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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