Tom Sgouros – RI Future

September 13, 2016

Moving them along

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I saw my friend Jeff yesterday morning, on the way to his morning workout at the YMCA. Jeff is confined to a wheelchair, and uses RIPTA to get to the East Side Y most mornings. We chatted for a few minutes while we got on the same bus and shared it through the bus tunnel.

Because I commute via RIPTA, I walk through Kennedy Plaza pretty much twice a day, every day. In a couple of decades of riding the bus, early, late, middle of the day, I have never felt unsafe in the plaza. Now and again I’ve been asked for change, which I decline to give, and once or twice I’ve been offered bags of drugs, which I decline to buy. I’ve occasionally seen loud arguments and even a couple of altercations, but they were not my arguments and altercations. People loiter, but after all, how different is that from me waiting for my bus? I see other people carrying on their lives in the Plaza, just as I’ve shared the bus with some people for years, and am familiar with a little slice of their lives. Their lives are not mine, so we coexist, but seldom interact.

Joe Paolino talks blithely about moving the buses to the Peter Pan station, or to Allens Avenue. He can do that because he never takes the bus, but has a driver to drop him off wherever he wants to go. If he gets what he wants, the rest of us who do not enjoy that luxury will have longer commutes, get wetter when it rains, and miss connections, in service of enhancing the value of his property.

Does anyone beside me remember the people who used to hang around the Fogarty building on Fountain Street in downtown Providence when the unemployment office was in it years ago? I’m not so old that I could possibly be the only one, am I? Or at the bus station on Sabin Street before that? What about the people who would crowd around Travelers Aid (now Crossroads) off Westminster? The bus station, Crossroads, and the unemployment offices have all been moved out of downtown, to keep “those people” away.

Now city leaders have set their sights on RIPTA, suggesting that the bus system is somehow a magnet for poor people and thus a threat to an upscale downtown, just like those other magnets. This is a familiar tune, but why do we keep singing it? Paolino himself was the mayor who presided over moving the bus station from Sabin Street to its current remote location off I-95 back in the 1980s. Did that help? Moving these other supposed magnets out of downtown has not worked in the past. Why should anyone imagine it will do the trick this time?

The problem in Kennedy Plaza is not RIPTA, and pretending so will not solve anything, but only cause hardship and inconvenience to people whose lives are already marked by hardship and inconvenience. The problems are social problems of drugs, poverty, and homelessness, unmasked by the evacuation of workers from downtown. Abetted by state policy, and with transportation to downtown increasingly less convenient (RIPTA cutbacks anyone?), banks, law firms, and other commerce has left downtown. The state itself has removed hundreds of its employees, too. The poor people who congregate in Kennedy Plaza are not new; they are just the ones left behind.

Back before the state decided to evacuate its workers from downtown, there was a substantial presence downtown by social service agencies. In service of enhancing property values and chasing away the poor people who they “attracted”, those agencies were moved out of downtown. Now there is little or nothing downtown to help people who need it, but the people are still there. How strange.

Moving these problems out of the center of town will not make them go away, but only allow our civic leaders to pretend they do not exist. Do we want to solve those problems, or just ignore them? Wait, don’t answer that.

June 14, 2016June 14, 2016

These things wouldn’t happen if everyone was armed, they say

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From here:

Soon after Mr. Mateen first opened fire, he was confronted by an armed security guard who was an off-duty police officer, said John Mina, the Orlando police chief, at a news conference Monday morning. They exchanged gunfire. The security guard was then joined by an unknown number of police officers, the first to arrive on the scene.

In other words, the gunman’s actions were immediately met with an armed response. Did it help?

December 21, 2014December 22, 2014

Pigs Fly: RI Tea Party endorses government regulation

In a stunning turnaround, the RI Tea Party today made a full-throated endorsement of some of the most intrusive government regulations on the books. In a fundraising email, the group called on its supporters to “…rise up against this assault on everything you’ve worked your entire life to earn” — by defending existing zoning and land-use regulations throughout the suburban and rural parts of our state.

For years, suburban communities in Rhode Island (and elsewhere) have stood firmly against affordable housing through land use regulations demanding such things as minimum lot sizes, height restrictions, and prohibitions on multi-family housing. Making it perfectly clear that land-owners’ rights to property are not absolute, these zoning regulations set very clear limits on what can and cannot be built on a piece of land, the key reason it is such a surprise to see these restrictions endorsed by the RI Tea Party and other “property rights” defenders.

There is demand for affordable housing in almost every community in Rhode Island. Were the housing market a free market, it would be built, and there would be affordable housing all over the state. But in the suburban and rural communities, local land use regulations often prevent such housing from being built anywhere in town.

A sensible state would not throw out land use regulation — building codes and zoning regulations exist for a good reason — but would recognize when those rules and regulations had been used in ways that encourage segregation and make finding affordable places to live so difficult.

This is exactly what RhodeMapRI proposes — in the very passage the RI Tea Party quotes in their fundraising email shown here — and perhaps is why the plan enrages them so. Apparently they prefer the old restrictions on market forces to new ones.

Looks pretty persuasive, doesn't it? — Looks pretty persuasive, doesn’t it?

Rumor had it that this endorsement would have come out a week or two ago, before the RhodeMapRI plan was approved by the RI Planning Council, but that there were delays in filing the paperwork necessary to renounce the group’s previously held pro-market, anti-regulation, views.

For the RI Tea Party to endorse the status quo of zoning regulation was a surprise for many local observers. As one put it, “It’s really remarkable how flexible they are. It’s almost as if the political philosophy they espouse is just a cover for, well, something else.”

Another man on the street said, on the contrary, it was laudable for the group to be flexible about the government regulations they hated. “It’s the mark of a sophisticated mind that it can believe two completely contradictory ideas at the same time. Somebody smart said that once, wasn’t it Socrates or George Washington or someone like that?” He went on to say, “It’s like Mitch McConnell running against Obamacare in Kentucky while endorsing, and even defending, KyNect, Kentucky’s popular Obamacare exchange. If that kind of flexibility is good enough for Mitch McConnell, it’s good enough for the RI Tea Party!”

A random woman accosted on the street said, “Let go of me!”

December 6, 2014December 8, 2014

RhodeMapRI forces state to burn your house!

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In yet another breathless press release from The Center for Freedom and Apple Pie today, I learned that the controversial RhodeMapRI plan will call for the incineration of your house. Right down to the ground.

Be afraid. Very afraid.

Yes, it’s true, your nice comfortable suburban house, the one you dreamed about for years, is to be sacrificed to build an affordable housing skyscraper in its place. The plan calls for you to be offered a semi-private apartment, since private apartments are to be phased out. But you won’t mind sharing the kitchen and bathrooms with your less fortunate neighbors. After all, you’ll be commuting together on public transportation, since the RhodeMapRI also envisions the end of private automobiles. Your car is to be taken via eminent domain and resold to UN bureaucrats, with the proceeds made available to help keep the subsidized birth-control vending machines full in the lobby of your new home.

For those late to this party, the Center for Freedom and Apple Pie has warned all of us about the impending danger to the state posed by “RhodeMapRI” an insidious plan to end capitalism hatched within the bowels of the Rhode Island Division of Planning. The official Rhode Island Tea Party similarly warns of the terrible peril, as do totally-100%-they-promise unaffiliated citizens like Colleen Conley and Gary Morse.

Just in time these citizen activists have alerted us to the dangers within. The jack-booted planners ensconced in a Smith Hill building made of — can you imagine! — pink marble, have gussied up their world-domination plans with such appealing catch-phrases as “sustainable development” and “affordable housing.” You might think their economic development plan looks like an appealing alternative to the plans of the past. You might be distressed that “economic development” has always seemed like a synonym for “give business whatever they want” and that it’s high time to see economic development plans that actually take everyone into account. You might even think that economic plans that emphasize sustainability are precisely what our state needs these days. But that’s because you’re just an ignorant patsy whose house is going to be burnt.

Remember, the only sensible government plans either benefit rich people or are completely ineffectual. Aren’t you glad to have such patriotic citizens as the folks at the Center for Freedom and Apple Pie to make sure that’s true? I know I am.

November 19, 2014

RhodeMapRI opponents fear future plans, affordable housing

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We’re apparently supposed to be afraid, very afraid, of Lincoln Chafee’s “Rhode Map” for economic development. Since the election there seems to be a coordinated effort to scare the state about this plan for future growth.

Gary Morse, wrote a fairly confused screed in the Providence Journal Monday that complains the RhodeMap RI, well, I’m not really sure what is the problem with it. Maybe that its development was partly funded by the US Department of Housing and Urban Development? He writes,

“[W]hat RhodeMap RI is really all about is HUD’s demand that low-income housing, particularly low-income rental housing, be implemented side-by-side with existing housing in every neighborhood across America.”

Shocking, I know. But he can’t quote anything in the report to support this kind of claim because it doesn’t say anything like it anywhere in the report. Go ahead, search it right here.

There is a comment in there that lots of towns in our state have failed to meet the affordable housing goals in their comprehensive plans, but (a) that’s no surprise to anyone and (b) it’s not what Morse claims is being said.

Over at the Center for Freedom and Apple Pie, the analysts are even more distraught. According to them:

“RhodeMapRI is the most dangerous public policy agenda every [sic] proposed for the Ocean State.”

Which part of the plan has them so upset? Again, it’s not exactly clear. Here’s the Center again:

“If implemented in our state, as similar plans have been implemented in other cities and counties across America, with as much lack of concern for the property rights of individuals and business owners, with as much ignorance of basic economic principles, and with as much derision towards the sovereignty of locally-elected officials, our Center has no reservations in going on record as a strong opponent of this RhodeMapRI scheme.”

In other words they are concerned that someone in your government might show a lack of concern for property rights, but they can’t show where in the plan this lack of concern is manifest. In fact, in the entire nine-page “analysis” linked to above, they don’t manage to quote the Rhode Map document even once to show what they see as so “dangerous.” Not once.

They quote lots of other proponents of affordable housing and “smart growth” – two phrases that seem to be key to their evaluation of “danger.” But it’s not clear to me why we should fear housing that people can afford to live in, or growth smarter than we have seen. My town, for example, has grown enough that we have fouled one of our town wells and allowed so much development that there is no place to dig another well to replace it. I would welcome growth smarter than that.

Meanwhile, over at the RI Tea Party Patriots site, there are more dire warnings about the agenda behind the “Rhode Map.” Over there, they helpfully list many other phrases that set their teeth on edge:

Smart Growth

New Urbanism, Urban growth boundaries

Redevelopment Areas, mixed-use re-zoning

Social equity, social engineering

Wild lands programs

Affordable housing

Community oriented policing

Climate change

Green (fill in the blank–green loans, green renewable energy. . .)

Again, though, despite lots of frothing about people who use these phrases, there are no actual quotes from the Rhode Map document. In fact several of these phrases don’t appear at all. Try, for example to find anything about “community oriented policing” in the document. Or “wild lands,” “social engineering,” or “urban growth boundary.” They are simply not there.

What is most fearsome about this plan is entirely in the imaginations of the writers.

There is one place where the curtain slips a little. The Center for Freedom and Apple Pie dwells extensively on the threat the Rhode Map poses to private land ownership. This is more nonsense, of course, but it is true that land-use planning is an important part of the Rhode Map, and restrictions on land use are a fairly unexceptional part of that kind of planning. That is, if you want a plan to actually work. Companies across America plan for the future, and families do, too. But in the eyes of the Center for Apple Pie, the only plans a government should make are ineffectual ones.

What is going on here is a reaction to the mere threat of a plan, especially one that might have such fearsome goals as affordable housing and community-oriented policing. Who would have the temerity to suggest such dastardly policies? Only a North-Korea-loving-Venezuela-hugging-apostle-of-Marx-with-a-K-communist, of course.

In truth, the Rhode Map is hardly the stuff of anybody’s bad dreams. It is, instead, a perfectly sensible set of suggestions about how our state might move forward to the benefit of all.

The Rhode Map is a big document, and I’m certainly not going to endorse every word of it, but it’s miles better than any economic development document that has been prepared in this state over the last three decades. If anything, I find it a bit anodyne (it was, after all, the work of a large committee) and think that many of its recommendations are easier to say than to implement. Here are some:

A. Provide opportunities for career growth and assist employers to attract and retain qualified talent.
B. Support reform of the education system to better provide the knowledge and skills necessary for success.
C. Support apprenticeships and internships to increase access to experiential learning

The horror, the horror!

What is so terrifying about a plan like this, of course, is that it illuminates a different way to go. An economic development plan that does not depend on just cutting taxes for rich people and companies, that does not envision more cuts to education and fewer repairs of our roads, and that does not blame our economic ills on immigrants or liberals is a real threat to people whose livelihood depends on selling fear and outrage.

And of course, the most disquieting thing of all for these opponents of the Rhode Map is that focusing on the fundamentals, well, it might work. The idea that Grover Norquist’s hope to drown government in the bathtub might be discredited by the success of an opposing viewpoint is too terrible to contemplate. Which is why the tribunes of great wealth can always be counted on to wax hysterical against plans that might discomfit their masters. They are reliable because they are paid to be.

So hooray for Lincoln Chafee and his attempt to at last insert some simple common sense into our state’s planning apparatus. It’s way overdue. But don’t believe me; check out the Rhode Map yourself: rhodemapri.org.

August 1, 2014

Gina Raimondo’s lack of leadership

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Almost four years ago, I endorsed Gina Raimondo to be Rhode Island’s General Treasurer. Since then, a lot of water has flowed under the bridge, and now a new election campaign is before us. Gina, the fundraising juggernaut that she is, is now facing better-than-decent odds in a quest for the Governor’s office.

Four years ago, when Raimondo first ran for office, she had no record at all to judge. Anyone who voted for her was voting for a promise, or maybe an image. Though lots of voters will always go for the image regardless of the reality, it is no longer necessary. We have three years of record with which to judge her. So what do we learn?

When I first sat down with Gina in 2010, she said that the issue that concerned her most was income inequality. She said it without hesitation, almost the first thing after “Hello, how are you?” (and in front of a witness, too). Well, fine; creating an economy that is good for everyone is one of the central economic issues of our time. But when did she speak out on the subject in public? Was it before it became popular to do so this year?

One component of doing something about inequality in the economy is to address the declining value of the minimum wage. As part of her campaign platform, Raimondo has come out in favor of increasing the minimum wage. This is all to the good, but our legislature saw efforts to increase the minimum wage in 2012 and 2013, too. Do you remember her speaking out on the issue when it mattered then?

A strong stand on the minimum wage will be important for her in a contested Democratic primary. But it would have been important for the rest of us for her to mention that support some time ago.

The minimum wage, however, is only a small part of what needs to be done to address the inequality that plagues us. For example, tax cuts for rich people — at the state and federal level — have been a key part of making inequality worse. During Raimondo’s term as Treasurer, the legislature made permanent the income tax cuts for the rich awarded a few years before, making them much more difficult to repeal. Gina, a wealthy individual whose background in finance and degree in economics gives her plenty of clout on economic issues inside the state house, was silent on the issue.

There are a host of other issues, of course, such as predatory financial services. To her credit, Raimondo has spoken out against payday lenders who charge 290% interest for loans to the poor and desperate. However, it was not very long ago that interest rates a lot lower than that were considered loan-sharking, exclusively the province of heavy-set guys with baseball bats. It’s hard to see speaking out against 290% as brave, even if there exist profiles in courage at the General Assembly that still refuse to do so.

Of course all these issues are minor compared to the big one she embraced: pension reform. In 2011, the threat to the state and all the school departments was that employer payments made into the pension system were scheduled to rise by more than 50% in 2012. And yet payments from the pension system — the actual pensions — were only expected to rise by a few percent, a rate that was actually declining each year, largely due to three previous rounds of pension reform in the preceding six years.

By refusing to question the accounting rules that created such a huge disparity, Raimondo guaranteed the outcome: that the state’s employees would take the brunt of the cuts, and that they would be very painful to them, without relieving our cities and towns of much burden at all. That, of course, is precisely what happened. (Or what might still happen, depending on the still-pending court cases.)

She saw the situation as a dilemma: a choice between two bad options, but it was a false dilemma. There were other choices, but they would have required her to stand up to the accountants and financiers who insisted there was no choice. Instead, she followed their rules.

To her credit, I believe Raimondo has acted in a moral and thoughtful way within those rules. Our state can do much worse than that, and we often have. However, the sad fact is that these rules — the ones we all play by — are stacked against ordinary citizens, and I’ve seen little acknowledgement of that from her. From taxes that weigh most heavily on the poorest while exempting the wealthiest, to laws that punish criminals for stealing cars but don’t punish banks for stealing houses, to accounting rules that are unnecessarily destroying public pension systems and squeezing municipal budgets across the country, our nation is beset with rules and laws made to benefit the powerful and wealthy, at the expense of the rest of us. Our state is no different.

Sadly, a great deal of harm has been done to our nation and our state by well-meaning and morally upright people who refuse to question the rules of the game. To date, Gina Raimondo has been a proud part of that sad tradition. Hard work and determination are virtues, but so is judgment.

A leader must be much more than a resume. No one needs a leader who only follows direction well, who simply keeps her crayon inside the lines of the coloring book better than her classmates. Leading means rejecting the coloring book and drawing a picture or finding a path no one else saw. History’s great leaders, from Moses to King, rejected the consensus and led a new path. If you don’t do that, you’re not leading, you’ve only maneuvered yourself to the front of the pack. There is a difference, and it’s a big one.

At this point, it’s pretty clear that the Raimondo campaign is relying on the same strategy that won her the Treasurer’s office in 2010: minimal information and lots of money. Where there is policy information it’s like her minimum wage stance: late or non-controversial. There is vague stuff about funding school construction and roads, but little to say how she would ultimately pay for it. There are, however, lots of warm fuzzies: pictures of family, stories about dinners with her parents, meatloaf recipes, and so on. We know from 2010 that this is a working strategy. Perhaps you’re pleased with how this worked out last time. In that case, you have nothing to worry about.

July 17, 2014July 21, 2014

Rep. Palumbo version of sympathy for immigrant children

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In a letter to Governor Chafee, Rep. Peter Palumbo (D-Cranston) reports that he has “nothing but sympathy” for the immigrant children flooding our southern border. He apparently means that quite literally. And his sympathy extends only as far as telling his press liaison to type those words for him in a letter he, ahem, wrote to the governor. The children in question are apparently worth zero expense or effort beyond that, in his eyes.

So what, exactly, is his sympathy worth? And why does he bother to express it this way? The truth is that Rep. Palumbo appears to have a heart of stone, like so many of the protesters who have gathered this week to shout angry words at children fleeing violence in their home countries. (And, in one case, at a bunch of children on a bus taking them to a YMCA summer camp, but hey it was just an oversight.) Palumbo, however, wants to pretend otherwise by covering it up with pretty words. But pretty words alone never took care of a child, not one from Honduras, nor one from Cranston. When accompanied by tender care, pretty words can be a lovely thing, but when accompanied by a cold shoulder, they are just embarrassing.

I am, from time to time, impatient with people who imagine that there is no financial justification for good public policy. Care for the poor and disabled, attention to the youngest and most vulnerable children, being good stewards of the environment, cleaning up toxins, don’t have to be justified by weepy appeals to heartstrings. These are, more often than not, policies that easily cost less than the results of ignoring them.

But pointing out that a policy is not just the right thing to do, but also saves money, is a far cry from thinking that saving money is the only possible justification for public policy. There are times when the right thing to do costs money. That doesn’t mean it is not the right thing to do.

For a variety of reasons, a humanitarian crisis is in full swing on our southern border. It is not clear to me exactly what the cause is for the dramatic increase in unaccompanied children coming across the border, and it seems not really clear to anyone at this point. But it is clear to me that denying the existence of the crisis and denying that our nation — and our state — has the capacity to aid those children, is heartless and cruel. We are still among the richest countries on the planet. We are not talking here about deploying troops or air strikes or our navy. We are talking about feeding and housing children who seem to need that kind of help and are already here among us. If we can’t do that, then what kind of country are we?

Rep Palumbo’s letter is here.

May 30, 2014May 30, 2014

Don’t cut sales tax based on flawed economic model

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A few months ago, I wrote about the intellectual bankruptcy of the economic model called STAMP, for State Tax Analysis Modeling Program, created by the Beacon Hill Institute (BHI), and beloved of the Rhode Island Center for Freedom and Apple Pie (CFAP). The good folks at the CFAP have been heavily promoting some of the results of this model, that predict that Rhode Island will enjoy a tremendous economic boom if only we would eliminate our sales tax.

As I detailed in that article, the RI STAMP model is flawed not only by a host of questionable assumptions, but also the laughable attempt to obscure those assumptions under an absurdly over-complicated presentation of the relevant equations. Really, there is no reason to do what they do except as a conceptual bulwark against reporters who are easily cowed by that sort of thing.

Now comes the Institute for Taxation and Economic Policy (ITEP) to say the same thing as me. In an epic takedown (summary here, report here), they cite STAMP’s many assumptions that either cannot be justified by the research literature or are completely contradicted by that literature or by experience. They further point out that the STAMP model accounts for almost no possible economic benefit of public spending, such as, say, educated children or good roads. The STAMP model also contains little help in estimating the actual rates of change due to new tax policies, allowing them to

“… mask the fact that some tax plans they believe would be economically beneficial are guaranteed to shrink the economy in the short-term.”

ITEP concludes that from this alone,

“STAMP analyses are of no use in informing the debate over what will be necessary to balance the state’s budget in the wake of a major tax change.”

There is plenty more, such as STAMP’s implicit assumption of full employment (!) and the assumption that households spend money in more or less similar ways to governments. (How many police officers did you employ last year?)

I am gratified by the validation of my review of this model, but really, the damning evidence is right in BHI’s own footnotes. That’s where, just to pick one example, the STAMP designers tell us they assume that all rich people — you know, the ones who have expensive houses and extensive business and social ties to their community — are more likely to move to another state for financial reasons than poor people, who frequently own nothing and have no such ties.

Of course that’s not how it reads. The actual text talks about elasticities and the sensitivity of participation rates, but that’s what it means, once you wade through the verbiage.

In an email responding to the ITEP analysis, Justin Katz, of the CFAP, said they think the appropriate response is to average their results with model results they like less.

“…[T]he Center has long maintained that it is an opportunity for policymakers that they have such divergent models. As we recommended in our recent brief, the General Assembly should take advantage of the two projections as a high-end and a low-end and implement the elimination or reduction of the sales tax with plans to adjust down or up as the monthly results become apparent.”

This, of course, is not the way it’s done. When the clown honks his little horn and says the sky at noon is inky black, the proper response is laughter, not to average his views with yours.

There are two ways people analyze mathematical models. One way involves detailed examination of the assumptions used to generate it. The STAMP model fails this test in spectacular fashion, according to me, and now according to ITEP. The other way is to validate the model against past events. That is, a model good at predicting the future should be good at predicting things that have already happened. If a model can predict 2014 results from 2013 data then it makes sense to use it to predict what will happen in 2015.

We have cut taxes several times in the past 20 years. There were the Almond income tax cuts of 1997-2002, the capital gains cuts passed in 2001, the flat tax passed in 2006, and several smaller cuts. When the CFAP can show us that their STAMP model would have accurately predicted what actually did happen — and that the same model predicts what they say about future tax changes — only then will it be useful to listen to their results. Until then, nothing but laughter from me, and hopefully everyone else they honk their little horn at.

May 22, 2014

Insuring unemployment ensures unemployment

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It is outrageous to have millionaires collecting unemployment insurance payments, according to a Golocal article in which I am quoted. Maybe Golocal is on to something?

Certainly their employer paid a premium to be insured against a layoff, but it’s also unlikely that they are actually in as dire a need for the assistance as someone who has been laid off from a lower-paid job. But the real problem with UI is the I. That is, unemployment is structured as an insurance program: your employer pays a premium and when unemployment happens, you can make a claim. Why is that a problem?

In structure, it’s just like property and casualty insurance. You pay a premium, and if your house burns down, you can make a claim to the insurance company. The difference is that only criminals incorporate burning down houses into their business strategy, while layoffs have become an accepted part of corporate management in the United States.

These days, my knees can only be counted on to remind me how old I am, but another way that I feel old sometimes is that I remember when layoffs were considered big news. In those days, permanent layoffs and factory closings were unusual events, not so unlike floods and lightning strikes, reasonable things to insure against. The problem is that when layoffs become common — when the health of the communities and workers who made a company successful ceased to be a part of managements’ concerns — the insurance structure of the unemployment program becomes less sustainable. (In fact, layoffs that are common now were actually illegal within my memory, but that’s a different, though equally maddening, part of the story.) Worse than unsustainable, it can become farcical when a company helping to cause the problem has the temerity to complain about it.

This came to my attention years ago, when Cranston Print Works complained to the General Assembly that it paid $500 per employee for UI in Rhode Island, but only $20 per employee in North Carolina. Quoting from a letter I wrote in 1996:

Dell [at the NC Labor Dept] speculated that the Cranston Print Works unemployment tax rate differential cited… was due not only to the difference in tax rates, but also to the fact that, over the past decade or so, as production has moved from here to there, Cranston has been laying people off here in RI and hiring them in NC. Since a company’s unemployment tax rate is largely dependent on how many people they’ve laid off, this would obviously make their rate much lower in NC than here. The whole thing becomes something of a self-fulfilling prophecy for businesses: they move to NC to lower costs, but by moving (hiring in NC, laying off in RI), they make the costs higher for their remaining divisions, and for those companies who stay. [emphasis added]

What has happened around here over the last few decades is that the companies who fled early have actually increased the costs borne by the companies who have not. This is true not only in unemployment insurance, but in a host of other ways. Fewer companies sharing the costs of infrastructure investment means higher electricity distribution costs for each individual company, parts distributors have fewer customers so the margins they charge have to go up, and the costs of other government expenses, like roads, water, and education, find fewer companies to share the costs, too. Costs go up for the companies who remain, who then complain that high costs force them to move, too. It’s not always as ironic as when the same company is doing both the moving and the complaining, but it’s the same dynamic.

What have we done to address this problem? Pretty much nothing, except where we’ve made it worse, by reallocating some of those burdens in disregard of a company’s ability to pay. Not only do we have a failure of policy to contend with, but we have a failure of policy development. You hear routine complaints about business costs in Rhode Island, but when has the analysis ever led to anything more substantive than just more tax cuts? The Assembly leaders who make economic development policy in our state seem to have only that single play in their playbook and they keep running it, hoping against hope for a different outcome each time. What I hear from the statehouse is that there is plenty of talk about further tax cuts this year, despite the anticipated budget shortfalls.

Rereading that old letter seems a little bit sad with 18 more years of perspective:

There are dozens of creative and exciting economic development ideas that are proven to work by virtue of the fact they exist in other states, and are working there…The only special thing about the conditions here in Rhode Island is the lack of leadership and vision and commitment–from the Assembly, from the EDC, from the Governor–that are necessary to make them work. This means money, but not necessarily extravagance. Yes, the budget is tight, but as long as we simply complain that the pie is shrinking and there’s nothing we can do about these great ideas, there will continue to be less and less money with which to do anything. This is the great death spiral we’re in, and the tragedy is that no one seems to feel it important to resist.

May 21, 2014May 24, 2014

Mattiello is meeting with ratings agencies, but what will he learn?

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House Speaker Nick Mattiello is in New York today meeting with representatives of Standard and Poor’s and Moody’s, the two biggest of the credit ratings agencies. (No word on how Fitch feels about the snub.) It’s not perfectly clear what he thinks he’s going to get from this trip. Perhaps he’s going to look into the Moody’s representatives eyes and “get a sense of his soul” the way George W. Bush did with Vladimir Putin? That went well, didn’t it?

So what will Mattiello find when he meets with these guys? I predict he will find earnest, intelligent, kind, and solicitous people. They will make sympathetic noises about the awkward plight of our poor state and the unwise choices made by our previous governor and speaker of the House. They will understand immediately the ramifications of our difficult position. But they will point out all the worst-case scenarios, because they are also people who believe very strongly that the end of western civilization will be nigh if a state is allowed to renege on a commitment they imagine it to have made. Where, I ask you, will their commissions come from if the bond market changes even a tiny bit? They will see their job in these meetings as making Mattiello’s hair stand up even straighter than it usually does, and will probably succeed.

There are times when personal contact is misleading. After all, the earnest, intelligent, kind, and solicitous people he will meet represent agencies that are deeply corrupt, in the pay of the banks whose bonds they rate, constantly trying to curry favor with the very institutions they are supposedly there to police, while abusing the powerless. There have been virtually no changes to their business model since that very business model led our financial markets to the verge of collapse in 2008.

If Mattiello was in search of actual answers to actual questions, he would do far better to spend time interviewing the bond buyers for the insurance companies who hold most of our state’s bonds. Those are the people whose opinion will actually be important, because those are the people who actually give us the money we need to borrow. I’m more interested to know whether they are capable of reading a bond prospectus and understand the difference between a general obligation bond approved by the voters and a bond that says all over it that it is not such a thing.

There is a class of questions out there that cannot be answered by asking them. I learned years ago, for example, that I cannot learn whether today is opposite day by asking my daughter. If it is opposite day, she will say no when I ask, and if it is not, she will also say no. I have to think of another way to answer the question. There’s a lovely discussion of exactly this point in Snow et al’s 1991 book, “Unfulfilled Expectations: Home and School Influences on Literacy“, where the authors speculate about the futility of having well-dressed Harvard education researchers with clipboards ask poor mothers how many times a week they read to their children.

Here are some other questions whose answers cannot be found by asking:

“Hey Mr. Rich Person, will you leave the state if we raise your taxes?”

“Hey Mr. Business Owner, will you bring jobs back to this state if we lower your taxes?”

“Hey Mr. Bond Rater, will you leave our state bond rating alone if we let an independent agency default on its bonds?”

Incalculable damage has been done to our state by people who imagine that the way to answer questions such as these is simply to ask them directly and take the answers at face value. (Typically by people who will then call me naive.)

The public nature of Speaker Mattiello’s trip, and the people he intends to visit and to hear imply that what is going on here is not actually a fact-finding trip, but Kabuki theatre, the beginnings of political cover for making the unpopular decision to give in to the threats and repay the bonds. If true, this is unfortunate. Perhaps we can only hope that somehow weak knees will ward off the tax-cut fever that I hear is infecting the back rooms of the House this past month.

May 14, 2014May 15, 2014

38 Studios bond only one way Wall St. treats states unfairly

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One of the things I admire most about the debate over whether to repay the 38 Studios bonds is the way that we’re supposed to ignore the plain meaning of legal language. On the front page of the prospectus for the 38 Studios bonds, in capital letters, there is a paragraph that reads:

THE 2010 BONDS AND THE INTEREST THEREON DO NOT CONSTITUTE A DEBT, LIABILITY, OBLIGATION OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF (OTHER THAN A SPECIAL OR LIMITED OBLIGATION OF THE ISSUER) AND NEITHER THE FAITH AND CREDIT NOR THE TAKING AND TAXING POWER OF THE STATE OR ANY POLITICAL SUBDIVISION OR MUNICIPALITY THEREOF IS PLEDGED TO THE PAYMENT OF THE 2010 BONDS OR THE INTEREST THEREON. THE ISSUER HAS NO TAXING POWER. THE OBLIGATION OF THE STATE TO MAKE PAYMENTS FOR DEPOSIT INTO THE CAPITAL RESERVE FUND IS SUBJECT TO ANNUAL APPROPRIATION BY THE STATE GENERAL ASSEMBLY.

As if this isn’t enough, the paragraph is repeated verbatim (also in solid capitals) in the body of the document, on page 2, and again on page 11. And there are other sentences to reinforce it, too. So my question is which other sentences in the prospectus are to be ignored? Is there some secret legal code that says that if it’s repeated three times in all caps it doesn’t count?

If the above paragraph doesn’t mean what it plainly says it means, what about this one (on page 4):

Interest in the 2010 bonds will be payable on May 1, 2011 and semi-annually thereafter…

That one, of course, is not all caps, and it only appears once, so maybe that’s the key difference why this clause is inviolate while the others apparently don’t appear at all in a practical sense.

As you read further, you can see that there was no hiding the nature of the investment from investors. These bonds say “38 Studios LLC” in their title, and Curt Schilling is identified on the third page as chairman, founder, and part of the “visionary team.” His name appears 11 times throughout the document. There is a long description of the company on page 18, that says the company is “developing an original fantasy story” which seems about right, but apparently they aren’t talking about their business plan, but the setting for their video game.

Another thing you can see on the emma.msrb.org site is that some of the fears about damage to the state’s bond ratings are not overblown. A slew of bonds sold by the airport (through EDC, the same as the 38 Studios bonds) last December are already rated “BBB+” by Moody’s and S&P, downgraded from the previous AA rating.

On the other hand, what’s really important is the financial consequences. Not many bonds are sold with that low a rating, so comparisons are a little challenging. But I see that those bonds sold for yields of from 3% (1 year) to 4.375% (15 year), a better rate than similarly rated securities from Missouri and Texas got last fall.

In other words, what damage there will be may already have been done. Not only are we hearing that we will be punished for imagining that words in a bond prospectus should have their plain meaning to bond investors, but we are already being punished for even having the temerity to discuss the proposition. This is nothing more than financiers desperate to be made whole for their own misjudgments, feeling confident they can browbeat the state into doing it, and then doing so.

RI Future contributor Tom Sgouros recently wrote this book about fixing the banking system. Click on the image for more information.

And it will probably work, too. The threats of the bond rating agencies are very effective, since your governments, at every level, are big borrowers. And because they do this borrowing as mere customers, they have to do whatever the bankers say. Which is strange, because yours is a state with billions of dollars in assets. An individual or company that controlled that much money would reject the kind of treatment our governments think is routine. Indeed, the hold of the financial industry over governments in America is a lasting disgrace, a blot on our nation, and the threats we’re all hearing is only the latest shameful chapter.*

It would be one thing to accommodate the financial industry if it were holding up its end of the bargain, but it does not. Why do agencies like RI Commerce (formerly EDC) and the Providence Economic Development Partnership exist, in virtually every state, county, and city in the nation? It’s because of capital market failures. There are qualified business borrowers all over the country who cannot get access to the capital they need to grow, and their entreaties to governments across the country have conjured into existence agencies like EDC and PEDP. Obviously, these agencies are subject to corruption, but corruption is not why they exist. They exist because of a private market failure to allocate capital in a public-good-maximizing fashion, in city after city and state after state.

The choice ahead is not between go along with the financial industry and remain unharmed or resist and be crushed. The choice is to go along with the financial industry that is already punishing our state — and whose spokesmen cannot promise they will not punish us anyway — and resisting the threats to find a better way. Senators and representatives who choose to resist have a special duty to seek alternatives to the financial industry in its current state. These exist, and are in place in other states and other countries around the world. It’s long past time we learned from those examples, and understood that the public good is not the currency of our nation’s financial markets.

*I wrote a book about this: Checking the Banks.

April 30, 2014May 1, 2014

Why state unemployment doesn’t matter as much as you think

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Everyone knows that Rhode Island has the highest unemployment rate in the nation, right? After a few years of lagging Michigan and sometimes Nevada, we are now the nation’s leaders, despite the rate having ticked down slightly last month.

But consider this: what do you learn by comparing a tiny state like ours to relatively gargantuan states like Michigan and Nevada? Is that comparison useful? Huge parts of Nevada are desert; huge parts of Michigan are farms; there are no huge parts of Rhode Island. Could that be relevant to the three states’ economies?

Comparing states to each other is a decent way to get a handle on differing state policies, but do we think that state policies are at the heart of our high unemployment rate? Are there no other differences you can think of between, say, Texas and Rhode Island? I believe our state’s policies certainly contribute to our economic condition, but sometimes another analysis can be revealing, too.

I looked last week at the unemployment rates for metropolitan areas (“Metropolitan Statistical Area” or MSA), as defined by the Census Bureau, and learned that the Providence MSA (which includes what you think of as greater Providence, as well as stretching out to include Fall River) has unemployment of 9.7%, higher than the statewide rate. We rank 339 out of 372, a pretty dismal showing. But that’s not dead last, so I also learned that there are 32 MSAs in 11 different states that rank lower than ours, including New Bedford, at 11.1%, and bottoming out at Yuma, Arizona, at over 22%. And Westerly and Hopkinton are part of an MSA centered in Connecticut, and their rate is 7.9%, or number 268 on the list. Nothing to be proud of, but better than 104 other places.

Half of the MSAs in California are doing worse than we are, as are three out of five in New Jersey, and four out of 25 in Texas. But those states also contain some high-performing MSAs, so the devastating performance of some areas are washed out in the statewide averages. There are several one-party states in that mix — from both parties — as well as several with divided control of their governments. It seems to me that anyone who wants to claim that Rhode Island’s high unemployment rate is entirely due to state policy has the burden of explaining why we should adopt the tax and regulatory policies that have brought Brownsville, Texas to a 9.8% unemployment rate or Yuma to 22%.

A few years ago I did an analysis that suggested the structure of the labor market might be relevant. Nestled between two richer states, Rhode Island’s white-collar jobs pay comparable wages to those neighbors. Jobs like these are good jobs, for which you might commute a long way, or even move your home. For jobs like being a psychologist, computer programmer, architect, or lawyer, this is pretty much a single job market. An employer in Warwick looking to hire a staff attorney competes for a pool of attorneys who might easily take a job in New London, Attleboro, Sharon, or Boston.

It’s not like that for hiring a cashier in a convenience store. You wouldn’t commute to Boston to work in a deli, and so it turns out that while white-collar wages here are at least comparable to wages for similar jobs in Massachusetts and Connecticut, blue-collar jobs vary much more, and in fact pay much worse here in Rhode Island.

I made a couple of rankings of states based on a selection of job categories, and I learned that some areas ranked high on my white-collar job list and low on my blue-collar list, while in some it was the other way around. (Read more about them in my book, “Ten Things You Don’t Know About Rhode Island.” The table is below, but you’ll have to check out the book to get all the details.)

In truth, I have no idea why these rankings differ, though it is entertaining to speculate. I noticed, for example, that places with a long history of union manufacturing (Ohio, Pennsylvania) pay good blue-collar wages, even for non-manufacturing jobs, and places that are very attractive to live (Hawaii, Oregon) tend to pay relatively poor white-collar wages. Agricultural areas tend to pay poor blue-collar wages, even for non-agricultural jobs. Rhode Island, with high white-collar wages and very low blue-collar wages, is an anomaly in the Northeast, and belongs with the states of the South, Southwest, and California.

Here’s what else I notice: the places that pay the worst blue-collar wages dominate the high end of the unemployment ranking.

This seems counter-intuitive — why would lower wages mean higher unemployment? — but it also seems to be true. On closer examination, maybe it’s not so crazy. People at the low end of the income spectrum tend to spend the money they have because they have to. More money in those people’s hands means more money being spent, so it makes sense that an area with better-off low-wage workers will enjoy higher levels of economic activity. This is just speculation, but it is broadly consistent with the basic Keynesian model of the economy that dominates our economic discourse.

But we can go one step farther, too. If we want to bring state policy into the equation, it seems that the metropolitan areas with the highest unemployment are not only places with low blue-collar wages, but are often in states where taxes on the low end of the wage scale are relatively high. According to the Institute for Taxation and Economic Policy (ITEP), Texas, Arizona, Illinois, and New Jersey are all places where total state and local taxes on the poorest people approach or top 12%, just like here. In other words, these are largely places where poor people are paid badly and taxed at high rates, too.

ITEP tells us that state and local taxes on poor people in Rhode Island average 12.1% of their income, while for people in the top 1%, the average rate is 6.4%. The tax cuts for the rich that we have given year after year have not resulted in lower taxes all around. Rather what has happened is that the state simply shirked its responsibilities to education and local aid. The cities and towns took up the slack by raising their property taxes, which fall most heavily on those with the least ability to pay. Taking money away from people who are most likely to spend it is what you might call the opposite of economic stimulus, so it is little surprise that the result is what you might call the opposite of prosperity.

What could we do about this? Pushing up the minimum wage would be a start. Cracking down on wage theft and the mis-classification of employees might help, too, as well as finally being honest about what we’ve been doing to our cities and towns.

Just something to think about when you read about the unemployment rate. As usual, it seems the things that everyone knows sometimes get in the way of understanding what’s going on.

	White collar		Blue collar
1	NJ	64,053	HI	33,363
2	CA	62,851	NJ	31,976
3	CT	61,435	CT	31,310
4	MA	61,282	AK	31,191
5	DC	60,176	MA	30,045
6	MD	60,074	WA	29,357
7	NV	60,060	IL	29,168
8	RI	59,720	DE	29,094
9	AK	59,492	DC	29,004
10	NY	59,198	NV	28,868
11	MI	58,588	CA	28,705
12	DE	56,932	NY	28,516
13	IL	55,684	PA	27,711
14	AZ	55,680	OR	27,560
15	VA	55,358	MI	27,369
16	GA	55,323	MN	26,989
17	HI	55,231	CO	26,900
18	CO	55,141	MD	26,848
19	NC	54,849	IN	26,777
20	TX	54,734	OH	26,724
21	OR	54,552	NH	26,406
22	PA	54,415	MO	26,152
23	TN	54,110	RI	25,994
24	WA	54,105	VA	25,913
25	MN	54,096	WI	25,903
26	WV	53,906	KS	25,728
27	OH	53,878	AZ	25,445
28	WI	53,769	TN	25,396
29	FL	53,269	IA	25,294
30	IN	52,910	GA	25,153
31	MO	52,649	WY	24,968
32	NH	52,622	VT	24,708
33	UT	52,536	NE	24,635
34	ID	52,128	ID	24,611
35	MS	51,840	SC	24,333
36	AL	51,311	UT	24,299
37	ME	51,104	MT	24,161
38	SD	50,725	ME	24,075
39	AR	50,489	LA	24,004
40	LA	49,971	NC	23,983
41	WY	49,790	KY	23,967
42	VT	49,734	SD	23,850
43	SC	49,478	ND	23,841
44	NM	49,132	OK	23,753
45	KY	48,838	TX	23,502
46	IA	48,564	FL	23,466
47	OK	48,361	WV	23,353
48	ND	48,171	NM	22,634
49	NE	48,039	AR	22,562
50	KS	47,308	AL	22,428
51	MT	46,128	MS	22,097

(Source: SalaryExpert.com, 2005 data, methodology described here)

April 28, 2014

Debating the Heritage Foundation

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Stephen Moore, the Royal Economist at the Heritage Foundation came to town last Saturday, to debate me in an event sponsored by the Rhode Island Center for Freedom, Prosperity, and Apple Pie. Was it an educational experience? Well, possibly.

I did learn, for example, that Moore knows pretty much nothing about Rhode Island politics, economics, the history of its manufacturing sector, or even the legislative history of the past 25 years. And he admits it, too, though he very much wants our state to take his advice. For example, he made repeated references to the way we “demonize” business owners and tax them at high rates without being able to be specific about what he meant, or to contradict the long list I gave him of tax cuts for rich people we have enacted over the past 20 years. In fact, the number of broad-based tax increases enacted by the state legislature since 1993 is zero, while taxes were cut for rich people in 1996, 1998, 2001 (twice), 2005, 2006 and 2010.

Sam Bell was with me and between the two of us, we cited not just the tax cuts, but specific facts about abortion, guns, and labor at the state house, to point out that Rhode Island has been in the grip of conservative ideology for two decades — despite control of the Assembly by the Democratic party. Faced with these examples, Moore persisted in saying there was no evidence (his words) that Rhode Island was not ruled by liberals. After that, it’s difficult to imagine what, precisely, he would think constituted evidence.

Moore even repeated the right-wing shibboleth that raising the minimum wage will make unemployment rise. Now of course he has to claim that, or else go back on years of his writing. Still, it’s an odd thing to baldly make the claim in a state where the minimum wage went up in January and the unemployment rate has just ticked down, a month or two later. Do I think those are cause and effect? No, not simply, but it is at least consistent with the effects I predict for an increase in the minimum wage. It seems to me that there is a heavier burden on the person who claims that the future will be exactly the opposite of what happened just last month, but Moore does not appear to see it that way.

Despite both his ignorance of our state and utter disregard for the evidence Sam and I did present, Moore happily claimed that yet more tax cuts for rich people — doing away with the estate tax, or even better, the income tax — are the cure for what ails our state. Late in the debate, he fell back on the claim commonly used by people who can’t win on the facts: “perception can become reality.” As if if the only rational way to address the misperception of business magazine editors and conservative economists is for the state to sacrifice a billion dollars of revenue.

He further insisted that we needed to do something “bold” and suggested Rhode Island should become a “right to work” state. He blamed our loss of manufacturing on unions, though of course our state’s biggest lost manufacturing sectors (textiles, plastics, costume jewelry) were not heavily unionized. Beyond this, there is a decent body of evidence to suggest that Rhode Island’s economic troubles stem mainly from underpaying its lowest-paid workers, but time limitations and the moderator prevented me from presenting that evidence. (It is, however, described in my book, “Ten Things You Don’t Know About Rhode Island” a copy of which I inscribed and gave to Moore since he so obviously needed it.) But all the other evidence I presented was ignored, so I don’t see that Moore’s side of the debate suffered much for this.

So in the end, what do we learn? That Steve Moore, and those who enable him, such as the Center for Apple Pie that sponsored this debate, care very little for evidence or for anything that might disturb or even enrich their understanding of our state and its economic woes. But that’s ok for them, because they are supported by a legion of people who agree with them, like those in the audience on Saturday.

Here’s the problem, though. As I’ve written before, there is a moral dimension to lobbying. Lives are ruined and people die because of bad decisions made at the state house. Advocates have a responsibility to test their hypotheses in an intellectually honest fashion. Our state has a high unemployment rate. That is where inquiry begins, not where it ends. It matters a lot to sensible policy whether that is due to state policy, federal policy, history of the labor market, the decisions of private employers, the conditions of the local credit market, the price of tea in China, or anything else. A responsible advocate will examine as many possibilities as seem reasonable before insisting on a solution. But I didn’t see any of that curiosity on display Saturday. Indeed, I got a couple of indignant snorts from the audience merely for suggesting that if you look at our state’s unemployment rate in terms of metropolitan areas, it might tell a different story than looking at state rates. (There are 32 metro areas in the country, in a dozen different states, in worse shape than Providence.)

Quite to the contrary, Moore is willing — even eager — to parachute into our state and make outrageous recommendations about state policy while remaining ignorant of pretty much all the actual facts. This, it seems to me, is a deeply irresponsible use of the prominent position he holds. So that’s what I learned on Saturday. I was paid to be there, so that was ok for me, but if you slept in on that rainy morning, and weren’t at URI to see our little show, it seems to me that you probably came out ahead.

April 2, 2014April 2, 2014

How the press won the speaker’s gavel

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Any realistic account of what happened last week when Representative Nick Mattiello became Speaker of the House has to account for the actions of our state’s media. Our state’s political press played an essential part of making Mattiello Speaker. The reporters will complain this is unfair, but let’s look at the time line.

On Friday, March 21, — while FBI agents were still in Gordon Fox’s office — golocalprov was tweeting exactly the rumors that Mattiello wanted everyone hear: that he had control, that he had the votes, that resistance is futile. Immediately afterward, Kim Kalunian of WPRO radio followed, and Dan McGowan at WPRI, too. Could Mattiello have realistically asked for more? These reporters let everyone know that it was Mattiello’s office to lose. At that point, coverage like that is what his bluff needed most.

On Friday evening, Mattiello held a “caucus” to shore up his support and only about two dozen people showed, up, far short of the number necessary to win the Speaker’s gavel. So we went to bed and woke up on Saturday, March 22, and then look what happened. On Saturday, Mattiello was clearly losing, according to accounts I’ve heard and corroborated since. After some disarray on Friday, and Mattiello’s failure to show a clear majority on Friday night, what became Mike Marcello’s team had arranged a clear majority of the necessary votes.

But in the press, you had Channel 10 and Cranston Patch (or what’s left of it) reporting that Mattiello’s succession was a done deal. At the very least, this inaccurate reporting sowed confusion and at worst it actually interfered with the Marcello team being able to consolidate its gain. Apparently the confusion, plus a personal appeal from Paul Valletta, the firefighter’s union president, to the two Woonsocket representatives who are firefighters, started the erosion of Marcello’s support. Republicans Joe Trillo and Doreen Costa indicated that their caucus would weigh in, and would choose Mattiello, and they sped the erosion. But they were just trying to bet on the winners, since an hour before they had been supporting the other side.

Then on Sunday March 23, the next day, Kathy Gregg at the Providence Journal and Ian Donnis at RIPR buried Marcello’s team and that was pretty much that. As if what was won on Saturday couldn’t be lost on Sunday or Monday.

Randy Edgar made a little effort to report that it wasn’t a done deal on Sunday, but he was all alone so had no effect.

So what do we learn? The reporters named here will say that they had no choice but to report what was coming at them. Great, so political reportage necessarily resembles a mob? But not all reporters played along, as Randy Edgar and a few others showed. Even so, true or not, it is irrelevant to the point that the political press played a crucial role in making Nick Mattiello’s ascension to speaker possible. In their breathless chase of what’s happening right now right now right now, they amplified his claims to have the votes and seemed to ignore the possibility that anything else might happen. They served the powerful.

I hope the reporters whom I count among my friends will eventually forgive me for saying so, but in many ways the state’s political press did Nick Mattiello’s bidding, from the broadcast of his unsupported claims on Friday to this curious post on Monday where WPRI’s Ted Nesi said Mattiello won’t rock the boat and that his fervent embrace of every item of the Chamber of Commerce’s agenda constitutes being a “moderate.” (And, of course, since the Chamber’s agenda already ruled the House, Mattiello is unlikely to feel the boat needs rocking at all.) This kind of calming article was exactly what was needed to consolidate the Mattiello team’s votes, to prevent fear of a conservative takeover of the House. Which, of course, was precisely what was going on, as even that article makes clear.

I suppose it is possibly true that there is no other way to do political reporting except in a mob that provides support to those who already have power, but that seems a dubious proposition to me. Reporters have a responsibility to their readers, and a responsibility to the state they live in, and it seems to me that the responsibility is an individual sort. Actions have consequences and none of us are free from the moral dimension of those actions. There will likely be another election for Speaker after this fall’s elections, and will we see the same presumptions, the same blind repetition of idle boasts, the same rush? We will see.

April 1, 2014April 2, 2014

Costa in as Speaker

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In a surprise vote early this afternoon’s House session, Doreen Costa (R-North Kingstown), formerly vice chair of the House Judiciary Committee, was elected to Speaker of the House, effectively head of the state Democratic Party.

“I like most of what goes on here already,” the tea party conservative said. “The tax cuts, the abortion restrictions, the way gun laws don’t go anywhere — so you’ll hardly notice the difference. I just thought it would be good to put a woman in charge.”

“Of course I’m grateful to the members of the House,” she began, “but I’m especially grateful to Nicky Mattiello, who helped me understand how to do it.”

“It really wasn’t that hard at all. I just said I had enough votes to be Speaker, and that seemed to do the trick. After that, a favor her, another there, you let them know I’ll be in charge and take care of them, and they fall right in line. I owe it all to Nicky.”

March 24, 2014March 25, 2014

Which side are you on, House Democrats?

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One of the most pernicious myths about Rhode Island politics is that the state house is dominated by liberal, labor-backed, Democrats. The Democrat part is certainly true, but neither the liberal nor the labor-backed parts are. Rhode Island, after all, enjoys the only voter-ID vote-suppression bill in the nation voted in by Democrats. We have endured 15 years of tax cuts for the rich that have impoverished our schools and towns and allowed great profits for businesses that turn around and betray our state. We allow payday lenders to soak their customers for 260% interest rates. We were utterly unable to enact any meaningful gun control legislation in the aftermath of an appalling massacre in the next state over last year. The list goes on in a long and embarrassing fashion.

Labor gets a lot of blame for this in certain circles, but it’s a sick joke. The labor movement in Rhode Island is so disunited that pensions were “reformed” in 2005, 2007, 2008 and 2011, each time making pension coverage for state employee union members weaker and smaller. Whether it’s labor law, pensions, taxes, or municipal funding, it is difficult to think of a high-profile controversy in the legislature won by labor in the last 15 years.

The tragic part of this is that Rhode Island’s electorate is not nearly so retrograde as its legislature. Gun control polls well, as does reproductive justice and raising taxes on rich people, and yet the legislature does not act that way.

This accounts for the Machiavellian nature of legislative politics. The conservative Democrats who have held power there for decades rely on strong-arm tactics to enforce docility among the rank-and-file. Uncontroversial bills get held until after the budget is passed to assure its passage, committee chair and vice-chair seats are awarded to “team players,” malcontents are assigned to the standing committee on whatever they care least about. These are not a sign of power, but a sign of weakness. The leadership has long been aware that their hold on power is precarious, and they rely on the disunity of their opposition to maintain their hold.

Part of what maintains that disunity is the selective granting of power to a few individuals, who are allowed to sit as committee chairs or vice-chairs. These individuals imagine they have some leverage worth protecting and that their position allows them some access to the inner workings. This makes them reliable votes to protect the interests of the powerful. But a lot of it is illusion. I found myself once talking to the vice chair of House Finance committee some years ago on the very day that the Finance Committee issued its revision of the Governor’s budget. I was fascinated to notice that he knew as little about what was in it as I did. In other words, his position allowed him to think he had access, but in reality he had virtually none.

This is what is happening today. People with some small measure of influence — who will never get any more than what they have from Mattiello’s leadership — are unwilling to risk what little they have by supporting a leadership that actually favors their perspective. The tragic part, of course, is that if they could be united, they could make a change.

Tomorrow will be a test.

If Nick Mattiello becomes Speaker, the most powerful position in the state Democratic Party, it will be through the support of tea-party Republicans allied with representatives who do not believe he supports any of their priorities, but are willing to go along with him for the sake of small and ultimately meaningless favors. Do you want Republicans Doreen Costa and Joe Trillo to be kingmakers of the Democratic Party?

The conservative path of our recent history has brought us one bankrupt city and a couple more flirting with it. We have given up tax revenue and gotten nothing for it in return. Our schools, buses, streets, and virtually every other public service you depend on, has gotten smaller, weaker, dirtier, and meaner. The legislature has thwarted Governor Chafee’s attempts to restore Carcieri’s school funding cuts and any semblance of equity among the cities and towns, along with most of the other useful reforms he has proposed. You can be upset with him for not fighting harder, but he is not the obstacle to reform in Rhode Island. This is the status quo of our state, and if you are happy with it, then you have every right to be happy with the status quo of the Assembly leadership.

If you are not happy with it, though, please contact your state rep today and ask them to support change at the state house tomorrow. And if you are a state rep reading this, please remember that the bluff only works when no one stands up.

March 20, 2014March 22, 2014

Rhode Island’s regressive way of paying for infrastructure

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Gina Raimondo proposes allocating $60 million to fix up schools. As Sam Bell writes, she doesn’t say where the money will come from, only that the legislature will find it somehow.

Gina Raimondo’s campaign manager, Eric Hyers, tells Phil Marcelo of the Providence Journal:

“This $60 million figure we’re talking about? To put it in context, we’re talking about 0.7 percent of the budget. What is more important than building schools that are new, safe, modern and help kids learn?”

Eric’s experience is in federal campaigns, so we can excuse the fact that he is obviously unfamiliar with the ferocity of fights at the State House over far less money than this. So here is a helpful list for him to consider of things that people might consider to be as important as building new schools:

Staffing existing schools,
Buying books and desks in those existing schools,
Funding food stamps,
Helping homeless or threatened children find a place to sleep,
Paying unemployment benefits,
Taking care of the psychiatric patients in the state’s care,
Keeping bridges from collapsing,
Reining in tuition increases at URI,
Cleaning up sewage overflows,
Keeping the lights on at the state hospitals,
Keeping the state police on the highways,
Staffing the prisons,
Running the DMV,
Keeping drinking water safe,
Providing flu vaccines,
Providing speedy trials to defendants

The fact is that you don’t get something for nothing. Repairing schools is a worthy goal. Pretending you can do it for free is how we got ourselves in the fiscal crisis we’ve been in for a decade. If someone has an idea about where the waste is, then let’s hear it. In the meantime, let’s not waste more time with magic money proposals.

Again, Eric’s strong suit is not the state budget, so here are some suggestions he could recommend for paying for this new expense. Some people would even consider items in this list to represent waste. Maybe he’ll mention them to Gina.

Establishing combined reporting would raise about the right amount of money from big corporations doing business in Rhode Island. And
According to last fall’s report, we pay $45 million to only 18 hedge funds to manage pension funds, out of $70 million in fees annually.
According to my calculations, going back to the income tax rates of, say, 1996 would raise around $100 million per year.
State tax credits (film and historic) waste tens of millions of dollars each year, money that goes to cutting the taxes of a rich person or corporation without any public benefit.

The last one there deserves special attention. When the historic tax credit program was ended a few years ago, our state borrowed money to repay those credits. The total amount borrowed was $150 million. Given the way the tax credits work, around $30-40 million of that was borrowed only to lower the taxes of people who had bought tax credits. That is, we borrowed to make a tax cut. If that’s not waste worth cutting out of state government, what is?

March 3, 2014March 3, 2014

Eva Mancuso stifles debate, wonders why debate went elsewhere

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Susan Lusi, the superintendent of the Providence school department, has come out against the NECAP graduation requirement, and Eva Marie Mancuso, the chair of the Board of Education, has accused her of “grandstanding” by presenting her concerns to the legislature rather than to her board.

Ha ha. This is funny because over the past year, Mancuso has maneuvered the Board and its agenda to shut down any possibility of real discussion of state testing policy. If Susan Lusi has chosen to use a different forum to make her concerns known, Mancuso might be the only person in Rhode Island who wonders why.

As I’ve written in the past, I have completely failed to find a forum in this state even for simply presenting a technical critique of the use of NECAP tests to anyone in authority. What’s remarkable about this is that a technical critique is more than just a statement of opinion. It’s an opinion about how the future will unfold. What I observe is a natural consequence of arithmetic, statistics, and the choices of the test designers. The results are impervious to the attention they get. Whether anyone listens to the critique or not is irrelevant to whether or not its effects will be felt. To date, I have not heard or seen a single response to my critique that did not rely on purposefully misconstruing it, and it has been endorsed by people who know a lot more about testing than I do.

If my critique is correct, then lots of kids will flunk the NECAP test, pretty much no matter what. I don’t have to be heard at a Board of Education meeting for this to come true. If my critique is correct, then RIDE is wasting a lot of money forcing school districts to undermine the test they have spent so much money designing and promoting. I don’t have to be on the radio for this to come true. If my critique is correct, performance on the NECAP test will not be well correlated with performance in college or a job. I don’t have to be called by a reporter for a response to RIDE’s many misstatements for this to come true.

These are serious consequences, with dollar signs attached to them. Not to mention thousands of damaged lives. Unfortunately, they are no longer just future possibilities. At this point, six hundred Providence students, along with over a thousand of their peers around the state, are at risk of not graduating from high school. To some extent their school systems have failed those kids, and to a large extent RIDE has failed them.

Policy makers have a responsibility to consider the consequences of their actions. Simply ignoring the possibility of bad consequences — precisely what has happened — is utterly irresponsible. Eva Marie Mancuso and Education Commissioner Deborah Gist, by doing everything they can to shut down debate over their policy, have demonstrated that they simply do not care about the consequences of their decisions. They claim to care about the students for which they are responsible, but belie those empty claims with their actions.

The rumors I hear are that Mancuso yearns to be appointed to the bench. Just the sort of judge we want: the kind who refuses to hear evidence. Gist wears her career ambitions on her sleeve, and they obviously extend far beyond our little state. Presumably advances in test scores will help her career after her contract here expires, and get her a lucrative book deal about how she turned around a little state. What are the lives and futures of a couple thousand kids when weighed against that kind of success and fame?

It is indeed true that having high school graduates who cannot do math is bad for our state. Is it not also true that having education policy makers who do not care about math is equally bad for our state?

February 6, 2014February 8, 2014

Providence pension — fiscal scolds out in force

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I spent a little time recently with the new report on Providence’s municipal pension plan, and then I read an article on golocalprov that wanted me to panic about it, quoting the usual chorus of scolds who want us to defund public services. Then I went back and read the report some more and I still don’t see why this report isn’t considered good news. It should be.

The report does point out that Providence has a funding ratio of around 32%, and this is low enough to be worrisome. But it also points out that the unfunded liability of the plan has fallen 8% as a result of Mayor Taveras’s pension reforms. The unfunded liability now stands at $830 million, down from $900 million a couple of years ago. Since the plan has assets of just a bit under $400 million, this seems scary, but it’s important to understand exactly what this number represents. It is the money you’d have to invest now in order to pay off all the debts of the plan in the future. In order to make a calculation like this, you have to make a lot of assumptions about the future: how long people will live, what the inflation rate will be, and what the investment returns are likely to be.

Critics in the golocal story claim that the investment return assumptions are high at 8.25%. The critics are wrong for a couple of reasons. First, it is important that this assumption be consistent with reality, but it is as important for it to be consistent with the other assumptions made. As for reality, over the long term, and accounting for inflation (which this number does), this actually is not a terrible guess. There are reasons to think that over the next few decades this is high, but over the last few, it’s been decent.

As for the other assumptions, critics who think this rate should be lowered, are generally not also suggesting that the inflation rate be lowered on the other side of the ledger, too. That is, this 8.25% investment assumption incorporates assumptions about the inflation rate in the future, but so do assumptions about the plan’s cost — i.e. the pension checks — 40 years from now. A big part of the reason we’re looking at low investment returns over the near term is because of low interest rates and low inflation. Lowering the investment assumptions should mean lowering the cost inflation assumptions, too, and yet, the Buffets, and Moody’s who demand more realistic investment assumptions are usually silent about those adjustments. Pension plans are not all about investments; there’s a reason why they are run by actuaries and not investment managers.

Another reason why we should be suspect of calls to lower the rate of return is that the scolds don’t generally account for the risk of overfunding a pension plan. Every dollar that goes into the pension fund is a dollar not spent on educating children or plowing city streets. It is far better to run the fund at a level modestly below 100% than it is to achieve or surpass that goal. I will never understand how people who rail against government waste will nonetheless insist that we put more money into a pension plan than is strictly necessary. To me, that seems the very definition of waste, but that’s the 21st century for you, I guess.

So what else is in the report? There’s a payment schedule that shows that although the payments to the plan are indeed going to go up in the short term, as a fraction of the city payroll, they go up very little, and this includes money put toward the unfunded liability. I see that last year, the income from the fund, plus the city’s payments, plus the contributions from current employees, was about $7 million short of the checks the system paid out. Red ink sounds bad, but these are calculations that involve repaying the investment losses of a couple of years ago. When you look at the actual flows of actual dollars, the system is well in the black over this past year.

The truth is that the payment schedule shown in the report is very optimistic, and the city could fall far behind that funding schedule (perhaps if the return assumption is too high, for example) and still make all the payments to retirees it anticipates. Remember, some of that unfunded liability won’t be paid until the youngest current city employee dies, say around 2075 or 2080, but the schedule in the report anticipates paying off the entire debt by 2040. The golocal story makes it sound like a 30-year amortization schedule is something unusual, though it is completely routine in the industry except for the plans that use a longer term.

What people routinely forget is to keep their eyes on the ball. The goal is not to satisfy some Olympian ideal of pension perfection as defined by Wall Street, the goal is to make all the promised payments at the lowest cost possible. The conventional wisdom of pension accounting ignores this goal, and imagines somehow that the city’s responsibility to its retirees so far trumps its responsibility to the children in its schools or the snow on its streets that overfunding the pension system is the only way to go. If Providence only makes it to 80% funding in 2040, short of the goal of 100%, pension checks will still be mailed out in 2041, just as they have been mailed out this year, when the funding ratio was so much smaller. If Providence were to short the pension payments and use that to improve the city’s economy, the pension plan might be more expensive in the future, but the city might be better able to accommodate the expense, too. There is balance necessary and the scolds who insist everything be pre-funded are no better than the past mayors who skipped payments.

The bottom line here is that Providence’s pension plan is a source of concern and requires careful consideration and monitoring over the next few years, but there is no reason to panic over these numbers. The pension reform seems to have helped substantially, and there is ample reason to think it will continue to help. Does that sound like cause for panic?

January 30, 2014January 30, 2014

How a stink tank manipulates the apparatus of scholarship

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A few years ago, the Ocean State Policy Research Institute put out a very funny study that tried to use IRS migration data to demonstrate how high taxes were going to cost Rhode Island millions of lost dollars when people were driven from the state. The document had lots of footnotes, so it looked like a study, but the authors hadn’t noticed the IRS data they cited was about the movement of people, not money. That is, the OSPRI report only proved the authors hadn’t read the technical report on the IRS data before sending out the press releases.

OSPRI is gone now, joining the Education Partnership, ripolicyanalysis.org, the Citizens Foundation, and many more in that angry Valhalla of conservative Rhode Island think tanks. But don’t despair! The RI Center for Freedom, Prosperity, Motherhood and Apple Pie (CFPMAP) is here to fill this terrible void. As I’ve written, researchers at CFPMAP are behind the ongoing discussion, such as it is, of the sales tax decrease.

When you go read the supporting documentation behind the CFPMAP claims about the economic impacts of the sales tax decrease, you find they use an economic modeling tool they call RI-STAMP.

The RI-STAMP model is based on the STAMP model, developed by the Beacon Hill Institute at Suffolk University. Beacon Hill has done us all the service of publishing a lovely technical report on the model, filled with dense and intentionally impressive equations like the one here, which might distract the unwary from sentences like these:

“The savings rates for households at each income level were adjusted based on professional judgement [sic]…” [p.15]

“The trade data for the state are not particularly reliable; we have used our judgement [sic]…” [p.21]

“As with export demand we have used our judgement [sic], combined with BEA data, to arrive at sensible estimates [for import demand].” [p.21]

“Information on flows between the state and the rest of the world is difficult to piece together, and is an area where considerable professional judgment is required.” [p.11]

“We used professional judgment in determining the proper elasticities for each household group.”[p.16]

This last one was an estimate of how likely poor people are to avoid work if welfare payments increase. They described this professional judgment:

“The participation rate for low‐income households is assumed to be highly sensitive to the level of transfer payments, but relatively insensitive to changes in taxes or the [wa]ge rate. On the other hand, high‐income households are assumed to respond substantially to changes in the taxes and wage rates they face.”

In other words, a rise or fall in wages has a large impact on the behavior of high-income households, but a much lower impact on the behavior of low-income households. The latter are, however, assumed to be quite sensitive to the level of welfare payments. This is, shall we say, a debatable proposition, even in the economics literature. As are the other propositions on which they exercised their “judgment.”

There are also questionable assumptions about how federal dollars are spent in Rhode Island, whether all sellers of labor and capital can find buyers (unemployed much?), the extent to which businesses who have profit here also have owners here, and much more. One can go on at some length, but why bother? The model is, like most models (including the ones I use), a collection of predictions developed from the assumptions of the researchers who put it together. Dependence on assumptions is nothing extraordinary. It’s burying those assumptions under a collection of poorly-explained and almost parodic equations that is nothing more than intellectual bullying.

The performance of a model like this can be tuned on past events. We’ve had lots of tax cuts these guys could have practiced on. Did their model say tax collections went up despite the tax cuts of 1997-2002, 2001, 2005, or 2007-2011? If so, they don’t say. If the model can properly model those past realities, then you’ll potentially have something useful to predict future ones. Without that, all the fancy equations in the world can’t sell your results.

Hide the bias

The RI CFPMAP writers praise “dynamic” modeling of tax policy changes over “static” models because the former takes into account secondary effects of the tax change. In theory, they are quite right. Any change in tax policy typically has lots of secondary effects, and a competent modeler at least has to keep them in mind, and take them into account if they’re big enough. The kinds of dynamic tax models at issue here have been used widely in California since a law mandated them from 1996-2000. The record there was pretty mixed. A report by Jon Vasche, the director of Economics and Taxation in their state legislative research agency, pointed out these models didn’t do away with debate, and their results were “very sensitive to their underlying assumptions.”

And that’s the key: dynamic models are often just a convenient way to hide researcher biases behind technical snowdrifts few reporters can or will wade through. Issues like how many people move due to changes in tax rates or the sensitivity of investment decisions to economic conditions are the subject of ongoing research and debate. Hiding those issues allows model owners to assume the results they believe will be true without admitting that’s what they’re doing. It’s more elaborate to be sure, but no different from the butcher blocking your view of his thumb on the scale. Beacon Hill built a model that assumes the existence of a tax-cut fairy, and shockingly, the CFPMAP guys have found that model to show a sales tax cut would create an economic boom for Rhode Island. Who would have thought it?

In his landmark 1963 speech about the common strains among conservative movements in the US, historian Richard Hofstadter pointed out that certain elements of the right wing in America dote on the “apparatus of scholarship” even while they seemed to miss the point. Like the footnotes in that old OSPRI report, the CFPMAP authors use the apparatus of scholarship to mask partisan assumptions in the guise of documentation. Unfortunately, it’s not enough just to have footnotes and equations; it matters what they say.

Reports like these are little more than snares for gullible reporters. The strategy usually works: the snares get set, reporters step in them, and presto, the findings appear in news headlines and on talk shows. And then there are legislative commissions and hearings and pretty soon what seems like a crazy idea seems normal, and that’s the point.

Beyond the problem of defending our state against another bad idea, the real issue is that there is a moral dimension to lobbying. This is not a game. What happens up at the State House really matters. It is hardly unheard of for lives to be ruined and people to die because of bad decisions made there. Advocates, it seems to me, have a heavy responsibility to tread lightly on uncertain ice — someone might actually take their advice. The sales tax proposal on offer here invites us to stroll confidently out on that ice with nothing more than the CFPMAP’s word to say it will be safe. The question isn’t just would you take this advice, but with sourcing as thin and deliberately obfuscatory as this, would you feel good about giving it?

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