create tremendous social costs.

While dropouts occur everywhere, author Christopher B. Swanson focused on the 50 largest cities and their surrounding metropolitan areas, whose dropout rates are twice those of student enrollment as a whole. The cities range in size from New York City (population 8.2 million) to Wichita, Kansas (population 357,698). Minneapolis was the only Minnesota city on the list, coming in as the 47th-most populous city.

Here are some of the most significant findings of the report:

The graduation rate for all students was 70 percent. Three out of 10 students don’t graduate on time—and most of those 30 percent don’t graduate at all.

Urban districts had worse graduation rates. Among the principal districts serving the largest 50 cities, the graduation rate was 52 percent.

Girls were much more likely to graduate than boys. The graduation rate was 74 percent for girls but only 66 percent for boys.

Graduation rates were much higher in suburban districts. The rate in the suburbs was 75 percent—nothing to crow about—but 60 percent in urban districts.

The racial gap is significant. Graduation rates vary greatly across groups, from 49 percent for American Indians to 80 percent for Asian-Americans.

In the Midwest, graduation rates for the largest districts ranged from 25 percent (Detroit) to 60 percent (Wichita). Minneapolis (44 percent) did worse than all but five other districts. The rate for the Twin Cities was 77 percent, putting it tied with or behind 8 other metro areas.

The reactions of various public officials were as interesting (and distressing) as the results of the report.

Some districts disputed the numbers. The superintendent of the Cleveland Public Schools said the numbers “are not accurate.” He got some support from the Ohio Department of Education, which includes graduates of summer school in its calculations.

Both Minneapolis and Atlanta administrators said their rates were 8 percent higher than the ones calculated by Swanson.

School officials might be motivated to say such things because their budgets and jobs are on the line. But they can make these claims because there are various ways of counting students in these statistics. Are special education students included or not? What counts as “completing high school?” It is completing a diploma in four years? Four years plus an extra summer school session? Is a GED good enough?

The National Center for Education Statistics (http://nces.ed.gov) recognized four different methods of calculating rates in its publication "Dropout Rates in the United States: 2005." The event dropout rate covers students who leave school during a single year. The status dropout rate reports people in an age range who are not in school and do not have a diploma or GED. The status completion rate covers people in an age range who have earned a diploma or GED, even if they took more than four years to do it. Finally, the averaged freshman graduation rate, or cohort rate, estimates the percentage of students who complete high school in four years. Swanson used this approach, which produces the largest numbers. The event rate, by contrast, produces the smallest numbers.

In response to the report, U.S. Secretary of Education Margaret Spellings announced federal efforts to standardize reporting requirements. Her position is understandable: How can the federal government do its part in administering No Child Left Behind if you can’t easily compare Ohio with Texas? The move to standardize calculations represents a further federal intrusion into what many people think should be a matter at the state level. Yet NCLB is the law of the land, and in the ways of government, one law tends to lead to another.

In addition to pointing to their interpretation of the numbers, some state and school officials pointed to their good intentions. An official with the Kansas City, Mo., schools said “It’s not the place where we want to be. What matters is where we are going.”

Others emphasized recent actions they’ve taken. Officials in Kansas City, Kan., said they have moved in recent years to deal with dropouts. Leaders of the Boston school district said they did their own study last year, and have started new efforts. An official with the Minneapolis Public Schools told the StarTribune "We've improved a lot since then."

Certainly, some schools have seen improvements, and graduating three months later (see Ohio) is better than not graduating at all, even if that does imply extra public spending.

Regardless of who you count or how you crank the numbers, there are still far too many students who aren’t completing high school on time. What can be done about it? Various and competing proposals abound, but I hope that we won’t have to read a similar report in another 25 years.

Labels: K-12 education, Legal-Ledger

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With a new book on "disruptive changes" for education on the horizon (see Education Next for a preview), it's time to print an essay I wrote about virtual schools.

May 7, 2007
When going to school means going online

With Internet-based technologies challenging business models in many industries, it was only a matter of time before they started to challenge K-12 education. Policymakers who feel the need to catch up with these changes should resist the temptation to blindly apply old-school regulations to the new environment.

Online learning is growing rapidly. “Education Week,” the trade magazine of K-12 education, says that its use may have grown 20-fold during the last five years. There are now anywhere from 750,000 to 1 million registrations for online courses.

Some online tools involve people interacting at the same time, such as chats, Web seminars or simulations. Others applications, such as e-mail or discussion forums, are used at a participant’s leisure. Depending on the tool and instructional method, an online student may interact with a teacher only occasionally or on a fixed schedule. Interaction among students taking online courses, meanwhile, can vary from little to extensive.

Online learning is more than simply playing a videotape in a classroom. Thanks to charter school laws, an entirely new institution has been born: the virtual charter school. These public schools, free from some of the regulations that hamper traditional schools, are free to draw students from around a state, country or beyond.

Online learning can have several advantages for students. The most obvious is a flexible schedule for those people who for whatever reason (sports, a budding business, family obligations) cannot be present in a classroom on a regular basis. Students can use online schooling to their local school experience, or replace it entirely. Some parents might find online learning, with its ready-made curriculum and instructional support, an attractive alternative to home schooling.

School districts and communities can benefit, too. School districts with small enrollments can supplement their class offerings, making small schools viable. A small but enterprising district that creates an attractive product, it can snare state dollars from students who enroll from other districts.

Online learning can also be used to help a school help meet various state or federal requirements. The Louisiana Virtual School, for example, offers a hybrid class that pairs classroom teachers who are not certified in algebra with an online teacher who is.

Communities also benefit when parents, who no longer feel like they must move to offer their children more educational options, can remain as employers, business owners, and participants in civic life.

Challenges for Policy Makers
While virtual schools can be a godsend to many people, they present a lot of questions for policymakers—as well as a challenge to the status quo.

Denver-based Evergreen Consulting Associates has been tracking the development of online learning. Its annual publication “Keeping Pace with K-12 Online Learning” reviews the questions that states are asking. Let’s discuss a few of them now.

How much does online schooling cost? There is no agreement on whether online virtual schools should cost less than bricks-and-mortar schools. Some observers argue that virtual schools don’t cost less, they just have different costs.

How should online schooling be funded? Options vary. The Michigan Virtual High School was given $18 million in seed money from the legislature and is still partially funded by annual appropriations and grants.

The Florida Virtual School, on the other hand, receives money based on full-time equivalent student enrollment, similar to a traditional school. As the Evergreen report notes, this approach offers a more predictable funding stream than annual appropriations, which are more often discretionary and subject to budget cycles.

Can a student enroll in an online course anywhere? Some states require students to obtain the permission of their local district before taking online classes elsewhere; others do not.

Does the money follow the student? In Minnesota, an online program that enrolls a student gets only 88 percent of the general education revenue normally allocated for that student. The balance goes to student’s district of residence on the theory that the district still incurs certain costs for students who attend elsewhere.

Two years ago, the Ohio legislature put a moratorium on the creation of virtual charter schools. Among the reasons, says Evergreen: “Enrollment in eCommunity schools has contributed to decreased enrollment in many public school districts.”

Given the poor quality of many schools in Ohio, it’s not surprising that nearly 21,000 students enrolled in the state’s virtual charter schools.

As the technologies grow, teachers adapt and word of online learning spreads, policymakers will face many challenges in responding to competing claims on public dollars. As the Ohio cases bears witness, policymakers must ask the question: how can the public best finance not merely schools, but education?

Labels: K-12 education, Legal-Ledger

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Two Reports on Education
School's out for summer, but school taxes are collected year-round. So here's a column I wrote about schools.

March 27, 2008

Minnesota No 1. for charter schools
New report questions whether more money translates into scholastic achievement

Minnesota has been garnering some national praise for education of late. One piece is significant; another, less so.

In February, the Center for Education Reform (www.edreform.com) ranked Minnesota as having the best laws governing charter schools. The state’s high ranking came from several factors that the center says correlate with a vibrant charter school environment, including placing no cap on the number of charter schools in the state and using multiple authorizers to oversee charter schools. Last year, legislators were wise to refuse a proposal to place a cap on these schools, some of which produce results that cannot be replicated by traditional public schools.

Also in February, Minnesota earned another No. 1 ranking when the American Legislative Exchange Council (www.alec.org) issued its 2007 report card for the states. ALEC, as it is commonly known, is a voluntary membership organization of conservative state legislators.

The ALEC report is chock-full of data that lawmakers and parents might wish to chew on. Most of the data come from the usual official sources such as the National Center for Education Statistics and are conveniently assembled in one place.

There is, for example, a snapshot of data for each state and the District of Columbia. The one-page summary includes information on achievement, spending, demographics and charter schools.

After the snapshots come the data tables, and lots of them. Chapter 1 has 12 tables dealing with inputs into public schooling, such as the number of instructional staff and per-pupil spending.

Chapters 2 and 3 cover various measures of achievement for both the country as a whole and for each state. It’s an alphabet soup of scores: the ACT, the SAT, and the NAEP.

What has happened to performance over time?

Scores on the NAEP (“the nation’s report card”) have been flat over the long run despite increases in spending; SAT scores have declined 2.1 percent. The ACT has been recalibrated fairly recently, so long-term observations are not possible.

Simple plots of each state’s inputs and outputs suggest that the relationship between the two is less straightforward than you might think. For example, the correlation lines between pupil-teacher ratios and NAEP scores or per-pupil spending and NAEP scores are nearly flat, not upward sloping as suggested by the theory that “you’ve got to spend more to get more.”

The report offers the raw score on the NAEP mathematics and reading tests for both fourth and eighth grade, as well as the percentage of students in the state who score proficient or better on these subjects. It also has each state’s average score on the ACT and SAT. (Since states tend to use either the ACT or SAT, it also gives the percentage of students taking the test).

Finally, each state is given a rank on each piece of data. On eighth-grade math, for example, the Top 5 finishers in terms scale score and percentage of proficient students are Massachusetts, Minnesota, North Dakota, Vermont and Kansas.

Resulting questions
Looking at the various tables raises some questions. Massachusetts, for example, scores first in eighth-grade math but only 10th in students per teacher. Is there something about the curriculum in the Bay State that makes up for not having the lowest class sizes? Are the teachers better in math than elsewhere?

The most interesting and controversial element of the report is the attempt to construct a composite rank of each state’s effectiveness, which combines scores on NAEP, the ACT and the SAT. It’s here that Minnesota gets the No. 1 ranking, followed by Massachusetts and Vermont.

Andrew T. LeFevre, the report’s author, then uses regression analysis to test two propositions.

The first is that a state’s ranking on inputs (money and staff) during the 2005-06 school year can predict its academic performance during the 2006-07 school year.

The second is that changes in a state’s inputs will predict its changes in SAT score between 1985 and 2005. In short, can money buy results?

The short answer, says LeFevre, is no. “More schools, more school districts, a lower pupil-to-teacher ratio, higher expenditures per students, higher teacher salaries, federal involvement in primary and secondary education together do not improve performance as measured by average standardized test scores.”

When it comes to individual inputs, having fewer students per school does help, as, oddly enough, does having more students per class.

So what do we make of this report? I happen to agree with the report’s conclusion that expanded school choice is an important part of improving education.

But the analysis supporting it problematic. Take, for example, the ranking of states on either a single measure (eighth-grade math) or on a composite one. Is the difference between the 10th state the 11th state on the NAEP statistically significant? If not, running a regression of spending against math scores doesn’t help us.

Neither does adding many such ranks to form a composite rank.

Perhaps those rank differences are statistically significant, which is to say, real and not a result of chance or measurement error. But it’s impossible to tell from the report.

Proposals to improve education typically center over how much to add to inputs without much regard to the structure.

The charter school idea, enunciated by the Center for Education Reform, does focus on structure. It promotes changes on both on the supply side (by making it easier for educators with new ideas to get them implemented) and on the supply side (giving parents more options to choose from).

For that reason, the lessons of the charter school report card may be the most significant and enduring.

Labels: K-12 education, Legal-Ledger

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If we remove schools from the culture wars, maybe we'll find better schools

Since this next item came out on Christmas Eve, it was rather topical on its date of publication. Nothing much has changed since then, however.

December 24, 2007

One reason why children don’t know as much as they should may be that we expect public schools to do too much—or at least do things they aren’t suited for.

We expect schools to teach science, math, and literature. But we also want them to promote social cohesion and national unity.

The National Education Association says “A pure voucher system would only encourage economic, racial, ethnic, and religious stratification in our society. America’s success has been built on our ability to unify our diverse populations.” The group People for the American Way agrees, saying “public education is the cornerstone of a democratic society.”

Meanwhile, some conservative groups such as the Eagle Forum assert that public schools have lost their way by venturing into multiculturalism and undermining parental authority.

Regardless of their specific position on questions of the day, then, various groups of different stripes agree that promoting social unity is a key role of schools.

But Does it Work?
Do schools in fact serve a cultural as well as an academic purpose? The notion that our public schools are an essential factor in creating an essential unity in this country was challenged earlier this year by Neal McCluskey, a policy analyst at the Cato Institute (www.cato.org). McCluskey’s report, "Why We Fight: How Public Schools Cause Social Conflict,” offers a catalog of school-centered social conflicts that stretches back more than 160 years.

McCluskey’s report has three main components. The first is a catalog of cultural disputes during the 2005-06 school year. The second reaches back to the American founding and moves toward the present to discuss reformers and controversies. The third section argues that economic and freedom, not public schools, has brought social integration.

McCluskey clustered the events of 2005-06 into eight “national flashpoints.” Intelligent design was the turning point for school board elections in and Kansas and Ohio. Freedom of expression, or the perennial dispute between students’ desire to speak out on political issues and administrators’ interest in keeping social peace, was a second. The remaining flashpoints were race, book banning, multiculturalism, sex education, homosexuality, and religion.

The segment on American history shows that these controversies are timeless. A community is divided over whether schools should have bilingual education or practice immersion. Is this a scene from 2005? Could be, but it’s not. Actually, it’s from the 1880s, when ethnic Germans in Illinois and Wisconsin vigorously opposed a plan for compulsory education that would have mandated English-only instruction.

The desire to see religious views represented—or removed—from schools is nothing new, either. Violent confrontation wracked Philadelphia in 1844. The dispute? Should the Catholic Bible or the Protestant one be used to teach reading?

Government was instrumental in perpetuating slavery, and Jim Crow laws regarding education continued the legacy, until Brown v. Board of Education was decided in 1954. One response to the shameful legacy of slavery, the forced busing of children for racial purposes, has been met with grumbling among blacks and whites alike, if not worse. In the 1970s, the mayor of Boston compared the dispute over busing there to the atmosphere of Belfast, Ireland. So much for schools being a source of unity.

Government=Politics
The lesson behind these examples? When the schools are run by government—and that’s what we mean when we talk about “public schools,”—differences in opinion will inevitably be political. Government officials make the decisions about school speech, religion, and other subjects on behalf of students and the taxpayers who fund the schools. How can politics not be involved?

Politics means disagreements, and disagreements over education can get especially nasty. The political debate over education can heat up for several reasons, which might be summed up as “That’s my money;” and “This is my country,” and “That’s my child.”

“That’s my money” refers to the taxes that one pays to schools. Many people will some decision of the school that they don’t like, and object to how the money is spent. That’s true of any unit of government.

“This is my country” refers to the desire to see one’s views on value questions reflected in public policy. As long as a unit of government is in the business of endorsing a particular view of sexuality, for example, people are going to pay attention to that unit of government. In this case, it’s the schools.

“That’s my child” is of course the most personal concern and provides the strongest of motivations. Opting out of a local school district can incur substantial costs, leaving plenty of motivation to fight.

McCluskey argues that school choice is the only solution to social disputes, and that the pursuit of commerce can promote social integration. I tend to agree with him. A one-size-fits-all system has not brought about social peace. Benjamin Rush, one of the founders of America, proposed that states aim to produce a “more homogenous” population through a system of government schools. That strikes me, and I suspect people of various political stripes, as a profoundly unattractive idea.

Voluntary associations such as churches and synagogues, neighborhood associations, business groups, trade unions and fraternal organizations, on the other hand, promote social bonds without the entanglements of government. McCluskey adds that commercial interchange among various groups promotes these other bonds.

If we abandon the idea that the political process is the best way to determine curriculums and run schools, perhaps we’ll have enough energy to make sure that Johnny can read after all.

Labels: K-12 education, Legal-Ledger

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Boosting Public Parks through Private Parties

Springtime is underway, which means that visits to local, state and federal parks will soon increase. One way improve their condition is to make more use of the private sector, as I described in this column from last year.

Funding public parks through private incentives

August 6, 2007

It's summertime, which means that a lot of people are enjoying public lands, including state parks. The dire financial woes of national parks is well known, but state parks are not immune to trouble. The state-government-focused news service Stateline.org says, "Insufficient state funding and rising costs have left some state park systems struggling to make ends meet."

So what should park systems do? Some have responded to having less by doing less. They've cut back on maintenance and offer fewer hours of service. Some non-profit groups and legislators, meanwhile, want to promote hiking trails and other outdoor amenities by hiking sales tax rates.

But is there any other way of addressing the needs of parks? According to the folks at PERC, the Property and Environment Research Center (www.perc.org), states need to push their park systems to be entrepreneurial and self-supporting, embracing private-public partnerships, voluntarism, and differential pricing. It's an approach that has detractors. It is also one that should be used whenever possible.

A report published in October 2006, "State Parks' Progress Toward Self-Sufficiency," surveyed 30 parks systems across the country. PERC found that states are turning to "expanded user fees, concession contracts, 'friends' groups, corporate sponsorships, and endowment funds."

Raising entrance fees to parking lots, camp grounds, and other park features is one option. A variation on that model is differential pricing, just like movie theaters or restaurants. Camp on the weekend during the high season, and you pay more.

State are also turning to contracts with private vendors to run food stands, lodging and reservation services, golf courses, and other features that may have been operated in the past by government employees. The state receives a portion of the proceeds, while the vendor assumes the financial risk and burden of being the employer.

"Friends" groups, meanwhile, are useful for raising money, adding another stream of user fees. Delaware drew upon the Delaware Community Foundation to establish a trust fund to help finance state park operations.

Friends also provide labor for maintenance tasks. In New Jersey, for example, volunteer groups provide the labor equivalent of 55 full-time employees.

Some states take advantage of the natural assets of the parks to support their park systems. Maine sells drinking water to the Poland Springs Bottling Company. Drink a bottle of Poland Springs, and support Maine parks. If you're looking for a ski destination this winter, head to Vermont. Its parks are nearly entirely self-supporting, aided by the state's practice of leasing land for ski resorts.

There are several benefits of running parks more like a business. One is that it puts parks more in touch with the desires of its visitors.

In an entrepreneurial model, park revenues return to the park system, or even the individual park, rather than go into the state general fund. This way, park managers have personal incentives to listen to park users. The responsive managers have a better handle on the wants and needs of their customers than do staffers working in offices far away in the state capital.

Health care and education take up the bulk of most states' budgets, and parks can easily get crowded out. The demand for health care and education dollars isn't going to subside anytime soon, leaving parks out as a poor cousin.

User fees raise hackles, of course. One argument is that citizens should not be charged to use a public asset. That's a plausible argument. Yet in a variety of situations, "public" doesn't mean "free of charge." Think of municipal-owned golf courses, events at public arenas, and even late fees or rental fees at the public library.

Another argument is that user fees require citizens to pay again for parks already purchased. Yet that ignores the cost of ongoing maintenance. Every homeowner knows that the acquisition price is only one element of the cost of ownership.

Applying the rules of business will also offend those people who object to commerce in parks, or commerce period. For many of us, part of the enjoyment of being in a park is getting away from the world of money and commerce. Still others take it further and believe that letting someone make a buck through offering park services is offensive on its face, a near sacrilege.

Yet as economics 101 reminds us, the world is filled with scarcity: unlimited wants and limited means of fulfilling those wants. The exchange of dollars for services—in this case, access to recreational opportunities—is one way of responding to that situation. Making parks more entrepreneurial can make sure that these vital treasures aren't neglected in the circus of the budget process.

Labels: Legal-Ledger, privatization

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State and Local Regulations Drive up Cost of Housing

Yet another chapter in a book that could be titled "There's no such thing as a free lunch." This theme: regulations meant to control the size, appearance, location, design and construction of housing also drive up the price of housing--sometimes dramatically.

Housing Policy Perils

Seattle: 44 percent of housing prices driven by regulations
February 25, 2008


Any student in Econ 101 can tell you the two words that determine the price of any item: "supply" and "demand." Two other words, however, are almost as important: "government" and "regulation."

Regulations allegedly bring benefits, such as improvements in product safety. But they also add costs to the things we buy, including our housing. Laws that govern who can build a house, where they can build, what they can build, and how they build it all figure into the cost of housing.

It's easy to overlook or underestimate the affects of regulations. Theo Eicher, a professor of economics at the University of Washington in Seattle, looked at the relationship between regulation and housing prices. Though his report focuses on five cities in Washington, it has lessons for people in cities everywhere.

Eicher’s report, "Growth Management, Land Use Regulations, and Housing Prices," is available on the university’s web site.

To study the relationship between housing prices and regulations, Eicher used a database compiled by the Wharton School of Business at the University of Pennsylvania. The database covers 2,730 cities nationwide and includes 70 variables for each city, each having some effect on the supply of housing. The variables fall into three categories: urban growth boundaries, density requirements, and construction delays caused by regulations. Some of them are binary (either the regulation exists or it doesn’t), while others are on a scale (very little, very much and so forth.) Eicher used the common technique of regression analysis to analyze the data.

Findings

Of the five cities in Washington, the effect of regulation was most significant in Seattle. Inflation accounts for some of the increase in housing prices. But after that, 80 percent of the increase in the median housing price between 1989 and 2006 was due to government land-use regulations. In 2006, the median price was a staggering $447,000, and 44 percent of that was due to government regulations. Eicher discovered similar though not as dramatic results in Tacoma, Vancouver, Everett and Kent. Statewide regulations were important in all cities. City regulations were much more costly in Seattle than in the other cities. In Seattle, then, city regulations compounded the cost of state regulations.

The data tables in Eicher’s report have some interesting points for Minnesotans. Hawaii is the state with the costliest land-use regulations. Minnesota ranks 17th, meaning that only 16 other states have greater restrictions. It is slightly more restrictive than Wisconsin (19) but much more restrictive than South Dakota (47), and more so than any Midwestern state. The fact that Minnesota is a regional outlier shows up in the rankings of cities as well. Of the top 50 major metropolitan areas, the Twin Cities rank as the 22nd most expensive, higher than any other Midwestern city. (Milwaukee is 25; Chicago is 29; St. Louis is 45 and Kansas City is 47.)

Implications

Cities, states, and regional governments impose a variety of requirements on the use of land. Portland, Oregon (rank: 24) uses an urban growth boundary, as does Minnesota’s Metropolitan Council. Other regulations include comprehensive plans; restrictions on so-called McMansions; set-aside requirements for natural habitats; impact fees for new housing; design review boards; and so forth.

Each regulation on the development and use of land is implemented with specific goals: combating sprawl; preserving the character of an area; preserving the natural environment from change; or providing for green space. New restrictions are being proposed all the time, including those responding to global warming, promoting mass transit and other ostensibly worthy goals.

Each restriction has a cost. Statewide and regional rules tie the hands of local officials. As Eicher demonstrates, regulations have financial costs that affect the affordability of housing. True to his calling as an economist, he lays out the numbers and leaves the decision of what to do with them to others. “This analysis,” he writes, “does not address whether more regulations are better or worse.”

So the political scientist, the policy analyst and the citizen all must ask “are we better or worse off as a result of these regulations?”

It depends on who you are, and where you sit. If you can afford expensive housing, you may think that these regulations are good: They keep out the riff-raff and (through green space regulations) promote a visually appealing environment. If you’re already a homeowner, restrictions on the supply of housing make your house more valuable. If you can’t afford expensive housing, these regulations aren’t so useful.

As with laws and regulation generally, not all the effects of land use controls are visible. We can see the impact fees being added to the city budget. We can see the parks and green space that they fund. We can count the number of people who attend a public meeting. Hey, democracy in action!

But there are many important things going on that we can’t see: Some people are denied the opportunity to purchase a house because society has, through government, increased the cost of housing. (Since apartments substitute for houses, it’s likely that there is an effect on rents, too.)

Regulations are established through the political process. As Eicher points out, they have real-world consequences.

Labels: housing, Legal-Ledger

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On Immigration
I'm sometimes amazed at how much attention "them foreigners" get. A large number of people--I have long since forgotten how many--think, for example, that aid to foreign countries is a significant portion of the U.S. federal budget. It's not.

The concern about foreigners has of course been on the national scene this year due to the various questions surrounding the treatment of illegal aliens. What follows is a column on the subject that I wrote for the Saint Paul Legal Ledger back in July. There's only so many things one can say in a short column. One thing that I started to mention there was that many of the alleged problems caused by immigration--even of the illegal sort--can be addressed apart from how we resolve the illegals question.

The original publication is dead-tree only, so the links are not live.

Immigration debate creates strange bedfellows

It's easy to stick labels on people and organizations: Democrat and Republican, liberal and conservative, blue and red. But as the recent debate on immigration shows, labels aren’t always helpful guides.

Both the Cato Institute (www.cato.org) and The Heritage Foundation (www.heritage.org) can be called conservative organizations. Both are critical of expanding the size and scope of the federal government. Both are in favor of devolving federal power to the states. On President George Bush's immigration plan, they both …actually, they both have offered different responses.

The Heritage Foundation found little to like about Bush's ideas. It called the proposed guest worker program "a bureaucratic nightmare."
In another rupture of an allegedly solid coalition, the foundation’s chief expert on welfare policy, Robert Rector, tangled with the putatively conservative White House over the bill. Rector emphasized the social cost of immigration. For example, he wrote that "the cost of amnesty alone will be $2.6 trillion once the amnesty recipients reach retirement age."

The Cato Institute, on the other hand, took a more sanguine view. Daniel Griswold, a trade policy expert, explicitly called for some sort of guest-worker program. He further argued that "Despite the claims by critics of immigration reform, America is not being 'flooded' with immigrants." Rather, he said, "A higher share of U.S. residents was foreign-born in every decade from 1860 through 1920 than is today."

High-skilled labor gets a lot of love. But are the poorly skilled workers a drain on the economy? Do they impose significant cost on the welfare system (as Rector has argued), or steal jobs from Americans?

Griswold argued that even low-skilled illegal immigrants are a net plus to the economy, and points to Labor Department numbers to buttress his claim. Our workforce, he said, is getting better educated, which generally leads to higher productivity and thus higher wages. That’s all good, but it also means that fewer people will be interested in the low-skilled jobs that will still be around. Labor-saving devices can go only so far.

The standard (perhaps clichéd) argument for encouraging such immigrants is that they "do jobs Americans don’t do," which suggests that Americans are simply lazy.

But as a nation, we’ve upscaled and supersized our housing, automobiles, and everything else. Why wouldn’t people, especially those who have the education to take on higher-skilled jobs, think any differently about employment? Each generation sets its sights higher than previous ones. To meet the need for low-skilled labor, then, Griswold endorses a guest-worker program.

Joining Cato in endorsing the basics of the now-failed immigration plan is an odd collection of groups that as a matter of course favor an increased role for government, putting them at odds with Cato in many instances.

Citizens for Tax Justice (www.democracyinaction.org), for example, describes itself as "wiring the progressive movement." In a recent newsletter, it said there is "no rational reason to fear that immigrants will drain the federal government's resources." It pointed to a report from the Congressional Budget Office suggesting that the bill will shrink the federal budget deficit.

Another group of the left, the Century Foundation (www.tcf.org), also disagrees with Heritage and sides with Cato. Bernard Wasow wrote that in the debate between whether "an increase in supply of unskilled immigrants should drive down the relative wage of the unskilled" and "optimists, who say the evidence is lacking," the optimists are right.

He points to California, the ideal state in which to test the proposition that low-skilled workers depress the wages of the native born. Citing the work of University of California scholar Giovanni Peri, Wasow says that since 1990, wages have gone up in the state because of immigration, not despite it. The more highly educated have benefited more than the low-skilled workers—supporting the claims of some immigration critics—but both groups have enjoyed rising incomes.

Economic impact is only one element of the immigration debate, however. There’s the question of multiculturalism versus assimilation and national security, to start with. Even though guest-worker programs may make sense economically, the cultural clashes found in Germany, which makes extensive use of guest workers, may give us reasons to pause before embarking on a similar path.

One thing’s for sure: You can expect some more odd-bedfellow politics on the question of immigration.

Labels: Legal-Ledger

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The Dark Side of Ethanol
Has ethanol jumped the shark? I hope so. Here's an article I recently wrote on the subject.

October 8, 2007

Popular yes, but there is a dark side to ethanol

What would you call a public policy that raises the price of food and other products for Americans, degrades the natural environment, enriches a few well-connected companies, fails to live up to its promises, and threatens half a billion people with starvation?

Rather popular, for one thing.

Since 2001, ethanol production has nearly tripled and the number of ethanol plants has more than doubled.

How has this come about? As it turns out ethanol is not merely a good idea — it’s the law.

And it’s bi-partisan. Members of Congress love it, and presidential candidates who wish to win in the Iowa caucuses learn to love it. In the Midwest, at the state level, Wisconsin Gov. Jim Doyle, a Democrat, and Gov. Tim Pawlenty, a Republican, cheer it on. Minnesota, in fact, requires that all gasoline sold in the state contain 10 percent ethanol, and Gov. Pawlenty would like to double that mandate by 2013.

The federal Energy Policy Act of 2005 calls for 7.5 billion gallons to be on the market by 2012, compared with 3.5 billion gallons in 2004.

In addition, ethanol refineries, touted as engines of economic development, get tax credits, making some previously unprofitable operations worthwhile. Meanwhile, more energy-efficient imported ethanol (mostly from Brazil) faces a stiff 50-plus-cent-a-gallon tax.

Negative Implications

The Ethanol-Agricultural-Political Complex, if I may coin a term, has lately been losing some of its luster. On September 24, the New York Times reported that the ethanol boom “may be fading” in a glut. Production has expanded beyond distribution capacity.

On October 1, the Wall Street Journal reported that some ethanol plants are being “squeezed to the point of bankruptcy.” The price of a gallon of ethanol has dropped from $2.50 from the end of 2006 to $1.50 now. Of course, the Iowa presidential caucuses are coming up, which could, in the current environment, lead to promises of a federal bailout.

Besides the costs to taxpayers, there are a number of other problems with ethanol besides its current bubble-induced slump.

C. Ford Runge and Benjamin Senauer described many of these problems in a recent article in Foreign Affairs magazine, a publication of the Washington, D.C.-based Council on Foreign Relations. (Runge is a professor of applied economics and law and director of the Center for International Food and Agricultural Policy at the University of Minnesota. Senauer is professor of applied economics and co-director of the Food Industry Center there.)

Ethanol production could consume half of the corn production in the United States. The result would be rising food prices, not only for corn but for foods that use corn for feed: beef, chicken, pork, eggs and milk to start with. In addition, farmers may forgo planting other crops such as wheat, sending wheat prices up.

Runge and Senauer wrote: “In a study of global food security we conducted in 2003, we projected that given the rates of economic and population growth, the number of hungry people throughout the world would decline by 23 percent … so long as agricultural productivity improved enough to keep the relative price of food constant. But if, all other things being equal, the prices of staple foods increased because of demand for biofuels … the number of food-insecure people in the world would rise by over 16 million for every percentage increase in the real prices of staple foods. That means that 1.2 billion people could be chronically hungry by 2025.”

Rushing to action

Why, despite these negative consequences and limitations of ethanol, is ethanol popular among public officials?

The first is the imperative to do something. It’s hard to see a problem, real or perceived, and take a hands-off approach. Instability in the Middle East, global warming, and the depopulation of much of rural America are among the reasons one might cite to “do something” to promote ethanol.

A related reason is that it’s hard to see secondary and tertiary effects. It’s easy to say “Look at this! We’re reducing the consumption of gas by X billion gallons.” It’s more difficult to keep in mind the ripple effects, such as those on food.

Failing to think economically is another factor. Sure, it’s easy to say “let’s stick it to those oil tyrants by growing our own fuel.” But if we decrease our purchases from say, Saudi Arabia, the Saudis can easily sell their oil to someone else.

There’s also the desire among public officials to be Greener than Thou. While specific environmental policies may be controversial, there’s a widespread desire to be “green.” So “grow our own fuel” sounds like a smart thing.

Don’t forget economic populism. It’s easy to say “So we’re propping up Farmer Joe. Better him that some foreign country.” Forget for a moment that Archer-Daniels-Midland and other large companies will benefit the most.

Finally, there’s the financial encouragement. I put this last because far too often pundits and activists resort to crude materialism: Mr. Jones supports policy Y only because he receives money from industry Z. Ms. Smith thinks A is a good policy because she is employed by government agency 1-2-3. It’s true that money often follows conviction, but conviction also follows money: Lobbyists don’t only buy friends — they reward sympathizers.

Some, including Gov. Pawlenty, staunchly defend ethanol welfare on the grounds that the energy sector is already heavily subsidized. Perhaps it is. But we ought to remember that extending the number of subsidies brings new distortions and problems.

Labels: Ethanol, Legal-Ledger

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Do You Really Want Government to Be Reading Your E-Mail?
What following item from the vault took on greater importance last week when I listened to a panel presentation on the growth of the telecom/broadband/Internet industry. The chief speaker illustrated, using many different statistics, how important this sector is to the economy, and how rapidly it has grown. Pick any metric--user will work fine, but traffic is even better--and you'll find that is true. Observations such as "There was more traffic spent in downloading YouTube videos last month than there was for the entire Internet in 1999," or something like that.

Yes, the federal government (for military purposes, primarily) was key to getting the Internet started. But today's Internet bears as much resemblance to the early 'Net as today's new autos bear to the Model T. One important reason for the evolution: government has gotten out of the way.

There are lots of people who would like to change that, for financial, ideological, political, or other reasons. So-called net neutrality regulations are one threat. So is putting local governments, in the name of "economic competitiveness" or whatnot, into running or developing Wi-Fi networks.

The following is what I had to say on the subject in February, 2007:

February 5, 2007

Government should stay out of Wi-Fi

Local governments provide us with roads, parks, and water treatment and delivery. Should they be in the digital communications business, too?

The latest fad in government is the growth in broadband, or high-speed Internet connections that allow people to conduct e-commerce, do research, educate themselves or spend hours playing Texas Hold'em.

A number of cities across the country have gone into the communications business, sometimes going so far as to provide land lines and cable television. Others are content to deal only with broadband, often by giving a favored franchise to private companies.

According to the Web site muniwireless.com, 312 local governments had moved towards government-owned or -sponsored Wi-Fi services by the end of 2006. Roughly half of those systems are deployed; the rest are in the planning stage.

In Minnesota, the cities of Buffalo, Chaska and Moorhead made the list. Burnsville, Osseo, Minneapolis and Saint Louis Park were in various phases of planning. St. Paul is debating spending $300 million to roll out fiber-optic cable.

Why are governments acting? The most commonly offered reason is economic development. Businesses and individuals who need to be connected in a globalizing economy will shy away from regions without good service.

Others cite a need to bring the benefits of online service to low-income citizens, thereby closing the "digital divide." Still others cite cost savings of in-house systems for official business. More ambitious programs provide public service, either free or at a low monthly cost.

Governments can enter the communications business in several ways. One is the outright enterprise model: Build a system and sell the service to willing customers. Another is to partner with private corporations who will build the system.

A more government-focused approach is for the public entity to actually own and operate the system, like a public utility. In its report "Localizing the Internet," the Institute for Local Self-Reliance (http://www.ilsr.org/) says that government must own broadband equipment and see it deployed on a citywide basis.

It says that government ownership of the physical assets will promote competition. It will also ensure that price makes no difference in the development or delivery of services. (This is the "net neutrality" argument that has been favored by a strange bedfellow coalition of MoveOn.Org and some conservative groups.)

But is all this really necessary when plenty of private companies are looking for business?

The Mackinac Center for Public Policy (http://www.mackinac.org) warned Michigan lawmakers several years ago against plans to enter the Wi-Fi business, saying state provision of Internet access was "a bad idea whose time shouldn't come."

While all new technologies are concentrated in urban areas when they start out, it noted, eventually they are used throughout the country.

The Buckeye Institute (http://www.buckeyeinstitute.org), an Ohio-based and -focused organization, offers the city of Lebanon, Ohio, as a cautionary tale. The city took municipal involvement further than most. It got into the cable TV and Internet business in 1999, and added telephone service three years later.

The city spent $38 million to build its system, incurring a debt of nearly $10 million. Last year, voters approved the sale of the system to Cincinnati Bell for $8.62 million—in other words, at a loss. As the case demonstrates, government ownership puts taxpayers at risk for both capital and ongoing expenses. The risk is unnecessary in light of continued rollouts by private companies.

A more subtle risk comes from technological innovation. Remember eight-track tapes? Keeping up with changing standards and consumer tastes requires significant amounts of cash, marketing savvy, and the ability to anticipate new products and services. It's not clear that governments, with their multitude of responsibilities, are up for the task.

Where there's government, there's politics, another downside to public ownership or sponsorship of broadband service and facilities. Recently, Google, Earthlink, and the mayor of San Francisco announced an agreement whereby city residents would receive free broadband.

Two years later, the project is stalled by local politics and freeloading demands. Community activists, for example, want Google and Earthlink to supply everything from free transportation to the local zoo (I kid you not) to free electricity.

Many of the problems that allegedly call for municipal involvement are sorting themselves out. New technologies are expanding the reach of broadband, and commercialization away from the Internet as a government entity has benefited millions.

Why would we want to give up those advantages through turning broadband into something as bland and stale as a public utility? No thanks.

Labels: Legal-Ledger, privatization

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Political Promises Will Pound Taxpayer
Who guards the guardians? That question is usually applied to national security. But it's pretty applicable to the public budget. When it comes to public employee pensions, the public gets pounded.

Here's an article from the vault, as it appeared in March 5, 2007

Public pension funds are a ticking time bomb

John La Plante

You probably know about the troubles with Social Security. But there’s another retirement system in trouble: public employee pensions. A combination of too many promises and too little funding, fostered by political tradeoffs, has left many state and local governments in a precarious position.

In 2005, Stateline.org declared “Pensions pose time bombs for budgets.” Last month, USA Today noted that, at the federal level, the unfunded pension obligations for civilian employees and military personnel ($4.7 trillion) exceed the unfunded liability for Social Security ($4.6 trillion).

In January, the Wisconsin Policy Research Institute (http://www.wpri.org) put the amount of unfunded state obligations at $340 billion nationwide. In Illinois, one Chicago Democrat lamented “In coming years, we will have an unbearable burden for money we owe to the pension systems.”

Private companies may foist their obligations on the Pension Benefit Guarantee Corp. But there is no “out” for lawmakers or for taxpayers. So meeting pension obligations will mean tax increases, less money for other government purposes, or both.

Unfortunately, the road to reform is blocked, or at least made much more difficult, by the political power of public employee unions. It’s a classic problem from economic theory. The costs of public pensions are hidden in the cost of government, dispersed among the members of an unorganized public, each of whom pays only a portion of the pension. The benefits, meanwhile, are easily identifiable and concentrated in a relative small group of highly motivated and politically organized employees.

Governor Arnold Schwarzenegger (R-Calif.) learned about the power of public sector unions. After his reform proposals were soundly defeated at the polls with the help of union activism, he changed his political stripes. Nationally, the powerful public union AFSCME argues that little needs to change.

How did we get into this mess anyway?

Budget trickery is one source of the increase. Like a homeowner who skips payments and then refinances the mortgage, the state government of Washington (among others) skipped several required payments as a cost-savings measure. The missed payments (and the missed investment returns) were rolled into ongoing actuarial assumptions.

The Evergreen Freedom Foundation (http://www.effwa.org) says these steps contributed to a dramatic increase in unfunded liabilities for Washington state’s two major public pension plans. In 2000, the unfunded liability was $778 million. That gap rose eight-fold to $6.4 billion in 2005.

States have argued that the 2001 recession did them in. True enough, declining tax receipts and investment returns made their work more difficult.

But too often, they did not take full advantage of dot-com boom. Thank, or blame, gain-sharing.

Here’s how it works. Say that a pension plan assumes an average annual return of 7 percent on investments.

What happens if a recession hits and returns are only 5 percent? The fund is in a hole, and needs above-expected returns in other years to make up the difference.

But under gain-sharing, only some of the surplus in good years goes into the fund. The rest goes, not to shore up the plan, but to send bonus checks to current employees. An even more precarious practice is to permanently increase the public obligation to employees. Under gain-sharing, taxpayers are obligated for shortfalls, but do not enjoy all the benefits of surpluses. That’s just wrong.

Political dynamics go a long way to explaining current shortfalls. John Moorlach, an Orange County, Calif., supervisor, blames a peace-now, pay-later mentality. "Elected officials love to give generous retirement benefits because they don't cost anything today, and they'll be out of office when the payments come due.” What about the public? Eyes droop with boredom when you bring up the topic.

Where to Go?
I’m not optimistic about the prospects for meaningful reform. As the Wisconsin Policy Research Institute says, the politics of government undermine the business of government. The politics won’t change anytime soon. The primary responsibility of government employee unions is not to be concerned about the public purse, but that of its members. They resist making changes for new employees.

That said, elected officials need to make several changes, as political and legal considerations allow.

First, move to a defined contribution system, which is used by 80 percent of private sector employees, but only 18 percent of public employees. Union leaders know these plans put some risk on the employees, which is one reason they oppose them. But they
make sense in an age of mobility.

Second, stop gain-sharing. Even AFSCME says that “governments should avoid providing benefit increases based on plan ‘overfunding’ or ‘excess assets.’”

Third, align plan specifics with private sector practices. Press accounts are rife with stories of public employees gaming the system. It’s understandable why employees would do that. But that is no defense for public managers not doing something to put a stop to it.

Government needs workers. That’s obvious. So too is this sad fact: the public is going to pay dearly for the mistakes of the past.

Labels: Legal-Ledger, Public employee pensions

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Moving Towards a Consumer-Driven World.
The era of "organization man" is over as far as employment goes. Its grip over health care is slowly loosening as well, and none to soon.

Here's an article from the vault. As appeared on January 8, 2007

Jury is still out on consumer-driven health care plans

John La Plante


Health care will be one of the leading topics of the new legislative session. Should the session end with Minnesota government taking more responsibility?

Before we enter that debate, I’d like to introduce you to John Goodman, one of the most influential men that you may have never heard of.

Goodman heads the National Center for Policy Analysis (http://www.ncpa.org), a Dallas-based organization that promotes private sector alternatives to government regulations and programs. Over the year, Goodman, who holds a doctorate in economics, has called for changing the way that we finance health care.

He’s had some success in getting federal and state lawmakers to listen. Thanks in part to his work, health savings accounts (HSAs) are taking hold. These tax-favored accounts are coupled with high-deductible insurance policies. Currently, 6 million people have an HSA or similar arrangement. The Washington Post recently called Goodman “the man behind the plans.”

So how does they work?

Goodman’s logic is simple, if not universally accepted. In a normal market, buyers demand increasing quality and decreasing costs. But health care is not a normal market. The person who incurs the expense is not the person who pays for it.

Government agencies pay for half of all healthcare spending. Insurance companies pay for most of the rest. To a substantial degree, employers, not individuals, arrange and pay for insurance.

In recent years, businesses have been dropping coverage. Those that retain it move some of the costs to employees. Even so, most people have little direct incentive to care about the cost of insurance or health care. The subsidies they receive are not obvious to them.

HSAs are part of consumer-driven care, a move to make the costs of insurance and health care are made more transparent to individuals. High-deductible plans force consumers to pay attention to costs. The HSAs, funded by employers and employees, grow over time, cushioning the burden of high deductibles. The HSA is used for routine expenses, while the policy becomes a backstop to catastrophic events.

Where Are We Now?
Have Goodman’s ideas given us lower insurance costs and by extension, increased insurance coverage? The Galen Institute (http://www.galen.org) says the results are positive. “Consumerism is working in the health sector,” writes Grace-Marie Turner, president of the organization.

More than half the individuals purchasing HSA-paired insurance plans were previously uninsured, she says. To counter charges that HSAs appeal only to the young or wealthy, she notes that 40 percent make less than $50,000 a year, and half are over 40 years old.

But not everyone is convinced, with many public policy organizations favoring traditional insurance or a single-payer system. Citizens for Tax Justice (http://www.democracyinaction.org), for example, call HSAs “regressive.” It says that even now people are not using all the balances in their accounts, suggesting that the HSA will become the next tax dodge.

Never mind that today’s employment-based system is already regressive. The value of corporate tax breaks for premium costs increases along with a person’s salary.

Further, having money in a health savings account should be encouraged, not discouraged. Consider, for one thing, that the national average cost of a one-year stay in a nursing home exceeds $70,000. If people can build up substantial reserves in an HSA, that money could play a role in meeting the long-term care crunch.

Citizens for Tax Justice also fears that HSAs "will, over time, encourage healthier and wealthier people to leave the traditional health insurance market, which will make health insurance even less affordable for those at-risk workers and families who really need it."

If Galen’s numbers hold up, HSAs will reach across the economic spectrum. The criticism of HSAs dodges the question of whether today’s low-deductible, employer-selected and purchased insurance should be encouraged as the model, or if it is even sustainable in a global economy.

It has high costs, and not only in finances. It discourages employee mobility, which has economic and personal costs. It also ties a person’s most intimate concerns not only to an insurance company but also to the HR department.

There’s a lot that is right in American health care. There’s also a lot that’s amiss. The direction that health care takes from here depends in part on whether you think people can and should take more control over their lives, or whether that role should be given to corporate or public managers.

It’s human to want it all: excellent care, instant access and little cost. But those objectives must be balanced against each other. How will that be done? I’m casting my lot with Clive Crook, senior editor at The Atlantic. As he put it, consumer-driven health care may be "the least-bad option."

Labels: Health care, Legal-Ledger

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Think Tanks Debate "Taxpayer Bill of Rights"

As appeared in



November 6, 2006

One of the most contentious fiscal issues to occupy state-level policy over the last decade is the “Taxpayers Bill of Rights.” State-focused think tanks have taken lead roles in advocating and opposing such measures.

The measure is the latest version of tax and expenditure limitations. Some limits require super-majority legislative votes for tax increases, while others tie government growth to growth in personal income.

The Taxpayers Bill of Rights (TABOR) takes a different approach. Used in Colorado for over a decade, it limits the percentage growth of spending and tax collections to the sum of inflation and population growth. It also contains an opt-out: the limit may be exceeded with voter approval, with terms specified on a ballot question.

Colorado’s measure has long been under fire, especially for its so-called ratchet effect. Under TABOR, the official spending limit is adjusted each year to accommodate expanding demands on government. But when tax collections fall—not merely grow at a slower rate, but actually decline one year to the next—the limit is ratcheted downward.

The leading advocate for TABOR is the Independence Institute (i2i.org), a group based in suburban Denver. The institute touts the economic benefits of TABOR. Every person in the state has received an average of $800 in refunds as a result of the law’s requirements. It also credits TABOR for fueling Colorado’s economic growth relative to the nation and region.

A leading critic of TABOR is the Bell Policy Center (thebell.org), of Denver. It argues that the limit requires draconian cuts, and dismisses the role of TABOR in the state’s economic boom. Further, it says that the consumer inflation rate, used to calculate the limit, is much too stingy. Health care inflation regularly exceeds consumer inflation, and health care spending is a major component of public spending. TABOR advocates reply that the pressure applied by the limit is vital for government reform.

The dispute came to a head in 2005, when critics prevailed in a public election. Voters approved letting the state keep $3.1 billion over a 5-year period, money that would otherwise be returned in refunds. TABOR opponents claimed vindication. Pro-TABOR forces, while disappointed, pointed to the election as proof that the limit worked as designed.

The concept is being advanced in elsewhere. In 2006, according to the Bell Center, there have been TABOR campaigns in nine states. Legal and political developments kept plans off the ballot in six of those states. In a few weeks, voters in Maine, Oregon, and Nebraska will vote on some measure of TABOR.

The Maine Heritage Policy Center (www.mainepolicy.org) notes that state and local taxes in Maine, as a percentage of income, are 24 percent higher than the national average. It is conducting an extensive education campaign in favor of the ballot proposal, and says that it has been greatly outspent by opponents.

In years when Maine tax collections exceed the limit, 80 percent of the excess would be refunded to taxpayers, and 20 percent would be placed in a budget stabilization fund. A leading opponent is Citizens United (notabor.org), which says that the plan would “slowly and steadily cut funding for programs like health care, education and services for the elderly.”

Drafters of similar measures face several questions: should it be constitutional, or statutory? Should some of the excess funds be put into a rainy day fund? If so, how much? How should refunds be distributed? Should the goal be to smooth out budget cycles, restrain spending growth, or some of each?

The answers to these and other questions—and the fate of the ballot questions in November—will determine the number and shape of expenditure limits for years to come.


Addendum:
The Secretary of State of Maine published the language of the ballot proposition there, as well as a short pro and con presentation.

The proposal, simply called Question 1 on the official results page, was defeated by a YES vote of 247,175 (46 percent) to a NO vote of 288,971 (54 percent).

You might not think the results are terribly encouraging to supporters of the measure. But given the nature of the opposition to it, that 46 percent of voters approved is remarkable. It took several (three, I believe) times for the Colorado measure to be enacted. Perhaps the same will be true in Maine.

Labels: Legal-Ledger, Taxes

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