Rhode Island Policy Reporter

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RIPR is a (paper) newsletter and a weekly column appearing in ten of Rhode Island's finer newspapers. The goal is to look at local, state and federal policy issues that affect life here in the Ocean State, concentrating on action, not intentions or talk.

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whole site RIPR back issues

Available Back Issues:

  • Aug 09 (38) - How your government's economic policies have worked against you. What a fake nineteenth century nun can teach us about the tea party protests.
  • Jun 09 (37) - Statistics of optimism, the real cost of your government. Judith Reilly on renewable tax credits. Review of Akerlof and Shiller on behavioral economics.
  • Apr 09 (36) - Cap and trade, the truth behind the card check controversy, review of Governor's tax policy workgroup final report.
  • Feb 09 (35) - The many varieties of market failures, and what classic economics has to say about them, review of Nixonland by Rick Perlstein.
  • Dec 08 (34) - Can "Housing First" end homelessness? The perils of TIF. Review of You Can't Be President by John MacArthur.
  • Oct 08 (33) - Wage stagnation, financial innovation and deregulation: creating the financial crisis, the political rhetoric of the Medicaid waiver.
  • Jul 08 (32) - Where has the money gone? Could suburban sprawl be part of our fiscal problem? Review of Bad Money by Kevin Phillips, news trivia or trivial news.
  • Apr 08 (31) - Understanding homelessness in RI, by Eric Hirsch, market segmentation and the housing market, the economics of irrationality.
  • Feb 08 (30) - IRS migration data, and what it says about RI, a close look at "entitlements", historic credit taxonomy, an investment banking sub-primer.
  • Dec 07 (29) - A look at the state's underinsured, economic geography with IRS data.
  • Oct 07 (28) - Choosing the most expensive ways to fight crime, bait and switch tax cuts, review of Against Prediction, about the perils of using statistics to fight crime.
  • Aug 07 (27) - Sub-prime mortgages fall heaviest on some neighborhoods, biotech patents in decline, no photo IDs for voting, review of Al Gore's Against Reason
  • Jun 07 (26) - Education funding, budget secrecy, book review of Boomsday and the Social Security Trustees' Report
  • May 07 (25) - Municipal finance: could citizen mobility cause high property taxes? What some Depression-era economists had to say on investment, and why it's relevant today, again.
  • Mar 07 (24) - The state budget disaster and how we got here. Structural deficit, health care, borrowing, unfunded liabilities, the works.
  • Jan 07 (23) - The impact of real estate speculation on housing prices, reshaping the electoral college. Book review of Blocking the Courthouse Door on tort "reform."
  • Dec 06 (22) - State deficit: What's so responsible about this? DOT bonding madness, Quonset, again, Massachusetts budget comparison.
  • Oct 06 (21) - Book review: Out of Iraq by Geo. McGovern and William Polk, New rules about supervisors undercut unions, New Hampshire comparisons, and November referenda guide.
  • Aug 06 (20) - Measuring teacher quality, anti-planning referenda and the conspiracy to promote them, affordable housing in the suburbs, union elections v. card checks.
  • Jun 06 (19) - Education report, Do tax cut really shrink government?, Casinos and constitutions, State historic tax credit: who uses it.
  • May 06 (18) - Distribution analysis of property taxes by town, critique of RIEDC statistics, how to reform health care, and how not to.
  • Mar 06 (17) - Critique of commonly used statistics: RI/MA rich people disparity, median income, etc. Our economic dependence on high health care spending. Review of Crashing the Gate
  • Feb 06 (16) - Unnecessary accounting changes mean disaster ahead for state and towns, reforming property tax assessment, random state budget notes.
  • Jan 06 (15) - Educational equity, estimating the amount of real estate speculation in Rhode Island, interview with Thom Deller, Providence's chief planner.
  • Nov 05 (14) - The distribution of affordable houses and people who need them, a look at RI's affordable housing laws.
  • Sep 05 (13) - A solution to pension strife, review of J.K. Galbraith biography and why we should care.
  • Jul 05 (12) - Kelo v. New London: Eminent Domain, and what's between the lines in New London.
  • Jun 05 (11) - Teacher salaries, Veterinarian salaries and the minimum wage. Book review: Confessions of an Economic Hit Man
  • Apr 05 (10) - Choosing a crisis: Tax fairness and school funding, suggestions for reform. Book review: business location and tax incentives.
  • Feb 05 (9) - State and teacher pension costs kept artificially high. Miscellaneous tax suggestions for balancing the state budget.
  • Dec 04 (8) - Welfare applications and the iconography of welfare department logos. The reality of the Social Security trust fund.
  • Oct 04 (7) - RIPTA and DOT, who's really in crisis?
  • Aug 04 (6) - MTBE and well pollution, Mathematical problems with property taxes
  • May 04 (5) - A look at food-safety issues: mad cows, genetic engineering, disappearing farmland.
  • Mar 04 (4) - FY05 RI State Budget Critique.
  • Feb 04 (3) - A close look at the Blue Cross of RI annual statement.
  • Oct 03 (2) - Taxing matters, a historical overview of tax burdens in Rhode Island
  • Oct 03 Appendix - Methodology notes and sources for October issue
  • Apr 03 (1) - FY04 RI State Budget critique
Issues are issued in paper. They are archived irregularly here.

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The Rhode Island Policy Reporter is an independent news source that specializes in the technical issues of public policy that matter so much to all our lives, but that also tend not to be reported very well or even at all. The publication is owned and operated by Tom Sgouros, who has written all the text you'll find on this site, except for the articles with actual bylines.


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Sun, 30 Mar 2008

What do you think about the Electoral College?

What was the most outrageous thing about the election of 2000? You might think it was the conduct of Florida's election, or the way the Supreme Court ruled that counting votes wasn't as important as preserving George Bush's presumption of victory. I think it was the fact that the loser got half a million more votes than the winner. Is this how we want to run a democracy?

As most of us realized in 2000, we don't have a national election for president. We have 50 elections to choose "electors" who go off and meet as the Electoral College and choose the president. The College is one of those undemocratic vestiges of a time when the founding fathers were willing to endorse democracy in principle, but not so much in practice. This year, there's a bill in 44 state legislatures, including ours, that could spell the end of the Electoral College. It has an uphill battle here, though, and needs your support to get through the Assembly.

The College is a relic of the bargain made in Philadelphia to persuade reluctant states to join the union. One aspect of the bargain gives all the states two more electoral votes than they'd have if they were apportioned by population alone. For big states, this hardly matters, while for small states, it's an important addition. Rhode Island gets four electoral votes, giving us three-quarters of a percent of the electoral votes with only a third of a percent of the nation's population.

This sounds like a good bargain for us, but in the collection of small states, Rhode Island has been outnumbered for a long time. The year 1876 was the last time the Electoral College overturned the popular vot. That year, the outsize electoral votes of the former slave states produced an election deadlock. The bargain that broke the deadlock spelled the end of Reconstruction, allowing the Ku Klux Klan and its allies to come out from the shadows and take over southern government. The result was poll taxes, land restrictions and the rest of the Jim Crow laws that took another four score and nine years to overcome.

In 2000, the Electoral College again took the election away from the winner of the popular vote, and this time it was clear that the collection of "small" states is dominated by the red states of the west. For every Rhode Island in the east, there's an Idaho, and a Wyoming in the west. For every Vermont, a pair of Dakotas.

So how do we get rid of this relic? It's not going to be via a consitutional amendment, which requires three-fourths of the states to approve it. Flawed as it is, the current system is the source of power for the people and states who have it now. No matter how undemocratic the current system, reform asks them to give up power. Why would they want that?

A group of activists have found a way to thread this needle. They've been pushing a plan for a state's compact to defang the College. Under their plan, states would agree to award their electoral votes to the winner of the national popular vote. The compact won't take effect until states with a majority of electoral votes agree, but if you think about it for a minute, you'll see that's all it will take to make it work. This is a considerably lower hurdle than a constitutional amendment. The Governors of New Jersey and Maryland have already signed this compact, and the bill has passed at least one house of the legislature in seven other states. (There's more at nationalpopularvote.com.)

Besides being a weird way to elect a president, what many people don't realize is that the Electoral College is also a hodge-podge. The rules for selecting electors vary from state to state, as they have from the very beginning. Most states award all their electoral votes to the winner of the vote in their state, but not all. Maine and Nebraska apportion the votes according to who won each congressional district, with a bonus two votes for the overall winner.

In 1796, Virginia split its electoral votes between Thomas Jefferson and John Adams, who carried the entire state of Massachusetts. After that, Virginia changed its rules to winner-take-all to help Thomas Jefferson win the presidency. In a vain attempt to protect John Adams, Massachusetts changed theirs, too. In other words, there's nothing sacred about how electors are awarded; both Article II of the Constitution and our history say so.

So let's do away with this relic. Again, the compact wouldn't take effect until 270 electoral votes' worth of states agree to it. Voting for the compact means voting to abolish the Electoral College, not voting to give away some power we don't really have. If anything, we'll get more attention from Presidential campaigns than in the past, since every vote here will count.

A bill to join the compact was heard in the House Judiciary committee last week. At the moment, it appears the bill is going to be bottled up in that committee, though it may have a better chance in the Senate. If you care about how we elect presidents, check rilin.state.ri.us/CommitteeMembers and see if your representative or senator is on the Judiciary Committee and tell them you want this bill to come to a vote. Call them. Don Lally (D-Narragansett, NK, SK) is the committee chair, and could use a call, too.

[Updated: corrected description of Maine and Nebraska's apportionment methods.]

23:00 - 30 Mar 2008 [/y8/cols]

Sat, 22 Mar 2008

Evading the rules and learning from experience

Last week, the news was about the RI Resource Recovery Corporation, and it was enough to give anyone pause. A state audit uncovered land deals that seem pointless to the agency's charge, charitable contributions that seem to have been made at the pleasure of various RRC board members, and legal work awarded to friends and relatives.

There was some related news, too, though maybe it didn't seem that way to you. The House is considering a move by Governor Carcieri to merge the state's three environmental agencies, CRMC, DEM and the Water Resources Board. CRMC fired a salvo in that battle by pointing out that DEM workers had violated some wetlands rules by clearing land at Fishermen's park. (This was apparently not news at DEM and seemed mostly an attempt by CRMC to embarrass people into dropping the idea of the merger.)

What's related about these? Just this: both agencies were created to get around what were perceived as overly restrictive state rules, and both have lived up to their founders' intentions by becoming havens for, well, let's call it something less than the professionalism I expect from my government.

I produced a video about recycling in high schools for RRC, back when it was the Solid Waste Management Corporation in the early 1990's. (Apparently "solid waste" wasn't euphemism enough.) I later helped the staff, as a volunteer, in some experiments about plastic sorting and waste stream composition. I was pleasantly surprised by what I saw there. I worked with a few of the staff, and they were scrupulous and professional about their work. Most were working there because of their dedication to conservation and green ideals. Staff lunch conversation would drift to comparisons of car mileage and bicycle routes. One staff member kept an earthworm-compost bin in her filing cabinet, to compost lunch leftovers.

The video they hired me to make for them was about recycling, but was also about "source reduction", the idea that the way to make the landfill last longer is to educate people about buying fewer disposable things. The staff struck me as a bunch of creative and intelligent professionals, exactly the kind of people I'd want running the business of my state government.

Unfortunately, they were also largely the hires of a previous administration. Lincoln Almond appointed a new board chair, and shortly after A. Austin Ferland rolled up to his first meeting in his Bentley, the agency's director was sacked and almost the entire professional staff left, essentially all at once. Some left of their own accord and some didn't. Their replacements were the people who have since created the mess uncovered by the audit last week.

Under the rules that govern employees in state agencies, this kind of purge couldn't have happened. But in the free-floating world of "quasi-public" agencies that aren't government, but aren't not government, either, it's not a problem.

What about DEM and CRMC? Those with short memories will forget that the purpose behind creating CRMC in the early 1970's was to provide an end-run around restrictive DEM rules for friends of the legislature. That wasn't a side effect, that was the whole point: to get decisions about the development of valuable waterfront property out of the hands of DEM's professional staff and into the hands of political appointees.

In that role, CRMC has served its purpose admirably, allowing development all over sensitive coastal areas of our state for years, but only for people who hire the right attorneys or know the right board members. Over the years, there have been a few cases where CRMC was forced to find a spine, through the pressure of public opinion or staff work. But look at the Champlin marina controversy on Block Island. Even there, where CRMC did the right thing, they did it so badly that there's a good chance it will be overturned. Some protection. A more typical case was the Council's approval a couple of years ago of a building lot in Narragansett that was 98% wetland, against the recommendation of their own staff.

The Governor is exactly right that we don't need three environmental agencies, with overlapping jurisdictions and overlapping staff. (And while he's at it, he should consider that we also have two election agencies and two television stations, one of which is dormant six months a year.) He's wrong to think we can save a ton of money by combining them, though. (He plans to cut nine jobs out of 31.) We can save some, but DEM and CRMC staff are not famous for being underworked, but more for the backlogs in their workloads. In other words, good for the Governor for combining the agencies, but if he gets his way on the budgets, look for the permit approval process to become even longer than it is now.

So what do these two have in common? CRMC was created to have decisions free from restrictive DEM engineers. RRC is a quasi-public agency and therefore free from restrictive state employment rules. Both used their structure to get around restrictions, for better and, as we see, for worse. Employment rules and bureaucratic procedures in the state are often perceived as restrictive and confining, obstacles to doing business. But those rules were usually created in the wake of previous abuses, even if no one remembers exactly what they were. Governors and legislators who demand new ways around the old rules often demonstrate that, in many cases, we seem not to learn from our own experience.

17:41 - 22 Mar 2008 [/y8/cols]

Sun, 16 Mar 2008

But what will they invest in?

It sometimes seems I spend too much of my time writing about taxes on the rich and the poor. It's uncomfortable territory on which to stake one's tent. People accuse you of socialism, and make sneering remarks about not getting the memo about the fall of the Soviet Union. This gets dull, to be honest, but the truth is I occupy this uncomfortable (and fairly lonely) little outpost not for ideology, but because the arithmetic drove me there. A transfer of taxes from rich people and corporations to the poor and middle is what we've experienced at both the state and national level over the past 25 years. There's simply no way to get around it, because that's what happened.

In Rhode Island, cuts in corporate and income taxes made up by increases in property taxes, forced the poor and middle to make up for the gains of the wealthy. At the federal level it was increases in payroll taxes and income tax rate cuts at the top levels as well as tax cuts on on certain kinds of income, like capital gains. If calling for the reversal of these trends allows a few people the opportunity to indulge their secret passion for invective, I don't mind so much.

Intellectually honest opponents will admit that all this is true, but then go on to say it's a good thing for the wealthy to have more money, because investors are necessary for our economy to grow. It is indeed true that without investment, our economic engine won't even turn over, let alone run smoothly, so it's worth considering the point. What do people with money do with that money?

The Federal Reserve tracks where Americans invest, so we can wallow in that data for a bit to see. In the last couple of years, investment in real estate -- the flow of dollars into purchases of housing -- has dropped precipitously, though it's still a bit higher than it was in 2003. People still need a place to live, I suppose. But investment in stocks has plummeted further. Almost a trillion dollars flowed out of the stock market in 2007. (Interestingly, the flow of money into mutual funds, though much smaller, was the other direction. Apparently people who buy their stocks through brokers are not as confident as people who buy via mutual funds.)

More discouraging than this is the ongoing disinvestment in small businesses. In 2003, Americans invested about $45 billion in small businesses of one kind or another, but in 2007, we took $57 billion out. The total value of investment in businesses rose, but that was likely because of increased real estate values. Where are we investing? Money market funds and cars, apparently. This is not a picture of an entrepreneurial nation.

There's more trouble in corporate America. According to those same Federal Reserve statistics of investments. Over the past few years, aggregate corporate profits have boomed, going from $424 billion in 2003 to more than $1 trillion in 2007. But the amount of productive capital in use has gone up only about 20% during that same time. The money put towards investment is apparently little more than enough to replace and upgrade equipment as it wears out. Where's the real money going? Mostly dividends to shareholders and financial investments.

And cash. A recent study by business professors at Georgetown University and Ohio State (link) found cash holdings at US corporations had tripled over the past decade. Companies use cash to hedge against uncertainty, so I guess we should be glad that corporate managers are accumulating reserves against hard times. But companies also use cash to invest in new products and processes, and we should all be concerned that they can't think of anything better to do with that cash than sit on it.

Overall, then, money is being pulled out of stocks and small businesses, and corporations aren't reinvesting their huge profits in anything productive. It isn't really that surprising, though. Ask yourself, if $40,000 dropped into your lap next week, what productive investments would you make with it? If you can't think of anything, you're apparently not alone.

Maybe you think opening a store sounds appealing? That's fine, but you have to pick something to sell that isn't sold for cheaper by Wal-Mart, Staples or Amazon.com. Maybe you invented something? A few years ago I investigated the possibilities of marketing an electronic clock I developed. I discovered that it was utterly impossible to make it more cheaply here than it could be made in China. At the volumes I could have reasonably hoped to generate, I couldn't even buy the parts for less than a finished clock would have cost from China.

To be sure, there are still niches to find and exploit, but in a world with the global competition we have now, those opportunities are narrower and more elusive than they once were. Our problem isn't a shortage of investors or funds to invest, but a real shortage of places to invest them.

Instead of showering our largesse on the investor class, shouldn't we instead be focusing our resources on all the other essential parts of the equation: the inventors, the markets, the workers, the supply chains? Just as an example, recent talk about finding renewable energy opportunities, like building blades for giant wind turbines at Quonset, or creating local markets for clean electricity, seem much more on target to address these problems than current state policies. If you understand our economic issues this way, slashing school and university funding to benefit investors hardly seems to answer the needs we face, but that's what's in store this year.

17:21 - 16 Mar 2008 [/y8/cols]

Sat, 08 Mar 2008

A Funny Kind of Antagonists

One of the persistent myths about the conduct of our state government is that the Governor and Assembly are two poles of a struggle. The idea is somehow that the Governor is engaged in a titanic battle for control over our government, pushing to cut expenses and hold the line on taxes, and Democrats in the Assembly are thwarting him at every turn.

This is, however, absurd in almost every particular, a fairy tale that bears almost no relation to what really goes on under that big white dome.

Here's an interesting story about 2006. During that year, policy makers were worried about a $100 million deficit. (Those were the good old days, weren't they?) Until the year before, lottery proceeds had been growing by $25-30 million every year, for years. But in 2005, revenues were down $11 million from the projections. The previous three years of revenue growth from the lottery were 19%, 9% and 6%. Lottery revenues growth was clearly leveling off.

What did the revenue estimators do? They predicted 12% growth in 2007, and 31% in 2008. This is well past "wildly optimistic" and into the realm we budget nerds call "barking mad" when we're feeling charitable, and "outright lying" when we're not. It's hard to imagine someone typing that number into a spreadsheet without giggling. Maybe he or she did, I don't know. But I do know it's fair to point out the ways in which this crazy prediction served the ends of people in power.

Most obviously, this served the Governor. He needed to get a balanced budget in order to run a successful re-election campaign against Charlie Fogarty. He got it, and he won by a nose. But what about the legislature? Why on earth would they have offered this gift to their "enemy"? In 2006, House Speaker William Murphy was pushing his plan to cut the taxes of the wealthiest Rhode Islanders by around $100 million, phased in over five years (we're in year three now, with the most expensive years still to come). He needed a balanced budget so that calling for a huge tax cut would not appear, well, insane.

In other words, to get their tax cut plan passed, the House leadership sold out Charlie Fogarty. He was left trying to make the case that the Governor's fiscal management had been a disaster while the other prominent Democrats smiled and looked at their shoes. Then, as soon as the election was over, the November Revenue Estimating Conference let us all know about the sham.

The Governor still rails against the Assembly, but it's just habit, I think. There is little of substance that they haven't given him recently. In the last couple of years, the Assembly gave the Governor a massive pension reform bill, and they covered him by cutting state aid to education even more than he'd suggested last year.

There are certainly budget cuts that haven't been as deep as the Governor would like, but as I wrote about a couple of weeks ago, it's simply not feasible to balance the budget by cutting entitlements alone. This is a fact of arithmetic: Entitlements are simply not as expensive as you think, and we're deeper in the hole than that. The stuff about the legislature wriggling in the iron grip of the social service lobby is pure fantasy. And a lot of the Governor's plans for personnel reforms seem to imagine somehow that there aren't unions at all. Like them or not, realistic management means you have to acknowledge that unions exist.

Now we come to 2008. Having successfully created a budget crisis for us, the Governor introduced a bill, via Rep. Carol Mumford (R-Cranston,Scituate) that would give him extraordinary powers to slash spending without any oversight at all by the Assembly. Steven Costantino (D-Providence), the chair of House Finance, and probably the second-most influential member of the Assembly, endorsed the bill, signing on as a co-sponsor.

So this is the situation: The Assembly and Governor have together created a tremendous budget crisis. The crisis was caused by tax cuts of the past ten years, exacerbated by the economic downturn (not the other way around). Now that we're in a crisis, the Governor is demanding the right to slash spending without accountability to anyone, and the Assembly leadership seems perfectly willing to hand it over. Does that sound like antagonists struggling for primacy?

At a hearing on the bill last Thursday, there was substantial pushback on this, even from members of the Finance Committee. A visibly surprised Costantino backpedaled, and seemed to endorse a much less sweeping approach. Contacted on Friday, though, his office could offer no specifics.

In its way, the hearing may have been one of the best things to happen on Smith Hill this year. Speaker Murphy, Majority Leader Gordon Fox and Costantino exert close control over a lot of House business. Under their leadership, Rules have been changed to restrict debate, and important bills rushed. It's high time that Assembly rank and file found their voice to push back.

And remember, while this fiscal crisis brews, while school districts around the state are laying off staff and cutting programs, while the legislature debates whether to grant the Governor these extraordinary and undemocratic powers, a few thousand of the wealthiest Rhode Islanders will get a tidy cut in their taxes this year. But for 19 out of 20 of you reading this, tough luck.

00:23 - 08 Mar 2008 [/y8/cols]

Tue, 04 Mar 2008

This isn't good

Via here, I read that US corporations are apparently flush with cash. From the New York Times:

The increase over the last decade in the amount of cash, as a percent of total assets, for the companies in the Standard & Poor's 500-stock index has been steep....According to S.& P., the total cash held by companies in its industrial index exceeded $600 billion in February, up from about $203 billion in 1998.

This is not at all surprising. As was noted last year in RIPR 25, declining investment opportunities may have already become the most significant untold economic story of the 21st century. During the Depression, economists clearly saw that this was a problem to be addressed, and academic disputes raged about why opportunities were in decline. (Joseph Schumpeter and Alvin Hansen representing two of the important antagonists.) But after WWII, there was plenty to invest in, and the topic faded from importance.

But just because a topic isn't trendy doesn't mean that it isn't relevant, and that appears to be what's happening here. Ask yourself: if $40,000 dropped in your lap tomorrow, what productive investment would you make with it? Can't think of anything? You're not alone, and that's a problem.

09:57 - 04 Mar 2008 [/y8/ma]

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