Sat, 28 Feb 2009

RI's film industry: Easy come, easy go

What would you pay so that William Murphy, the Speaker of the House, gets to meet Richard Gere? You wouldn't? Well, you did.

Last year, the state spent around $13 million in tax credits for movie production companies who make films here. What does Rhode Island get for that money? Good question.

The tax credit is for a fraction of money spent on some film in our state, so $4 million of credits -- what we awarded to "Bridesmaid Productions", the company set up by 20th Century Fox to produce "27 Dresses" -- means $16 million in shooting expenses. (Gere's "Hachiko" got $3 million.) Proponents of using tax policy for economic development will frequently tell you that lower taxes means higher tax revenue, but it wasn't true then and it's not true now. In this case, using some fairly generous assumptions, the state Department of Revenue estimated last summer that the state gets back a bit more than a million for the four we put in. The state isn't near to making money on the deal.

Still, that's $16 million of economic activity for $3 million in state money, after you account for what we get back. Isn't that worth it? Put that way it doesn't sound bad, but the truth isn't so simple. First, a lot of the money spent goes to people and companies who aren't a meaningful part of the state's economy. Richard Gere was around to be in a movie last summer. We paid a quarter of his salary for the days he was in state, but he's not going to pay any Rhode Island taxes on that income.

What's more, the money is in the form of a tax credit to a one-off production company. Bridesmaid Productions won't ever owe $4 million of RI taxes, so they sold them to someone who does owe that much. At the going rates for state credits, they probably got about $3 million, which means that a small group of savvy rich people and companies made $1 million off the deal.

Let's be clear about what's going on. That's a million dollars, out of four, whose only purpose is to lower the taxes of people who were standing in the right place at the right time. Would you like to pay $1000 of your state taxes with $750? Tough. It's not worth their time to sell such a small chunk of their credits to you. But if you owe $1 million of taxes you can be part of that market and pay off your debt to the state with $750,000. Slick, huh?

So out of that $4 million we spent on Bridesmaid Productions, a quarter of it went to cut the taxes for people who had nothing to do with the production and a huge amount of the rest goes straight to rich people in Hollywood and film union members from New York who have nothing to do with the state's economy. Tax credits like this really are just a scam to create a subsidy that doesn't sound like one.

What about all the film production jobs in Rhode Island? You can't deny that some people have done well by this industry. But I have bad news for them. A tax credit like this one isn't about creating something new, it's about stealing jobs from somewhere else. The movies that were made here were movies that would have been made anyway, but somewhere else. This is not a long-term strategy, and the real fruits of the strategy are about to become apparent. Our local carpenters, set designers and casting directors have had a good run, but we've helped start a competition in which we won't be able to compete.

In the past few years, 30 other states have established similar tax credits, some of which are even bigger than our 25%. And now, even California has gotten in the act. Stung by the loss of the sitcom "Ugly Betty" to New York, the budget compromise reached in the California legislature last week includes $100 million in tax credits per year for movie production there. So congratulations, Rhode Island. By being an early adopter of this dumb tax policy, we've participated in providing some colossal tax breaks for Hollywood stars without any lasting benefit to us.

The movie tax credit is under pressure in a lot of states, including this one. Wisconsin established one a couple of years ago, but an analysis of the bill incurred by the production of "Public Enemies" has left the credit vulnerable to critics during this terrible budget year. (Over $100,000 in state subsidy to fund Johnny Depp's grooming and personal care?) We'll hear a little more about it here, during the budget debates this spring, but the die is already cast and it has nothing to do with decisions to be made in the state house.

Here's the situation. Productions in California will generate huge tax breaks for rich people who owe California taxes. Productions here will produce huge tax breaks for people who live here. Rich people in California will be making the decisions about where those productions happen. You figure it out.

This kind of economic development is the worst kind of thing our leaders can do for our state. It's expensive, temporary, and works by participating in the insane downward spiral that allows companies to play states against each other, gaming us out of the taxes they used to pay. This credit happened because our legislative leaders were blinded by star power, not because they had a viable long-term vision for the health of the state's economy. To the extent we find a prosperous future for our state it isn't going to be by being industry patsies -- for any industry. Tax policy can be a useful economic development tool, but we shouldn't use it just to steal jobs from elsewhere. Easy come, easy go should be the lesson of the day.

11:05 - 28 Feb 2009 [/y9/cols]

Fri, 27 Feb 2009

RIPR 35

RIPR issue 35 is out!

• Index to past budget suggestions -- all still before their sell-by date.
• A review of theories of market failure -- asymmetric information, market power, the works.
• The real triumph of the civil rights movement.
• Review of Nixonland by Rick Perlstein. (It's great.)

Didn't you mean to subscribe already?

Also, next week, come one, come all to hear "Ten Things You Don't Know About Rhode Island,", a talk by, well, me, about taxes, planning, the annual state budget fiasco, and how state house policy makers continue to ignore a certain colossal event, the biggest in our nation's history. Also, an appearance by the famous mystery graph. The event is next Thursday, March 24, at the Rochambeau Library, in Providence. Talk sponsored by the Progressive Democrats of America RI chapter. Details here.

21:55 - 27 Feb 2009 [/y9/fe]

Sat, 21 Feb 2009

What happened to our towns?

When I was 16, I went SCUBA diving off Jamestown a few times with my friends Nat and Phil. Once, right after we came off the bridge, we headed south to Fort Wetherill, with Phil driving. We passed a police car headed north and a moment or two later Nat said, "There," and pointed at another police car, parked on a side road. "Great," said Phil, and floored it. As we hurtled down the narrow country lane at about 70, I gripped the seat and asked what he meant. "Jamestown only has two police cars," he laughed, "so we can do what we want now."

Needless to say, Jamestown has more than two police cars, now. But why? Did they expand their police force only in order to pad the town payroll? That's what Governor Carcieri would like you to think. Last week, in his State of the State address, the Governor clucked his tongue at the cities and towns, because over the past 20 years, while the state payroll has dropped by a quarter, the total number of municipal employees has gone up by 38%. Shocking, isn't it?

Well, not really. What's shocking is that someone thinks he can run the state with "information" like this: half-digested red meat to be thrown to the angry mobs of talk-radio callers. Let's get real. Town payrolls have gone up because towns have grown, and because of requirements imposed on them. Jamestown has twice as many year-round residents, and many more summer houses, than it did back in the days of two police cars. Rhode Island has about the same number of people as a generation ago, but our little towns are bigger and our cities are smaller. We have spread out across the landscape, and that has real consequences.

Want to know what else Jamestown has that it didn't have a generation ago? Special-ed students who used to be wards of the state, attending the Ladd School. Having special-needs children educated with other children is a good thing, but it's not free. When the state closed Ladd, do you remember how the state gave that money to cities and towns for special education? Yeah, neither do I.

What else didn't Jamestown have back then? Clean-water mandates imposed by the EPA, comprehensive planning laws, bus monitors on school buses, and yes, minimum staffing levels in public safety departments, imposed by the state. Here's the thing, though: all of these requirements were imposed for a good reason. Clean water, good planning, and public safety are all important.

Despite his absurd scolding tone, Governor Carcieri has done us all a service by putting his finger on a big source of the state's fiscal problems. A state that relies so much on local revenue -- property taxes -- is poorly positioned to deal with the effects of people moving around.

When people leave a town, it takes a while to cut the expenses of the services they used, if it's possible at all. If you have a hundred kids in a fifth grade, that's four classrooms. If ten of those children move away, that's still four classrooms, but with less money to pay for them. If a fire station is established to deal with a neighborhood of 500 houses, a town can't close it just because 50 of those houses are now vacant. A shrinking town doesn't need a smaller police department. If anything, experience shows it needs a larger one.

The opposite side of the coin is just as telling. A family with two school-age children moving to some rural town will likely cost that town as much as $30,000 in services, but provide only a fraction of that in taxes. New construction often requires new traffic lights, new water lines, new sewer lines and more. These expenses are never covered by the new tax revenue, and seldom even covered by occasionally imposed "developer impact fees."

In other words, the movement of people from one town to another can raise taxes in both towns. In one town they go up because there are a shrinking number of people to support the same services, while in the other they go up because new residents require more services than they pay for. In a world where cities and towns got more support from the state, this wouldn't matter so much.

While looking into the possible benefits of school district consolidation, I spent some time last year with the budget for Fairfax County, Virginia, part of the DC suburbs. Their school department has about as many students in it as the 36 school departments in Rhode Island. Their spending on administration isn't so much better than ours, so the potential benefit of combining school districts isn't nearly what proponents claim. What they do have, however, is a size that insulates them against the movement of people. When people move from the near suburbs of DC to the farther suburbs, they're moving from one side of Fairfax to the other. The county and school department are still collecting their taxes. Their kids might have a longer bus ride, but that's the only adjustment that needs to be made. Here, though, when a family moves from Cranston to Exeter, they're helping send Cranston's finances into a tailspin, and creating pressures on Exeter's budget that Exeter might not have wanted.

Proponents of school and town consolidation are like the blind squirrel that accidentally finds a nut from time to time. They are on to something valuable, but for the wrong reasons. We don't need super towns like Wesconnaug, or to combine town administrations. We need to come up with a way to fund municipal services that can withstand having people move from one town to another. Not only would this keep a better lid on the growth of taxes, but could ease the pressure on towns to make dumb land-use decisions simply because they need the tax money.

16:33 - 21 Feb 2009 [/y9/cols]

Sat, 14 Feb 2009

A Stimulating Man

It seems the stimulus package has survived the Congressional gauntlet, but wounded. It's fairly clear that "centrist" and Republican changes have removed some of the most effective provisions from the package -- around half a million jobs -- and that they've been allowed to do this because of widespread misunderstanding of what stimulus is.

Here's some review: fiscal stimulus is therapy for a failing economy that we partly owe to British economist John Maynard Keynes, but first to Marriner Eccles, the remarkable chairman of the Federal Reserve Bank from 1934 to 1948. Eccles was a brilliant and thoughtful man who, in 1931, stopped a run on his Utah bank by instructing all his tellers to count the money twice, slowly, and double-check all the signatures. When cash was delivered, borrowed from the Salt Lake Fed, he made the guards bring it through the crowds in the lobby, instead of coming through the back door, defusing the tension by an obvious show of cash. His chain of 28 banks, all over the mountain west, survived the Great Depression without a single failure, while banks all around them fell like autumn leaves.

The experience of the Depression and its near-constant bank panics shook Eccles's understanding of business, and he set out to make sense of events. At the time, the academic world of economics had nothing to offer except assurances that it would all work out somehow. Eccles, who never finished high school, saw this was folly, and saw how his own bank made things worse by restricting loans, shrinking the amount of money circulating in the small towns where his customers lived.

Many economists stop right there, saying the experience proved that the money supply was the key to the whole thing. But Eccles astutely wrote that the controls on the money supply can only pull, not push. You can contract the money supply by raising interest rates or calling loans, but lowering the interest rate will have no effect if no one wants to borrow. To him, the real question was how to encourage businesses to take the risk of expanding, and the way to do that is to give them customers with the money to buy goods.

That's essentially how the doctrine of stimulus was born. Keynes came along later and pointed out why it must be so in a more academic and rigorous way, but he was charting territory pioneered by Eccles.

So here's what stimulus is: any spending that produces customers with money to buy goods and the inclination to buy some.

That said, there are more and less effective ways to stimulate an economy. For example, money in the hands of poor people usually gets spent immediately, making it do double work (or more) when the recipients spend it again. But money put in the hands of better-off people gets partly saved, making it do half work (or less).

There's more. Money spent investing in things that will change our world has the potential to have a lasting effect without more money later, while money spent on dumb stuff has an effect only while the money is being spent. So investing in public transit and new green technologies is likely to be far more effective than rebuilding roads we've let deteriorate. The first kind will change the game and create new opportunities for private investment, while the second is only covering up for old mistakes, and will create structural problems with paying for maintenance after the stimulus money is gone.

Last week, Governor Carcieri sent a letter to President Obama, criticizing the stimulus. In it, he boasted that he had cut the state payroll by 12%, a boast essentially to say that we've done our part to make the situation worse than necessary. But to our governor, all government spending is bad, so cutting it can only be good. The lessons Eccles found in the Depression are apparently lost on him.

Carcieri's letter went on to say he doesn't want the stimulus as proposed. What he wants from the federal government is simply road money, tax cuts, and low interest rates. But the interest rates controlled by the Fed are effectively zero. How do you lower them? And tax cuts? Unless they're targeted at poor and unemployed people, they will be far less effective than investment in things that will change life here for the better. It's not a question of ideology. It's a question of wanting the stimulus to work -- at the lowest cost possible. The Governor's solutions would be more expensive and less effective. Who needs that?

Other Republican suggestions have been equally inefficient. One idea is a $15,000 tax credit for buying a home. Sadly, buying an existing home isn't putting anyone to work, except for real estate agents. (The sponsor was Georgia Senator Johnny Isakson who used to sell houses.) And what's the point? Is there any house now for sale in Rhode Island where the owner won't accept an offer $15,000 less than the listing? The proposal might put some money into seller's pockets, but they're not likely to spend it all. Again, it's a question of whether you want more bang for your buck, or less.

Marriner Eccles began his life a Mormon Republican believer in rugged individualism and free markets. But he paid attention to the real way the world worked around him, and the Depression showed him the simple lessons his father taught about the economy were false. He was a big enough man to change his mind when faced with the facts, so change it he did and FDR was impressed enough to invite him into the administration. He helped design important parts of the New Deal, and became chair of the Federal Reserve. Under his leadership, the Fed became the preeminent outpost of the new Keynesian economics in America. Through his career, he let the evidence lead him where it would, and became a champion of doing what works, regardless of ideology. It's an example others could learn from.

00:05 - 14 Feb 2009 [/y9/cols]

Sat, 07 Feb 2009

Voting issues

A fractured week means three items for today.

First item: Are you concerned about the effects of outside money on elections? Upset that donors with deep pockets seem to get to call the shots with candidates for office? Me, too. Here's something to do about it. Maine and Arizona have passed legislation called "Clean Elections" that provides a stipend for people who are running for office. Candidates show they have support by collecting as many $5 donations as they can. If you can meet a threshold of public support this way, the state provides a small budget for your campaign. If your opponent chooses not to participate, and accepts private donations, the state promises to match those donations. The result is that no candidate has a fundraising advantage over any other.

In Maine, the result has been to dramatically lower the barriers to election, and more people run and more new candidates win. I heard recently from a friend of mine who served in the Maine legislature before and after the law went into effect. He said the difference was tremendous: he was able to spend his time talking to people about issues instead of cadging money.

Senator Rhoda Perry and Rep. Edie Ajello have a bill in the Assembly (again) this year to establish a clean elections system like this here. Perhaps this is a year it could go further than it has in the past. Check out ricampaignfinance.com to see who your legislator's donors are, then call him or her and ask how much of their time is spent fundraising. That's time they don't spend talking to constituents. Make them spend a little more time talking to you and call today to tell them to support changing the rules of the game. It might cost a little money, but if we're not paying it, who is?

Second item: Turning from real reform, with uncertain prospects, we have fake reform, with much better prospects -- as usual. This is Secretary of State Ralph Mollis's appeal for requiring a photo ID in order to vote.

A lot of people I've spoken to, when they hear this proposal, say, "Well why shouldn't I have to show an ID? I have to show an ID to use a check at the grocery store, so why not for voting?" This is one of those perfectly reasonable-sounding arguments that it turns out is almost perfectly misguided.

The grocery store wants to know that the person in front of them is authorized to use the check. The ID matches a name and a face, which tells them all they need to know. But the poll worker wants to know if the person lives where they say, and we don't yet have an ID that can prove that. To see why you can't use our existing ID for proof of residence, take out your driver's license and look on the back for instructions about how to change the address. Yes, that's right: you change the addresss by scribbling the new one on the back. Some proof. One suggestion is to bring a bill to the polls with your address on it, but what about people whose bills are in their spouse's name? In my 20's, I lived in a group house and none of the bills were in my name.

Proponents often fall back on the "Well everyone has an ID so what harm is it?" A dumb requirement is acceptable if it's easy? Well here's some news: not everyone has an ID. A 2006 study from the NYU law school found that about 11% of Americans don't. (Link at whatcheer.net.) Attentive people won't find this a surprise. My father, who can no longer see well enough to drive, but is otherwise a hard-working, tax-paying, responsible member of society, had only an expired drivers' license for an ID for about 15 years, until he finally got around to finding a ride to the DMV a couple of months ago and wasting the better part of a day there.

People I talk to routinely underestimate the cost and hassle of getting an ID. In Rhode Island, a photo ID can be acquired for $16.50, but the documentation costs, too. Birth certificates can cost from $15 to $50, and naturalization papers can cost $200 and take up to a year to procure.

But more important than any of that is requiring a photo ID to vote is exactly the kind of useless "security" measure we've come to expect in the 21st century. Just like airport security confiscating nail scissors from elderly passengers.

In Rhode Island, there are always rumors of dead people voting in this election or that. Do people imagine that the way this happens is for a legion of conspirators to walk in the door and impersonate those dead voters? That there's some kind of shady casting agency interviewing potential fraudulent voters in an abandoned mill building somewhere? Get serious. Voting by the dead is simply ballot-box stuffing by election officials, using the names of voters who didn't show up to cover your tracks. This and campaign workers trolling for absentee votes in senior housing are the kinds of fraud we have to worry about, and requiring IDs won't address either issue.

You say you care about the integrity of the vote? Prove it by backing real measures to secure it, not fake reform that will only exclude legitimate voters from exercising their right to vote.

Last item: A few times over the past few months, I've given a talk called, "Ten things you don't know about Rhode Island." It's a look at the condition of our weird little state and its government, checking out some of the startling misperceptions that pass for common knowledge. If you know a group that might enjoy hearing surprising ideas for saving tax dollars or guessing at the labels on the famous mystery graph, I'd like to talk to you. Please contact me (see left).

00:02 - 07 Feb 2009 [/y9/cols]

Fri, 06 Feb 2009

What is the point of the White House press corps?

Here's an interview with members of the Knight-Ridder team of reporters who were not fooled by administration stooges during the run-up to the Iraq war. Here's another. Ancient history? Not when stuff like this still passes for news (and runs on the front page, to boot). Reporters ought to report about stuff that matters, and do it well. Otherwise, what are they for?

11:07 - 06 Feb 2009 [/y9/fe]

Stimulus sense

From the Washington Post of all places. But from their business columnist, not their political reporters.

09:35 - 06 Feb 2009 [/y9/fe]

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