Sun, 28 Jun 2009

What about taxes?

I asked the likely gubernatorial candidates what they think about Rep. Scott Guthrie's proposed amendment to the budget last Wednesday. This amendment would have frozen the "flat tax" rate at the current 7% limit and appropriated the savings to revenue sharing for cities and towns. The amendment failed 23-52. Do they concur with the House leadership that this was not a good idea?

Frank Caprio:

"We need comprehensive tax reform, and we need to start by thinking about having a singular, consistent approach, not a dozen continuously changing tax policies. Our tax strategy needs to focus on helping businesses, particularly small businesses, create jobs."

Elizabeth Roberts:

"No one element of tax policy can be considered in isolation. What RI needs is a coherent, integrated tax policy that meets the goals of: fairness to all Rhode Islanders, regional competitiveness, lowering the tax burden on the middle class and working Rhode Islanders, and supports a comprehensive economic development plan."

These, of course, are not what you'd call answers to my question. Patrick Lynch and Lincoln Chafee both declined to comment, both saying it was because they're not official candidates yet.

In other words, none of them were willing to express an opinion about how our government ought to be funded.

00:47 - 28 Jun 2009 [/y9/jn]

Sat, 20 Jun 2009

Investment: It's not all good

I just finished reading an interesting report, out last week from the Rhode Island Coalition for the Homeless and RI Legal Services, about the plague of foreclosures and evictions upon us. It's an interesting read, and filled with useful maps about where evictions have happened, and which banks are doing them. (See rihomeless.org.)

Sadly, many foreclosures happen on rental property, and many banks routinely evict all the tenants when that happens. Since sales rates are way down, lots of these properties end up boarded up and vandalized, while the evicted families end up, well, evicted. It is just as dumb as it sounds, but these banks have chosen not to be in the property-management business, an understandable business decision -- if you ignore the damage they're doing to our state.

The first thing I learned is that the places with the most evictions and foreclosures are exactly where the most real estate speculation happened. In Providence, for example, the hardest hit places were not the poorest, but the places where the poor neighborhoods abut better-off neighborhoods. So in Providence, the West End and Elmwood were hit harder than South Providence, and the Woodlawn part of Pawtucket, next to Oak Hill and Providence's East Side, suffered, too. These were places where, during the crazy years of 2000-2006, the demand from nearby neighborhoods spilled over, raising prices a lot. They were therefore places where investors could get a bargain, and so properties moved a lot in these areas.

According to a 2007 analysis I did of land records in Providence, flipping in these areas was epidemic. For example, in plat 43 in Providence, which covers part of the West End around Cranston Street and Potters Avenue, over 40% of the sales that happened between 2003 and 2006 were for rapid-fire investment. People were making a lot of money here, but they weren't making it by managing the properties for the benefit of the people who lived there, so it's no surprise to see this neighborhood well represented in the evictions report. When sales rates declined, the possibility of the quick hit evaporated, and many investors walked away.

All those investors -- who now leave such a sorry mess for us to clean up -- benefited from the reduced capital gains tax rate. The money they earned by flipping those properties was taxed at a lower rate than the money you earned at your job. Happy about that? Did we really need to use the tax code to encourage this mess?

The other thing I couldn't help notice was that of the eight banks who have engineered the most evictions, most have no branches in Rhode Island. Bank of America, offender number four on the list, was the only one with a real presence here. The others were banks able to supply the money to "invest" in our state, but completely without the ability or interest to manage the properties they suddenly owned.

A few years back, after the tech bubble burst, I was talking to an executive at a software company I consulted for. He surprised me by saying how pleased he was to have been able to reject what I thought sounded like a generous financing offer from a venture capital firm. Since the company was teetering, I thought this was a curious strategy, but he explained to me the world of difference between venture capitalists.

Some venture capitalists make the construction of a business their priority. These investors populate the boards of companies with people who have the expertise to grow that company, looking to make management stronger and smarter. The other breed of investor is more interested in the quick hit, and gives precedence to cashing out. With these guys, you'll eventually find your board stocked with members whose loyalty may be to the VC boss rather than to your business. They'll vote to sell when he says sell.

In other words, it not only matters where an investment goes, it matters where it comes from. Local investment from local sources provides the owner of the investment with a much different set of priorities than the owner of an investment in some distant place.

The tax cuts that are the center of my griping about the state budget are indiscriminate kinds of things. They are cuts given to people who will invest badly, people who will invest well, and much goes to people who won't invest at all. (And about two-thirds of the benefit of the "flat tax" currently goes to people who live in another state.) To their credit, House Finance took a little bit of this back by eliminating the tax advantage to capital gains income, but there is more, and the indiscriminate nature of it all is irksome and above all, wasteful. Want to know where there's waste in government worth cutting? Start right there with the tax code.

14:14 - 20 Jun 2009 [/y9/cols]

Thu, 18 Jun 2009

The California Budget Challenge

Check out the California Budget Challenge. It's good for one's humility.

19:18 - 18 Jun 2009 [/y9/jn]

Sat, 13 Jun 2009

Bill numbers for Covanta trash bill

The bills that would reverse Rhode Island's incineration ban and qualify waste-to-energy as a renewable energy source are H6053 and S933. Please tell your representative or senator to oppose them. Read below for more.

21:19 - 13 Jun 2009 [/y9/jn]

Like flies to a subsidy

I was passing through Portsmouth a couple of weeks ago, and couldn't help noticing that the town is now home to a second giant wind turbine, which seemed pretty cool to me. The new turbine is owned by the town, and generating electricity that the town sells to National Grid. Electricity isn't the only thing Portsmouth sells, though. They also sell something called Renewable Energy Certificates (REC).

An REC is sort of like a green blessing for a megawatt of electricity. Better yet, think of it as the bragging rights for using that green electricity. If you have the certificate, you have a legal right to claim you've used a megawatt-hour of renewable electricity. Portsmouth is allowed to issue one REC for every megawatt-hour they produce.

RECs are important because electrons are electrons, and they don't come with little labels saying how they were generated. An electron that comes out of the socket in your wall is the same whether it was generated by Portsmouth's wind turbines or by an ancient and filthy coal-fired generator in Ohio.

By selling the REC separately from the electricity, we give the producers of renewable power a subsidy whose price depends on the demand for green power. The higher the demand, the higher the price for RECs. In order to boost the demand, and provide a better price for renewables, Rhode Island, along with 24 other states, has a requirement that a certain percentage of electricity sold here be from renewable sources. The way this is enforced is that National Grid (or Pascoag) has to buy enough RECs to cover that percentage of the electricity they deliver to our homes.

It's an interesting idea, and it seems to be working fairly well. The price of RECs isn't outrageous, but it's high enough to provide a modest subsidy to renewable energy. People can (and do) bid up the price by buying RECs as "carbon offsets" at sites like carbonfund.org or green-e.org. And the market is responding to this gentle pressure, and new sources are coming online every month.

Sounds good? There is a problem, and that's defending the subsidy for the kinds of producers it was meant for. When you think of renewable energy, you think of wind power, solar cells, hydropower, and things like that. Do you think of trash incinerators?

A bill pending in the General Assembly says yes. It would introduce Covanta Energy, a New Jersey operator of incinerators, no, sorry, of "modern Energy-from-Waste facilities" (quoting their web site) to our state. Covanta would build a plant to burn trash intended for the Central Landfill in Johnston. The pending bill would not only end Rhode Island's ban on trash incineration, but would allow Covanta to sell RECs to subsidize its operation.

This is what we students of government call a really bad idea. Connecticut did something similar in 2005, loosening their definition of renewable energy, and the price of RECs there plunged from $35 to aout $5. Beyond just Portsmouth, Rhode Island has a bunch of organizations making plans to bring renewable energy projects online. This change would cut the legs out from under those projects. If you want to see green projects built around here, if you want to see jobs in those industries develop, or if you just want to do our part in making progress on global warming pollution, this is the wrong way to go.

And that's before we've said anything about trash. An incinerator could keep the landfill from overflowing, which isn't a bad thing, but that's not all it would do. I have no doubt that the new incineration technologies are much better and cleaner than old ones, but "cleaner" doesn't mean "clean." The best incinerators are still sources of heavy metals and dioxins, even if they're not as bad as they used to be. What's worse, though, is that an incinerator demands to be fed.

We save more energy, more pollution, and more natural resources by reducing our use and by recycling, but the owners of a big incinerator in Johnston are going to be at every town and state hearing from now on, demanding that we *not* increase our recycling rates and that we *not* forbid wasteful packaging or that we *not* look for other ways to reduce the amount of trash we generate. If we do manage to reduce the waste stream, they will demand to be allowed to import trash from other states.

A study from the Massachusetts Department of Environmental Protection points out how real the issue is. The study, done by the Tellus Institute, is a review of several different waste management techniques, with an eye to recommending strategies to deal with Massachusetts own solid waste problems. They point out that recycling saves more than three times the energy of the most efficient form of waste-to-energy technology, and that it's far cheaper and quicker to get underway than any incinerator.

The potential to reduce Rhode Island's waste is huge. The island of Nantucket is now seeing recycling and composting rates approaching 90% of their municipal waste. Only a handful of communities in Rhode Island see rates any higher than 30%, and most are still below 20%. We could make a tremendous improvement in these rates at a much lower cost to our health, safety, environment, and wallets than with an incinerator.

Rhode Island has a serious trash problem. But as is often the case, the technological solution is more expensive, less effective, and more disruptive than the simple solution. Let's make the right choice, at least this once. Call your Representative or Senator and tell them. The bill details are at whatcheer.net.

21:13 - 13 Jun 2009 [/y9/cols]

Tue, 09 Jun 2009

Dept. of Reaping What's Been Sown

On the news that George Tiller's family is not interested in being picketed, protested or shot. From the Times

Even some abortion opponents, who had long devoted their efforts to closing down Dr. Tiller's clinic, said they did not wish to see it happen under these circumstances. Last week, Troy Newman, the leader of Operation Rescue, had said that closing the clinic now would send a worrisome message. "Good God, do not close this abortion clinic for this reason," he said in an interview with The New York Times. "Every kook in the world will get some notion."

Wonder where they will have gotten it from?

14:21 - 09 Jun 2009 [/y9/jn]

Sat, 06 Jun 2009

The fun only lasts until the music stops

A couple of weeks ago, during a hearing at the Senate Finance committee, chairman Daniel DaPonte (D -- East Providence and Pawtucket) made some disparaging remarks about our cities and towns. In response to a witness who made a comment about how cuts in municipal aid were forcing cities and towns to raise property taxes, Senator DaPonte said, "There's no evidence that giving cities and towns more money will result in property tax cuts. We've raised municipal aid and property taxes haven't come down."

In fact, the chairman is right that municipal aid has gone up a lot, but he's wrong, too. Municipal aid grew from $28 million in 1990 to $234 million in 2008. What are the towns doing with all that money? Flushing it down the toilets in town hall?

In fact, they can't flush it because they don't get even half of it. That number serves to nurse the standard story about what's wrong with local government, but it doesn't have much to do with paying bills at town hall. You see, to make the sum as large as $234 million, the state budget writers include $135 million in reimbursement for car taxes. This is real money, certainly, but it goes to taxpayers, not towns. It does not help balance municipal budgets

If you ignore the car tax reimbursements, state aid to cities and towns is down, pretty much any way you slice it: as a proportion of state spending, as a proportion of municipal budgets, and as a proportion of the state's economy.

1990 was an interesting moment in this history. For all his faults, Ed DiPrete was once a mayor, and therefore was the last governor who had ever balanced a local budget, and it showed. At the time, state aid was funding 29% of municipal budgets, including about 50% of education costs. Official state policy was that we'd eventually be funding 60% of local education.

But the 1991-92 fiscal crisis knocked everyone for a loop, and Bruce Sundlun was a lot of things, but mayor was never one of them. State aid fell to 23% of municipal budgets. Lincoln Almond's administration pushed it back up to 33%, but it's been declining ever since Governor Carcieri took over, and we're down to 27% as of 2008 (including 36% of education costs, counting generously). It's a little hard to say what's the case in 2009, since the dust hasn't settled, but the only real question is how great the decline.

For cities and towns, what's the difference between Lincoln Almond (33%) and Don Carcieri (27%)? $160 million in local aid, that's what. But you'd rather have a couple of replacement bridges, wouldn't you?

"Wait a minute," you say. "Even though municipal aid is down so much, you're measuring it in relation to other numbers that have gone up. What about the real number?"

Fair enough. As of 1990, Rhode Island cities and towns received about $1.3 billion, between state aid, property taxes and various municipal fees. In 2008, this was just a bit short of $3 billion (still not counting the car tax). If you're keeping score, that's growth of about 1.9% per year after correcting for inflation. This is troubling, but it's not necessarily evidence of mismanagement. Inflation measures the price of goods and a few services, while towns spend their money on services and a few goods.

If you want a yardstick with which to measure a service-oriented enterprise like a town, how about a private-sector service like Federal Express? Fedex is widely considered a fierce (and nonunion) competitor who relies on technology to keep costs down. How have they done over the same time? Well, in 1990, it cost $11 to send an overnight letter to California, and today it's about $25.50 for the same service. After correcting for inflation, that's up about 2% a year. Health care is also a service industry, and I think we'd all be much happier if it had kept its costs down to 2% growth. On the other hand, movie ticket prices are actually down compared to inflation, so not all service industries see this degree of cost inflation.

What about the state? After accounting for inflation in the same way, the state's general revenue has gone up 2.4% per year since 1990, and overall expenses are up even more.

This is what makes it so galling to sit around in town hall these days. Here you are, running your town more efficiently than Fedex, and way more efficiently than the state, but look how you're treated.

I'm not saying 1.9% a year is great. My income hasn't gone up that fast. It's a cause for concern for me, and should be for you, too. I'm not counseling complacency; government needs watchdogs. But we're not going to fix anything by getting all the important answers wrong. In this case, putting the blame on the cities and towns tends to absolve the state, which by comparison has been downright reckless with its finances at the same time it starves the cities and towns.

We have nearly doubled the state debt since 2002, for example, taking on giant road projeects we can't afford. We have stolen from the following fiscal year in service of the current year. And we've given millions of tax dollars to the wealthiest of our citizens, tax cuts the state's budget-writers still haven't given up on, despite the crisis.

The big difference between the state and the municipalities here is the state's tax revenue grows in step with the economy, while towns have to raise tax rates in order to keep up. Towns pay for their tax increases in the form of property tax riots, while the state gets its increases for free, as it were. For years, all those cost-of-living adjustments and allowances for the rising price of fuel are built into the state's funding source, so they're easy to build into the budgets. Except for the fastest-growing towns, this was a pleasure denied to municipalities. Legislators and the Governor can tsk the way they do at the locals because the state has been insulated from their budgetary recklessness by this constantly growing stream of income.

Until, of course, the music stops. This year, collections from the state income and sales taxes have declined, and the state is reeling from accumulated years of irresponsible budgeting, and naturally, the state is blaming cities and towns again. Some things never change.

08:01 - 06 Jun 2009 [/y9/cols]

Fri, 05 Jun 2009

My favorite part of the Cairo speech

It's a story with a simple truth: that violence is a dead end. It is a sign of neither courage nor power to shoot rockets at sleeping children, or to blow up old women on a bus. That is not how moral authority is claimed; that is how it is surrendered."

I think the moral high ground is routinely undervalued in discussions of international (and national) affairs. The contrast between South African and Palestinian history of the last 50 years could hardly be more stark.

07:53 - 05 Jun 2009 [/y9/jn]

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