Tue, 28 Jul 2009

Ten Things You Don't Know About Rhode Island

I'm happy to announce that Ten Things You Don't Know About Rhode Island is now available. The book, a collection of articles and columns written over the past couple of years, is my attempt to begin to assimilate a critique of the conventional tale about Rhode Island's woes.

What's that conventional tale? Let me quote the introduction to the book:

Rhode Island is in a crisis! Hamstrung by a legislature in thrall to powerful unions and the lobbyists for social service agencies, we have spent far beyond our means. Furthermore, profligate spending by cities and towns is bankrupting local government, and threatens to take the state down, too. Meanwhile, to satisfy the unquenchable demand for government services and benefits, taxes are rising every year without end.

Does this story sound familiar? It should. I encounter it in the newspaper, on the internet, on talk radio, and even in conversation with my friends. You probably do, too. I think of it as the "conventional tale," and it defines the politics of the past two decades here in Rhode Island. I've heard it not just from friends and neighbors, but from the vast majority of the many legislators, town councilors, school committee members I've ever spoken with.

The problem is that this conventional tale is wrong in nearly every particular. Labor has several allies in the state legislature, but it has lost almost all the high-profile battles it has undertaken over the past decade. Welfare benefits are stingy and hard to get here, just like in other states, and the welfare rolls have declined dramatically over the past dozen years. Meanwhile, few municipalities are spending any more than the bare minimum necessary to meet legal requirements -- and the ever-increasing demand for services by their own residents.

What about taxes? Aren't Rhode Islanders paying more and more taxes each year? Even this, it turns out, is not correct. If you ignore the take from the Rhode Island Lottery and the video slot terminals in Newport and Lincoln, the proportion of our state's economy collected in state fees and taxes plus all local property taxes has barely budged, except to decline slightly since the early 1990's. What's changed is who pays them.

To be clear, Rhode Island and its government have some serious problems, and they demand solutions. But the conventional tale is just wrong. This is important not because I have a more loathsome set of villains to hold responsible for the mess, or because of some abstract standard of fairness I might uphold. It's important because when the analysis of our problems is wrong, the solutions we come up with don't work, and the problems don't get fixed. A patient comes to a doctor with a headache. If the doctor misses the brain tumor, then the aspirin he prescribes isn't going to do the job, no matter what his credentials are (or however much health insurance the patient has).

Stories are how we make sense of the world, and the conventional tale is simple and satisfies our craving for villains. It's easy to master the overall outline, and there's a host of detail available that seems to corroborate it. When a town budget doesn't get cut, it's easy to blame it on unions, and when the Assembly can't eliminate welfare, it's easy to blame that on poor people or immigrants. But to take this route is to miss the facts, miss the point, and miss the real story.

There is a better explanation of our crisis, and "Ten Things" presents what amounts to a second opinion about Rhode Island's condition.

You can order a copy from this site (which I'd prefer), or from Powells.com, Amazon.com or BN.com. Find direct links over to the left, and if you travel to one of those sites, please leave a comment if you have one to make.

00:08 - 28 Jul 2009 [/y9/jy]

Sun, 26 Jul 2009

Efficient or not? Can't be both.

A few weeks ago I was in Maine with a good friend of mine, and we happened to walk by a little rural post office. My friend gestured with his thumb and said, "You know what's killing the Post Office? Having to support thousands of tiny offices like that."

A little while later, I mentioned that it is now much cheaper to send an overnight letter via the Post Office than by Federal Express, and he said, "Well, they've got all the infrastructure." An essential part of that "infrastructure" is all those rural post offices. In other words, the public sector is terribly inefficient, except where it isn't.

You see this all over. A few months ago, I was watching my local school committee discuss the possibility of letting the school kitchen offer some limited catering services to the public as a way earn some extra income and offset the cost of producing school lunches. One of the members nearly blew his top at the suggestion and vigorously denounced the idea as unfair to competing businesses. This came mere moments after he suggested it would save money to privatize the same kitchen. This was a new member, just elected last November, and this was also the first time I'd seen him so worked up. An ex-committee member sitting next to me (a Republican) leaned over and asked me to explain why he was so heated about a simple idea to earn the district some money.

We're not alone in puzzling over this attitude. President Obama expressed the same thing in a press conference last month, where he defended the a public insurance option in the health care reform. He pointed out that either the public plan would be too inefficient to compete with private insurers, or not. But you can't argue both that it's so efficient it will put private insurers out of business and that it's an inefficient waste of taxpayer money. It's got to be one or the other, according to the rule of the excluded middle, one of the logical rules handed down to us from Aristotle.

So which is it? Are private services more efficient or aren't they? If they are more efficient, where's the threat from a public competitor? If they aren't, why should anyone be upset by one?

My current favorite example of successful and competitive service provided by a public entity comes from those radicals in North Dakota. North Dakota is a pretty conservative state these days. They voted for McCain, and have a Republican Governor and two of the most conservative Democratic Senators in Congress. But a century ago, North Dakota was near the center of the Progressive movement that nearly elected William Jennings Bryan to the Presidency in 1896. Agrarian populists promoted all kinds of economic and fiscal reforms meant to pull power away from the financial and industrial elite of that "Gilded Age" and give it to farmers and workers. Part of their platform was to reform the banking industry to serve producers instead of bankers, and they managed to squeak a measure through the North Dakota legislature to establish the Bank of North Dakota.

The Bank of North Dakota is the nation's only state-owned bank. (It's actually the state itself, doing business as a bank.) Its deposits are the revenues of the state, counties and towns. With those deposits, they make loans to the same governments, do some limited economic development work, and offer student loans. They provide a competitive rate of interest on the deposits, and a cheap rate of interest on their loans, with very low overhead. They even provide service to the private banks in North Dakota, offering check-clearing services and emergency credit to other banks. The Federal Reserve offers these services in the other 49 states.

This is not a non-profit endeavor, nor is it subsidized by tax dollars. But they run fairly efficiently, and they don't pay zillion-dollar salaries to their CEO, so they manage to provide a modest rate of return to the state's coffers. They also serve the state as a de facto rainy day fund, since their reserves are available to be used in an emergency. They did so this year, and partly because of their bank, North Dakota is one of the very few states in the union whose budget is not in fiscal trouble this year.

The part that I like best about the North Dakota bank, though, is that it was founded by radicals but now defended by conservatives. This puts it in the company of many other common-sense public policy institutions, like disability and unemployment insurance and Medicare.

The Progressives who saw it through their legislature saw the original proposal subject to a hundred modifications, and barely overcame a last-minute push to derail the whole thing. But today, the bank (and the rest of their state) is run by practical and conservative business types who understand that it provides an important public service to their state, at a low cost. These are not "Conservatives" -- rigid ideologues to whom every public service is anathema -- but conservative people, sensible folks interested in making their world a better place by whatever measures seem most effective. We could use more of them.

23:26 - 26 Jul 2009 [/y9/cols]

Fri, 24 Jul 2009

Another one

Who says we're the most corrupt state? Only people who don't get out much.

Remember this? Measures of corruption from last winter. Especially check out the survey of statehouse reporters.

10:26 - 24 Jul 2009 [/y9/jy]

Sat, 18 Jul 2009

We need more curiosity, less condemnation

Our state is the smallest state, of course, but do you also think it's the weakest, dumbest, most expensive and most corrupt? If so, you're not alone. But why do you believe that? Is it because it's true, or just because you've been told it so often?

In truth, it seems there is a curious sort of civic self-loathing among Rhode Islanders that seems to leave us perpetually ready to believe the worst about our state. Playing to this suspicion is a fairly effective way to get elected, so there's a large class of policitians and activists with a lot of personal prestige based on such claims. So you hear this kind of auto-insult, a lot. My favorite recent example came up in the news last month about Providence fire fighters.

Now I'm a little chagrined to have no useful opinion about the Providence fire fighters' union and its dispute with Mayor Cicilline. I simply haven't spent enough time with the details of the issue to understand what's going on. Plus I always harbor a suspicion that when two sides let a dispute like this fester so long there are issues in play that no one's talking about. But I don't know that, so can say no more.

What I can say is that there is a statistic about firefighters making the rounds that is highly misleading in some important ways. You heard its echo in news stories covering the firefighters' picket of the National Mayor's Conference, in claims that Providence has the most expensive department in the most expensive state for firefighters. But wait a minute. Who says we are the most expensive state for firefighters?

As nearly as I can tell, this claim originally stems from reports published by the Rhode Island Public Expenditure Council (RIPEC). Each year, RIPEC publishes a report called "How Rhode Island Compares", a slightly tendentious compendium of state rankings of government expenses. They rank welfare payments, firefighter expenses, teacher salaries and so on, all to give you a picture of how our state compares with others.

What's tendentious about that? Well, for one thing, state rankings are often a little odd. After all, what do you really learn by comparing Rhode Island to Wyoming and Alaska? I already know it's farther between most Wyoming towns than it is between Pawtucket and Westerly. What do I really learn when I read that Wyoming spends a third what we do on fire protection? How many triple-deckers do they have? Do they use the same kind of equipment? There's a lot of detail missing from the raw comparison, so what can you say about it really?

The other reason I think RIPEC's reporting is tendentious comes from what's not in it. Their data comes from the US Census Bureau's survey of state and local governments, and I read there that our local spending on public health per person is quite low, last in the nation, in fact. But I didn't see that in the RIPEC reports.

Back to firefighters. According to recent Census data (2007), we spent nearly twice as much per person on fire protection as any other state. Rhode Island spent $231 per person, second place California spent $170 and Alaska in third at $161. The national average is about $113. Scandalous, no?

When I see numbers so egregious, the first thing I do is double check them. I read some of the documentation for this survey, and it turns out there is a classification issue with fire protection numbers. In many states, ambulances are separate from firefighters. In a few states, including ours, ambulances are more typically a part of the fire department. For one set of states, emergency medical services will mostly be reported under "Fire Protection" and for the other, under "Health". I called up the relevant researchers at the Census, and they confirmed for me this is a known issue with the survey and that they have no way to resolve which states classify which way.

But you don't have to resolve it to get some results. There are only two categories where emergency medical services can go. What happens if we add them? If you add state and local fire protection spending to health spending, you see that Rhode Island spends $385 per person, 14th on the list, a bit above the national average of $349 and far behind, well, Wyoming at $541.

The Census Bureau also reports specifically on payrolls. I learned from those reports that we have a somewhat higher than average number of firefighters per capita. But I also learned that we don't pay them particularly well (23rd on the list, 10% below the national average), though this does not count health insurance and pension costs.

What about those benefits? Pensions and health care add up, don't they? According to the Census, we appear to have an outsize portion of non-payroll costs in our fire departments, but there's a classification issue there, too. Health insurance premiums and some pension costs are sometimes reported as part of a department's expenses, and sometimes reported under "Other and Unallocable," depending on how the local accounting is done. Some states (e.g. Alaska, New York, Hawaii, Massachusetts, and more) allocate much more than twice what we allocate to this cateogory. Rhode Island is 13th on this list, just a bit over the national average. The survey was designed decades ago, when the cost of these benefits was much smaller, and there is a great deal of pressure not to change a periodic survey like this. So the problem persists, but more important, there may be other data that says our pension costs are outsize, but this isn't it.

After all this, what do we learn? Just this: Rhode Island does appear to have an above-average number of firefighters per capita, and it's possible that pension costs may have an outsize effect on our departments. There are some reasonable policy changes these facts could suggest, but there are more questions to be answered first, about matters that aren't covered by the Census Bureau. In other words, what I learned is that state rankings and surveys like this are where the investigation begins. Around here it is too often where investigation ends.

23:21 - 18 Jul 2009 [/y9/cols]

Tue, 14 Jul 2009

Health care: Hope for Congress

I spent an evening last week engaged in a 21st century American chore: reading the fine print on competing health plans. There I was, trying to discern whether one plan, that covered "100% of eligible expenses" but has no "out-of-pocket" limit is better or worse for my family than another that covers 90%, but has an out-of-pocket annual limit. After failing to find adequate definitions of "eligible" for one plan and failing to determine whether the absence of a qualifier in the other really meant "all," I felt like throwing the whole mess across the room.

Our nation has accomplished some phenomenal things in medicine. Our medical care is the envy of the whole world, except for one teensy detail: its cost. As of a 2003 survey, we spend more per person each year on medical care, than any other country in the world. By a lot. The second place country, Switzerland, has only two-thirds of our expenses, and almost every other country spends half what we do, or less.

What's more, because of its high cost, we get less of that magical care than people in many other places. So our infant mortality is higher and our life expectancy lower than in virtually any other industrial country.

Now I read that the plans making their way through Congress are expected to cost somewhere between $1 trillion and $1.6 trillion more than what we're already paying (over ten years). For those keeping score, we already pay around $1.6 trillion in health care costs each year.

Which is all to say that the only way that Congress can figure out to control health care costs is to increase the costs we're already paying? Some reform. But apparently we're doing this to preserve the valuable parts of our system.

Which parts do you want to preserve? The all-expenses paid conferences in Aruba that drug companies hold for doctors? The endless pads, pens, tote bags, and tape dispensers advertising drugs? The conflicts of interest where physicians have a financial stake in the tests they order? The millions paid to the United Health's CEO? Or maybe the millions paid to the Lifespan CEO? Who pays for all that? You do.

And you don't even have to look that high on the food chain. A distant cousin of mine has become a radiologist, and I hear she is quite enjoying her new Paris apartment, and frequently even manages to get there for long weekends. I'm happy for my cousin, but I'm really not sure about a system that rewards specialists like her so richly, while stiffing the general care physicians and nurses who really are the front lines of our care system.

But the real part of the system my friends and relatives want to preserve is the part that says that you can always get what you want if you can pay for it. Some of them already have excellent health plans, and they don't want to give anything up. But do they really have what they think they have? A March survey by the Kaiser Family Foundation says that 26% of people with health insurance had had a treatment prescribed by their doctor denied by their insurance company in the past year. About a fifth of those people paid for it themselves; the rest did without. Are you covered, or do you have the illusion of coverage?

The better among the competing congressional plans have a "public option," a government-run insurer that will compete in the marketplace with private insurers, as a way to use the market to hold down costs. If private insurers want to keep their customers, they'll have to make their plans as appealing as the public plan. I'm not sure how the public plan is going to address the salaries, drug ad budgets, conflicts of interest and all the other cost drivers, but it will be useful to pressure the insurance companies.

Some people think of the public plan as a threat. I think of it as the last vestige of sanity. Rep. Pete Stark of California has had a universal health care plan (essentially an expansion of Medicare) introduced into the House in the past. According to a 2007 study by the Commonwealth Fund, his plan would cost only $154.5 billion a year, but save people, households, businesses, and state and local governments over $215 billion. In other words, it would cost a tiny fraction of what's currently being proposed, and probably save money, net. But his plan is considered too "left" to be considered.

So here we are, floundering around, waiting to see what kind of travesty Congress comes up with. President Obama has made it clear what he hopes to see in a health plan, but he's leaving the details up to Congress, and this is a mistake. He should take a page from Governor Carcieri.

For better or worse, our Governor runs the show around here. He proposes a budget, and it is enacted. He routinely complains the Assembly has sullied the clean bold lines of his budget with their modifications, but you have to believe that's just for show. Look what he's achieved: a budget that, while slashing aid to cities and towns, preserves and increases substantial tax cuts for the richest Rhode Islanders, just what he'd asked for. Social spending is not as low as he'd have had it, but it's still gone down.

Contrast this with Obama's approach to health care, global warming, the Employee Free Choice Act, and repealing Don't Ask, Don't Tell. In each of these cases, he's offered some thoughts, but is mostly waiting for Congress to propose something. I admit that during the campaign last fall, it never occurred to me that "Hope" might mean "Hope that Congress grows a spine."

00:00 - 14 Jul 2009 [/y9/cols]

Tue, 07 Jul 2009

Leadership, but to where?

During the budget debate a couple of weeks back, House Majority Leader Gordon Fox offered some stern words about leadership. "You're here to be leaders," he told his House colleagues.

He's absolutely right. It takes a special kind of leadership to insist that cutting taxes for rich people is the only way to raise enough revenue to deal with our fiscal crisis. It's the leadership of the bus driver who takes his bus right off the cliff, assuring the passengers he'll find the button to make it unfold into a jet on the way down: "It's got to be here somewhere!"

It is also, of course, a leadership built on threats of retribution. Assembly members well understand that a legislative proposal is not judged on its merits, but on the "loyalty" of its sponsor. A "no" vote on the budget dramatically decreases the chances that any bill of yours, no matter how important or useful, will be considered. This is the way House Speakers have maintained control for decades, and so everyone thinks it normal, and that's why there was such a crush of bills to pass that had been held until after the budget vote. I have no doubt whatever that Speaker William Murphy and his team feel this budget is the best they can do for the state. But let's be clear: when they prevent members' bills from consideration based on anything besides the merits of the bill, they subordinate the good of the state to that of the Speaker and his team, and I can't imagine why they would expect praise for that.

What of the budget itself? One thing that should surprise no one is that it's likely not balanced. The current year, fiscal year 2009, is widely expected to end at least $70 million, and possibly as much as $120 million, in the red. Inquiries I made about this matter to the controller's office were returned by a note from Amy Kempe, the Governor's press officer, who said the rainy day fund would be adequate to cover the cash flow issues. That's fine, but state law says that money must be paid back. I don't see a line item for that in the 2010 budget, so who knows where it will come from.

This is a lot of money, and the rainy day fund isn't so much bigger than that. It will take some luck to get through the coming fiscal year without more serious cuts and "adjustments." Meanwhile, stay tuned until the November revenue estimating conference, when we'll learn that, surprise, surprise, the deficit hasn't gone away.

What of the economy? Don't hold your breath waiting for it to recover. We are using a lot of the federal stimulus funds to fill budget holes instead of expanding anything. And we are letting the stimulus funds to schools displace state aid, in order to save more money. Again, we'll get contraction where President Obama intended expansion. And by cutting taxes on rich people yet one more year and watching local property taxes increase, we are effectively taking money from people who will spend it and giving it to people who will save it. This is the exact opposite of stimulus, so no one should be surprised if we're the last ones out of the recession, once again.

In the meantime, it's worth looking across the continent, to California. Their Assembly requires a two-thirds super-majority to pass any budget with a tax increase. Since Republicans there are insistent that no tax increases are ever to be considered under any conditions whatsoever, they have been unable to balance their budget. A budget deal brokered in February ran aground when voters refused to approve a couple of its components at a special election in May.

Governor Schwarzenegger says he'll solve the problem by slashing everything, but as I've written before, the constraints on cutting are much more complicated than is widely assumed. Not only are there legal and contractual constraints, but cutting programs intended to save money doesn't save money. Cutting budgets is possible, but it usually takes time, planning and sometimes even judicious up-front expenses, and no one wants to hear that.

California is now in a situation where they've given up so much money over the past few years that it may no longer be possible to balance the budget at all. Their bond rating is shot, so their best bet for borrowing is from their own suppliers. The state controller expects to begin issuing IOUs instead of checks to state vendors this week.

This is the future that awaits us. Deferred maintenance does not simply go away. Institutions damaged by underfunding do not heal themselves. By refusing to deal honestly with the budget crisis we face, the legislature and the Governor hasten the day when we will not be able to make up the problems, even with a tax increase.

Postscript: During the budget debate, Rep. Scott Guthrie of Coventry defied the powers that be by proposing an amendment to the budget that would have traded yet another tax cut for the rich for restoring some of the aid to cities and towns. The House leadership opposed this strenuously, and it was voted down, 23-52.

Election season is nearly upon us, so I contacted the offices of Frank Caprio, Elizabeth Roberts, Patrick Lynch and Lincoln Chafee, all likely candidates for governor, and asked whether they concurred with the House leadership's opposition to this amendment.

Through spokesmen, Patrick Lynch and Lincoln Chafee both declined to comment on anything substantive, saying they weren't officially candidates yet. Elizabeth Roberts and Frank Caprio both issued precisely crafted statements saying "no one element of tax policy can be considered in isolation" and calling for "comprehensive tax reform" (respectively). Which is to say that neither of them answered my question at all. On the fundamental issue of how to pay for our government, they're not leading anywhere.

13:20 - 07 Jul 2009 [/y9/cols]

Do they care enough to share?

An important part of Rhode Island's budget puzzle is the budgets of our cities, towns, school districts and fire districts. The state offers a considerable amount of aid each year to the cities and towns, and it seems to be a permanent bone of contention. A couple of weeks back I wrote about how folks at the Assembly seem to think the money is largely wasted.

Well last week, they proved it by axing one program of aid, called "general revenue sharing." This was a program, begun under Governor Bruce Sundlun, that allocated a set percentage of the state's general revenues (mostly sales and income taxes) to the cities and towns. At first it was just 1%, but in 1998, the Assembly changed it to ramp up to 4.7% by 2009.

But the optimism gave way, and in 2002, we delayed the phase-in by a year. Then, in 2004, Governor Carcieri suggested it be delayed another year. His budget that year level-funded the program and delayed the phase-in schedule by a year. But then the next year, he proposed something similar, and that was pretty much the end of ambition. For the fiscal year 2009, the one that finishes at the end of this month, we originally allocated $55 million last year, about 4% of municipal budgets. The supplemental budget this year was going to eliminate this aid entirely, but a near-revolt in the House earlier this spring saved $25 million of it.

The budget draft reported out of the House Finance committee contained zero dollars for the program. It didn't repeal the provision of the law, but it did remove the percentage targets entirely and inserts language to say the whole thing is up to the whim of future Assemblies. Of course they've made it clear that municipal funding is up to the whim of the current Assembly, too, so maybe there's not much of a change there.

This is serious news for a number of cities and towns. Few of them will be able to make up the lost money (and this isn't the only blow to municipal aid). The Paiva-Weed limits on property taxes holds increases in the dollar amount cities can collect down to a 4.75% increase over last year. The arithmetic says Pawtucket, Providence, Central Falls, and Woonsocket simply won't be able to make up this money, even just to keep their budgets level-funded. Cranston, Johnston, Smithfield, and North Providence won't be much better off, with most of the rest not far behind.

Revenue sharing is a good idea, though, and should be preserved, not because cities and towns are unjustly stiffed, and not just to give cities and town an interest in the health of the overall state economy. It's important because the various taxes our governments impose act differently under different economic conditions. This frequently leaves the state in a different boat from the municipalities, and that's a source of the conflict between them.

The income and sales taxes levied by the state are sensitive to the economy. When the economy is rising, people's incomes are rising, and the amount of stuff we buy is, too. Collections from taxes on those things rise, too. In fact, because of inflation, the sales tax collections can rise faster than the economy. On the other hand, when the economy tanks, as it has, revenue from the sales and income taxes can drop precipitously, which is what we've seen this year.

The cities and towns are in a completely different situation. The property tax depends on the amount of property in town. This only wiggles gently compared to the swings in state taxes, in good times and bad. (Revaluations don't affect the level of taxes, only who pays.)

The difference means that when the economy is growing, the state's revenue stream is growing very quickly, while municipal revenue only creeps along. But costs like utilities, wages, health care, pensions, gasoline and all the rest, grow at exactly the same rate for both. When times are good, the state does fine, and can even consider tax cuts, all the while making disparaging noises about irresponsible cities and towns. Meanwhile cities and towns suffer and have to hike their tax rates just to keep up. This is the problem that revenue sharing was meant to address, at least in part.

When the economy sours, property tax collections don't suffer nearly as much as state tax collections. (Unfortunately, as of 2009, Rhode Island's cities and towns have been behind so long this is only meager consolation.) An ideal system would have a mix of each of these kinds of taxes, but it wouldn't leave the different governments in such different situations.

Ultimately, the revenue sharing moves are really about power and who has it. The state government has power over the cities and towns, end of story. What has been made abundantly clear, though, is that there are few people in the statehouse willing to consider how to use that power to help cities and towns. In the past few years, we've seen a blue-ribbon commission about education funding do sterling work, and be completely ignored. We've seen another blue-ribbon commission on tax reform essentially refuse to consider anything serious about property taxes. And we've seen the state apply simple-minded limits to town budgets while offering essentially zero compensating aid.

Where's the call for a blue-ribbon commission on municipal finance? Where's the call to transform education funding? Where's the call to make local governments -- who, after all, deliver important state services -- into partners rather than subjects of the state? I listen for something more, but there's just silence.

13:20 - 07 Jul 2009 [/y9/cols]

Ads and the like:

Rhode Island 101
(A funny book you should own)