Reason Foundation

Does Planning Hurt Revitalization in Big Cities?

Posted on March 17, 2010, 8:07pm | Samuel Staley

Reason.tv continues to release videos on Cleveland hosted by Drew Carey and the problems of revitalizing big cities. Today, the focus is on streamlining government to encouarge business development, promote efficiency and lower the tax burden. I have a companion policy brief that examines how land use controls, housing, and zoning may be an impediment to the city's revitalization efforts.

I also spotlight these issues in my most recent post to Planetizen.com's blog Interchange. In the post, I note:

Ironically, the complexity of urban redevelopment projects and infill—development in  already built-up cities—demands a nimble, flexible and expeditious regulatory process to minimize development costs and allow the market to adapt quickly to more finely grained tastes for housing. Conventional development regulation, in contrast, is heavily dependent on end-state zoning and negotiated outcomes for projects large and small, simply gets in the way.

I also write:

Cleveland’s experience, in my view, bears testimony to the increasing impracticality of zoning-based land use regulation rooted in master planning. Cities have been unable to effectively determine what land uses need to be where using long-range comprehensive planning because the future cannot be forecasted with reliability, political wishfulness often trumps sound data analysis, and economic and social dynamics shift constantly.

The effect is to create a highly uncertain, process-driven approval process that limits innovation and adaptation in the housing market with a bias toward protecting the status quo. Uncertainty in the approval process discourages new housing development. Land use transitions—whether to lower urban densities or from empty warehouses to residential lofts and condominiums—squeeze already thin profit margins and can easily make profitable development little more than wishful thinking.

The alternative is a regulatory approach more closely resembling Houston, Texas.

Reason Saves Cleveland Schools: Follow Detroit Edition?

Posted on March 17, 2010, 6:08pm | Lisa Snell

As Reason Saves Cleveland with Drew Carey, the one consolation for Cleveland is that they were not Detroit. However, Cleveland could look to Detroit's new school plan as a robust example of how to Fix the Schools.

In a Fix the Schools policy brief, I argue that the bottom line is that the district should seek continuous improvement by assessing performance of all schools, closing the lowest-performing schools, and creating alternative opportunities for students in the least-productive schools.

In Detroit Emergency Financial Manager Robert Bobb unveiled his plan for a "leaner and smarter" Detroit Public Schools that calls for closing about 45 buildings and rebuilding others.

Within five years the district will be transformed from a district with old schools that are under capacity to a district where 75 percent of students attend new or recently improved schools, said Bobb, the district's emergency financial manager.

In addition to Bobb's plan to close schools, Excellent Schools Detroit which is a nonprofit representing 15 community organizations in Detroit plans to financially support the start-up of 70 new private, charter, or district schools.

The group is planning to offer start-up funds to attract organizations and educators capable of opening high-quality public, charter or private schools in Detroit or neighboring suburbs accessible to Detroit students.

 What's driving the initiative is low achievement in many of Detroit's public and charter schools. About half of the high schools on the state's draft list of the lowest-performing schools in Michigan are in Detroit Public Schools, in addition to some charter schools.

The most significant part of the Excellent Schools Detroit plan is that it embraces a "school-sector agnosticism" that does not favor district, or charter, or private schools. As the Excellent Schools Detroit FAQs explain:

Our focus is on students, not institutions. We want every school, no matter who runs it, to serve its students well. This plan is designed to foster excellence and not tolerate failure. DPS, like every other school operator, has every chance to improve its schools. The Emergency Financial Manager has made it very clear that DPS intends to compete very strongly to attract more students and families. But we also are not putting all of our eggs in one basket. We believe fostering the opening of new schools -- whether they are DPS or charter or independent -- is a faster way to get us to our goal.

The district school closures and the Excellent Education Detroit plans embrace Reason's version of Andy Smarick's mantra is his great piece The Turnaround Fallacy in which he argues:  "Stop trying to fix failing schools. Close them and start fresh."

Detroit seems to be moving toward the recipe to fix failing urban schools: close failing schools, open new charter schools, give principals control of their budgets, let parents choose schools, replicate great schools, repeat.

Why the Jobs Bill Passed Today Hurts College Students

Posted on March 17, 2010, 4:22pm | Anthony Randazzo

It was right around this time, mid-March, during my senior year that I got my first job coming out of college. Of course it wouldn't start until after I graduated, but I, like all my classmates, were determined to find work before graduating. If this year had been my last in college, I might not have been so lucky. Today the Senate passed a jobs bill that aims to incentivize employers with a tax credit. Here is the gist of it:

• If you hire a worker that has been out of work for more than 60 days, you do not have to pay the 6.2 percent payroll tax for the rest of 2010.
• If you keep the person on the payroll for at least a year, you get a $1,000 tax credit as a business

Sounds good? On the surface level it might. It might even seem free market. The government is recognizing that incentives matter, and it's using tax cuts to stimulate growth, not direct government outlays.

Of course there is always an unintended consequence to consider. Imagine this scenario:

College student: "Thank you for taking the time to interview me. I am very excited about the chance to work for you."

Employer: "Sure, let me just look at your resume. Hmmm, I see you don't have the number of days you've been out of work listed here."

Student: "Excuse me?"

Employer: "It is now customary to put the number of days out of work you have been on your resume so we know how much hiring you will cost."

Student: "Oh, well, I haven't filed for unemployment yet. I don't graduate for another 60 days."

Employer: "That is too bad, because we can hire an out of work research assistant and pay him the same wage we'd pay you, only we wouldn't have to pay the 6.2 percent payroll tax on him."

Student: "Really? So this is going to be a tough job market?"

Employer: "For you, yes. I would hire you, except for the face that the government will give me $1,000 for hiring someone else for a year."

Student: "Guess I should wait two months after college to start looking for work."

Employer: "We'd be happy to look at your application then. Thanks for stopping by."

Oh, one other way this tax cut hurts today's college students, and pretty much everyone under 50, is that it is reducing some $15 billion in revenues for Social Security. Since this tax cut is not accompanied by a spending cut or some adjustment in Social Security to cover it, this does not amount to fiscal responsibility. It is just more of the same excessive spending for political purposes that is common place in Washington.

California Pink Slip Mania 2010: Quality-Based Layoff Edition

Posted on March 17, 2010, 2:08pm | Lisa Snell

As the AP reports this week, California's budget crisis could cost nearly 22,000 teachers their jobs this year.

State school districts had issued 21,905 pink slips to teachers and other school employees by Monday, the legal deadline for districts to send preliminary layoff notices.

While these numbers are exaggerated because California law mandates that districts can only issue pink slips before March 15th (so districts overstate layoffs and then rescind them later), it is clear that thousands of teachers will be let go in 2010. Therefore, it is critical that we continue to examine how these layoffs effect both teacher quality and cost savings for school districts.

Teachers unions could negotiate less extreme budget saving measures such as wage freezes or pay cuts rather than large layoffs. However, unions have negotiated automatic "step" salary increases years in advance and have been reluctant to freeze these policies even if it means thousands of teachers losing their jobs. In light of this behavior, it is likely that most districts in California will move forward with some teacher layoffs.

In California state law and local collective bargaining agreements dictate that teachers are layed-off on a "last-hired, first fired" system based on seniority. This seniority-based system means that a much larger number of teachers are fired because it takes a larger number of "new" teachers to fill budget gaps than more strategically looking at the entire teacher workforce and laying off teachers based on performance. It also means that students will lose many high-quality teachers that rank lower on the seniority scale.

As education researcher Marguerite argues in  ”Seniority-Based Layoffs will Exacerbate Job Loss in Public Education,” to reduce salary expenditures by 10 percent, a district must cut 14.3 percent of the workforce when time served in the district is the driving factor. In this scenario, seniority-based layoffs result in 262,367 more job losses nationwide than seniority-neutral policies. And since teachers make up 51.2 percent of the school workforce, nearly 134,000 of those extra losses would be teachers.

California needs a quality-based layoff system.

A March 2010 New Teacher Project report, "A Smarter Teacher Layoff System," surveyed 9,000 teachers in two anonymous urban school districts. The survey found that seventy percent of  teachers in one district and 77 percent of teachers in the other, including most of  tenured teachers, said that factors other than just seniority should be considered in a layoff.

In both districts, teachers rated classroom management, teacher attendance and instructional performance based on evaluations, as more important factors than the number of years that a teacher has taught in the district or total years of teaching.

The teachers surveyed in the New Teacher Project report argued that there are already quality-based evaluations that should factor into the current teacher layoff system. In the districts surveyed, teachers strongly supported including these three factors:   

• Average classroom management rating from the past three years (if it is a component of the overall performance evaluation)
• Average teacher attendance over the past three years
• Average evaluation rating from the past three years

Similarly, in Los Angeles, a LA Unified task force of about 50 parents, teachers and administrators suggests seniority-neutral layoffs, paying high-performing teachers more, using student test scores in evaluations and overhauling the tenure system.

Among their recommendations:

• Revamp teacher evaluations to include several new categories, including the addition of several years worth of student test score data analyzed to show whether a teacher is effective. Parent and student feedback should also be considered.
• Give higher pay to high-performing teachers willing to work in tough-to-staff schools. The task force discussed starting a small pilot program in which a group of teachers would be eligible for extra pay if their students met certain goals.
• Stop basing some layoffs and staffing decisions on seniority.
• Wait up to four years before granting tenure to teachers rather than the current two years and require evaluators to endorse instructors for tenure.
• Push the state Legislature to eliminate the Commission on Professional Competence, a statewide group that has final say over disputed teacher firings.

Louisiana Announces Privatization of Insurance Program

Posted on March 16, 2010, 6:59pm | Leonard Gilroy

In what's shaped up as a "Privatization Day" of sorts at Reason—with our new Reason.tv "Privatize It!" video and two new privatization policy briefs here and here—it seems fitting to report some good news from Louisiana on the privatization front.

The Louisiana Division of Administration has announced the privatization of their state self-insurance operation, primarily the management of all property and casualty claims and loss prevention services. Details from the press release:

Commissioner of Administration Angele Davis today announced the privatization of claims management and loss prevention services within the Division of Administration's office of risk management, a move that will result in estimated savings of at least $20 million over five years, instant access to technology improvements, and greater program flexibility.

Last year, Commissioner Davis embarked upon a department-wide efficiency initiative, conducting a sweeping review of activities for potential privatization and outsourcing opportunities.

"The point is not to privatize just for the sake of privatization, but where it makes sense, and only after a thorough evaluation demonstrates an ability to provide a high level of service at a better cost to taxpayers," said Davis. "During a period of fiscal challenges, today's announcement points to just one of the ways that the Division is leading the effort to streamline state government, in this case actually improving the effectiveness of services while also improving the cost-effectiveness of government operations."

After issuing a request for proposals last November, the Office of Risk Management (ORM) conducted a careful review of the proposals received, then evaluated the highest-scoring proposal in comparison with its internal operations. This process resulted in the decision to outsource the adjusting/management of all property and casualty claims and loss prevention services to FARA (F.A. Richard & Associates, Inc.), a Louisiana-owned company headquartered in Mandeville, Louisiana.

ORM director Bud Thompson said, "I commend my staff for their yeoman's work in the research, preparation and execution of this RFP, especially their commitment to evaluate the proposals objectively and analyze the advantages, disadvantages and projected cost-savings to our in-house program in the long-term best interest of the State."

Among the advantages to ORM's operations identified in this privatization effort:

• Provides instant access to state-of-the-art technology improvements that cannot be achieved in-house;
• Offers high probability for reduced claims costs and reduction in overall program cost;
• Provides for additional flexibility in managing the program, as changes can be made more quickly;
• Allows ORM to focus on enterprise risk management, as opposed to the day-to-day business of running a large claims and loss prevention organization.

The privatization will result in a reduction of approximately 85 ORM employees. However, due the specialized nature of ORM's work evaluating risk to government, the RFP included a requirement that the company awarded the service offer employment to all ORM employees displaced by the privatization, at a salary based on the company's pay scales for their existing employees, and providing immediate eligibility for enrollment in benefit plans and the establishment of local offices to service the state.

While states routinely operate their own self-insurance programs—which are essentially responsible for handling the state's property and casualty risks, as well as tort claims made against the state or its agencies—there's nothing inherently governmental about the tasks that operational staff perform. In fact, these same functions are performed at privately insurance companies as a matter of routine, and thus they are commercial in nature. So essentially, Louisiana has decided that the private sector can perform that same function for the state at a lower cost, in addition to the longer-term benefits of reducing the state workforce (and associated pension liabilities, etc.). And it should be noted that the private company is expected to save millions for the state while taking on 100% of the current state employees currently performing that function.

More from The Advocate here. And don't miss my interview with Commissioner Davis in Reason Foundation's Innovators in Action 2009, in which she discussed privatization and the numerous other "right-sizing" strategies Gov. Jindal's administration is advancing in Louisiana to proactively address their fiscal challenges. Other states should be following suit.

» Reason Saves Cleveland With Drew Carey Episode 3: Privatize It
» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

California Teachers Association $212 Million Political Spending Spree

Posted on March 16, 2010, 3:05pm | Lisa Snell

The Sacramento Bee's Capitol Alert reports that the California Teacher's Association is the number one political spender in the state of California.

The California Fair Political Practices Commission released a report titled “Big Money Talks” that revealed the California Teachers Association was the largest political spender in the state over the last decade, spending more than $200 million on ballot initiatives, candidates for state and local office, and lobbying.

The $211.9 million spent by the CTA is nearly twice as much as the $107.5 million committed by the second-highest spender, the California State Council of Service Employees.

• Even more telling than the legislation it supports, is the legislation the CTA opposes, including Senate Bill 370, which would have prevented voter fraud through voter identification requirements.

As the Education Intelligence Agency reports the commission is unusually blunt about the effect this money has on the political process in California:

California’s Top 15 special interest groups often win by spending money to defeat ballot measures — which has the effect of maintaining the status quo. Their willingness to spend vast sums of money gives them the ability not just to drown out others, but to exercise powerful political leverage. By spending huge amounts of money, they send an unmistakable message to political opponents and elected officials alike: “We’re ready, willing, and able to spend millions — you don’t want to fight us.” What is good for the people of California matters less than what hurts or helps the individual interests of these groups.

Services That Local Governments Can Privatize

Posted on March 16, 2010, 2:30pm

An excerpt of Leonard Gilroy's new policy brief Local Government Privatization 101:

Where Can—or Can't—Local Governments Apply Privatization?

Local policymakers often ask a very simple question: "where can we apply privatization?" However, the answer is somewhat more complicated.

One obvious place to start is examining what other local governments are doing. The International City-County Management Association (ICMA) conducts a survey of alternate service delivery by local governments every five years, measuring service delivery for 67 local services across more than 1,000 municipalities nationwide. The 2007 survey shows that public delivery is the most common form of service delivery at 52 percent of all service delivery across all local governments on average (see Figure 1).4 For-profit privatization at 17 percent and intergovernmental contracting at 16 percent are the most common alternatives to public delivery. Non-profit privatization is next at 5 percent, and franchises, subsidies and volunteers collectively account for less than 2 percent of service delivery, on average.

Trends in levels of for-profit privatization and non-profit contracting have remained relatively steady over the last two decades (though the 2007 survey would not capture the likely uptick in local government privatization in the wake of the 2008-2009 recession and subsequent proliferation of state and local fiscal crises).

Table 1 shows the percentages of surveyed local governments using privatization across a range of public services. Among the most frequently privatized local government services are waste collection (residential and commercial), waste disposal, vehicle fleet management, hospitals, vehicle towing, electric utilities, drug programs and emergency medical services.

Those services are just a start; one privatization expert at the City University of New York identified over 200 city and county services that have been contracted out to private firms (including for-profit and non-profit).5 Some of the most prevalent areas of local government privatization include:

• Accounting, financial and legal services;
• Administrative human resource functions (e.g., payroll services, recruitment/hiring, training, benefits administration, records management, etc.);
• Core IT infrastructure and network, Web and data processing;
• Risk management (claims processing, loss prevention, etc.);
• Planning, building and permitting services;
• Printing and graphic design services;
• Road maintenance;
• Building/facilities financing, operations and maintenance;
• Park operations and maintenance;
• Zoo operations and maintenance;
• Stadium and convention center management;
• Library services;
• Mental health services and facilities;
• Animal shelter operations and management;
• School construction (including financing), maintenance and non-instructional services;
• Revenue-generating assets (garages, parking meters, etc.), and
• Major public infrastructure assets (roads, water/wastewater systems, airports, etc.).

This is but a partial list. But more important, the question of "what can local governments privatize" is in many ways the wrong question to ask, as privatization is a policy tool that should be considered in most instances.

A better question is "where can't local governments apply competition or privatization?." Virtually every service, function and activity has successfully been subjected to competition by a government somewhere around the world at some time. When asked what he wouldn't privatize, former Florida Governor Jeb Bush replied: "…police functions, in general, would be the first thing to be careful about outsourcing or privatizing. This office. Offices of elected officials ... and major decision-making jobs that set policy would never be privatized." Governor Bush used competitive sourcing more than 130 times, saving more than $500 million in cash-flow dollars and avoiding over $1 billion in estimated future costs.

Full Report: Local Government Privatization 101

Privatize It: Episode 3 of Reason Saves Cleveland With Drew Carey

Posted on March 16, 2010, 2:22pm

With all of its problems should Cleveland’s government be running shopping markets and golf courses? “No, of course not,” Drew Carey says.

Selling off golf courses, contracting out parking concessions, and all manner of public-private partnerships are generating billions of dollars in revenue and dramatically improving city services in places such as Chicago and Indianapolis. Will Cleveland's elected officials learn the right lessons in time?

A Reason Foundation policy brief by Leonard Gilroy accompanying this Reason Saves Cleveland With Drew Carey video calls for privatizing 10 government-run services and facilities in Cleveland, including:

• Cleveland-Hopkins International Airport. Several U.S. airports, including Chicago’s Midway, are examining this option. Heathrow and Gatwick in London, Rome, Sydney, Melbourne and Frankfurt are some of the major private airports in the world.
• Downtown parking meters and garages. Chicago received a $1.1 billion upfront payment from a private company who leased the city’s garages and meters for 75 years.
• Garbage and Solid Waste Services. Over half of all US cities have already privatized all or some of their solid waste services.

Reason Saves Cleveland With Drew Carey

The Decline of a Once-Great City, Episode 1

Fix the Schools, Episode 2

Fixing Cleveland's Public Schools: Reason Saves Cleveland With Drew Carey Episode 2

Posted on March 15, 2010, 4:50pm

The Cleveland Municipal School District spends over $14,000 per student. Yet only 54 percent of students graduate from high school and the district is failing to meet 27 out of 30 Ohio performance standards.

“Your choice is go to a Catholic school or get the hell out of town and raise your kids somewhere else. That’s not much of a choice at all,” Carey says in the Reason.tv video. “It would be best for the parents and families to have a choice to send their kids where they want. Make the schools compete against each other.”

Reason Foundation’s new policy brief, Ten Ideas to Fix Cleveland’s Schools, calls for turning all failing schools into charter schools, giving principals complete control over school budgets and “backpack” funding that follows kids to the school of their parents’ choice.

Ten Ideas to Fix Cleveland's Schools by Lisa Snell

Policy Brief: Fix the Schools by Lisa Snell

More Reason Saves Cleveland With Drew Carey Videos

The Decline of Cleveland: Episode 1 of Reason Saves Cleveland With Drew Carey

Posted on March 15, 2010, 1:35pm

In the opening Reason Saves Cleveland video, Drew Carey describes his love for the city, its history, its woes and why he launched this project: “As you know, I’m from Cleveland, Ohio. I love Cleveland, Ohio. I based my whole career on being from Cleveland, Ohio. And you also might know that Cleveland, Ohio, is going through some tough times right now. The economy is in trouble, the schools are in trouble, and people have been leaving the city in droves for a long, long time. And it is not just Cleveland. It’s a lot of cities in the country that are having the same problems.  I went to the folks at the Reason Foundation and I said is there any way we could come up with some ideas to help save Cleveland. And we looked at some best practices of cities across the country and we wanted to know if we applied them to Cleveland, would it do any good? The series is called Reason Saves Cleveland. I hope you like it.”

The video can also be viewed and downloaded here.

The complete Reason Saves Cleveland with Drew Carey series is here.

And you can view Reason's videos on our YouTube channel.

Reason Saves Cleveland With Drew Carey Episode Guide

Posted on March 15, 2010, 1:30pm

Cleveland was one of America’s 10 largest cities in 1950. By the 2000 Census it wasn’t in the top 30. And from 2000 to 2007, only New Orleans - devastated by Hurricane Katrina - lost more of its population. Today, the remaining residents face unemployment rates from 10 to 12 percent across the Cleveland area. Comedian Drew Carey, host of The Price Is Right, has seen enough and wants to revitalize his hometown. “I would like everybody in Cleveland to have rich kids’ syndrome, where they feel guilty that they had all of these opportunities,” Carey says.

To help create those opportunities and set the stage for a Cleveland renaissance, Carey and Reason Foundation found policies and ideas that have already been tested and proven in other cities. Reason Saves Cleveland With Drew Carey offers the city a path to fix its public schools the way inner-city Oakland did; to generate infrastructure revenue and reduce the cost of government through public-private partnerships like Indianapolis and Chicago; and to attract skilled workers, entrepreneurs and Fortune 500 companies like Houston, one of the country’s fastest growing cities.

“We began looking for ways to improve Cleveland,” says Reason.tv’s Nick Gillespie, host of the videos. “But the lessons here can also help renew other struggling American cities like Detroit and Pittsburgh.”

Reason Saves Cleveland With Drew Carey will release videos and solutions all this week at http://reason.tv/cleveland. Here is an overview of each episode in the series:

The Decline of a Once-Great City
Episode 1, Released March 15

In the opening video, Carey describes his love for Cleveland, its history, its woes and why he launched this project: “As you know, I’m from Cleveland, Ohio. I love Cleveland, Ohio. I based my whole career on being from Cleveland, Ohio. And you also might know that Cleveland, Ohio, is going through some tough times right now. The economy is in trouble, the schools are in trouble, and people have been leaving the city in droves for a long, long time. And it is not just Cleveland. It’s a lot of cities in the country that are having the same problems.  I went to the folks at the Reason Foundation and I said is there any way we could come up with some ideas to help save Cleveland. And we looked at some best practices of cities across the country and we wanted to know if we applied them to Cleveland, would it do any good? The series is called Reason Saves Cleveland. I hope you like it.”

The video can be viewed online at http://reason.tv/video/show/1040 and http://www.youtube.com/watch?v=096pjEOrdK4.  

Fix the Schools
Episode 2, Released March 15

The Cleveland Municipal School District spends over $14,000 per student. Yet only 54 percent of students graduate from high school and the district is failing to meet 27 out of 30 Ohio performance standards.

“Your choice is go to a Catholic school or get the hell out of town and raise your kids somewhere else. That’s not much of a choice at all,” Carey says in the Reason.tv video. “It would be best for the parents and families to have a choice to send their kids where they want. Make the schools compete against each other.”

Reason Foundation’s new policy brief, Ten Ideas to Fix Cleveland’s Schools, calls for turning all failing schools into charter schools, giving principals complete control over school budgets and “backpack” funding that follows kids to the school of their parents’ choice. The complete policy brief is online at http://reason.org/news/show/fix-cleveland-schools.

The video is online here: http://reason.tv/video/show/1041.

Privatize It
Episode 3, March 16

With all of its problems should Cleveland’s government be running shopping markets and golf courses? “No, of course not,” Carey says.

A Reason Foundation policy brief accompanying this video calls for privatizing 10 government-run services and facilities in Cleveland, including:

• Cleveland-Hopkins International Airport. Several U.S. airports, including Chicago’s Midway, are examining this option. Heathrow and Gatwick in London, Rome, Sydney, Melbourne and Frankfurt are some of the major private airports in the world.
• Downtown parking meters and garages. Chicago received a $1.1 billion upfront payment from a private company who leased the city’s garages and meters for 75 years.
• Garbage and Solid Waste Services. Over half of all US cities have already privatized all or some of their solid waste services.

The policy brief, Ten Privatization Opportunities for Cleveland, is here: http://reason.org/news/show/cleveland-ten-privatization.

Improve the Business Climate
Episode 4, March 17

Take Cleveland’s municipal income tax, add a lot of burdensome regulations and red tape and you’ve found why so few businesses set up shop in Cleveland and why so many are leaving town.

This video compares Cleveland and Houston. The latter is one of the fastest growing cities in America and home to 29 Fortune 500 companies (second only to New York City). Houston is thriving without any state or local income taxes and very few zoning rules or restrictions.

“It’s a bottom line thing for businesses. They want lower taxes and less red tape.  Simple as that.” Carey states in the Reason.tv video. “My only experience in running a city is Sim City, the computer game. I know that when you raise taxes, all the Sims leave the city. ”

Encourage Bottom-up Redevelopment
Episode 5, March 18

While the city crumbled, Cleveland taxpayers were paying huge amounts to subsidize stadiums. The next big taxpayer-funded boondoggle is the new convention center. “I didn’t know Cleveland was such a bustling convention city,” Carey points out. “Take that Vegas!”

“Spending billions on big-ticket redevelopment has utterly failed to revitalize the city’s economy,” says Gillespie. “It’s time for Cleveland to realize that bottom-up projects driven by the actual residents and private-sector investors are the best was to build a vibrant city for the long haul.”

“We can all make our own decisions. We all want to live our own kind of life,” Carey declares. “We don’t need a centralized government tell us what to do all the time and tell us, you know, what color to paint our house and what we can put where. We’ll decide on our own. We’ll work it out with our neighbors on our own.”

Bring Back the People
Episode 6, March 19

Cleveland has lost more than half its population since the 1950s. Yet the city still boasts affordable neighborhoods, a rich history, and diverse ethnic and cultural scenes. This video shows there is still hope for Cleveland to once again become a destination where people flock to pursue the American Dream.

The FCC’s Broadband Plan: The Devil Will Be in the Details

Posted on March 15, 2010, 1:13pm | Steven Titch

Politico’s Playbook earlier today released what is described as “a late draft” of the executive summary of the FCC’s Broadband Plan, due to be delivered to Congress Wednesday.

The document is long on generalities and short on specifics, except perhaps with Universal Service Fund reform, for which recommends path to shift from the existing High Cost Fund primarily a vehicle for voice service, to two funds that would aimed at greater broadband deployment.

Overall, the summary offers shout-outs to competition policy and new spectrum rules, and outlines six goals for the next ten years, the first being 100 Mb/s to 100 million homes, which had been expected. Other goals are:

• The United States should lead the world in mobile innovation, with the fastest and most extensive wireless networks of any nation.
• Every American should have affordable access to robust broadband service, and the means and skills to subscribe if they so choose.
• Every American community should have affordable access to at least 1 gigabit per second broadband service to anchor institutions such as schools, hospitals and government buildings.
• To ensure the safety of the American people, every first responder should have access to a nationwide, wireless, interoperable broadband public safety network.
• To ensure that America leads in the clean energy economy, every American should be able to use broadband to track and manage their real-time energy consumption.

These are all laudable, to be sure, but the FCC does not, at least not in the exec summary, spell out how interventionist a role it sees for the U.S. government. For example, while the FCC talks about protecting and encouraging competition, will it recommend the deregulatory model established by the Reagan FCC and carried over through the Bush, Clinton and second Bush administrations, or will it urge the Obama model of directing subsidies to favored companies and technologies with little regard for their realistic market potential? The former led to an explosion of innovation and the competition we see today, both in wireline and wireless. The latter, as we’ve begun to see in Obama’s energy policy, stands to be a little more than a huge transfer of wealth and investment from successful companies and entrepreneurs to rent-seeking corporations with better political connections.

The FCC's ideas for USF reform, however, should start an interesting policy discussion. The commission proposes two new funds that would ostensibly replace the current High Cost Fund, which stood at $4.5 billion as of 2008. The first, a Connect America Fund (CAF), would support the provision of affordable broadband and voice with at least 4 Mb/s actual download speeds (how this jives with the 100 Mb/s goal needs to be reconciled) and shift up to $16 billion over the next decade from the existing USF. The plans also invites Congress to accelerate the deployment of broadband to unserved areas and “otherwise smooth the transition of the new fund” by making available public funds of several billion dollars over several years. Ugh!

Second, the plan calls for mobility fund to provide targeted funding to ensure no states are lagging significantly behind the national average for 3G wireless coverage. My only question is why this needs to be separate from the Connect America Fund. It only fosters the legacy idea that there is an inseparable difference between wireline and wireless access.

There is one apparent contradiction that seems typical of any government plan. The FCC aims to design the both new funds “in a tax-efficient manner to minimize the size of the broadband availability gap and thereby reduce contributions borne by consumers.” Yet in the very next point it says it seeks “to broaden the USF contribution base to ensure USF remains sustainable over time.” So while it suggests that consumer payments go down, it aims to increase the pool of companies it will tap for USF contributions (meaning, in the end, consumer will pay more). Seeing that wireless and VoIP companies already pay into the USF fund, it will be interesting to see where the FCC looks for its broader base. Reader speculation is welcome.

Internet Turns 25 Years Old!

Posted on March 15, 2010, 12:21pm | Samuel Staley

Twenty-five years ago the first .com was registered, and the Internet was born. Or, so say the folks over at the Information, Technology, and Innovation Foundation. To commemorate this "birthday," ITIF has released an excellent report providing a brief history of this institution and the benefits commercialization has reaped for the global economy. The report, The Internet Economy 25 Years After .com: Transforming Economy and Life, is likely to become the short, eminently accessible standard reference on the impact and growth of the Internet

Thanks to Bob Atkinson, Stephen Ezell and their co-authors for putting such a useful document together.

Krugman Blues

Posted on March 14, 2010, 11:03pm | Anthony Randazzo

This is about a month old now, but I just saw it and wanted to post it. Loudon Wainwright III plays "The Krugman Blues" off his new album "10 Songs for the New Depression." It's actually pretty decent, even funny (to the economist in me). The one downside of the song is the realization that Krugman has influenced so many to mistaken beliefs about the economy today. Lyric in the second verse, "All the other experts all seem way off base. And I guess that I identify with that pissed off look on Paul's face." Guess that gives me Krugman Blues of a whole 'nother sort.

(HT: The New Yorker)

Financial Crisis Forces California Government to Lay Off Employees

Posted on March 12, 2010, 8:21pm | Adam Summers

I received the following in an e-mail recently and couldn't resist posting it here.

Like any good piece of satire, it is funny because there is a great deal of truth to it. We should remember this the next time some government official tries to tell us that the government is running as efficiently as possible, that agencies' budgets have already been "cut to the bone," or that budget problems require more tax increases.

Besides making the necessary cuts to get government spending back in line with economic realities, government operations (in California and across the country) should be significantly reformed and improved through the use of strategies such as privatization, outsourcing, asset divestiture, and performance-based budgeting.

Why the Federal Government Is Broke (Census Edition)

Posted on March 12, 2010, 7:15pm | Adam Summers

Earlier this week, I received in the mail an envelope marked "United States Census 2010."  Thinking that this must be the infamous 10 question survey the federal government will send out as part of the population count it takes every 10 years and has been advertising all over the television, radio, and print media, I opened the envelope to discover a simple one-page letter that read as follows:

Dear Resident:

About one week from now, you will receive a 2010 Census form in the mail (emphasis in original). When you receive your form, please fill it out and mail it in promptly.

Your response is important. Results from the 2010 Census will be used to help each community get its fair share of government funds for highways, schools, health facilities, and many other programs you and your neighbors need. Without a complete, accurate census, your community may not receive its fair share.

Thank you in advance for your help.

Sincerely,

Robert M. Groves

Director, U.S. Census Bureau

So, let me get this straight. They mailed every household in the country a letter saying that they are going to send something else the next week?! And that's not all. We will reportedly also be receiving a postcard reminding us to fill out the Census survey after it arrives. After all, why do something once when you can do it three times? It's not their money anyway. (It's ours, the taxpayers'!) Oh well, at least we're keeping the unemployment rate down by paying more government employees to stuff envelopes—not to mention the hundreds of thousands of census takers being hired to go door to door asking citizens for personal information.

The Census Bureau is already under fire for its $133 million advertising campaign that includes $2.5 million for ad spots run during the Super Bowl (which, to add insult to injury, were critically panned), $1.2 million to sponsor NASCAR racer Greg Biffle's No. 16 car for three Sprint Cup races, and a Dora the Explorer "public awareness campaign."

This may be small potatoes compared to the trillions of dollars the federal government is on the hook for its various bailout and "stimulus" programs, the $12.5 trillion national debt, $6.6 trillion in unfunded Social Security obligations, or $36.3 trillion in unfunded Medicare liabilities, but it is a microcosm of government operations. The economy is in shambles, unemployment continues to hover near 10%, yet the government still finds new ways to waste money.

Maybe the Census Bureau should ask U.S. citizens if they think their government has grown much too big and intrusive, and if they'd like to drastically reduce the size and scope of government. I'd tell them, "Count me in!"

Looking at a Projected Double Dip

Posted on March 12, 2010, 2:00pm | Anthony Randazzo

Nouriel Roubini, aka Dr. Doom, has a tough outlook on where the economy stands right now. His most recent assessment:

A slew of poor economic data over the past two weeks suggests that the U.S. economy is headed for a U-shaped recovery—at best—in 2010. The macro news, including data on consumer confidence, home sales, construction and employment, actually suggests a significant downside risk even to the anemic levels of growth which RGE forecast for H1. The U.S. faces continued challenges in H2—particularly as historic levels of fiscal stimulus fade—and appears far too close to the tipping point of a double-dip recession.

A double dip would be if, after the past two quarters have seen positive (albeit government supported) GDP growth, the economy again entered a recession. It is likely that the technical recession ended last summer as government programs boosted the economy. But since that support is not sustainable, we might see the bottom fall out this year as the stimulus program winds down, housing supports are removed, and the Fed contemplates tightening monetary policy.

Here is what the economy looks like to-date (GDP percentage growth, recession is below zero):

Here is what the economy would look like without government supports (and this ignores the slingshot effect, which could indicate there was no positive growth at all):

The fourth quarter number did shoot up on private sector inventory rebuilding, but that is not sustainable. For more on that see this previous post on Q4 GDP unsustainability.

Finally, here is what a double-dip could look like, if we had a recession return starting in Q2 2010 but bouncing back by 2011 (rough numbers just to show what a W-shaped recession looks like:

I should point out that a double-dip may not be the worst thing for America. If we entered another technical recession, it would be because the first one wasn't allowed to fully adjust prices and resource allocation in the market. A secondary decline would be so that the economy could hit its true bottom and then recovery organically in a way that would be stable and sustainable.

In the meantime, we should be mentally prepared for what a W-shaped recession would look like, and be ready to cope with it. The worst thing would be to pass another stimulus package or leave monetary policy too loose for too long inciting inflation just to avoid some short-term pain.

For more on the faux recovery see my recent piece in Reason magazine, now on Reason.com.

ObamaCare's Other Nemesis: Undocumented Workers

Posted on March 11, 2010, 8:53pm | Shikha Dalmia

The so-called Stupak amendment concerning federal funding of abortion has commanded all the attention of bean-counters on ObamaCare. Michael Barone this morning in the Wall Street Journal does some fine-toothed analysis showing that the Senate abortion language - if not fixed to the liking of Stupak and his cohort in the House -- would cost ObamaCare enough votes to make it a dead letter in the House. 

But another equally big issue that has commanded no attention and could cost the Senate bill as many - if not more - votes in the House is the immigration issue.

First, some background: The Senate bill bans undocumented aliens from buying coverage from the proposed government-created insurance exchange, even with their own money. This will essentially mean that these workers will be completely frozen out of the health care market - public or private, given that non-exchange-based insurance plans will become prohibitively expensive if not driven out of the market altogether under ObamaCare. Far from providing universal coverage, ObamaCare will become a vehicle to permanently deny coverage to about six million uninsured.

Indeed, at the same time then that government will tell Americans how they must spend their money, thanks to the individual mandate, it will tell undocumented aliens how they can't spend theirs. "Government intrusiveness combined with government discrimination is not a formula for social justice," I wrote in a recent Forbes column. "The government hasn't claimed the authority to selectively withhold access to public facilities since the Jim Crow era."

Needless to say the House Hispanic Caucus - which controls 20+ votes - doesn't like this one bit. It has all along opposed the Senate exchange ban. And now The Hill is reporting that many members of the caucus told President Obama today that they can't vote for the Senate bill so long as it contains the ban. Notes The Hill:

Since last fall, Congressional Hispanic Caucus (CHC) members have kept quiet, at least publicly, about their objections to the immigration provisions in the Senate bill.

But Hispanic Democrats say they haven't moved from their stance that they will not vote for a healthcare bill containing the Senate's prohibitions.

They claim that while it may be politically popular in some parts of the country to ban illegal immigrants from using their own money to buy coverage, it is not good policy. Illegal immigrants will, one way or another, need medical attention in the United States, and it would be cheaper and more humane to provide them coverage if they pay for it. Otherwise, they will seek treatments in the nation's emergency rooms, effectively increasing medical costs.

"I don't think the landscape has changed dramatically from where it was before," Becerra said.

Every CHC member voted for the House bill last November.

On Wednesday, members of the CHC privately acknowledged they've told their leaders that anyone who is assuming they've backed away from their position is in for a rude awakening.

"The [Hispanic] Caucus didn't want to raise it as an issue too early," one Hispanic Democrat said Wednesday. "But it's real. It's a problem."

Those alarm bells have apparently been heard. CHC Chairwoman Nydia Velázquez (D-N.Y.) said she and others have, on behalf of two dozen Hispanic Democrats, been in discussions with Speaker Nancy Pelosi (D-Calif.) and other leaders about how to resolve the matter.

"And we will continue having discussions," Velazquez said.

However, it is unlikely that the Senate will be able to change the immigration provisions under reconciliation rules. And even if it is deemed possible, there may not be enough support in either chamber of Congress to do it.

Not every member of the CHC would stand in the way of healthcare over the immigration issue. As a House leader, it would be unlikely for Becerra to vote against the president's signature domestic policy priority. And centrist Rep. Henry Cuellar (D-Texas) said the Senate language is "not a deal-killer" for him.

If even half of the Hispanic caucus flips, ObamaCare will be toast - Stupak or no Stupak.

Post Script: Jennifer Ngandu of the National Council of La Raza, an immigration advocacy outfit that is following this issue closely, whom I spoke to last week said that one way the caucus could be persuaded to vote for the Senate bill would be if it had reason to believe that the ban would be removed during reconciliation. But for that to happen, the Congressional Budget Office would have to score the ban so that it could then officially become a budgetary matter. That, however, she said was not very likely.

NJ Gov. Chris Christie Creates Privatization Commission

Posted on March 11, 2010, 4:19pm | Leonard Gilroy

New Jersey Gov. Chris Christie deserves major kudos for signing an executive order today creating the New Jersey Privatization Task Force, which will "develop recommendations for a comprehensive approach to converting certain areas of government operations to privately-run operations in an effort to cut the size and cost of state government."

According to Gov. Christie:

"Delivering programs and services to our citizens is government's primary job, but I have asked the Task Force to look for places where we can do this in a more efficient, cost-effective way by having the private sector do it [...] This full review will allow the Lt. Governor and me to make carefully informed decisions on where and how to do this as we continue to responsibly manage state government. It will also make recommendations for how privatization could improve operations and reduce costs for municipalities, school districts and counties."

In signing the executive order (not yet available on the Governor's website), Christie echoes similar moves by peers like VA Gov. Bob McDonnell (Commission on Government Reform and Restructuring), AZ Gov. Jan Brewer (Commission on Privatization and Efficiency) and, of course, LA Gov. Bobby Jindal who started this train last year in creating the Commission on Streamlining Government. Louisiana's Streamlining Commission came up with dozens of privatization proposals in its first report last year, and they're planning to continue their work this year. I feel confident that once they start looking, the similar commissions in New Jersey and elsewhere will find numerous, smart privatization opportunities in their jurisdictions as well.

More on Gov. Christie's executive order from Business Week:

New Jersey Governor Chris Christie said he may privatize some state jobs in 2011, as he struggles to close an $11 billion budget deficit amid rising costs for employee salaries and benefits.

All levels of government have to be looked at when considering whether public jobs or agencies should be operated by the private sector, Christie said after signing an executive order creating a panel to study the issue.

"I would be doing this even if we weren't in a fiscal emergency," Christie told reporters today in Trenton. "This is a task force that I believe is incredibly important because of our current budget conditions."

Christie, a Republican who took office Jan. 19, will present his first budget on March 16. The governor said this week that he's unable to lay off or furlough unionized state workers to help close the budget gap for the fiscal year that begins July 1, because of an agreement negotiated with unions by his predecessor, Democrat Jon Corzine.

The deal that allowed Corzine to freeze employee wages last year and balance the current budget prevents the state from firing or furloughing workers until January 2011, or it faces penalties of $330 million in the form of pay raises, Christie said. Some employees will see increases of as much as 11 percent in the coming fiscal year, the governor said. [...].

New Jersey, like many states, is in a massive fiscal crisis. As I said on CNBC earlier today with regard to local governments in New Jersey, privatization can save 5-20% on average in costs (possibly even more), plus allow the state to tap private sector expertise, experience and best business practices, along with many other benefits. Saving money through privatization of public services is a win-win-win. It's good for taxpayers (an alternative to tax hikes and more debt), it's good for government (saving money, improving services and re-focusing public employees back to core government services), and it's good for the private sector (jobs and opportunity, a real "stimulus" if you will).

Gov. Christie is absolutely spot-on in seeking out every sensible opportunity to put the private sector to work in the business of serving the public interest.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Video: CNBC's Power Lunch on Privatization

Posted on March 11, 2010, 2:41pm | Leonard Gilroy

I was featured in a short segment on CNBC's Power Lunch today that focused on the potential for privatization to help drive down costs for cash-strapped local governments in New Jersey, followed by a debate between the Cato Institute's Chris Edwards and PIRG's Phineas Baxandall on the merits of infrastructure privatization. Check it all out here:

Stimulus Supports Mostly Teachers

Posted on March 11, 2010, 12:56pm | Lisa Snell

Via Matt Welch at Reason's Hit & Run:

Tales of the Absurd: Minnesota Public Employee Union Says 'We'll Embrace Change if You Protect Our Jobs"

Posted on March 11, 2010, 12:44pm | Leonard Gilroy

Public employee unions must think taxpayers are just plain stupid. If there's anyone out there that still holds the fantasy notion that public employee unions represent unselfish servants of the public interest (hence the term "public servant"), then they should take a gander at this missive released by the Minnesota Council 5 branch of the American Federation of State, County and Municipal Employees (AFSCME).

Before reading it, keep in mind that we're coming out of a recession (hopefully), the private sector has been bleeding jobs, state and local governments budgets are reeling, yada yada. And then those of you in the private sector should think about how utterly absurd the notion of going to your boss—at a time of mass downsizing necessary to keep companies alive—and asking for job protection, pay protection AND protections against any layoffs in your department. For most people, that idea is laughable; in fact, many probably feel fortunate to have a job in the first place so they can keep paying the bills.

Now put yourself in the position of being the boss and imagine that your enterprise—let's call it the State of Minnesota—is staring at a $5.8 billion deficit in the near term, with the problem only getting worse. Most people would acknowledge that you cannot possibly address a problem of that scale without streamlining and downsizing. That's what families do when times are tight, and that's what businesses do as well.

So taxpayers should be offended and outraged that AFSCME—the employees of the taxpayer—are telling policymakers that public employees won't embrace change (read: streamlining, downsizing) unless they get job security. Are they out of their minds? They have the audacity to state—out loud, even, where the light of day exposes it for the cynical, self-interested ploy that it is—this utterly Orwellian "principle" of government reorganization:

Give workers job security and they will embrace change.

Seriously, is this supposed to be a joke? Does AFSCME think taxpayers are so stupid to think that assuring public employees they can't get fired would produce anything but the same sort of monopolistic, lethargic and sedentary bureaucracy we already have today, which is bleeding red ink? We're supposed to believe that adding steel reinforcement to their job silos would incentivize them to tear down the silo and rebuild it better? This is doublespeak of a most insidious and cynical variety. 

This all comes about because of a bill in the state legislature (SF 2874) that would reorganize parts of government, while also utterly destroying any realistic possibility of tapping a proven tool (privatization) to drive down the costs of service delivery. The provisions of that bill would apparently prevent any privatization unless several conditions are met, including: (1) privatization would bring cost savings; (2) privatization would bring an equal or higher level of service quality; and (3) the contract "does not violate public employee protection or otherwise reduce the full-time equivalent positions within the department."

The third is the real kicker. AFSCME is essentially demanding that any efficiencies gained through privatization be immediately lost because you'll have to find busy work for those public employees whose functions are no longer necessary. So forget about trying to "right-size" government through privatization. Even if you privatize, the size of your workforce stays the same. So why would you even bother?

Rather than trying to cynically manipulate public policy to cement their monopoly and protect their public jobs while the taxpayers who pay their salaries lose their jobs in the private sector, AFSCME should just be honest and ask for what they really want: higher taxes for everyone so that they can continue to live in a protected employment bubble. They want to live on a fantasy island where they get fat paychecks and pensions, guaranteed for life, unlike the rest of us. And the worst part is that they want taxpayers to continue footing the bill for it. I'd label this an attempt at a sneaky bailout for the public sector, and nothing more.

Hopefully, Minnesota policymakers are not gullible enough to fall for it, like an enabling parent on an episode of Intervention. For supposedly "public servants," AFSCME's taking a position that is clearly hostile to taxpayers, counter to the public interest and a death blow to any hope of downsizing government in a fiscal crisis. Why should public employees be treated any differently than the rest of us? Taxpayers, in the end, are really the "boss" of the public sector. The very notion of "public servant" implies that public employees work for us, right? AFSCME seems to think it's the other way around.

UPDATE: "Give workers job security and they will embrace change" is essentially the opposite of "good enough for government work." Ask yourself which statement jives with the way the real world works.