social impact bonds

January 22, 2014January 22, 2014

Dis-funding the Arts

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NOTE: This article has been slightly revised based on new information received.

Please pardon me if I lead with a shockingly “artistic” word that wouldn’t be printed in a family newspaper…

What the fuck is the State of Rhode Island doing by removing the sales tax on “the arts” and then proposing to borrow $35 million to fund the arts? And why the hell is the Governor proposing to shift the Rhode Island State Council on the Arts and the RI Film and TV office into the made-over EDC, now called the Rhode Island Commerce Department?

In case you missed it, let me give you a brief recap. During the last legislative session, the government freed citizens from the onerous burden of kicking in 7% extra on purchases of paintings, sculptures and so on. Since the whole state is now tax free, you won’t have to travel to the former tax havens of Newport, Tiverton, and Little Compton or lesser-known parts of Providence, Pawtucket, Woonsocket or Warwick to get a deal on a stainless steel mobile or a portrait of your great Aunt. (See http://www.arts.ri.gov/special/districts/)

Children look at art at the RISD Museum — You mean we don’t have to pay sales tax if we buy it?! I’ll take two!

Pop Quiz

How much sales tax have you spent in the last decade on the arts?
Would paying no sales tax have made any difference in your purchases?
Would you have bought more or less “art”?

So why eliminate sales tax?

The idea is that Rhode Island would become an art buying tourist destination, drawing thousands of wealthy patrons from around the globe to spend their millions here. Yes, we’ll lose the 7%, but we’d gain so much more in hotel and restaurant revenue.

Theoretically lucky artists, maids and waiters will dance in the streets filling their buckets from the rain of money showered upon them by all those wolves and wolverines of Wall Street looking to wallpaper their apartments in Dubai. I’m not going to hold my breath.

But, in the meantime, if we’re not generating revenue from the arts, where will we get state funding for the arts?

More loans from banks!

We’re going to borrow it. Yes, just like we pay for our bridges and roads, Rhode Islander’s are going to be asked to pay extra for years to come for the art that we use today.

Maybe if the $35 million was going to actually pay for new works of art, that might be interesting (as well as profitable for folk like myself), but it’s not. According to the Providence Journal, $30 million of that will be funding for “public and non-profit cultural and performance centers” like Trinity Rep. The last $5 million will go to fund historical sites and cultural centers. I like Trinity. I like historical sites. That’s not arts funding.

The Governor also proposed an additional $1 million for art to come from the general revenue fund.

Will this million go to make more art? Will it go to bring more art to children in public schools?

According to RISCA, the answer is, nope.

“This $1 million in new funding does not provide additional resources for grants to artists, arts organizations or schools. The Governor recommended a hold-even budget of $590,000 in state funds in our discretionary grant category.”
—RISCA Website (http://www.arts.ri.gov/blogs/?p=11952)

Who will benefit?

Under this proposal, the former EDC, now called the Rhode Island Commerce Department, will become the administrator for the $35 million. RISCA and Film will move into the Commerce Offices and “collaborate.” (Editor’s note: here’s how Randall Rosenbaum, executive director of the Rhode Island State Council on the Arts described their proposed new relationship on Twitter today and here’s how he describe it in a blog post recently.)

According to the Governor, this will “synergize and enliven the state’s creative apparatus.” Furthermore, Chafee said, “the Commerce Corporation will be a valuable tool for organizing customized programs for the arts: design shops, historical sites, intellectual property producers, all of which drive so much of our economy.”

We’ve seen how great the EDC has been at disbursing creative funds that generate jobs so far (See 38 Studios). I can only imagine how much better the arts will be when fully “synergized”

To recap the entire process as proposed:

No revenue generated for the State by sales tax on “Art.”
$35 million more in debt acquired by the State.
Money for established organizations, tourism and historical sites buried in a bill for “arts.”
The responsibility for administration of a that $35 million bond is under the aegis of the Department of Commerce.
An unfunded promise of $1 million for the arts that doesn’t go to support art, artists or arts in education

So, who really wins?

Anyone who buys buy expensive art and pays no sales tax (see: rich people)
Banks that get more income from bonds (see: rich people)
The Department of Commerce — whatever that is.
But you and me? Naaah.

Who loses?

Artists, who continue to struggle to make a living with possibility of real government support.
Children who spend more time working on mindless tests and only get a taste of “art” as an extension of “business.”
Taxpayers who pay extra money for loans.
The entire State of Rhode Island, because art that serves business is called advertising and art that serves government is called propaganda.

What can we do?

Do call Your Senator, Rep and the Governor. Tell your friends.
Don’t vote for a bond issue to fund the arts. Don’t vote for representatives and senators who claim to support the arts but undermine it. Don’t vote for a Gubernatorial candidate who won’t make a real commitment to support the arts. Don’t vote for anyone who tells you that the business of art is commerce and business.

Oh, and instead of making a campaign contribution this month. Go out and spend a few dollars or a hundred dollars or even $1,000 on art made in Rhode Island. I can promise you that every dollar you spend will be appreciated and recycled within the community. And you’ll have something cool to hang on the wall, or read.

And maybe donate an extra 7% to a charity. Rich people might not be able to afford it, but you can.

January 15, 2014January 15, 2014

The new Raimondomania

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On Monday, General Treasurer Gina Raimondo kicked off her campaign to be the Democratic nominee for governor by announcing a broad platform. Among them, rebuilding public school buildings, an assault weapons ban along with tougher gun control, college loan forgiveness, raising the minimum wage and indexing it with cost-of-living-adjustments, providing universal pre-K, allowing undocumented workers access to drivers’ licenses, utilizing social impact bonds to fight poverty and social problems, and holding Wall St. accountable.

Had it been announced by any other candidate it would’ve been hailed as the most progressive platform laid out by a RI gubernatorial candidate in a generation.

Even the campaign of Mayor Angel Taveras, who is running for governor in the same primary, didn’t fault it. When asked by The Providence Journal if they disagreed with a single point, Taveras’ campaign manager replied, “no.”

But progressives didn’t hail it as a high-watermark in years of their organizing and work. As architect of the 2011 pension cuts that wreaked havoc on public sector employees in the midst of Rhode Island’s stalled “recovery” from the recession, the general treasurer still has light-years to go to win back the unanimous left-wing support she enjoyed when she waltzed to victory in 2010. Since ushering pension cuts through the General Assembly, the treasurer has remained remarkably out of sight with the exception of a few financial literacy courses and support for payday lending reform. The effective use of the bully pulpit that she displayed in 2011 was noticeably lacking in 2012 and 2013. Her most high-profile media appearances have been to defend pension cuts or argue for the repayment of the moral obligation bonds secured for the 38 Studios fiasco (another of the many dark clouds that hang over Rhode Island politics).

The 2011 pension cuts have been characterized by national critics such as Ted Siedle and Matt Taibbi as a Wall St. cash-grab, and so local progressives seized upon the under-the-radar concept of social impact bonds (SIBs) to tie the treasurer more closely to Wall St. Longtime fiscal policy observer Tom Sgouros asked in his evaluation of the concept whether Raimondo intended “to promote the public good, or sell it?”

Social impact bonds are easy to tar and feather. First, they contain the word “bond” and Rhode Islanders have seen a string of negative implications of what happens when bondholders come looking for money. The reality is that the treasurer used language out of step with the U.S. federal government. The Feds have used the more accurate “pay-for-success contract” to describe the concept. If the bond doesn’t produce success, there’s no payment from the government; which is why this is attractive to governments. The risk falls on the private investor, rather than the public purse. And unlike the 38 studios bonds, if a SIB fails to register satisfactory results, investors don’t get their money back. They lose it.

Second, their pedigree includes Goldman Sachs. Yes, the investment bank was a major backer of an initiative by New York City Mayor Michael Bloomberg to use the bonds to reduce recidivism among 16-18 year olds leaving Rikers Island. But the concept was initially begun at HMP Peterborough in the U.K. There the backing was from a collection of philanthropies rather than an investment bank. Other U.S. attempts have used a blend of charity and private funding. The left-leaning Roosevelt Institute suggested that SIBs “have the potential to be an important tool in the poverty-fighting arsenal.” Harvard’s Kennedy School of Government even has a guide for state and local governments on how to manage SIBs.

Third, the concept has been so low-key in Rhode Island that even our paper of record, The Providence Journal, suggested that Raimondo “had introduced a new concept to Rhode Island’s political lexicon.” In reality, the idea had been consigned to business reporting until Raimondo mentioned it Monday. Rhode Island’s very own Social Enterprise Ecosystem Economic Development (SEEED) has been exploring SIBs already (and bringing them to the attention of both Raimondo and Governor Lincoln Chafee). Master’s students at Brown’s Taubman Center also researched the concept focusing on recidividism.

So it’s neither a bond (at least not as we’ve become accustomed to them in Rhode Island), nor created by Goldman Sachs, nor a concept unique to the treasurer and her venture capital background. We may be entering a new Raimondomania. Whatever comes out of the treasurer’s mouth is instantly controversial. You can count on the media to cover it, and you can count on progressives to denounce it if they’re not familiar with it; usually with the words “Wall Street” to boot.

Yes, the treasurer is deserving of tough criticism. She’s repeatedly made it clear that our contract with the workers who built our state is less important than our contracts with bondholders who were already insured against losses. She made a previously backwater office a major part of the political landscape, achieved a stunning legislative success, and then squandered the next two years by not vociferously pushing the progressive agenda she was elected on. All of the treasurer’s platform ideas could’ve been pushed for and passed in the General Assembly throughout her current term. She rarely lent her weight to these causes. And there’s no EngageRI to provide muscle to rebuild public school buildings or offer college-loan forgiveness.

But the progressive response to Raimondo’s progressive platform is typical of the left-wing infighting that all too often prevents success. Instead of achieving the 99% of things they agree upon, the left will slaughter one another over the remaining 1%, stymieing progress and allowing conservatives to win policy changes they needn’t have.

Social impact bonds are a prime example of this. Yes, the optimal outcome would be for the state to invest in the solutions and save itself the maximum amount of money possible, to be reinvested elsewhere. However, our state legislators have proven unwilling to do the heavy lifting themselves, preferring instead to look towards business for solutions. Social impact bonds aren’t ideal, but they’re better than doing nothing. If they fail to work, they cost the state nothing. Most importantly, they achieve the progressive goal of helping people immediately rather than in some fantastical future when progressives control both chambers of the General Assembly and the governor’s office and are able to pass their agenda without resistance. Perhaps social impact bonds will be the kick that makes our legislators realize they could just save all this money instead of passing a share of the savings on to private investors.

There is a very real possibility that Raimondo will win the primary and then go on to being the first elected Democratic governor since Bruce Sundlun. Should that come to pass, progressives will have a duty to fight Raimondo if and when her agenda damages the economic health of our state and hurts our people. But when a Governor Raimondo’s agenda aligns neatly with the progressive agenda, then it’s time to applaud and support it. If progressives can’t recognize that even the most controversial part of Raimondo’s platform moves Rhode Island closer to alleviating societal ills then how can they lay claim to being the champions of the downtrodden and dispossessed?

January 14, 2014January 14, 2014

Social impact bonds: ‘do they promote public good, or sell it?’

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Gina Raimondo “kicked off” her campaign for Governor yesterday, and wouldn’t you know it, but the centerpiece of her policy proposals will be a new invention of Goldman Sachs, the “social impact” bond.

What, you might ask, is a social impact bond? The idea is that some great source of capital like, oh, I don’t know, Goldman Sachs, lends some community millions of dollars to improve early-childhood education. Perhaps they build a new pre-K facility, or even use the money to pay some teacher salaries. A wealth of evidence shows that this kind of investment pays a return of sorts because the kids who enjoy this better education are less likely to become teen parents or teen lawbreakers. It stands to reason, therefore, that the community so enriched by this investment can repay the bond by sending to Goldman Sachs the money that would have been spent on the welfare or jail that those teens didn’t need. How’s that for a win-win?

From the perspective of the public budget, you’re really no further ahead, of course, since the money you were going to spend on jails is spent on paying Goldman instead, but at least you have this shiny new school, and fewer criminals, too.

Of course if your pre-K students grow up to be peaceable, responsible, taxpaying, and generally lovely adults — who happen to live somewhere else — well, you can’t make an omelette without cracking a piggy bank, right?

Snark aside, what do we really have here? Is it a good idea or not? Is this a way for communities to access funds for desperately needed investments, or is it a new way for the financiers who burned down our economy just a few years ago to rape the public funds — again? Bear in mind, please, that there is a substantial risk here. Research about the future costs of jail and welfare are estimates, made to illustrate various cost/benefit analyses. They are not carefully calibrated prices. The weight of evidence says there will be savings, and the side benefit is happy people and less crime. To me, that’s enough to argue for investment, but the happy people and less crime parts of the benefit aren’t going to help pay off a loan.

It might be worth asking at this point, why those communities can’t afford to invest in these improvements the evidence says will pay off. Oh, right, it’s all the tax breaks of the past decades. Did you know that business taxes used to be the third most important source of revenue to the state of Rhode Island? Now they are fifth, behind the lottery and all the fees collected by various departments. Did you know that the richest Rhode Islanders paid over three times the income tax of the average taxpayer in 1996, and in 2011, a bit more than twice? Over the past decades, our state and nation have cut taxes repeatedly in a vain and misguided attempt to stimulate the economy and things have only gotten worse for everyone except those whose taxes were cut.

So now that we can’t afford to make these investments in education and infrastructure (not to mention the human capital our business community claims they want access to but won’t pay for) here’s a new plan: take money from the rich, not as taxes, but as loans, and in return pay them the benefits that used to be thought of as belonging to everyone. And if the benefits don’t actually pan out, do you imagine that the financiers will be at risk?

It’s easy to imagine a community in dire straits, seeking to salvage the futures of some of its residents, with such a desperate and risky scheme. Business owners on Federal Hill used to find themselves wondering in the same way if they should ask the mob for help. But to imagine — no, to actually see and hear — a gubernatorial candidate suggest that this is a good idea on its own merits is appalling. The idea is a disgrace, a wholesale sellout of the very concept of the public good.

So what do we learn here? First, that the creativity of people paid millions of dollars to think of new ideas to make more money is nearly boundless. Over the past decades, we offered a bargain: tax cuts for rich people in exchange for a better economy. But they used the money to buy political power and used it to extract still more money from the rest of us. They are already on the way to owning the world. Here is yet one more way for the fabulously wealthy to solidify their control of our politics and our world.

The other thing we learn? That clearly Gina Raimondo is not at all worried by the idea that she might be perceived as too closely tied to the wolves of Wall Street. The question she should answer: does she want to promote the public good, or sell it?