Rhode Island Policy Reporter

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A look at the lousy situation Rhode Island is in, how we got here, and how we might be able to get out.

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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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Sat, 26 Apr 2008


Lenny Bruce used to say he didn't believe the stories about dolphins pushing drowning sailors to shore. He said dolphins just like to push people around -- and you never hear from the people who get pushed away from land.

As a nation of immigrants, we hear a familiar line whenever immigration comes up: "My grandparents came here and they worked hard and they did fine." And whenever I hear it, I think of a Greek uncle of mine, Niko, who I knew when I was little. He wasn't strictly related, but he was married to Georgia, my aunt's best friend, and frequently showed up at family holidays where I played with his daughter Photini. Niko never really mastered English, and I remember him sitting quietly by himself somewhere to the side of the action during those holiday gatherings. Sometime around when I was 16, Georgia died and he decided that America just wasn't for him, and moved back to Athens.

I think of Niko because my grandparents came here and they worked hard and did, well, okay. But some of their friends came here, worked hard, and didn't do well at all. Those people didn't marry, or they moved back to Greece, or they fell sick and died. We have to remember that the people who speak so proudly of their grandparents are the descendants of the winners, but that doesn't mean there weren't losers. Unfortunately, like the swimmers nudged away from shore, we never hear from them because they don't have boastful grandchildren around to even out the immigration debate with tales of their ancestors' failure.

And here's the other remarkable thing about these debates. The first half of the 20th century was a hard time in this country. FDR talked about a "third of a nation, ill-housed, ill-clad, ill-nourished," and that was a time that defeated a lot of people, almost including my family, too. My grandfather, who came here when he was 10 to be a water boy on the railroads, lost his Chicago real estate business in 1929, opened a grocery store, lost that, moved to Massachusetts, where my grandmother's family was, and opened a bar with the little capital he had left. Then he died. Things were pretty rough during the 1930's, and it's amazing to me that people can look back on that time and wish that experience on others. But when you hear people say that their grandparents made it despite the hardships, so why can't modern immigrants, isn't that what they're saying?

These days, we have around 12 million people in the US illegally, and somewhere between 20,000 and 40,000 in Rhode Island. The Federation for American Immigration Reform (FAIR), which seems to be where lots of these numbers come from, estimates 35,000 and that that the cost to Rhode Island state and local government of services to them is around $99 million each year. (See here. I think FAIR's numbers are all kind of high, but let's go with them for the sake of argument.)

Well here's some news: immigrants pay taxes, but that seems to be left out of the FAIR calculations. The Congressional Budget Office (CBO) put out a report in December about the cost to state and local governments, and according to numbers I scammed from their footnotes articles they referenced, and my own data on property taxes, our 35,000 undocumented immigrants probably pay around $30 million in sales tax, around $5 million in income tax and around $40 million in property taxes (mostly via rent).

This doesn't add up to $99 million, but part of the difference is offset by federal dollars that help pay for many of these services. Taking that into account, and acknowledging that all these numbers are fairly rough (no one has exact figures, for obvious reasons) it still seems like undocumented immigrants cost us money, but not nearly enough for the full-throated screams you hear on the radio.

But notice this: the state seems to come out ahead in these calculations, but not the cities and towns. FAIR estimates that $87 million goes to education. $40 million in property taxes won't cover that. The Governor's response? Cut state services.

In a way, this mirrors the situation with the federal government. According to the CBO report again, the federal government gains quite a bit more from undocumented immigrants than they cost, but doesn't share that boon with the states, who just have to suffer for the poor immigration policy choices made at the federal level. Meanwhile, at the state level, the state government also seems to come out ahead, though it's a much closer call. Down at the bottom of the pecking order, the cities and towns once again, get the shaft. Both the federal and state governments benefit by having another government down the line on which they can load the burdens and refuse to share the benefits.

Policy failures at the federal level have (once again) created a fiscal problem for the states. Policy failures at the state level have created a fiscal problem for cities and towns. But people like the Governor, who are responsible for those failures, want us to get mad at immigrants instead of at them. The mystery is why we go along with it.

18:44 - 26 Apr 2008 [/y8/cols]

Sun, 20 Apr 2008

The capture of Keynes

Every time you see a TV ad with shaky camera work, think that you're seeing the commercial use of what was once a hallmark of the non-commercial, and marvel at the free market's ability to co-opt pretty much everything — including economic policies originally meant as a critique of business-as-usual market capitalism.

Communist revolutionary Che Guevara rapidly became an inspirational figure for revolutionary socialist change after his execution in Bolivia in 1967. Forty years later, Che lives on but his image now adorns t-shirts that have become popular fashion statements. This transformation reflects the extraordinary power of markets to capture and transform, turning an avowed enemy of the market system into a profit opportunity.

The process of capture also holds for economic policy, which has witnessed the conservative capture of Keynesianism. This capture is now on display as U.S. policymakers struggle to contain the effects of a collapsing house price bubble that was recklessly funded by Wall Street. The sting is that the full powers of Keynesian policies are being invoked to save an economy that no longer generates Keynesian outcomes of full employment and shared prosperity.

Read more here.

18:04 - 20 Apr 2008 [/y8/ap]

Fri, 18 Apr 2008

Data about immigration

What? There's actual data to inform the discussion of illegal immigration and its effect on the state budget? Huh.

Here's the Congressional Budget Office's review of 29 reports about the fiscal impact on state and local budgets.

What does it say? It says that illegal immigrants pay more in taxes than the services they receive, but that they pay most of it in federal taxes, and the services they use are state and local services. Federal services typically deny assistance to illegal immigrants, but federal laws and court rulings deny that possibility to states and towns.

Immigration is, of course, largely a federal problem. It's the federal government that turned a blind eye to employers who came to depend on cheap labor from the south. So immigration is, again, a case of the powerful shifting the cost for their bad decisions onto someone else, simply because they can. The real mystery is why everyone gets mad at the immigrants and not at Congress or the President.

Here is a page of research from Federation for American Immigration Reform (FAIR). They would seem to be the source of a lot of the data used in debates about illegal immigration here. I couldn't help but notice that they are on the high side of all the relevant estimates, though perhaps within the margins of error.

16:02 - 18 Apr 2008 [/y8/ap]

Thu, 17 Apr 2008

Issue 31

Is at the printer.

  • Eric Hirsch on homelessness and the housing market. How income polarization has affected homelessness in more ways than you think.
  • What car imports in the 1980's and the housing market of the past few years have in common. See here.
  • Review of Dan Ariely's book "Predictably Irrational", a behavioral economic account of irrational behavior.

Didn't you mean to subscribe today?

17:52 - 17 Apr 2008 [/y8/ap]

Tue, 15 Apr 2008

A moment passed

It's now quite clear that nothing is going to happen to the President who has openly admitted that he authorized torture, and that, far from being the acts of a few bad apples, our appalling descent from at least a pretense to the moral high ground was engineered by decisions made at the very top.

It's hard to find words to express the astonishment at how quickly our country could descend to barbarism. Not to mention the sadness.

Here's someone who tried.

Background summarized well here.

09:56 - 15 Apr 2008 [/y8/ap]

Sun, 13 Apr 2008

A historic blunder on tax credits

We got a taste last week of how House Finance intends to deal with the fiscal crisislast week. What did we learn? We learned that the distance between the House leadership and the Governor can be measured in small fractions of a millimeter. Challenged to do something about the burgeoning cost of the Historic Structure tax credit, they decided not to limit it to affordable housing developments, or to cap it, but to deep-six it altogether.

To understand this story, you need to understand how tax credits like this work. It's not that hard. Suppose you want to rehabilitate some historic building. If it meets the criteria, you are eligible for a 30% credit against your taxes. But suppose you don't ever owe that much, or suppose you're a non-profit who doesn't pay taxes? In that case you can sell your credit to someone who wants a break. If you have a credit for $100,000, and you sell it to your friend for $80,000, then you're $80,000 ahead, and your buddy gets to use your credit to pay his taxes, so he's ahead $20,000. Sweet, no?

Of course, it usually isn't quite so clean. First, you can usually only get about 78 cents on the dollar. (If our taxes were higher, you could get more. Federal credits sell for 90 cents on the dollar.) Usually there's a broker involved, so you might get $78,000, and your buddy pay $83,000, and the guy in the middle scoops up the remaining $5,000. So when it all settles out, here's the score: the state is out $100,000, but has netted only $78,000 in housing improvements. The rest has been pocketed by the broker and whoever it was who owed enough in tax to think this was a good bargain.

As perhaps you can tell, I'm not a fan of big tax credits. When offered at a modest scale, they can offer a valuable discount on activity the state wants to encourage, without the bureaucracy of a grant-making panel and oversight apparatus. (We do have a residential historic tax credit program which is a different thing, and limited to a couple of thousand dollars a shot. My house was built in 1889, and I have used this one.) But tax credits offered in the amounts we're talking about here are just a way to get less bang for your buck while well-connected brokers and savvy corporations and individuals get paid off for no compelling public purpose. It would be far smarter -- and cheaper -- just to give out grants for good projects.

There are two big problems, then. One is that the state really doesn't have an affordable housing program worth the name, and the historic tax credit was the most effective thing we had. Unfortunately, the credits granted to little non-profit housing developers like Providence's Elmwood Foundation and AS220 were swamped by credits given to build the fancy hotel across from the state house, and to a few big developers, like Streuver Brothers, Eccles & Rouse, the developers of the American Locomotive condos and several other projects in Providence.

Throwing babies out with the bathwater is one of the things our state government does best, so when a program costs too much, the immediate response is just to end the whole thing, and that's what House Finance has approved, in a bill sponsored by Majority Leader Gordon Fox (D-Providence).

Think that's bad? The other problem is worse. Apparently we've already given out a few hundred million dollars of these credits that have not yet been cashed in. The House Finance plan is to issue a bond for around $280 million to pay the costs of these tax credits. The theory is that the credits out there are already one kind of debt, so borrowing is just a way to make it a more predictable debt. We can schedule the repayments of bonds, but not the timing of people cashing in tax credits.

Fine, you say, so what's the issue? It's only this: the people to whom the tax credits were issued were only planning to get 78% of the cost of the credits, but we're going to pay 100%. In other words, 22% of that money -- around $62 million -- will be borrowed for no other reason than to write a check to whoever it was who bought the credits. It's bad enough that we give tax cuts to people who don't really need or deserve them, but do we have to borrow to pay for something so dumb?

A more sensible plan would simply be to offer to buy the credits back at a slight premium, say 80%. We'd get them back at a discount, but the people we gave them to would be getting more than they expected, so there's no reason for them to be unhappy. People who had already paid for them would get a tax cut, but not as big as they'd planned. Labor folks, among others, have suggested exactly this, in a bid to keep a limited version of the credit in place. But House Finance is not in the business of making rich people and brokers unhappy, so they declined.

Mad yet? Do you still want to blame our fiscal troubles on the $25 million we spend on welfare and child care. Or the $4 million the Governor thinks he'll save by cutting immigrants off RIte Care? (He won't, but that's a different story.) Just remember this the next time you hear someone say there's pain all around this budget year, because it's just not true.

12:16 - 13 Apr 2008 [/y8/cols]

Thu, 10 Apr 2008

Hurray for the free market

Another corner turned in the war on drugs. Apparently poppy production in Afghanistan is down. Why? It's more profitable to grow wheat this year.

Isn't that great? And it comes in bags of white powder, too.

11:03 - 10 Apr 2008 [/y8/ap]

Sun, 06 Apr 2008

Handy/Moura hearing: special tax breaks and the general good

Last week, there was a State House hearing about the "Economic Growth and Fairness Act," a complex tax reform bill sponsored by Representative Art Handy (D-Cranston) and Senator Paul Moura (D-East Providence). (First, the full disclosure: I did research to support this bill, and testified for it. I've never claimed to be an objective journalist, only an honest one.)

Before the hearing, there was a rally in the rotunda protesting cuts to Head Start, the early-childhood education program. "Great," you say, "yet another interest group, trying to protect its special program that's costing us money." I watched the rally, then went downstairs to the hearing.

And do you know what I saw there? Lots of other interest groups trying to protect their special programs, mostly tax breaks. The difference? These people were wearing nice suits. (So was I. As I said: full disclosure.)

Now this is a little unkind, and perhaps a little easy. The business owners and managers who crowded the hearing play an important part in our state's economy. What they say is important, and what they do is even more important. But it's not always obvious how far they are from other people looking for assistance.

Despite the heated rhetoric, the Handy/Moura bill is really just an attempt to undo much of the last 15 years of poor tax policy in the state. The idea is to provide property tax relief for people who've seen their local taxes rise (15%, capped at $600, available to renters, too) and to restore the income tax to the level of 1996, a bargain that would save money for about 90% of the state's taxpayers. The act also takes on a whole slew of tax preferences that have crept into the code over the years. (Did you know that horse food is exempt from sales tax? Do you wonder why?) It also attempts to broaden the sales tax to services, in the hope that the rate can be lowered from 7% to 5.5%. It is an ambitious bill, but calling it radical is only for people who think Hillary Clinton is a dangerous subversive.

The hearing room was jammed. It seemed as if the entire membership of the Chamber of Commerce turned out. Banks were there to talk about special tax preferences for banks, biotechnology companies were there to support tax preferences for biotechnology companies and rich manufacturers were there to support tax breaks for rich people. They all had something to say about how their favorite tax break was crucial to the state's economy.

Were any of them there to talk about the economic value of good schools, clean water and safe bridges? Not so much. Ed Cooney, the Chairman of the Greater Providence Chamber of Commerce and an executive at Nortek, didn't so much as mention the fact that he's also the president of the North Kingstown Town Council. North Kingstown's schools are taking a $3 million cut to a $60 million budget this year, but he didn't speak a word about how state aid to his town's schools, after adjusting for inflation, is down 10% under this Governor.

So what about those tax breaks? There are lots, but look at one of them. Rep. Steve Costantino (D-Providence), the Finance Committee chair, complained that the bill would cut the biotechnology tax credit. "But," he said, "we targeted this one carefully." And he's right: the bill provides an investment tax credit for biotechnology companies, and it is careful to define the jobs at the company receiving the credit as full-time and decent-pay. How much does this cost us? Well, the Tax Division has no idea. Just guessing from the size of the companies involved, it's probably in the several hundreds of thousands of dollars, though probably not in the millions. Do we get jobs out of it? Probably. But we have to ask ourselves: is the best way to grow a biotech industry in Rhode Island to subsidize biotech companies? How many should we subsidize? For how long?

If it takes a subsidy to keep a company in our state, isn't that a sign that we're doing something else wrong? What does that say about our quality of life or the quality of the employees they're able to find here? And if the price of that tribute we pay is an inability to address those quality issues -- not to mention the screaming social problems that surround us -- then what have we gained?

Personally speaking, I want to see my children educated well, I don't know how I'm going to pay their college tuitions, I wish there were a solution to the health insurance costs that are eating my business alive, and I don't want to die some day when I-95 collapses while I'm driving through Pawtucket. All of these are serious issues and our government is currently addressing none of them, largely because the Governor and his allies in the Chamber have cowed legislators into thinking that all they can do is manage the decline.

So I say Hurray for Art Handy and Hurray for Paul Moura and Hurray for any other legislator who recognizes that we didn't elect them to manage our government into irrelevance. (And another Hurray for anyone who writes them in support.) I want a government that pays its bills and one that can address the problems I face. A government that can't help its citizens is no bargain, regardless of cost.

12:19 - 06 Apr 2008 [/y8/cols]

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