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Psychometrics R Us


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A few days ago, I wrote about the NECAP test, and the statistical goals of its designers. Since then, I’ve been called “not a psychometrician” on the radio, among other things. I hear that Monday I was insulted on John DePetro’s show, too.  So I thought I’d provide accounts of what a couple of psychometricians have had to say about what I wrote.

First we’ll hear from Charles DePascale. He works in New Hampshire, for the Center for Assessment (nciea.org), and is apparently the consultant to the Rhode Island Department of Education (RIDE) on all matters NECAP.

He wrote up a critique, and RIDE has been sharing it with reporters. They wouldn’t share it with me, though the department spokesguy, Elliot Krieger, told me they’d “consider” any open records request I made for public documents.  But fortunately, reporters seem to be more interested in the free flow of information, and you can see the document here.  (Elisabeth Harrison of RI Public Radio writes about it here.)  It is unsigned in the document body, presumably since DePascale doesn’t speak for the department, according to Krieger, who does speak for them.

The document, whoever wrote it, makes three main points:

  •  The NECAP is not a norm-referenced test, so the number of kids who  flunk is a function of their abilities and instruction, not a  function of the test design. 
  •  The statistical significance of the results means that you can be  confident that a student will not be mistakenly flunked. 
  •  Performance on the 11th-grade reading test is what you’d expect  for a graduation test, therefore the math test, designed the same way, is also fine.

Also, I said that only 9 out of 22 questions (40%) on the 11th grade math test were answered correctly by more than half the students, but in a direct blow to the central premise of my argument, DePascale says I have it all wrong, it was actually 19 out of 46 (41%).  I dragged myself to the ropes, a beaten man, devastated by the force of his argument… well never mind all that.

To the first point, he is exactly right. And here, we will descend into some jargon, but please follow me, because it’s important. The NECAP is, indeed, what test designers call a “criterion-referenced” test. A student’s score on the test is referenced to a standard, not to the other test-takers. The SAT, for example, is a “norm-referenced” test, where a student is graded on their performance relative to other students. On a norm-referenced test, a fixed percentage of test-takers will flunk, almost by definition.

The NECAP is not that, and I never meant to imply that it was. I’m afraid I did use the word “certain” to describe the number of students who flunk the NECAP in one summary sentence, and that was a poor choice of words that I tried to clarify here.  It is still perfectly sound advice that if you want to rank performance on a test, you do what you can to spread out the performers. This is not a point of advanced psychometrics, this is a point of basic statistical analysis, even common sense. The NECAP test designers put their test together to maximize the spread between students, for all the statistical reasons I wrote about. They do so in the questions they choose, not in the grading, as a norm-referenced test would do, and the care with which they analyze the per-question results demonstrates how careful they are.

Obviously, if you’re grading against an absolute standard, it is conceivable for all test takers to ace it, and DePascale makes that point.  But the NECAP test designers have done what they can to make that highly unlikely, for perfectly valid statistical reasons, and that makes it a bad graduation test. That’s what I meant, and I stand by it, largely because I still haven’t seen anyone convincingly state otherwise.

With regard to the second point, DePascale includes a substantial discussion of whether the margin of error on the NECAP means that a student could be flunked accidentally, and claims that the chance is less than 1%, for a student barely above the threshold, after repeated testing. It’s not perfectly clear to me what point I made that this is supposed to contradict. On the contrary, this actually strengthens my contention that the test was designed to make sure that the scores were statistically sound, that a student who scores in the 40th percentile belongs there.

To make his third point, DePascale shows the distribution of test scores for the 11th grade reading and math tests, shown below.

His main goal in showing these graphs seems to be to claim that, since the 11th grade reading test looks reasonably close to the curve you’d expect for a good graduation test, the 11th grade math test is fair. He makes the same point in other parts of the document. 

There are few things to say about this curve.  It does show a lump of students above the passing grade, and the distribution does appear similar to the results of a test one might design to be a graduation test.  However, the fat tail of the reading test distribution is not just a detail, when it comes to judging a test’s suitability as a graduation test.  It might not be anything important, but you can’t just assume that. Leave that aside, though, let’s just note that it’s a funny kind of defense of one test to say that another one is just fine. I might accuse you of being a criminal. To have you reply that you have law-abiding friends isn’t much of a defense, is it?

So what is the distribution of scores for the math test?  Here it is:

This is a highly skewed result. It’s certainly easy to rank the successful students in this test, since they are spread over the map. But this is a very peculiar distribution for test results that have weight in students’ lives.  It’s not at all the distribution you’d expect to see of students, from the big bump at the left to the nearly linear descent as you go to the right.

What’s even more remarkable than the distribution itself is to think that some testing professional — some psychometrician — once looked at that distribution and thought, “Wow, kids really don’t know their math, do they,” and not “Wow, are we sure this test is doing what we think it’s doing?”  But if there was ever any such self-doubt, there is no record of it.

And that brings me to the question of validity — how do you know a test is a good one? — and the other psychometrician I met over the weekend.  More on that meeting in my next post.

 

p.s. While you’re waiting for that post, consider throwing a buck to the Providence Student Union.  They are the ones who catapulted the issue of the NECAP graduation test onto the state’s front burner with their “take the test” event.  Please help me support their great work, click here for details.

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Gist Offers Logical Fallacies On NECAP Value


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Photo by Sam Valorose.

I was on the radio ever so briefly this afternoon, on Buddy Cianci’s show with Deborah Gist.  Unfortunately, the show’s producer hadn’t actually invited me so I had no idea until it had been underway for an hour.  I gather they had a lively conversation that involved belittling the concerns about the NECAP test that I expressed here.

While I was on hold, I had to get on a bus in order not to leave my daughter waiting for me in the snow.  Then Buddy said the bus was too loud but he’d invite me back on.  So I was only on for about five minutes, long enough to hear Gist say I may be good at math, but I’m no psychometrician.  

Guilty as charged, but somewhat beside the point.

I’ve heard the commissioner speak in public in a few different ways since I published my letter last week.  She tweeted about it a couple of times last week and over the weekend.  She was quoted in the paper this morning about how it was an “outrageous act of irresponsibility” for adults to take the NECAP 11th grade math test at the Providence Student Union event on Saturday.  And today she spent a while on the WPRO airwaves insulting me.

But I have yet to hear any of the points I’ve made taken on directly.

Only what is called the argument from authority: I’m education commissioner and you’re not.  Or in this case: I’m education commissioner, and you’re not a psychometrician.

As a style of public argument, this is highly effective, especially if salted with a pinch of condescension.  It typically has the effect of shutting down debate right there because after all, who are you to question authority so?

The problem is if you believe, as I do, that policy actually matters, this is a dangerous course to take.

After all, the real point of any policy discussion is not scoring debate points, but finding solutions to the problems that beset us.  This is a highly imperfect world we live in, filled with awful problems, some of which we can only address collectively.  If you don’t get the policy right, here’s what happens: the problems don’t get solved.  Frequently, bad policy makes the problems worse, no matter how many debate points you scored, or how effectively you shut up your opponent.

So, do I care that Deborah Gist thinks I’m an inadequate excuse for a psychometrician?  It turns out that, upon deep and lingering introspection, I can say with confidence that I do not.  But I do care about the state of math education in Rhode Island, and I believe she has us on a course that will only damage the goal she claims to share with me.

Now I may be wrong about my NECAP concerns, but nothing I’ve learned in the past week has made me less confident in my assessment.  On the one hand, I’ve seen vigorous denunciations of the PSU efforts, and mine, none of which have actually addressed the points I’ve raised.  These are specific points, easily addressed.  On the flip side, I’ve quietly heard from current and former RIDE employees that my concerns are theirs, but the policy is or was not in their hands.

Those points again: there are a few different ways to design a test.  You can make a test to determine whether a student has mastered a body of knowledge; you can make a test to rank students against each other; you can make a test to rank students against each other referenced to a particular body of knowledge.  I imagine there are lots of other ways to think about testing, but those are the ones in wide use.  The first is a subject-matter test, like the French Baccalaureate or the New York State Regents exams.  The second is a norm-referenced test like the SAT or GRE, where there are no absolute scores and all students are simply graded against each other on a fairly abstract standard.  NECAP is in a third category, where it ranks students, but against a more concrete standard.  The Massachusetts MCAS is pretty much the same deal, though it seems to range more widely over subject matter.

The problem comes when you imagine that these are pretty much interchangeable.  After all, they all have questions, they all make students sweat, and they all require a number two pencil.  How different could they be?

Answer: pretty different.  If your goal is ranking students, you choose questions that separate one student from another.  You design the test so that the resulting distribution of test scores is wide, which is another way to say that lots of students will flunk such a test.  If your goal is assessing whether students have mastered a body of knowledge, the test designer won’t care nearly so much about the resulting distribution of scores, only that the knowledge tested be representative of the field.  (The teacher will care about the distribution, of course, since it’s a measure of how well the subject has been taught.)  The rest was explained in my post last week.

The real question is, if you don’t know what the NECAP is measuring, why exactly might you think that it’s a good thing to rely on it so heavily as a graduation requirement?

Deborah Gist is hardly the first person to call me wrong about something.  That happens all the time, as it does for anybody who writes for the public about policy.  But like so many others who claim I am wrong, she refuses to say — or cannot say — why.

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Open Letter About NECAP To Eva Mancuso


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Eva Marie Mancuso, Chair,
Rhode Island Board of Education,
Rhode Island Department of Education,
225 Westminster Street,
Providence RI 02903

Dear Ms. Mancuso:

I read with interest in this morning’s news about the Providence School Board’s suggestion to the Board that you not rely on the NECAP test as a graduation requirement. I would like to second that suggestion, and offer some words of explanation that I believe have been largely absent from the debate until now.

The Providence board points out that the NECAP test was “not designed” to be a graduation requirement. That is quite true, but few go on to say why that makes it inappropriate to use as performance threshold for graduating students.

First, a little about me. I have worked as a freelance engineer and policy analyst for 30 years, and both occupations have required me to acquire an expertise in statistics. I speak not as a statistical layman, but as an expert hoping to translate important concepts for people who may not have deep familiarity with p-values and confidence intervals. I do not wish to condescend, but I am afraid that some basic statistical concepts have not been well understood by policy makers in the past, and consequently decisions have been made that are deeply damaging to our students, and to education in Rhode Island generally.

The important point I wish the board members to understand is what exactly is the difference between a test like NECAP, designed to rank schools and students, and a test designed to evaluate student proficiency. The short version: when you design a test like NECAP, test designers ensure that a certain number of students will flunk. What’s more, for the purposes of the test designers, that’s a good thing.

Here’s the longer version. The original goal of NECAP was to evaluate schools, and, to some extent, students within the schools. In order to make a reliable ranking among schools, you need to ensure that the differences between one school and another (or one student and another) is statistically significant. This is simply how you ensure that the rankings are the result of real differences between schools, and not the result of chance.

A traditional test, such as the final exam a teacher might give to her class at the end of the term, will likely enough have a distribution of grades that looks something like the graph below. (I use a class size of 5000 here. This is obviously a lot of students for a single class, but only a fraction of the number who take the NECAP tests.)

Suppose the teacher set the passing grade at 70, then about 4% of her students failed the class. That’s a shame, but it’s not unusual, and those students will have to take the class again or take the test again or whatever. If the goal is to see which of the students in the class have properly understood the material, this is a useful result.

But if the goal was to rank the students’ performance, this result won’t help much. A very large number of students scored between 80 and 84. In the graph, 1200 students, a quarter of the population, have almost the same score, and 6% of them have exactly the same score, 83. How can you rank them?

Furthermore, like any other measurement, a test score has an inherent error. For any individual student, a teacher can have little confidence that a student who scored an 80 didn’t deserve an 84 because of a bad day, a careless mistake, or, worse, someone else’s error: a misunderstood instruction, an incomplete erasure, or a grading mistake. Of course, any errors could also move the score in the other direction.

The problem is that moving a student’s score from 80 to 84 moves the student from the 18th percentile to the 38th, a huge jump. In other words, a test score might rank a student in the 18th percentile, but one can have no confidence that he or she didn’t belong in the 38th — or the 5th. Conversely, a student in the 92d percentile might really belong in the 69th or the 99th, depending on the same four-point error.

The designers of tests understand this, and so try to avoid ranking students based on the results of tests that give distributions like the above. Instead, they try to design tests so the distribution of scores looks more like the one here:

With a test that gives results like this, there are many fewer students in most of the score ranges here. Assuming the same level of error, you can be much more sure that a student who scored in some percentile belongs there, or nearby. With the same four-point error as above, you can be confident — in the statistical sense — that a student who scored in the 18th percentile on this test belongs somewhere in between the 14th and 22d percentiles, a much smaller range. A student in the 92d percentile belongs somewhere between the 89th and 95th percentile.

In other words, if a test designer wants to rank students, or schools, he or she designs the test to spread the scores out. You don’t want scores to be bunched up. This is confirmed by details provided in the technical manuals that document the test design process. For example, in section 5.1 of the NECAP 2011-2012 technical report (“Classical Difficulty and Discrimination Indices”)

“Items that are answered correctly by almost all students provide little information about differences in student abilities, but do indicate knowledge or skills that have been mastered by most students. Similarly, items that are correctly answered by very few students provide little information about differences in student abilities, but may indicate knowledge or skills that have not yet been mastered by most students.”

This section goes on to discuss how the designers evaluate test items for their capacity to discriminate among students, and demonstrates that most of the questions used in the various NECAP tests do exactly that. In other words, very few of the questions are correctly answered by all students. In Appendix F of the 2011-12 manual, you can see some item-level analyses. There, one can read that, of the 22 test questions analyzed, there are no questions on the 11th grade math test correctly answered by more than 80% of students, and only nine out of 22 were correctly answered by more than half the students.

Contrast this with the other kind of test design. In the first graph above, even the students who flunked the test would have answered around 60% of the questions correctly. The NECAP designers would deem those questions to “provide little information about differences in student abilities.” According to this theory of test design, such questions are a waste of time, except to the extent that they might be included to “ensure sufficient content coverage.” Put another way, if all the students in a grade answered all the questions properly, the NECAP designers would consider that test to be flawed and redesign it so that doesn’t happen. Much of the technical manual, especially chapters 5 and 6 (and most of the appendices), are devoted to demonstrating that the NECAP test is not flawed in this way. Again, the NECAP test is specifically designed to flunk a substantial proportion of students who take it, though this is admittedly a crude way to put it.

11th Grade Math Before leaving the subject of students flunking the NECAP tests, it’s worth taking a moment to consider the 11th grade math test specifically. Once the NECAP test was designed, the NECAP designers convened panels of educators to determine the “cut scores” to be used to delineate “proficiency.” The process is described in appendices to the technical manual:

Standard

After consulting these appendices, you will see that — at the time they were chosen — the cut scores for the 11th grade math test put 46.5% of all test takers in the “substantially below proficient” category (see page 19 of Appendix F 2007-08). This is almost four times as many students as were in that category for the 11th grade reading test and more than twice as many for any other NECAP test in the other grades.

There is no reason to think that the discussions among the panels that came up with these cut scores were not sincere, nor to think that the levels chosen not appropriate. However, it is worth noting that the tests occur almost two years before a student’s graduation, and that math education proceeds in a fundamentally different way than reading. That is, anyone who can read at all can make a stab at reading material beyond their grade level, but you can’t solve a quadratic equation halfway.

Rather than providing a measure of student competence on graduation, the test might instead be providing a measurement of the pace of math education in the final two years of high school. The NECAP test designers would doubtless be able to design questions or testing protocols to differentiate between a good student who hasn’t hit the material yet, or a poor student who shouldn’t graduate, but they were not tasked with doing that, and so did not.

Testing  To be quite clear, I am not an opponent of testing, nor even an opponent of high- stakes testing. The current testing regime has produced a backlash against testing in a general way, but this is a case where bad policy has produced bad politics. It’s hard to imagine running something as complex as a school department in the absence of some kind of indicator of how well one is running it. Since educated students are the output, it is crucial to the success of the overall enterprise that we find some way to measure progress in improving that level of education.

Similarly, high-stakes graduation tests are hardly anathema. Over the past half-century, the entire nation of France has done very well with a high-stakes test at high school graduation. Closer to home, the New York State Regents’ tests are a model that many other states would do well to copy. There is nothing wrong with “teaching to the test” when the test is part of a well-designed and interesting curriculum.

However, if evaluation of progress is the goal, and if you want an accurate measurement of how well a school is doing, there is a vast body of evidence available to say that high stakes testing won’t provide that. When there are severe professional consequences for teachers and school administrators whose classes and schools perform badly on tests, you guarantee that the tests will provide only a cloudy indication of a school’s progress. Teaching to the test is only one of the possible sins. School systems across the country have seen cheating scandals, as well as such interesting strategies as manipulating school lunch menus to improve test performance.  In other words, raising the stakes of a test almost certainly makes the test a worse indicator of the very things it is supposed to measure.

Furthermore, a sensible evaluation regime would be minimally intrusive, and take only a small amount of time away from instruction. After all, testing time is time during which no instruction happens. But the imposition of high stakes have rendered that nearly impossible, so instead, we have tests that disrupt several weeks of classes in most school districts, not to mention the disruption to the curriculum it has caused.

Unfortunately for the students of Rhode Island, our state has tried to take the easy way out, and use a test designed for evaluation to serve many purposes. Today, the NECAP test affects the careers of students, teachers, and administrators. It is used in a high-stakes way which guarantees that it is an inaccurate indicator of the very things it is supposed to measure. It is used for purposes far beyond its original design, producing perfectly needless pain and heartbreak across the state.

Worst of all, none of this is news to education professionals. They know how to read technical manuals and to sort through statistical exegeses of test results. They know about the harm done to students by cutting electives to focus on improving reading results. They know about the other corners cut to try to improve test results at all costs. They know that we don’t abuse the NECAP test in order to help students. They know we did this strictly to save money.

I urge you and the new education board to reconsider the state’s use — and abuse — of the NECAP test. It could be a valuable tool with which to understand how to improve education in our state. Unfortunately, poor decisions made in the past have done much to undermine that value, to our state’s detriment, and that of all the students in our schools.

Yours sincerely,

Tom Sgouros

 

 

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Arguing With The Tax Policy Switcheroo


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I was or will be on Channel 10’s News Conference Sunday show this week, depending on when you’re reading this.  John Simmons, of the Rhode Island Public Expenditure Council, was a guest with me.  An exchange we had reminds me of many I’ve had recently, including this comment from Dan DaPonte, the Senate Finance Committee chair.

It is an unmistakable fact of legislation that Rhode Island repeatedly cut the income tax in the years 1997-2009.  We cut the tax 10% between 1997 and 2002, we cut the capital gains rate in 2005, and we implemented the “flat” tax option in 2006.  All of these constituted cuts that were either exclusively for the richest of tax payers or predominantly for that top end.  The graph here, an old favorite of mine, shows the effect of the various cuts on the top 1%, and the median taxpayer, along with the unemployment rate during the period, just for fun.

In 2010, the legislature adopted a tax change (for tax year 2011) that froze the flat tax option in place and incorporated it into the tax code, preventing it from being easily repealed.  There were a large number of changes made that year, and the jury is still out on whether that was an advantage for rich people or not.  It was not designed to be, and possibly it was not, though only time will tell for sure.

However, the fact that the 2010 change may have been essentially neutral does not change the fact that the previous 13 years were characterized by repeated tax cuts for rich people.  The Almond cuts alone were worth about $100 million per year by 2002.  Nonetheless, when you complain about tax cuts for rich people, people like Simmons and DaPonte reply that the 2010 changes were not a tax cut for rich people and therefore “progressives are wrong.”  Then they go off into the weeds trying to demonstrate conclusively that the 2010 changes were not tax cuts for the rich.  If you watch the Sunday show, you’ll see John doing exactly that, and then getting miffed when I interrupt to say that the answer he’s giving is irrelevant to the complaint I’m making.

Here’s DaPonte:

I’m still quite honestly confused at the liberal opinion that the 2010 personal income tax reform was a big giveaway to high-income earners. From everyone that I’ve heard from, particularly tax professionals who do this stuff for a living – they have a completely opposing opinion, that that is not, in fact, what we did do.

But what did you do during the previous decade?

Whether you think that tax cuts for rich people constitute enlightened public policy or whether you think that they were a source a source of great inequity in the tax code and a source of real pain for our cities and towns (and the people who pay property taxes), it is tiring to hear people try to deny what actually happened in the last decade and a half or to obfuscate the issue, which is precisely what’s going on here.

The state of Rhode Island gave up a tremendous amount of revenue to these tax cuts.  The cuts produced a tremendous amount of fiscal pain in the cities and towns, and contribute to the fact that so few school systems have anything like a real music program left or new books on their library shelves.  Whether they added something to our economy is debatable (and I’m happy to debate it) but 100% irrelevant to the claim that they happened.

The 2010/11 tax changes are a part of this story only to the extent that they make restoring the status quo ante far more difficult.  Other than that, they have nothing at all to do with the larger offenses against tax equity committed over the last 15 years.  When you talk to people about tax equity, don’t let the subject change.

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State of State Analysis: Optimist-in-Chief


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Governor Chafee was a man confident of what our government can achieve in the annual State of the State speech. He’s optimistic about what Rhode Islanders can achieve with steady hard work, and willing to boast about it. In that pride and his faith in government, I would call it progressive in its essentials.

But there are things I worry about in the Governor’s budget proposal.

He points out in his address that, “Shortsighted decisions in better times left us struggling to provide the most basic services,” and yet has chosen not to propose undoing those decisions.  Presumably being rebuffed two years in a row by the Assembly has weakened his appetite for that kind of battle, but it is disappointing that the Governor will apparently not be a voice for tax equity at the state house.

I also worry about his proposal to lower the state’s corporate income tax.  There are some good parts to this.  Chafee suggests that we offset the cost by reducing the benefit of the Jobs Development Tax Credit by 50%.  This tax credit cost us $16.4 million last year (see here), and CVS took $15.4 million of it, so cutting this by 50% means cutting our subsidy to CVS by almost $8 million, something I can certainly support since I’m not at all clear why CVS needs a subsidy from state taxpayers.  Overall, though, doing anything at all to reduce state revenue certainly works against what Chafee says is among his priorities, lowering the state’s reliance on the property tax.

On that point, Chafee was slightly apologetic, but firm: “I may sound like a broken record at this point, but in the years before I took office, cities and towns bore the brunt of the downturn in state revenues. Those most severely affected were the distressed communities that could least afford it.”

He is proposing some new state aid, some of which will go to the state’s poorest cities and towns, but the $30 million he proposes isn’t much.  By themselves, the budgets of Providence, Woonsocket, Pawtucket, Central Falls, East Providence, and West Warwick add up to more than $1.4 billion, so we’re talking about adding 2% to that mix.  It’s not completely clear how much that can help.

Chafee justly boasts about fully funding the state’s education funding formula, while glossing over the many ways in which the formula is neither fair nor adequate.  And he does propose increasing state aid to the state colleges by $6 million, while in the same sentence demanding they cut $6 million more from their budget.  With luck and a new education board, he’ll get cuts from administration and overhead and not from programs, but I’d like to see the cuts before deciding whether this is the way to go.

About economic development he said, “My hope is that you all will be skeptical and wary of deviating from the steady, methodical construction of a Rhode Island economy built for today and for the future.” He explicitly cautioned against looking for the quick fixes, and pays special attention to the risks of ex-baseball players. And I also enjoyed his expression of skepticism about the many rankings that always seem to so upset people here.”

Overall, I have to agree with Chafee that he is moving us in the right direction. “The state of our state is steadily improving,” he said.  And I appreciate his refrain throughout the speech about the slow-and-steady time scale of lasting improvements.  Unfortunately, some of the problems are substantially larger than the scale of the solutions he proposes.  Again, it’s hard to fault a man who has been turned back by the legislature so firmly the past two years.  The dismal state of the state’s budget is really their doing, and Chafee’s administration is doing its best to make the best of a bad hand.

Tax inequity has economic consequences as it deprives people who spend the bulk of their income of money to spend. Over-reliance on the property tax has economic consequences to both businesses and citizens that far outweigh the effect of state taxes.  Funding inequity among our cities and towns has social consequences that far outweigh the savings the rich enjoy from the past several years of tax cuts.

To his credit, the Governor addresses all of these in his budget, but the solutions he proposes are within the radically constrained limits set by General Assembly leaders who choose to ignore or belittle the biggest challenges we face.

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ALEC: Bad for the Economy


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Last year, there was a lot of talk  here about ALEC, the American Legislative Exchange Council.  This corporate-backed “research” group produces model legislation for the states and recruits and promotes legislators who are likely to introduce it.  It’s a pretty slick outfit, well-funded, with lots of opportunities for travel, and lots of opportunities to make member legislators feel good about carrying the water of large corporations.

Soon-to-be-ex-Representative Jon Brien from Woonsocket was on the board of directors, and it turned out that quite a number of state representatives and senators were members – one out of every five. ALEC’s policy agenda is pretty much the standard-issue corporate pabulum: lower taxes, cut spending so we can all live in a capitalist paradise.  That sort of thing.  If you’re reading here, you probably know the drill.

So imagine my delight when some smart researcher in Iowa realized that ALEC has been around long enough to have a track record.  And if there’s a track record, you can measure it and see how good it is.  So how do they do?

Not so great, it turns out.  In fact, ALEC issues a ranking of how well states conform to its vision of all that is great and good, and it turns out that the states who do best in ALEC’s rankings have seen lower economic growth, more poverty, and lower state revenues over the years 2007-2011.

So the lesson is clear: ALEC’s advice is pretty much the opposite of good advice.  Following their suggestions for economic growth seems to be an ideal way to lower median family income, lose jobs, and increase the poverty rate.

In other words, the policies that make up the Economic Outlook Ranking are not a recipe for growth and prosperity. If anything, they are quite the opposite: They are a recipe for economic inequality, low wages, and stagnant incomes that at the same time deprive state and local governments of the revenue needed to maintain the public infrastructure and education systems that are the underpinnings of long term economic growth

Lots of the figures from the report are here.

So where does Rhode Island fall on the ALEC scale?  According to the “Rich State, Poor State” report, we’re 43d in ALEC’s rankings.  So how do we make our economy better?  Probably not by trying to move up in their ranking.  ALEC’s advice is bad advice.

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Judges, Judicial Pensions and Judicial Impartiality


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State House Dome from North Main Street
State House Dome from North Main Street
The State House dome from North Main Street. (Photo by Bob Plain)

Can someone with a pension be an objective judge of whether it’s ok to cut someone else’s pension?  The state is making an argument that Judge Sarah Taft-Carter is compromised and can’t consider issues concerning the 2011 state pension overhaul because her son and mother receive checks from the state system.

Seems worth reviewing the judicial pension system then, doesn’t it?

The state’s judges are the recipients of quite, um, healthy pension benefits.  After 15 years, a judge can be eligible to receive his or her full salary as a pension, though if they were appointed after 2009, it will only be 80%.  Seems plush, no?

The standard rejoinder is that the judges have their own system, and it’s well funded, with a funding ratio of 78%.  Compared to the state employee and teacher’s system’s 48%, this seems the pink of health, so I guess it’s ok to continue to treat our judges as royalty, deserving pensions far better than anyone else.

The reality, as usual, is quite different.  For a long time, pensions were just paid out of the current budget.  It was in the 1960s and 70s that governments changed how they saved for pensions, and started socking away money for them.  When those plans were established, employees who had not paid into the system were accepted into it, to relieve the budgets from their pension payments.  You could think of this as the original sin of the pension systems, and so they began life behind the eight ball, always hoping to catch up to full funding, but never able.  (Of course, after that original sin, there were plenty more, with governments skipping payments, making overly rosy assumptions about the future, using idiotic accounting rules, and so on.  We are leaving all those aside for this post.)

Until 1989, when the state’s judges were incorporated into the state pension system, their pensions, like other state employees before them, were paid directly out of the current budget.  However, unlike the state system, when the judicial system was created, those judges were not covered.  Those judges paid nothing toward their pensions, and their retirement checks continue to come straight out of the state’s budget to this day, about $6.3 million per year.  (See here, look at the various line items that either read “Pension” or “Salary for retired justices.”)

These judges were hired before there was a judicial pension system, so they aren’t covered by that system.  But lots of state employees were hired before there was a state employee pension system, and their system was forced to cover them.  If these “pay-as-you-go” judges were included in the judicial system, the way other state employees were included in theirs, I estimate the funding ratio of the judicial pension system would be down in the 35% range, far worse than the state employee system.

So this is why all our judges are compromised on the issue of pensions.  Their system is far cushier and — by any real measure of how much their pensions cost the state budget — in far worse shape than the state employee pension system.  Fortunately for them, the accounting rules in place mask the condition and the number of judges is relatively small.  But this is a slender branch on which to place all one’s hopes for retirement.  No judge can be certain that someone with more clout than me won’t eventually notice this.  Any precedent established for the state employee system can and will be used against the judicial pensions — eventually.

In other words, no judge in Rhode Island can be impartial about the pension case currently before Sarah Taft-Carter.  They all have pensions, and because it’s a small state, etc etc, virtually all of them have relatives in the state pension system.  On the other hand, they may all be uniformly compromised, but they are likely not uniform in their resistance to public pressure.  The state may be counting on seeing if they can be bullied into going along by public and loud accusations of bias and long hearings about her impartiality.  That’s why, from the state’s perspective, a Judge Taft-Carter who has been amply abused in the press may be the best possible jurist to consider this case.

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Want an Efficient Historic Tax Credit? Raise Taxes


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State House Dome from North Main Street
State House Dome from North Main Street
The State House dome from North Main Street. (Photo by Bob Plain)

As the maneuvering in advance of the next legislative session gets into gear, we keep hearing that the state’s historic structures tax credit is to be revived.

To recap: for several years, Rhode Island had a tax credit available for developers who restored historic buildings.  It was essentially a subsidy for 30% of the cost of the project.  In a variety of ways it was a decent program, with low overhead to administer, and the subsidies went to a variety of worthwhile projects, mostly in the cities that need it.  Some of the projects were a bit too gentrifying, and I regret that the credits didn’t come with strings to insure better wages for the people who work on them, but it was, for several years, the most effective affordable housing program in the state.

The downside, though, was big.  Because the program was available to any qualifying project, it was impossible for the state to budget for it.  The credit was much more popular than budget-writers anticipated, and this made not only a big hole in the budget, but an unpredictable one.  When the program was closed in 2008, there were around $300 million of credits outstanding, waiting to be cashed in for lower tax bills.

It made sense at the time to float a bond to make the redemption of the credits a bit more predictable, so the state borrowed to create a trust fund to make payments to the people who held the credits.

However, there is another down side to our tax credits.  When the state gives a $5 million tax credit to some project, the project only receives around $4 million or less.  The rest is shared between some tax credit broker (Michael Corso has become a famous one for his involvement with 38 Studios) and a business or rich person who wants to lower their tax bill.  That is, less than 80% of the face value of the tax credit goes to the public purpose to which the credits are supposed to be devoted, and the other 20% is for a benefit that goes directly to the richest citizens of our state.  Being a perfect example of government overpaying (by a lot) for a service, one might think this the very definition of “government waste,” but somehow the label never seems to be applied there by the fiscal watchdogs.

Contrast this to federal tax credits, where it is usually more than 95% of the credit that goes to the stated purpose.  Federal taxes are higher than Rhode Island taxes, so credits against those tax bills are worth more than credits against a state tax bill.  So one way to increase the efficiency of state tax credits would just be to raise the state business and personal income taxes on the top end by a lot.  Yes, I know, that’s just my little joke, but with the recent “reforms” of the tax rates, prices for state tax credits are going to be even lower than they were in 2008, when they were 80 cents on the dollar or less.

Here’s the bottom line: credits against state taxes are a great way to waste a ton of money and create unpredictable budget costs.  The projects that the tax credit funds are worthwhile, but if they are to be subsidized they should be funded by grants, with a set annual budget and rules to demand that projects pay at least a living wage to their contractors.  As they were constituted, they did useful work, but also served as a giveaway to wealthy insiders who don’t need your tax dollars to live a life of ease.

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Help the RI Food Bank, and Laugh While Doing So


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This Saturday, two of Rhode Island’s best musicians are getting together to raise money for the RI Food Bank.  Bill Harley and Keith Munslow are playing together and celebrating the release of a new CD single: “It’s Not Fair to Me.”

I’ve known Bill and Keith for a long time, and thought they were pretty cool already, but was still startled to attend one of Bill’s concerts years ago when my daughter was 5, and to be surrounded by people singing along to songs I’d never heard.  But I’ve heard them a lot since, and more, and enjoy them all.  The great part is that the lyrics are fun, the music infectious, and the stories hilarious, too.  Also, they both are the best kind of children’s entertainers: the kind that don’t talk down to their audience, and provide plenty of laughs for the rest of the audience, too.

There are two shows, at 11 and 2, at the Lincoln School in Providence.  Tickets are $10 for general admission and $15 for reserved seats. You can buy them online by clicking here or call Kathy Correia at 401-230-1673.

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Who I’m Supporting


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It is, my editor tells me, the time of year for political endorsements.  And my email inbox is quickly filling up with the same (thanks David Segal).

Actually, it’s past time, since the election is upon us. But I’m told that it’s better late than never, so here goes.

First, these are the State House candidates supported by Clean Water Action/Vote Environment, my favorite of the boards on which  I’m honored to sit:

Gayle Goldin State Senate 3
Dominick Ruggerio State Senate 4
Adam Satchell State Senate 9
Teresa Paiva Weed State Senate 13
Ryan Pearson State Senate 19
Josh Miller State Senate 28
David Bates State Senate 32
Catherine Cool Rumsey State Senate 34
Edith Ajello State House 1
Chris Blazejewski State House 2
Maria Cimini State House 7
Joe Almeida State House 12
Arthur Handy State House 18
David Bennett State House 20
Frank Ferri State House 22
Teresa Tanzi State House 34
Scott Guthrie State House 28
Lisa Tomasso State House 29
Donna Walsh State House 36
Larry Valencia State House 39
Jeremiah O’Grady State House 46
Stephen Casey State House 50
Linda Finn State House 72
Deb Ruggiero State House 74

 

Further up the food chain, I will support Sheldon Whitehouse, who has been almost everything I want in a Senator.  (Especially for his willingness to take a public stand on reforming Senate rules to reduce the power of individual senators to bollix up the works.)  On financial reform, civil liberties, and a host of other issues, he has set the bar high, and cleared it. [n.b. updated this paragraph, see below]

I’m also supporting David Cicilline, and will spend election day helping get out his voters.  About Cicilline, as I’ve written before, I think there were many people responsible for Providence’s fiscal condition at the end of 2010, and by going on the record blaming Cicilline they managed to evade taking any responsibility for their own actions.  I’m not sure I would have used that word to describe a city in the throes of taking huge fiscal hits from the state, but would a city in less than “excellent” condition have been able to withstand the draconian and sudden state aid cuts of 2010 without going broke?  Once again, I find it challenging to think of a politician besides Al Gore who has been so unfairly tarred, and I like and admire the way Cicilline has conducted himself in Congress.  I will support him without reservation.

In the second district, I find a hard choice for me.  I admire Abel Collins and think he’s very obviously the best of the three candidates for the office.  But experience tells me that the route to a fairer and more just government and economic system will not travel through third party bids.  When the pen is actually in my hand on election day, I might well vote for Abel because of how I feel about him with respect to the other candidates, but I haven’t actively supported his campaign because of how I feel about third parties.

Is a Third Party the Way Forward?

The fact is that the structure of our politics vastly favors two parties, though there is no single obvious reason why.  It could be because of the winner-take-all structure of our elections, the habits of mind that seem to set voter allegiances at birth, or the many institutional barriers to third party challenges.  Or maybe all of the above.  I’m not really sure why it’s like this, but a few decades of observations tells me that it is.

On the brighter side, that same few decades of observation has also shown me that the parties do change.  Both the Democratic and Republican parties of today stand for very different things than they did when I first cast a vote.  So now, when I consider what might be the likely paths for change, I see a two-party system that hasn’t changed a bit in decades, and two parties within it that have changed a lot.  Granted I’m not wild about the changes made by either party.  The Democratic embrace of anti-labor policies like free trade and the current corporate flavors of education “reform,” along with its surrender on issues like civil liberties and climate change seem almost as troublesome as the Republican conflation of the common good with tax cuts for rich people.  (And puts the lie to claims the Democratic party has moved left, by the way.)  Nonetheless, the fact remains that the current Democratic and Republican parties are very different things than their predecessors of forty years ago, though the names have stayed the same.

If change can happen in one direction, I see no reason it can’t happen in the other direction, too.  I see little evidence in opinion polls to suggest that America’s populace has moved right in policy preferences, despite the motion of its two institutional parties.  Whatever has happened, this is not a story of parties changing to suit a rightward-moving electorate.

What I do see is the pernicious influence of money in politics.  I see phenomenal increases in wealth inequality, which means phenomenal increases in the money available from big donors.  As more money flows into party politics, successful campaigns get more expensive, and the competition for election becomes more and more about a competition for dollars.  I suspect this explains much of the conservative drift of the Democratic party as well as the outright purchase of the Republicans, and am pretty sure that underfunded third-party challenges will address none of it.

What challenge, after all, does a third party make to the established parties?  That the one with the most support might still lose.  This is far from a guaranteed way to get a party to move your way, nor does it seem a realistic route to power.  Simply claiming otherwise does not make it so.

This, then, is my challenge to progressive third-party dreamers: don’t run.  Instead, help me find ways to change the Democratic Party.  Let’s work to get more progressive candidates in at the ground level, and to make the party a less hospitable home for those who don’t share our vision.  We can also work to make money less important in politics, by improving communication with voters, reforming our laws, changing our constitution if the Supreme Court insists it must be so.

Let’s also acknowledge that the way forward for our society is not to claim — against the mountain of evidence amassed during the George W. Bush presidency — that it doesn’t matter which party wins.  It absolutely matters which party controls the offices of our government, and it’s absurd and insulting to claim that people who acknowledge that mountain are in any way “selling out.”  Barack Obama’s has been a flawed presidency in many ways.  I’m not satisfied with many of his policies.  But neither do I think that Jill Stein and the Green Party offer any realistic path forward, so I will happily support Obama’s reelection.

To those who claim I am rewarding Obama’s bad behavior, I reply that I believe the small victories we may see in a second Obama term are more valuable than the ground that would be lost in a Romney victory.  Remember, these are not theoretical exercises; people’s livelihoods, and, in many cases, lives depend on this election.  To claim otherwise is to pretend the election is just an abstract debate about ideas rather than a contest over real power over real lives.  I will not be party to such a pretense and hope you will not, either.

 

[Note: Wrote this late last night and misremembered an email exchange with Senator Whitehouse about Senate rules and filibusters.  Corrected to reflect reality better, and he has my apologies.  11/6/2012, 5pm]

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38 Studios Shoe Drops


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This afternoon, Governor Chafee announced the state would be pursuing legal action against not only the officers of 38 Studios, but also the financial advisors and the EDC staff who put the deal together.  I highly recommend reading the actual complaint, but here is the part that stands out for me:

The undisclosed risks included the express admission, made by 38 Studios’ directors and chief executives directly to these Advisors, and by 38 Studios’ own financial projections that were disclosed to the Advisors, that, even with the loan from the EDC, 38 Studios was undercapitalized by many millions of dollars and would not have nearly enough money to relocate to Rhode Island and complete Copernicus, and that, as a result of this cash shortfall, 38 Studios was likely to run out of money in 2012. The EDC Board understood that 38 Studios’ capital requirements to complete Copernicus were approximately $75 million, and that the net proceeds to be lent to 38 Studios would be less than $75 million.  Nevertheless, the EDC Board was also told that the net proceeds 38 Studios would receive, along with other sources of funds set forth in 38 Studios’ financial projections, “would provide necessary financing to relocate 38 Studios to Rhode Island, complete production of Copernicus, and capitalize the company’s growth and expansion in Rhode Island.” In fact, the Advisors knew or should have known that this was untrue, and that even if all of 38 Studios’ financial projections proved true, the net proceeds would not be sufficient to fund 38 Studios’ relocation to Rhode Island and completion of Copernicus.

According to the complaint, the deal was put together against the advice of lower-level EDC staff, according to projections that guaranteed failure by last summer, pretty much exactly what happened.  The complaint also points out all the ways in which the EDC top brass and the deal-makers prevented the EDC board from hearing data to contradict them.  The complaint says the EDC analyst who threw cold water on the proposal was un-asked to prepare his economic analysis, the agendas were manipulated to keep damaging information out of board discussions (most famously by preventing then-candidate Lincoln Chafee from speaking to it, but there are other incidents in the complaint).

So we learn that Governor Chafee was not the cause that sent 38 down the drain.  The cause was wishful thinking by powerful people, who thought that ignoring the lowly analysts was the right thing to do.  By 38 Studios own projections, $75 million wasn’t going to be enough to do the job, and when they found out they weren’t even going to get that much, due to deductions for debt reserve funds, they forged ahead anyway.

The complaint is, of course, just that: a complaint, a set of allegations.  The facts in it remain to be proven, but it seems possible there will be a trial to come out of it.  If so, it will be a spectacular look at how deals are made around here and how illusions of good times ahead can drive sensible people to do silly things.  Having looked at the complaint, I have no doubt that the misfeasance alleged in it was motivated by a desire to see something cool happen for Rhode Island.  (Well, most of it, anyway.)   But purity of motive is no excuse for sloppiness of analysis, a message that is as applicable to debates about polls, climate change, economics, or business projections for a video game company.  It’s a real world out there, and real numbers have a way of biting you in tender parts when you ignore them.

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Mike Riley: Columnist Tom Sgouros Is a Communist


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communist, I'd like to add you to my professional network on LinkedIn

I gather that Mike Riley’s campaign has decided it won’t comment to RIFuture.  I find this shocking.  Back when I had a column that appeared in the Narragansett Times, Mike Riley was one of my regular correspondents.  As I’m sure you can imagine, much of the mail I received about my column was thoughtful material, the kind of missives that make a writer stop and reconsider his positions due to the unexpected viewpoints and hitherto unknown data points contained in them.  Mike’s were no exception.

Herewith a sample of his fan mail:

Dr Mr Sgouros,
Your recent communist diatribe in the “communist times” revealed a giant gap in your knowledge of pensions and education. You couldn’t be more wrong or more communist. People like you need to be educated in some other country. Preferably Venezuela.
Michael G Riley

Dear Tom Sgouros,
I dont understand why the Narragansett Times prints any of your lunatic ravings.For a look at what a true intellectual might say and a capitalist newspaper might print ,I have attached a recent note from Brian Bishop.
Michael G Riley
Narragansett

Morning Hugo, that article on banks and hedge funds was truly pathetic

That last one is the entire note, except it also had a stirring quote from Friedrich von Hayek indicating that true freedom includes the freedom to make mistakes, even to starve.

Needless to say, his prose style and trenchant observations made him one of my treasured regular correspondents.  His notes to me always arrived addressed to “communist” so I’d know who it was from.  When he announced his run for office, he sent out an invite to join his network on LinkedIn:

communist, I'd like to add you to my professional network on LinkedIn
A note to me from Michael Riley

A second, similar, note with a somewhat more traditional salutation arrived shortly after.

One time in 2009, I found myself at an event at a bar in Narragansett that turned out to be in the same plaza as Riley’s office.  I happened to speak there with an acquaintance of his, who offered to go tell him I was in the area, and did.  Sadly, Mike was apparently too busy to come meet me, so I still have never met him in person.

So that’s Mike Riley for you: tolerant of opposing viewpoints, humble about his own, committed to reasoned discussion as the route to moving our polity forward.  I couldn’t be more sincere about my support for him.

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New Ideas? No Thank You


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Earlier this month, the Rhode Island Foundation held a big conference that said it was intended to generate ideas for moving the state’s economy forward. Yesterday, I received a note about the “New Leaders,” a group purportedly about bringing new ideas to the management of our state.  (This is apparently a different group from the “New Leaders Council” though it’s hard to tell from the rhetoric.) The Rhode Island Public Expenditure Council put out a report last week about its new ideas for reforming the state’s economic development apparatus. All these new ideas!  Sounds great, no?  Well, in a word, no.

Wht’s the problem with new ideas, you might ask?  Isn’t our poor state in dire need of some?

Well, yes and no. There are a million ways to change the way government does business, and hundreds of thousands of them would make our state a better and more prosperous society. But of those million ideas, there are only a paltry few that won’t gore someone’s ox when transformed into actual policy changes.

Now I think there are plenty of oxen out there that we would do well to gore, repeatedly. For example, I happen to think that the state and all its cities and towns pay too much for the financial services they need and that there are plenty of more economical ways to get those services that would benefit our state’s economy, too. But there are bond counsels, investment advisers, bankers, and tax credit brokers out there who would likely disagree with me, some strenuously.

Or we could stand to tax the wealthy of our state a little bit more. These “job creators” have created precious few jobs in exchange for the hundreds of millions of dollars of tax breaks we’ve awarded them over the past 15 years. Or perhaps we could look into ways to discourage the kinds of suburban development that cost so much to service, or at least make the developers pay the true costs to our communities. Or how about just guaranteeing that children in our poor cities have the same opportunities in their public schools as the children in the rich suburbs? That’s not a new idea, but it’s a good one.

There are plenty more ideas like this, but rather a lot of them have the disadvantage of inconveniencing some folks at the top of the heap: bankers, lawyers, real estate developers, rich people.

Many of those same people have their own list of ideas, many entries in which are different from mine. They routinely present them in anodyne language, calling them “tools” for example, or “innovations,” or “new ideas.”  Unfortunately, they are often the same old oppression and exploitation, with a different label.

For example, you routinely hear that cities and towns need “tools” to control their costs. Well, yes, in a world where those cities and towns aren’t getting the state support they need to pay for state-required services, they obviously need to be relieved of the requirements or given more money. The Assembly’s refusal to face that choice honestly has already led to one bankrupt city and will likely lead to more before long. But the “tools” in this case are not as morally neutral as the word would suggest. Most of the components — cutting pay, cutting pensions, cutting jobs — are just ways to turn decent jobs into poor ones, and to lower the level of services we get. But calling the proposals “taking away pay and benefits from workers especially those in the poor cities” or “paying teachers less” doesn’t sell as well as “tools.” Admitting that these “tools” will exacerbate the difference of opportunity in our schools, putting the kids in the poor districts even farther behind the kids in the wealthy districts just isn’t as pleasant as looking at the nice effect the tools would have on budget numbers.

The sad truth is that the best ideas are likely to provoke conflict. Many good ideas already have. Rhode Island is not stuck in economic neutral because of a dearth of ideas. We are awash in good ideas, but people with power find many of them too threatening to consider seriously. Good ideas are not only worth fighting for, they usually require fighting for.

The title above is a bit of a joke; new ideas should always be welcome. We learn and improve our world by seriously considering them. But though it’s important to foster a climate where good new ideas are developed and can get a hearing, they are absolutely not the way forward for our economy.

What is?  The first step to overcome our economic malaise is not to come up with new ideas, but to insist that the old ones be evaluated honestly. Did tax cuts actually create new jobs?  Did developing all our open space make us more prosperous?  Did cutting education really help our economy?  Did ending welfare relieve pressures on the state budget?  Did cutting state aid to cities and towns actually cut overall taxes?

Straight and honest answers to these policy questions will be worth a million new ideas. Unfortunately for all of us, House leaders seem to be committed to never considering the merits of their tax policies, and Senate leaders seem committed to never considering the merits of their policies about local funding and property taxes. Few suburban town councils in the state seem willing to push back against developers seeking to build on whatever open space is left. Fear of admitting error drives our leaders harder than intellectual honesty.

Until we have leaders willing honestly to confront questions raised by policy — especially policies they championed — and consider their implications with an open mind, all the new ideas in the world won’t help us one bit.

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The Disaster of Deregulation: Airlines


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A few years ago I worked for ITA Software, a very successful privately-held company whose customers were airlines. Along with about a hundred other people there, I was on a big project to build a new airline reservation system from the ground up, something that pretty much hadn’t been done since the 1970s. It may surprise you to know that most airlines still rely on reservation software originally written before 1976, though these systems have seen their code base updated and wrapped with more modern trappings since then.

Still, no one had really re-engineered a system with all the things we’ve learned about databases in the last 40 years. So ITA was trying. But then Air Canada, the customer, went bankrupt, prompting someone to ask the CEO, at a company meeting, what he thought the prospects were.

He said, “Well, Air Canada has entered bankruptcy. Something that we in the industry refer to as a natural part of the life cycle of an airline.”  It got a big laugh, though perhaps this was gallows humor, since lots of the audience got their walking papers within a couple of weeks.

One question is what exactly happened in the 1970s that halted innovation in airline data processing?  Could the data processing problem just be too complicated?  Though this is a serious line of inquiry for anyone who has ever tried to make sense of airline schedule data, it seems pretty unlikely compared to some more recent data achievements, like cell phones or Google. Another question is what does it mean when airlines seem so financially fragile.

Hmmm. Think think think. What happened in the 1970s?

Oh, yes: transportation deregulation happened. Planted as a wholly bipartisan enterprise in think tanks and in academia in the 1960s, the deregulation movement flowered during in Jimmy Carter’s administration, and reached astonishing heights under Ronald Reagan’s. Reformers were going to free the engines of capitalism from the yoke of unnecessary regulation. The result: win-win situations everywhere, with lower prices for consumers and better-paid CEOs. What could be better?

Lots of things, it turns out. Flights are slower and more expensive than they once were, and airlines are more fragile, preventing them from innovating in any ways besides figuring out how to pay their employees less and charge their customers more.

They don’t even make more money.  You can see that with numbers from Airlines For America, the big trade group for big US airlines. Quoting from the estimable Doug Henwood:

“Between 1948 and 1978, the industry made $5.5 billion in total (or $28.7 billion in 2011 dollars). Between 1979 and 2011, it lost $37.7 billion (or $41.6 billion in 2011 dollars). Of course, I’m not here to defend corporate profits, but it’s hard to see how an industry can survive under capitalism in a chronic state of loss.”

So what got better?  Price?  Since 1982, the consumer price index overall has risen by a factor of 2.8% per year, while the airfare component has gone up 3.9% per year, just slightly slower than the gas index. Part of the increase in the index is is that the quality has declined — there are many fewer non-stop flights than there once were and service, well…

Service?  Planes are more crowded, make more stops, exact more fees, and have seen a virtual end to every single perk passengers once enjoyed as a matter of course. It’s hard even to see the need to document the decline in service, but it’s there. If you ignore the drop in quality, prices have risen somewhat slower than inflation since 1995, according to the Bureau of Transportation Statistics. This seems fair, but less so when you realize that it’s not just that you’re getting poor service, you’re being charged for the quality you’re no longer getting with your ticket, and in many cases unavoidably.

Wages?  Like everywhere, the CEOs have it pretty good. American Airline’s Gerard Arpey earned $5.9 million in 2010 and that airline was bankrupt before 2011 was over. AA has been looking for wage and benefit concessions from their unions ever since. Between deregulation and 1995, wages in all industries rose 83%, according to the BLS. Airplane mechanics saw an increase of 68%, pilots of 56%, and sales agents 28%. Airline employees have not kept pace with the rest of the private sector.

Could labor unions be part of the problem?  Possibly, but consider that Southwest is about the only consistently profitable airline around, and it is also about the most heavily unionized airline in the US.

Southwest could stand as a counter-example to this whole tale of woe, but here’s the question of perspective. When I want to book a flight from here to Utah, it is a question of no interest to me whether some airline somewhere can make money on the routes it serves. Instead the only questions on my mind are about the airlines who do go to Salt Lake City. As it turns out, Southwest has made a business decision not to serve that city, and that’s fine for them, but what about me and all the other people who want to go there?

In short, deregulation has been a 30-year disaster, playing out in motion so slow it’s easy to ignore. But here we are, 30 years later, paying higher prices for a worse product to an industry that pays worse wages. Yay free market.

Obviously it’s true that regulators are prone to capture by the industry they regulate. But it’s equally obvious to those who look that deregulation is no picnic either. (It’s not as if financial deregulation has been less of a horror show than it has been for airlines.)  All this was obvious to those who looked decades ago.

Doug Henwood, who I quoted above, points out in an earlier article (23 years earlier!) that regulation was originally the idea of big business, to prevent ruinous competition. Deregulators, then, could claim to be acting against business, on behalf of consumers. But consumers are also workers, as so many of us seem to forget. When deregulation created the conditions for pay cuts, service cuts, and mergers — and when it deep sixes the possibility of investing in innovation — was it really consumers who benefited?  Was it our nation?

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Local Media Enabled Gemma’s Recklessness


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Anthony Gemma continues his scorched-earth quest for the Democratic nomination for Congress in District 1, and local reporters are helping to do the scorching.

Look at all the great headlines he’s gotten out of allegations that amount to nothing:

Golocalprov.com: “Gemma Accuses Cicilline of Voter Fraud“, “Cicilline Aides Named in Gemma’s Accusations“, “Gemma to Call on Cicilline to Resign Today.”  Providence Journal: “Gemma sets up ‘tip hotline’ in voter fraud probe“, “In secretly recorded video, an offer to deliver absentee ballot votes for money“, “RI Congressional Candidate sent ballot fraud complaint to a campaign finance commission“, “Republican congressional candidate Doherty ‘troubled’ by allegations against opponent Cicilline“, “Gemma to detail findings at noon of probe into voter fraud“, “Gemma campaign hired Warwick detective firm to look into voter fraud“.

The morning after Gemma’s press conference where he let these charges fly, the Journal actually had this headline:  “Gemma alleges voter fraud; Cicilline denies accusation.”  This was after a press conference where not a shred of evidence was presented to make the link, despite a couple of weeks’ worth of promises otherwise.

The stories behind these headlines did not appear out of the air, though lots of them did begin with press releases from the Gemma campaign. These stories were written by real writers, with real names, like Philip Marcelo, John Mulligan, Kathy Gregg, and Zachary Malinowski of the Providence Journal and Dan McGowan of golocalprov.com, Dan Jaehnig and Katie Davis of Channel 10, and more.

Let’s be clear, too. There has been no evidence presented for these allegations beyond the allegations themselves. To me, they seem the invention of a few people who appear to want to seem like players, and relentlessly (and effectively) flogged by Gemma.

If you’ve been around politics in RI for any length of time, you’ve met some of these people. They want you to know how important they are and how worldly, i.e. cynical. They tell you fabulous stories about corruption and influence and the things they’ve seen that would curl your hair, and so on. The real purpose of these tales is not the transfer of information, but the aggrandizement of the teller in the eyes of the gullible. After all, only someone with connections would be privy to such wild tales.

In truth, I doubt that the reporters who have been writing these stories are all that gullible, but it is undeniable fact that the stories they have written and the headlines laid on those stories have abetted the dirty and unprincipled campaign strategy Anthony Gemma has chosen. He has successfully taken an idiotic story of no news value except as it reflects on his own judgment, and turned it into weeks of headlines. And it wasn’t the partisan media — the John DePetros and Travis Rowleys of the state — who helped him most effectively. It was the leaders of the mainstream press who kept the story alive, teasing Gemma’s “tell-all” press conference, broadcasting his videos, reprinting his press releases about how much he’d spent on the probe.  However skeptical they style themselves, they have done his bidding.

The allegations themselves are ridiculous. Please remember that the Mayoral elections in question, in 2002 and 2006, were not close races. In the 2002 Democratic primary, Cicilline won a clear majority in a 4-way race and went on to win the general election with 84% of the vote. In 2006 he faced only token opposition in the primary and general elections, and won 83% of the vote.  None of these outcomes were in any doubt at the time, though David Igliozzi, Keven McKenna, and Joe Paolino may remember the 2002 primary somewhat differently than I do.

The “Larger Story”

What of the larger story?  The idea that these allegations buttress what we already “know” about Cicilline’s dishonesty?  These mostly stem from the chaos of Providence’s budget during 2010, when the state slashed a tremendous amount of aid to the city in the final quarter of the fiscal year and when the City Council refused to ratify a budget until after some of the savings it anticipated were impossible to achieve.

I’ve looked into that story about David Cicilline’s management of Providence’s finances and found little there beyond widespread confusion about the difference between a budget reserve and a cash reserve, along with a collection of city and state officials who all saw political advantage in blaming the recently departed Mayor for problems most of them had a hand in creating.

There was also the matter of a single poorly chosen word by Cicilline who I choose to excuse for that because the cash reserves that got the city through its vicious cuts in state funding were built up under his administration. (Did you think they were a legacy of the Cianci years?)  I might not have used the word “excellent”, but I do think it obvious that only a city in good financial shape could have gotten through the “Category 5” fiscal storm created by those aid cuts in 2008, 2009, and 2010.

What’s more incredible to me is that all the criticism revolves around the claim that Mayor Cicilline should have raised taxes sooner and farther, the “hard choices” recommended by former Carcieri aide Gary Sasse who was commissioned by the City Council to write a report about the issue. I’m certainly not going to defend every decision Cicilline ever made, but people who imagine his mandate did not involve holding the line on property taxes by any means at hand are apparently living on a different planet than me. He held taxes down, and now gets blame for that?  The fact remains that David Cicilline has been tarred far beyond his share in order that the people actually responsible for Providence’s troubles can evade blame.

We’ve seen this show before

 What’s going on here is only slightly different than the way the mainstream press invented all the narratives about Al Gore’s “lies” in 1999 and 2000, and then allowed George Bush and the partisan media to take advantage of them. You know the list, about the internet, Love Story, Love Canal, and all the rest. Each of those was an invention of writers at the New York Times, the Washington Post, and the Associated Press. All the Bush campaign had to do was gently pile on, which they happily did.

In almost exactly the same way, what’s happened here is that reporters have taken claims by interested parties — Providence City Council members, General Assembly insiders, ex-Governors and members of their staff — at face value, and helped invent a narrative about a dishonest Cicilline. These were all people who played a part in Providence’s fiscal nightmare, but by deflecting blame to the former Mayor, they can avoid it themselves. Anthony Gemma has been astute and unprincipled enough to see that he could profit by buttressing that narrative.

Why is that unprincipled?  Consider the claim that Gemma cares one wit about the nation’s economy, the state’s jobless, Social Security, the air we breathe, the availability and cost of health care (including abortion and contraception), and all the other actual issues in question during this election. Gemma claims to hold views about these issues in direct opposition to the national Republican party, whose well-funded representative the winner of next week’s primary will face.

There’s a balancing test here. On the one hand, Gemma might actually care about the issues before Congress more than he cares about further damaging David Cicilline’s reputation and future. He might think that taking a step towards a more rational and affordable health care system is more important than what appears to be his own irrational hatred of Cicilline. On the other hand, he might not. The evidence of his actions says he cares more about the personal than the policy, and that, it seems to me, is the very definition of unprincipled.

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NK Evades Responsibility With Custodian Contract


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I woke up today to an automated phone call from the school superintendent telling me that the first day of school in North Kingstown has been delayed by a strike. The Educational Support Personnel (ESP) union has walked out over the School Committee’s action to outsource the jobs of all 26 janitors, and so my daughter is home today instead.

As is usual, there is a welter of claims and counter-claims. The ESP union offered some pretty substantial concessions this spring. They say they met the dollar figure the School Committee had insisted was necessary. The Committee responded that they were close, but the superintendent had already budgeted some of the savings the union was offering so they needed more. An arbitrator was called in and that report offered a way to save $1.3 million over two years, but again that was measured over the previous year, not over the proposed budget, which already included some of those savings, so it wasn’t enough.

In response, the School Committee voted 5-2 to outsource the 26 custodian jobs. They did insist that the new contractor hire back as many of the custodians as possible, and I gather that 21 of them took the new deal: their old jobs at about 70% of salary, minus the health insurance and pension. In other words, around a 40-45% pay cut, give or take. Would you take that?

I talked to my daughter about this, and she told me about the custodian at the middle school who had encouraged her with a model car she and some classmates built for a Science Olympiad competition in seventh grade (their team won the state event, and went to the national event in Wisconsin that year), and about the elementary school custodian who talked and joked with the children in the cafeteria, but also knew them all, even the first graders. Those are the kind of people you get when the jobs are good jobs.

But I guess that kind of thing is to be part of the past now. Instead of jobs that can support a family, we’ll have jobs that people move through. We’ll have custodial staff stretched thinner, and we’ll have an outsourcing company that is making good money off the deal, that indispensable part of what some people call progress.

Will the district save money?  Maybe this year. But the teacher contract comes up in the fall. What do you suppose will be their level of enthusiasm when the School Committee requests concessions to get through this fiscal storm?

Oh yes, that storm. In all the ire directed at the School Committe in this dispute, let’s not forget that it was the actions of the Town Council that precipitated this crisis. The School Committee told them last winter that they weren’t going to be able to meet the property-tax caps imposed by the state without severe pain. In response, the Town Council cut the school budget even further than the property tax cap demands. North Kingstown has a notoriously dysfunctional School Committee, but it was Council President Elizabeth Dolan, and members Michael Bestwick, Charlie Stamm, Carol Hueston, and Charles Brennan who have effectively put the screws to the custodians.

Council members I’ve spoken to seem proud that they’re willing to hold the line on taxes, but at what cost?  North Kingstown’s taxes are already lower than average in the state, according to the tax effort formula defined in state law (75.5% of the average). In a conversation one summer evening this past July, one council member told me with certainty about the waste that could be cut out of the school budget. As I usually notice when people decry government waste to me, the member could supply no specific suggestion to cut beyond the job of an assistant to the superintendent, a cost of less than one fifteenth the amount they insisted be cut.

The custodian contract wasn’t the only change this year. Just looking at the high school (where my family’s attention is focused, for better or worse), the foreign language offerings have been slashed, school supplies cut way back, and graduation requirements lowered, all for budget reasons.

One of the curiosities of government around here that we take for granted is that we elect School Committee members, and don’t give them the independence to make their own decisions. I’m doing policy consulting work in other states lately, and I’ve noticed that in lots of states — maybe the majority outside New England — school departments are a parallel government, operated independently of the city or county where they are located, often with separate tax bills. School Committee members there are directly responsible to voters for the decisions they make. Around here, by contrast, the School Committee is subservient to the City or Town Council. The North Kingstown Council has spoken, its members are largely responsible for the budget crisis in the school department, but they take no heat for that. Union press releases inveigh against the School Committee, but ignore the Town Council. This, it seems to me, is the opposite of taking responsibility.

So, Liz Dolan: Your Council cut the school budget. You overruled the opinions of the people supposedly responsible for that budget. Where exactly is the waste?  Michael Bestwick: Precisely what would you cut? Charles Brennan: Where else do we find savings?  Please be specific. Carol Hueston: What other jobs are to be outsourced?  Charlie Stamm: How do we settle this dispute?  It is the straightforward consequence of your decisions: how will you defend those choices?  Or will you just hope no one notices that you were behind the hard choices made by someone else?

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Gemma’s Jobs Plan Isn’t Right for Rhode Island


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Anthony Gemma

Anthony GemmaIn a world where self-described “leaders” show their “leadership” largely by describing it in press releases, and politicians routinely praise their own bold choices, it is refreshing to see one who actually lives up to his own billing.

Anthony Gemma, on the other hand, has a jobs plan that is indeed as “innovative, strategic, and transparent” as he says. Unfortunately it’s also silly, misguided, and occasionally bizarre. (And hard to find.  Go look on his home page and wait until you see “Enough is enough” and click on that.)

The centerpiece of his plan is to nurture the growth of the “wellness” industry in Rhode Island. This includes businesses who produce dietary supplements and organic foods, as well as “wellness jobs that include personal trainers, aerobics and pilates instructors, managers, researchers, Web site designers, wellness and fitness writers, and dietitians.”

Well all right, then. Maybe it sounds goofy, but could it work?

Sadly, probably not. Here’s a little economics lesson for you. What Rhode Island sorely needs is not goods and services to sell to other Rhode Islanders, but things to sell to the rest of the nation or the rest of the world. Do we currently suffer from a shortage of Pilates instructors?  Are there aerobics classes that can’t run because no instructor can be hired?  If we had more personal trainers could we sell them to people in Kentucky or India?  These are services that are not in short supply, and are really no good for export, either.

Ok, how about the nutritional supplement part of the mix?  This would presumably trade on our lack of strength in this sector. So far as I can tell, as far as nutrition companies go, Rhode Island is home only to Edesia Global Nutrition Solutions, an international effort aimed at distributing nutritional supplements to starving kids. Edesia is a very cool organization, and sells teddy bears to support its mission. Though I can imagine it could be the seed for a thriving food industry here, it’s not exactly what Gemma was talking about. (Read about them here.)

So in other words, Gemma is proposing to grow an industry where what we have can’t be exported and what can be exported, we don’t have. Leveraging assets we don’t have seems an interesting approach to economic development. So you have to award points for originality, in exactly the same way you’d praise the architect who envisions a fountain in the desert before anyone has dug the first well.  Exactly like that.

Bettering that, Gemma proposes that we encourage the Mayo Clinic or Tufts Medical to open wellness clinics here. This, of course, would be the opposite of exporting goods. Instead of bringing money into the state, we’d be sending it away, to Minnesota or Massachusetts to provide services that we can get in-state. This, again, is why success in business means little or nothing about success in making policy to benefit a whole state.

Too late, too little

There’s a section in this plan talking about how higher education should be demand-driven and responsive to the needs of businesses and students. That’s a great idea. So great, it was pretty much incorporated into the “CCRI 21st Century Workforce Commission” report from a couple of years ago. (Gemma also suggests asking the state’s 7 biggest employers for $250,000 apiece to shore up education at CCRI. Which is a funny thought: we can’t raise taxes on businesses, but we can demand contributions from them?)

Along the same lines, there’s a four item list on page 9, that describes what the state should do to encourage the growth of the wellness industry. What’s funny about the list is that the first three items on it — tax credits, loans, assistance finding federal money — are all things the state already does. So yes, these are good ideas. So good that someone already implemented them.

And then there’s this:

“It is incumbent upon us to eliminate the over-regulation of the small businesses which are the engines that drive the Rhode Island economy. I will create a workgroup to review all federal and state regulations that hinder wellness and health-oriented businesses…” [p.8]

This, presumably, would join the Secretary of State’s workgroup, and the legislative commissions and the Governor’s initiatives of years past. Courtesy of the Secretary of State’s office, this work is under way, and it’s hard to find anyone to disagree with the claim.

Honestly, you don’t have to find disagreement to understand why these things — streamlining, increased efficiencies, and so on — often don’t get done. People who crave simple answers will blame unions and fear of change, but it’s pretty easy to find deeper reasons.

In my experience, you can walk around any town hall or state building and find people who agree that there are efficiencies available, but don’t have the resources to re-tool their department’s operations. “Doing more with less” year after year leaves little room for designing new procedures or implenting new systems. When you walk into a tax assessor’s office and find the assessor trying to finish reports that her staff used to prepare, you’ve found someone who can’t afford to research or entertain new possibilities about the conduct of her department’s business. For better and worse, that’s how we run things these days. Studies and commissions are all well and good, but change requires resources, even when the change makes things more efficient. You’ve got to put something in to get more out.

So that’s what I learned by reading the Gemma Jobs plan: he suggests concentrating on a new industry that has approximately zero potential to bring new money into the state, and offers a bunch of other suggestions that are already in place. What’s more, almost all of his plan consists of state policy suggestions, while the last time I checked, he is running for federal office.

There’s plenty more, but I’ve piled on enough.  Ok, sorry, one thing more. I have to share my favorite part. It’s a tax incentive on page 9, for people who get hired in the wellness industry. Seriously. Gemma would offer a tax credit to new employees. Really?  Does he imagine that unemployed people need a tax incentive to help them find jobs? That would be the sound of the fountain designer who has finally been persuaded to help dig a well and shows up to work with a butterfly net.

So sure. Gemma is a smart energetic guy who has done good things in the past, and doubtless will again in the future. I just don’t want a congressman with judgment like this. His jobs plan is certainly “innovative, strategic, and transparent” as he says. But is there no place for “practical,” “sensible,” or “realistic?”

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Legislature Wanted to Force Cities to Cut Taxes


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June in Rhode Island means two things: ripe strawberries and gubernatorial vetos.

The silly way our legislature schedules things — with all important bills held until after the budget passes to ensure every legislator falls into line on that vote — means that hundreds of bills are passed in the last few days of the legislative session. This then means they all await the Governor’s signature after the session ends. And some of them get a veto instead.

My favorite veto so far this year was of a bill that would provide a tax break… at someone else’s expense. Sponsored by Representative John McCauley (D-Providence) in the House, and Senators Michael McCaffrey (D-Warwick) and Erin Lynch (D-Warwick) in the Senate, the bill would exempt from the property tax any new construction before it was issued a certificate of occupancy.

The collapse of the housing bubble has meant a real collapse in construction employment. Unemployment among construction workers is almost certainly much higher than the already way-too-high general rate lurking around 11%. It’s natural to think that the industry could use some help. But is it natural to demand that someone else provide it?

Essentially what this bill’s sponsors hoped would happen is to stimulate the construction industry by giving developers a break on property taxes collected by a city or town. One can applaud the motivation while still thinking that the concept is pretty weak.

First of all, it’s not at all clear that this would have a stimulative effect. How many developers are dissuaded from investing by the potential risk of having to pay taxes on property before it’s occupiable?  Might not the lack of buyers be a bigger disincentive?

Second, how dare these legislators pile on to the cities and towns? This is a bill that would actually take tax revenue away from many municipalities. Do they not read the news?  Are they not aware that we now have three cities in financial trouble, with more on the precipice?  In what way exactly would this help those cities?

To be honest, this is hardly that unusual. After all, it’s almost traditional in the General Assembly to ignore or hide the cost of tax cuts. I can’t think of a single substantial tax cut over the past 20 years that passed the Assembly with offsetting cuts to services. In fact, the tradition is not only to avoid paying for tax cuts, but to vote to phase them in over several years so the real costs are hidden during the budget year they are debated. This was true of the 1997 income tax cut, the 1997 car-tax cut, the 2006 flat-tax cut, and the 2001 capital gains cut, which didn’t even take effect until five years after it passed.

So does this mean unemployed construction workers are out of luck? Probably it does, but not because there is nothing to be done. They are out of luck because the people who can do something choose not to. The General Assembly leadership feels that keeping state revenue down is more important than helping cities and towns. Three years ago municipal budgets across the state were vandalized when the state withheld part of that fiscal year’s state aid payment. Then they did it again the next year, and the next. Between fiscal year 2008 and 2010, the state withheld what amounted to about 10% of Providence’s non-school budget, and millions more for each other municipality.

Admittedly, the state saw its own revenues plunge in 2008, as the income and sales taxes both skidded down in the recession, accelerated by big tax cuts for rich people during each of the years 2007-2011. But the recession and the cuts are over, and revenue in the current fiscal year looks like it will end well ahead of last year’s projections. You might think that would allow us to restore the tax cuts and thereby restore the municipal aid cuts of the previous years, but apparently not. Or you might think we could engage in some small local stimulus, perhaps by accelerating the scheduled repairs of our bridges, maintenance of state buildings, or maybe even re-hiring a few hundred teachers. Nope. Tax cuts are still the only thing on the menu at the state house.

So bravo for Governor Chafee. Bills like this deserve a veto and the legislators behind them deserve to be shamed.

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Sewage Treatment Gets Legislative Treatment


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State House Dome from North Main Street
State House Dome from North Main Street
The State House dome from North Main Street. (Photo by Bob Plain)

In the waning days of the legislative session, can one be forgiven for suspecting that Assembly members don’t give a, well how about a quart of  sewage solids about the municipal governments they represent?  Sewage stories from Woonsocket and Warwick lead one to suspect otherwise.

Woonsocket first. Woonsocket is currently under a DEM order to drive nutrient pollution down beginning in 2013. Nutrient pollution, in the form of nitrates and ammonia, acts as fertilizer for algae blooms that use up oxygen in the water, killing the fish that aren’t driven away. The estimated cost of these improvements is around $35 million.  The system serves Woonsocket, but also some customers in neighboring towns, on either side of the border with Massachusetts.  The estimate is that this will add a couple of hundred dollars to annual sewer bills.

Woonsocket’s now-infamous House delegation, Jon Brien, Robert Phillips, and Lisa Baldelli-Hunt, tried to get the DEM requirement killed during the last legislative session. Unfortunately, DEM is only enforcing a federal EPA requirement, so it’s more complicated than just yelling, “stop.”

Complicating the issue, upstream from Woonsocket, the sewage authority over the line in Massachusetts is suing the EPA over the same rules. The dodge currently preferred by the city of Woonsocket and their House delegation is that Rhode Island wait for the outcome of that suit. Though it might seem to make sense to wait for the suit to settle, similar suits around the country have failed. Besides, clean water is — to most people — a good thing. Might the delegation have proposed helping Woonsocket pay for the sewage treatment upgrades?

Move now to Warwick. The Assembly repealed a law to mandate that homeowners along the new sewer routes hook their houses up to those sewers.  A typical hookup costs $1500-2000, and annual sewer bills are around $450. The mandate is/was part of the Greenwich Bay Special Area Management Plan, a plan to clean Greenwich Bay, once home to a thriving shellfish fishery, and now mostly closed to digging clams.

Governor Chafee vetoed the bill and the Assembly overrode his veto. Another victory for low sewer bills. Except that the finances of the Warwick Sewer Authority have budgeted in a certain number of hookups per year. This is part of how they borrowed the money to fund the expansion in the first place, and how they make their budget each year. Without those new hookups, the people already connected to the sewer will see their rates rise, both according to the financial statements, and to Janine Burke, the Warwick Sewer Authority director, who I spoke to about it.

Alternatively, the Authority has the legal authorization to charge a fee — a “connect-capable” fee of around $200 per year — to the houses along its route that aren’t hooked up. To date it has chosen not to do so (which puts it out of compliance with the Greenwich Bay plan), but it can revisit the issue. At any rate, overriding that veto in order to keep sewer costs down seems like it may be a losing strategy.

What both of these stories say is that the state is interested in seeing cleaner water. The Assembly gave no orders that DEM repudiate the EPA requirements. No one will go on record wanting dirty water and dead fish. They just don’t want to pay for the cleanup.

To a small extent, you have to give the Woonsocket gang of three a little credit for consistency. They don’t think cleaner water is worth spending any money on, and so reject both the money and the requirements, even if they offer lip service to clean water. Lisa Baldelli-Hunt told the Woonsocket Patch:

“I understand it’s important to decrease the pollutants in the water and I also understand that eventually, this must happen. But we can’t possibly move forward with this project at this time and consider ourselves fiscally responsible leaders.”

So their position is clean water, later. The rest of the Assembly seems ok with the idea of clean water now, so long as someone else pays for it. Neither perspective seems worth endorsing to me.

What about the perspective that clean water now is a good thing worth paying for?  It’s a good thing for Woonsocket, but it’s also a good thing for everyone downstream, which means Lincoln, Cumberland, Pawtucket, Central Falls, Providence, and everyone on Narragansett Bay. Untreated sewage currently flows into the water from the Warwick shore, but East Greenwich benefits from a cleaner Greenwich Bay, too. Given all that, why should the state insist that all sewage problems be solved locally?  Yes, Woonsocket residents pay higher property taxes proportional to their ability than nearly any other city or town in the state.  Sewer customers in Providence and Pawtucket have seen their rates climb dramatically in recent years for the same reasons.  Does the state have nothing to offer besides words? How about money?

Let’s end with a riddle. In 2010, our state’s economy, measured by the gross state product, was about $49.2 billion dollars. Corrected for inflation, this is larger than it has ever been in our little state’s history, despite our monumental unemployment rate. There are those who say that our economic growth is because of the dramatic drop in tax revenue over the past decades. That’s silly because growth has slowed or stalled as taxes have been cut. But slow growth or fast, the economy now is bigger than ever.

So remember, when you hear about how we can no longer afford clean water or good education or comfortable retirements — let alone find enough jobs for everyone — that our state is collectively richer now than it has ever been before. Ever. Feel better now?

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An Autopsy of RIEDC


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As the dust slowly settles on the carcass of 38 Studios, plenty of questions remain, and you can bet the entrails will be picked over thoroughly. Some of the most entertaining questions are about how the debacle happened, since it’s such a delicious tale of arrogant insiders getting their comeuppance. (Of course it would be more delicious if we weren’t on the hook to pay for it.)  But there are also dull questions about important matters: what to do with the state’s economic development apparatus, the Rhode Island Economic Development Corporation.

RIEDC was formed under the Almond administration, when the Department of Economic Development was closed and those responsibilities moved over to the Port Authority, which was renamed. The Port Authority was chosen because of its unlimited bonding authority, a fluke of legislative drafting when that agency was originally created. As of 1995, when this happened, the only other agency with this kind of authority, the Public Building Authority, was discredited by DiPrete-era abuses and on the way out. In other words EDC was born with extraordinary powers and has used them extensively, which is partly why the state’s debt nearly doubled during the Carcieri administration.

In the 17 years since then, RIEDC has been through more directors than I can count. Some have been widely admired, and some just looked good. Keith Stokes, the current most recent director has, I believe, set a longevity record by lasting three years, though I welcome reader corrections to my director timetable. He is widely held in high regard, but the agency has a vague and difficult set of goals, so no one should be surprised when the failures are legion and the successes short-lived.

The 38 Studios debacle reminds longtime observers of previous ones, like Alpha-Beta, and the Wyatt jail in Central Falls. And just as the debacles recur, so do the ensuing reports. We’re all looking forward now to a report from the RI Public Expenditure Council about how to shake up EDC.  But that’s nothing new, either.

Three years ago there was a report about EDC from a panel of worthies headed by Al Verrecchia, chairman and former CEO of Hasbro. The panel suggested that EDC needed shaking up, but their report ultimately contained precious little of use about how to do that. For example, the report said the agency was without focus and alternately complained they didn’t spend enough time working with already-existing local companies and that they didn’t have a good marketing approach to attract companies from elsewhere. Both might be true, but was the report’s suggestion that EDC concentrate on both really the best way to improve the focus?  The report was too easily interpreted as an endorsement of what EDC was already doing. Essentially, the message was “keep it up, but do it better,” even if some of the report text struggled to say something else.

What to do

It’s possible to see the agency’s discredit as an advantage. Might it be possible to dream that we can discard the destructive and expensive things the agency does and replace them with activities that actually help the economy? My vote for what’s really needed around here? Information.

EDC could usefully refashion itself into a research agency. If agency staff actually spent significant time studying the economy and the local markets in an intellectually honest and rigorous way, some practically useful recommendations for action would be bound to arise from that work. This is the kind of thing that no individual company can take on, but an agency like EDC could produce information vital to all of them.

Perusing the EDC web site, there is a lot of information available, but it’s all the kind of thing you can get from the PBN book of lists or from Census Department or BLS web sites. They provide a handy list of tax incentives and programs, but what do they provide to help people make business decisions?  That is, beyond “what government program should I apply for?”

On the EDC web site, I can learn which are the top employers in the state, and I can learn which economic sectors employ the most people, but there is precious little one might use to make important decisions. Where can I learn whether there is a shortage of machinists?  Who do I ask about unmet credit demand?  Is it banks or family and friends who finance most new RI businesses?  What proportion of venture-backed businesses survive five years?  What stage businesses have the most trouble getting credit?  What are the important barriers to export markets for RI businesses?

Who needs this information?  Someone who aspires to be a machinist would, of course. Someone who wants to start a business, or a bank interested in expanding its business lending portfolio, might also find it useful. A business contemplating expansion, perhaps. Oh, and General Assembly members who routinely assert that this or that would be good for the economy without any idea whether it’s really true could benefit. But most of all, the people who craft economic development policy would find real information vital. Or they should.

EDC is in a unique position that could allow it to gather — and analyze — useful data about the local economy. They could be doing business surveys, worker surveys, surveys of bankers and investors, analyses of credit markets, classifying foreclosures. They could be hosting conferences of academics to present research about these topics, or offering research fellowships at Brown or URI for economists willing to spend time looking at the RI economy. They could present a public lecture series on the subjects important to the state’s economy, modeled after the Geek Dinners (that a previous EDC director helped begin). In short, they could actually present valuable information to help people make important economic decisions.  Would it be expensive?  Not compared to the status quo.

Research doesn’t just mean accumulating information in a single place, even if that’s a handy service. It means analysis: counting things, classifying them, and coming to conclusions about them. It means tracking events and interpreting them. It means finding information that isn’t already available and creating the tools necessary to anticipate events and follow trends. It means cultivating a staff able to do these analyses and with the intellectual confidence to follow where the data lead, and whomever they offend.

This, of course, is not the path we’ve taken. What we have now is an agency that does some good service and quite a bit of harm. We have some important programs housed in an agency that frequently acts like nothing so much as a state-funded corporate lobbyist. Our state deserves better and wouldn’t it be nice to have an agency that tells us all what’s going on around us instead of hiding it?


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