Rhode Island Policy Reporter

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

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whole site RIPR back issues

Available Back Issues:

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

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


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Thu, 29 Apr 2010

Gina Raimondo for Treasurer

One of the exasperating aspects of American politics is how often elections seem to be decided by something besides the issues at hand. A candidate is deemed to be a nice guy, or someone you'd like to have a beer with, and that seems enough for a lot of people. Scott Brown won election to the US Senate in Massachusetts in January, despite holding policy views at odds with the electorate that voted for him. But he is a more personable guy than the notoriously stiff Martha Coakley, and that and some shrewd marketing was apparently enough for the voters of that fair state.

The truth is that elections must be about more than personalities and ambition. They are how we decide what our government is to do -- for us and to us. When we choose badly, we get terrible results. Voters chose the avuncular and charming Don Carcieri over Myrth York eight years ago, and our state is a wreck because of it -- we have doubled the state debt, forced almost a thousand employees into an early retirement we're paying for now, devastated the budgets of our cities and towns, the economy is worse here than when he began, and he's not done yet.

Certainly the legislature played its part in these disasters, but the same dynamic is in play there. Do you vote for your state representative because he or she advocates policies you agree with, or just because you're neighbors or relatives? Or because he throws nice parties? The substance is what matters -- to all of our lives.

Gina Raimondo, my opponent in the race for General Treasurer is personable and charming, a pleasure to chat with. Though the hosts at city and town Democratic committee meetings over the past months have mostly tried to keep candidates apart, I have had a chance to observe her a couple of times, and heard several reports from my partisans at these events to support these impressions.

However, it wasn't until quite recently that I became aware that we were talking about a lot of the same things. For example, I often speak about how the state should use its presence in the local banking market to pressure the banks with which we do business into lending more to local businesses and to lower their fees and provide more accessible services.

Other states are beginning to take a long look at these possiblities. Massachusetts recently pulled its deposits from Bank of America in protest of their usurious credit card interest rates. The treasurer's office in Ohio developed a set of "qualitative" criteria by which to measure a bank's performance on issues like consumer fees and local lending activity. We have tens of millions of dollars on deposit in the banks with which we do business, so we have the ability to demand these kinds of improvements. Representative David Segal recently introduced a bill into the Rhode Island House of Representatives to demand this kind of behavior from the banks with which our state does business.

These are good ideas, and I've been promoting them as hard as I know how. So has Gina.

Another important subject facing voters this year is the conflict of interest involved in taking campaign contributions from state vendors, especially those involved in managing the state's pension funds. "Pay to Play" scandals have rocked Massachusetts, New York and California in the past few months. Here in Rhode Island, Frank Caprio found himself the beneficiary of donations from securities law firms hoping to do business with the treasurer's office in 2008. (He returned them in 2009, after reporters inquired.)

Reining in these abuses is an important step in restoring trust in our government, as well as protecting the integrity of the funds. While many of Gina's contributions come from the financial industry, she is aware enough of the potential for conflict to endorse the SEC proposed regulations prohibiting the practice, stronger measures than are currently in place here. She also endorses tenets of shareholder activism, a valuable tool in pushing back against the corporate power that has served our state and nation so poorly. In other words, Gina intends to be an activist treasurer, looking for new ways to use the office for the good of the whole state -- exactly what we need.

My campaign has been an exciting experience, and the most exciting part of it is the sheer number of people who have volunteered their time and energy -- and money -- to help. But it is my respect for them that makes me cautious. That is, you can't run a campaign without asking people to sacrifice on your behalf. But respect for that sacrifice demands that I know there is some purpose for it beyond my own ambition or emotional needs.

Were the differences between my positions and Gina's more substantial, I would not hesitate to push forward with every ounce of energy I could muster. But I have come to two conclusions. First, those differences are much too small for me in good conscience to ask people to join an aggressive campaign against her. Second, our state suffers from a shortage of advocates for sensible public policy. Rhode Island will be better served by having another advocate for smarter government in the arena with me than by having two of us battle it out in the primary. I'm certainly not going to shut up, but I am going to suspend my campaign for treasurer in order to welcome Gina Raimondo to the community of people trying to make a positive change in Rhode Island. She will be able to make the treasurer's office into a source of exciting policy innovations, and I expect great things from her. I will happily vote for her in September's primary, and I hope you will, too.

16:38 - 29 Apr 2010 [/y10/ap]

Wed, 21 Apr 2010

Move (Y)our Money

An article at the Huffington Post (by me).

At a recent campaign event, a member of the audience identified himself as a VP for mortgage origination at a national bank with a big presence in Rhode Island. He asked, in horrified tones, whether I was proposing to force his bank to participate in a "social program."

Well... Yup. And the name of that program is "community."

14:56 - 21 Apr 2010 [/y10/ap]

Mon, 19 Apr 2010

Bad Math = Bad Policy

I have a great investment to offer you: you give me $100, and I will give you a cool new cell phone costing $180 in the year 2029. Would you take that deal?

Would you change your mind if I pointed out that you'll save $80 by paying me now instead of later?

The proposition is ridiculous, isn't it? But something very similar is what Senator Dan DaPonte (D-East Providence), the chair of the Senate Finance Committee, is saying when he claims that reamortizing the state's unfunded pension liability would cost us $2.2 billion.

Last week, the state Senate rejected the budget plan assembled in the House for the first time since the 1970s, and it was over this claim. But the claim is tremendously deceptive, a perfect example of how bad math leads to terrible policy choices. Here's why.

The only way the cell phone deal I offered makes sense is if the choice is between giving me the $100 and flushing it down the toilet. If you can't do anything else with my money, then yes, investing your money in my cell phone plan makes perfect sense.

But in reality, you could do lots of other things with $100. Some of them might be worse for you than my investment, but lots of them would be better. You could give it to your brother, or buy 100 lottery tickets, in which case the odds are great that you'll be worse off, or you could buy and plant four apple trees in which case you'll probably be better off in 2029, if you like apples. You might find a bank account that paid as little as 4% interest, and then you'd be much better off.

In other words, Senator DaPonte's claim is only true if we plan to waste the money we save by lowering pension payments.

However, it's far more likely that we'll use the saved money to educate our children, and to provide all the other important services on which our economy depends, like our roads, bridges, water systems, and more. How do I know? Because that's what we're cutting in town halls across our state. People like Senator DaPonte who make these arguments tend to sound righteous notes about not wanting to leave a debt to our children. That's all well and good, but what if the debt is for something they might want?

Rhode Island is quite unusual to have the terms of working off the pension liability written into state law, leaving technical issues like this as matters for public debate among members of the General Assembly. Is that where technical details belong? In most places, these details are left to the discretion of the technicians in charge of making sure that managing the state's pension system is done at the lowest possible cost to the taxpayers.

The reality is that reamortizing the state's pension liability is far from a cataclysmic event. It is a completely routine part of managing this kind of a debt. In fact, some states do it every year. This practice even has a technical name among actuaries: an "open" amortization period. Delaware manages their pensions this way, as do Kentucky, Iowa, North Dakota, and many more. What about our state's bond rating? Go look up those states' bond ratings and then tell me whether we should worry.

I don't know what's in Senator DaPonte's heart. I don't know why he wants to manage our system at a higher cost than is necessary, but that's what he's pushing for. To him, and the others preventing this move, the promise of a system that will be cheap to run after the year 2029 has apparently outweighs the damage done trying to get us there.

If, in order to make the pension system cheaper twenty years from now, it becomes impossibly expensive in the near term, then who does that serve? It doesn't serve the kids whose schools get cut. Nor does it serve the teachers who come under more pressure every year to offer still more pension cuts. Nor, in fact, does it really serve property tax payers. They may see slightly lower tax payments, but school quality is a major determination of property value, so they are likely to lose more over the long term. The only parties this situation unequivocally serves are the investment firms who manage our pension funds and all the other money managers who are delighted to have money invested in their funds instead of in Rhode Island's economy.

If you'd prefer to have your money invested in educating our children, fixing our roads and bridges, cleaning our bay, and otherwise growing our state's economy, please write your Senator to ask them to allow us to manage the state's pension fund at the lowest cost. The pension issue doesn't have to break the bank, but it will if we refuse to understand the math.

11:41 - 19 Apr 2010 [/y10/ap]

Wed, 14 Apr 2010

J.K. Rowling on life as a single mom

A second reason, however, was that I am indebted to the British welfare state; the very one that Mr Cameron would like to replace with charity handouts. When my life hit rock bottom, that safety net, threadbare though it had become under John Major's Government, was there to break the fall. I cannot help feeling, therefore, that it would have been contemptible to scarper for the West Indies at the first sniff of a seven-figure royalty cheque. This, if you like, is my notion of patriotism. On the available evidence, I suspect that it is Lord Ashcroft's idea of being a mug.
Read more.

18:08 - 14 Apr 2010 [/y10/ap]

Tue, 13 Apr 2010

The debt shell game

In a stage show I toured with for several years, I did a version of the cups and balls magic trick. The object is to make the ball disappear from under one cup and reappear under another. But, I'm sorry to say there is no magic, and the way to do it is just to hide what you're doing and make the audience look somewhere else while you make the switch. This makes for great fun and intrigue as a magic trick. But when such a trick is beneath our state's fiscal crisis, it's problematic.

The New York Times ran an article a couple of weeks ago called "Payback Time" describing how the borrowing practices of states have created perfectly avoidable fiscal crises. Rhode Island was — of course — singled out for special mention. We borrow a lot, more than we ought to, and more than we need to.

The article overstates Rhode Island's problem somewhat by quoting an economist from the conservative American Enterprise Institute, but he's not far off and the truth is that a substantial part of our current fiscal crisis actually is due to unwise borrowing, particularly at the Department of Transportation.

DOT is in hard shape these days. It is spending hundreds of millions of dollars a year, but it can't seem to fix the bridge near my house, and it can't seem to fix the I-95 bridge in Pawtucket, either. How did it get that way? By hiding the problem and getting people to look somewhere else.

The state receives a hundred million dollars every year from the federal government to fix the roads, with the stipulation that we match 10-20% of the money, depending on the program. These days, it works out that we put up a $40 million match, and get about $260 million to spend on roads. The problem is that we borrow the match, and have been doing so since the 1980's. It's a practice that began way back, but it became routine under Governor Ed DiPrete's watch, and despite some attempts to beat it back under Governor Bruce Sundlun, has been going strong ever since.

By now, it seems normal, since it's been going on so long, but other states don't do this. Other states might borrow for a specific big project, but we borrow the same amount of money, year in and year out. Or we did, until Governor Carcieri dramatically escalated the borrowing when he came into office, more than doubling the state's tax-supported debt, and quadrupling the amount of debt service DOT pays.

But these numbers don't appear in DOT's budget. A perusal of the budget documents give you no idea that the department is in such sorry shape.

How do they do it? During the Almond administration, when it became clear that accumulating debt was going to drive the DOT budget into the red, the administration created the "Department of Debt Service Payments" — a department with a title, and no staff at all — and moved the payments there. It sounds like a joke but it's on page 46 of this year's budget. DOT pays $44 million in debt service out of that department, more than the $40 million it will borrow next year.

But this wasn't enough of a trick. Because we have apparently come to think of our bridges as disposable items — to be rebuilt occasionally instead of maintained regularly — we needed to replace the Providence River and Sakonnet River bridges, and when Governor Carcieri came into office, DOT was ready to hide a much bigger pile of debt. So they invented Motor Fuel Revenue Bonds, and let the Economic Development Corporation issue them, and so there's another $119 million of debt there, at $9 million a year. Because these bonds went through EDC, they didn't need a referendum.

And then there are the "Grant Anticipation Revenue Vehicle" (GARVEE) bonds, more than half a billion dollars, borrowed against future federal highway funds, currently costing $45 million a year. These bonds are said not to be "tax supported" so they didn't need a referendum, either. But unfortunately, they are all debts of the state, and we have to repay them all, so the distinction is meaningless.

What's the bottom line? The Department of Transportation alone is responsible for over a billion dollars, almost half the total, of the state's outstanding general debt costing us over $100 million in debt service every year. Over $75 million of this was accrued under the Carcieri administration, and most of the rest under Lincoln Almond.

The vast bulk of this debt could have been avoided by prudent budgeting over the past two administrations. It might have been more expensive in the short term, but ultimately far cheaper than the situation we're in now. Instead, both Lincoln Almond and Don Carcieri chose to borrow, to pretend that the Department wasn't in the sorry shape it is. Unfortunately, there is no magic, only a shell game.

It's too late to prevent this crisis. We borrowed the money and have to pay it back. But it is possible to keep the problem from getting worse, to restore transparency and responsible budget principles to transportation planning. What it will take is honesty in our budgeting and a frank assessment of our state's transportation system and needs.

The supplemental budget for the current fiscal year is out, with predictable criticism from many quarters, including this one. But as we gaze upon the wreckage, please let's remember that many of the forces that brought us to this pass — slashed programs designed to save money, tax cuts we never budgeted for, and over-reliance on borrowing — are still engaged, still pushing, and still making the problems worse. But it's apparently more satisfying to blame state employees and teachers, so these important problems go unaddressed year after year, while everyone wonders what happened.

12:29 - 13 Apr 2010 [/y10/ap]

Wed, 07 Apr 2010

Planning for a rainy day

Mark Twain wrote that everyone complains about the weather, but nobody does anything about it. But that's not true.

The catastrophic floods last week have closed businesses and ruined many people's homes. We can be grateful there was no loss of life, but it was an epic tragedy in lost property, time, and wages.

This past week I heard a lot of people say the disaster was a "hundred-year" flood. We only hope that's correct. The rain was certainly intense, but we've been busy over the years, preparing the ground to make floods worse.

The fact is that Rhode Island does not value its open space, and that is simply asking for trouble when it rains. Some of the trouble is obvious: building on a swamp or right to the edge of a river bank is risky because that's where the water goes when it rains. Some is more subtle: rain that might be absorbed by dirt runs right off asphalt, or a roof. Every swamp we replace with a parking lot, every woodlot we raze for a strip mall or big-box store, and every farm we convert to suburban housing just makes water run down to the rivers faster than it used to. The entirely predictable result: when it rains, rivers run faster and higher today than ever before.

In other words, preserving open space isn't just about pacifying tree-hugging environmentalists, it's about making floods less serious when they happen. It's also about making sure we still have clean water to drink, local food to eat, songbirds to gobble mosquitoes, frogs to sing in the spring, and all the other wonders of the natural world that enrich our lives, but on which we also depend.

What is there to do about this? Almost twenty years ago, I helped write legislation to establish Rhode Island's Housing and Conservation Trust Fund. (I did the revenue projections for the coalition pushing for it.) This would have created a renewable fund cities and towns could use to purchase open space and create and preserve affordable housing. Originally designed to be funded through the real estate transfer tax, the legislation -- and the coalition of environmentalists and housing advocates behind it -- became a model for other states.

Except for one tiny detail. Though the fund was established by state law, on its way through the House Finance Committee, the funding was abandoned during some backroom deal. Today, the fund legally exists, created by chapter 42-113 of the General Laws, but it has no money in it. You can't make this up: Legislators in 1994 were able to pat themselves on the back for voting for this fine-sounding bill, but it did exactly nothing. (Though the fund was legally empowered to accept private donations, you'll be happy to know.)

Bills I helped write to fix the situation were rejected in 1999, 2001 and 2005, opposed by real estate investors and agents determined to ignore the benefits to the community and preserve the outsize profits they were earning at the time. Today, since the Assembly has repeatedly chosen not to budget to preserve open space, preservation remains an ad hoc, town by town kind of thing, funded occasionally by state borrowing.

Worse, most of our towns can't afford to preserve open space because they live in a world of declining state support and increasing state requirements. Squeezed from the top and the bottom, most towns today see land-use planning as an exercise in maximizing property tax revenue for the town, not in maximizing the health, safety and pleasure of its residents. We feel the pain when there's a problem, but towns are thwarted from preventing those problems by the fiscal straits they have been put in.

Sensible planning means much more than preserving open space and protecting wetlands, but the flood protection function is, as we saw, not something to be ignored. We're going to remember the Flood of 2010 for years. But if we continue paving our state, you can be sure that a worse disaster is still ahead.

It doesn't take much planning to avoid disasters, nor does it take much money to preserve open space. But the sensible way to do it is to start now. By creating a real program to save our open space, by finding a way to execute sensible statewide planning that doesn't bankrupt our towns, and by understanding that this kind of sense is crucial to preventing disaster, we can prepare for the future, save a ton of money and keep everyone safer. Isn't that what government is for?

00:08 - 07 Apr 2010 [/y10/ap]

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