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Out of Control Policy Blog Archives: 2.12.12–2.18.12

Some Perspective on the Path Mini Technopanic

"Normal People Don't Care." That's how blogger Matt Roseff at Business Insider rather accurately sizes up the flap over the news that the Path smartphone social network app uploads address book information. The disclosure of course, immediately prompted outrage from Congress, which has decided that  Path, a company pretty much unknown as late as last week, is now the next great Internet privacy threat.

Roseff trunculantly mines the absurdity of this teacup techno-panic:

This whole Path thing follows the non-flap a couple weeks ago when Google changed its privacy policies, or rather formalized and consolidated a bunch of policies that were already in place. Microsoft in particular saw a great opportunity to cast aspersions on its rival and took out full-page newspaper ads talking about how its products would always respect your privacy because Microsoft doesn't make its money from advertising, or something.

Nobody ever seems to think through, realistically, what could actually happen with this supposedlyvaluable and sacred personal information that companies are collecting.

[Edit]

So let's do a thought experiment here.

Say you have a friend who uses Path. Path just uploaded his entire address book. It wasn't encrypted in transit, which means that some bad guy could have intercepted it. (Let's use our very active imaginations to imagine that there are bad guys like this, who sniff wires all day looking for address book information rather than, say, bank account numbers.)

So what are they going to do with that info?

"Well, come on," you sputter. "Now they know where I live!"

Gosh. If you own a house in most places in the U.S., anybody can go down to the county records office and not only find out where you live, but also how much you paid for your house and how much you sold it for 10 years later. It's a matter of public record.

Guess who else knows where you live:

  • Any company who employed you while you live where you live now.
  • Your bank -- who also knows how much money you spent last month and has a pretty good idea where you spent it.
  • Your credit card company -- who also knows what you bought and how much you paid.
  • Every magazine you've ever subscribed to, and every catalog and junk mail purveyor they've sold your address to.
  • The IRS, DMV, and any other government agency you're forced to interact with.
  • Your doctor, lawyer, accountant, dentist, plumber, electrician, and any other professional with whom you have a business relationship.
  • Your mom, who's about to pay you a surprise visit and stay for a whole month.

[Edit]

Unless you've taken extreme measures, your address is pretty close to public information already.

[Edit]

"OK, yeah, fine, but what about stalkers? This could help stalkers!"

If your stalker's somebody you used to know -- an ex-boyfriend, say -- they have lots of other ways of getting that information. Like asking a mutual friend. Or hiring a private investigator, who can probably find you in a few minutes by doing a skip trace.

If you're worried about complete strangers stalking you, you're either famous or criminal -- in which case it's time to get some security -- or hopelessly neurotic.

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EPA's Fuzzy Math

In my opinion piece yesterday I argued that the Environmental Protection Agency (EPA) is using fuzzy math to justify massive regulations:

MATS claims to target one pollutant but draws all of its benefits from another pollutant that is already below EPA-approved safe levels. The air is cleaner than it's ever been, but at $10 billion a year, MATS will be the most expensive EPA air regulation ever. Last week, the closure of nine power plants in four states was announced directly because of the regulation, and more are looming. Affordable energy is key to a recovering economy and when the costs and benefits are weighed, it's clear that this regulation's costs are enormous and the benefits to society are minimal at best.

MATS is supposed to target reductions of mercury and other toxic emissions. But by EPA's own calculations, benefits from reductions in mercury will result in between $500,000 and $6 million in benefts. As I noted, EPA is able to justify a regulation costing $10 billion a year by inflating the benefits that come from reductions in a pollutant that is already below levels that the EPA considers safe.

The Economist has more commentary on this today:

The minutiae of how regulators calculate benefits may seem arcane, but matters a lot. When businesses complain that Mr Obama has burdened them with costly new rules, his advisers respond that those costs are more than justified by even higher benefits. His Office of Information and Regulatory Affairs (OIRA), which vets the red tape spewing out of the federal apparatus, reckons the “net benefit” of the rules passed in 2009-10 is greater than in the first two years of the administrations of either George Bush junior or Bill Clinton.

But those calculations have been criticised for resting on assumptions that yield higher benefits and lower costs. One of these assumptions is the generous use of ancillary benefits, or “co-benefits”, such as reductions in fine particles as a result of a rule targeting mercury.

For more information on EPA's latest $10 billion regulation, see my commentary here.

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Latest Articles on Reason Foundation

Converting HOV Lanes to Managed Lanes Decreases Travel Time and Increases Transit Quality

Converting high occupancy vehicle lanes (HOV) lanes to managed lanes decreases commute times and increases the quality of transit service. This cost-effective transportation solution has proven effective in multiple cities throughout the country. This was the conclusion of a session at last month’s Transportation Research Board conference in Washington D.C. The session highlighted improvements in Seattle, Miami, San Diego and Minneapolis. 

There are several common factors present in each metro area. All cities feature variable pricing. (In variable pricing when congestion increases in the managed lanes, the price increases to encourage people to switch to the general lanes or another route. When congestion decreases, the price decreases to encourage people to use the lane.) All projects used travel time information either as signs on the highways, as part of an application for smart phones, or both. All projects improved transit service and decreased travel times. Finally, all projects located their transit stations in the middle, above or adjacent to the managed lanes. 

Seattle: In the early 2000’s, Sound Transit and the Washington Department of Transportation partnered to improve I-405. On I-405 the HOV lanes were not meeting performance targets while on SR-167 the lanes had unused capacity. Transit service needed improvement in both corridors. The plan added two new managed lanes in each direction to I-405 and improved travel time on local arterials. The transit part of the plan added a Bus Rapid Transit system, 9 new transit centers, a 50% increase in service, high-occupancy vehicle (HOV) direct-access ramps and flyer stops, a managed lane system, 5000 new park and ride spaces and 1700 new vanpools. The conversion decreased travel times and increased transit service. Managed lanes are being studied for the new SR 520 bridge and future improvements to I-5.

Miami: During 2010, the Florida Department of Transportation (FDOT) partnered with the Miami-Dade and Broward transit agencies to improve travel speeds and options. The DOT converted one HOV lane to two managed lanes. This project added one additional lane in each direction to the highway. The average travel speed during the afternoon nearly tripled from 18 miles per hour to 50 miles per hour. The Miami-Dade and Broward transit agencies took part in a regional bus program that operates express buses from the suburbs into downtown Miami during the morning and evening rush hour with 30-minute headways. Over the last two years the express buses have increased every month in popularity, slowed only by the lack of parking spaces at the transit station. This increased the total ridership in the managed lanes from 1,800 during the peak hours in 2009 to 4,600 during the peak hours of 2011. The state plans to expand the program to I-75 and I-595. 

San Diego: The San Diego Association of Governments (SANDAG) in cooperation with CalTrans and the local transit operators added managed lanes to I-15 in southern California. The 35-mile corridor ranges from Escondido in the north to downtown San Diego in the south. The corridor features a four-lane barrier separated facility. The movable barrier provides either 1, 2, or 3 lanes depending on the time of day. The spacing of stations every 4-5 miles allows the buses to travel at highway speeds for most of their journey. The new managed lanes move 21% more people per lane than the general-purpose lanes. And the high-occupancy vehicles represent 80% of the total managed lane users. The 2050 plan includes managed lanes on I-5, I-805, SR 52, SR 54, SR 56, SR 94, and SR 125.

Minneapolis: The Minneapolis Department of Transportation and MetroTransit partnered for the I-394 project. Minnesota converted I-394 HOV lanes to managed lanes in 2005. Minneapolis prioritized maintaining and improving its quality bus service. The city has an extensive Express Bus system with 18,000 users riding more than 100 express buses. The I-394 corridor is a shoulder lane with BRT stations. The revenue is shared with transit providers in the corridor. The HOT lanes provide a new option to solo drivers while increasing the quality of service for transit users. Minnesota plans to build managed lanes on I-35E, I-35W, I-94, I-494, I-694, US 169, SR 36 and SR 37.

These four different HOT-to-managed-lane conversions prove that managed lanes can succeed in almost any location by increasing vehicle speeds, passenger throughput, and quality transit service.

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Which is the "Do Nothing" Party?

Recently before Congress Treasury Secretary Geithner responded to a question from Rep. Paul Ryan saying, "You are right to say we're not coming before you today to say 'we have a definitive solution to that long term problem.'  What we do know is, we don't like yours."

As Guy Benson at Townhall put it:

Those two sentences speak to a mentality so bereft of intellectual vigor, so stunningly and candidly shallow, so thoroughly irresponsible, so politically myopic, selfish, and cowardly, that it should disqualify this crew from a second term in office.  What a disgrace.  Remember this moment the next time Democrats accuse the GOP of being the "do nothing," intransigent, "party of no."

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Mortgage Settlement Misses All the Points

Last week's landmark mortgage settlement signed last week is being framed as restitution for homeowners victimized by "robo-signing" bankers who contributed to the 2008 financial crisis. There are a number of critics who say the deal was too small, and that it should have included more mortgage modification money, but as I point out in a new commentary for Reason Foundation, where the deal is small is on the actual money for individuals that were robo-foreclosed: out of the $26 billion settlement, only $1.5 billion-a mere 6 percent of the agreement-has anything to do with robo-signing. So what was the point of the settlement? From the commentary:

If the point was to provide restitution for those homeowners who were foreclosed on by banks who didn't own the note on the mortgage or acted before 120 days had passed, that could have been done with a few million dollars.

If the point was to punish the mortgage servicers who violated procedural foreclosure laws, that was achieved with $1.5 billion of this settlement-which will be paid out in checks of up to $2,000 per foreclosed home while the funds last.

If the point was to leverage this investigation into a backdoor means of forcibly reducing mortgage debt, the settlement barely touches the $700 billion the nation is collectively underwater on residential mortgages.

If the point was to extract a pound of flesh from the banks, the settlement's focus on modifications means that most of this agreement will wind up being paid by mortgage-backed security investors-i.e. pension funds, insurers, and 401(k)s. The principal write-downs and refinanced mortgages represent $20 billion of the $26 billion settlement (77 percent) and they will almost all come from securitized loans -meaning the majority of the costs won't be borne by the banks themselves (unless they were the investor in the security, which they are likely to avoid modifying).

If the point was to clear up all legal uncertainties surrounding mortgage fraud claims so that banks could feel free to start lending again, the deal also missed that mark by only releasing the servicers from robo-signing related liabilities. That leaves the banks open for other civil and criminal lawsuits from the Feds and attorneys general.

This does not address whether forced principal modifications are a good thing. Or whether the focus of the investigation assumed the very nature of foreclosing was a crime. Or whether the limited liability removal is positive or negative. Rather, it highlights that whatever the point of this deal, it ultimately missed the mark and was unjust.

Unless the point of the agreement was to win political points.

Most of those households that were robo-foreclosed were ultimately justified—the homeowners were 4 months or later on their payments and unlikely to ever get current again. But there is still a letter of the law that needs to be followed. Mortgage servicers that broke the law should pay fines related to the crimes committeed. But the witch hunt stemming from widespread negative opinion towards the banks sent attonerys general and federal regulators after more than justice—they wanted to a burning. 

Strange thing is, they didn't really even get a burning, since most of the money being paid out in this settlement is coming from MBS investors. 

Read the whole commentary here.

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Crony Governmentism: Energy Edition

Not so sure this is crony capitalism as much as it is just straight up cronyism:

Overall, the [Washington] Post found that $3.9 billion in federal grants and financing flowed to 21 companies backed by firms with connections to five Obama administration staffers and advisers.

See the full story and juicy details in the Washington Post

One leading example:

Following an enduring Washington tradition, Wagle shifted from the private sector, where his firm hoped to profit from federal investments, to an insider’s seat in the administration’s $80 billion clean-energy investment program.

He was one of several players in venture capital, which was providing financial backing to start-up clean-tech companies, who moved into the Energy Department at a time when the agency was seeking outside expertise in the field. At the same time, their industry had a huge stake in decisions about which companies would receive government loans, grants and support.

During the next three years, the department provided $2.4 billion in public funding to clean-energy companies in which Wagle’s former firm, Vantage Point Venture Partners, had invested, a Washington Post analysis found.

So, ah, yeah, nice to have that change in Washington. 

 

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Congress Reaches Compromise on Spectrum Auction

Congress has given the Federal Communcations Commission approval to auction television airwave licenses to wireless service providers, at last opening the way toward relief of growing congestion on current wireless systems.

The authorization was included in the final deal to extend payroll tax cuts.

The spectrum arrangement splits the difference on the goals of separate House and Senate bills. The Senate bill would have given the FCC a free hand to set a wide range of conditions for the auction, including the power to bar incumbents from bidding. The House would have restricted the commission to conducting a straight-up, open auction.

According to The Hill,

The bill largely preserves the FCC's authority to structure the spectrum auctions—a win for Democrats, who warned that tying the FCC's hands would allow AT&T and Verizon, the largest carriers, to buy up all of the airwave licenses.

Republicans had argued that Congress should prohibit the FCC from picking winners and losers in the auctions. As a compromise, the bill bars the FCC from excluding any one company from bidding, but allows the agency to set conditions to promote a competitive marketplace.

Although almost all parties are praising the compromise, simply because the spectrum is so badly needed, users should be concerned. The current FCC has a taste for managing outcomes and has made no secret of its desire to "incentivize" competition by tilting the auctions in favor of undercaptilized, but politically favored companies.

Perhaps it's fortunate then that the Congressional deal comes just a day after the FCC pulled the plug on Lightsquared's experimental 4G network because of its interference with GPS signals. Lightsquared was just the sort of "competition" FCC Chairman Julius Genachowski aimed to encourage through policy manipulation. Genachowski insisted on rushing a spectrum waiver throughon Lightsquared's behalf before the interference issues were thoroughly examined. Wishful thinking was no match for the laws of math and physics, which at the end of the day, the FCC was forced to yield to. Here's hoping that this humbling experience is remembered come auction time.

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More on the President's 2013 Transportation Budget--Totally Politics and Mostly Irrelevant

The Office of Management and Budget released the President’s 2013 budget for the Department of Transportation. Due to new agreements for Aviation and the President’s desire to adopt the Senate transportation bill, parts of his proposal were irrelevant as soon as the document was released.

My colleague Adrian Moore summarized the budget here. Ken Orski of Innovation Briefs also discussed the document. I want to take an in-depth look at the budget and highlight the worse parts. 

The proposal increases funding for the highways account to $41.8 billion in 2013, an increase over 2012’s $39.1 billion but less than $42.2 billion proposed by the Senate. The proposed funding for the Federal Aviation Administration totals $16.1 billion. This is $196 million more than 2012 and $326 million more than the new long-term aviation bill. The budget requests $10.8 billion for the Federal Transit Administration, an increase of $233 million over 2012. Because of account restructuring, the actual increase to transit may be closer to $300 million. A total of $2.7 billion will go to the Federal Railroad Administration. Of the total, $2.5 billion will fund Amtrak and High-speed rail. This is more than a billion dollar increase from 2012. Will this administration ever face the reality that high-speed rail is not going to be built anytime soon? The bill also includes $580 million from the federal Motor Carrier Safety Administration and $981 million for the National Highway Traffic Safety Administration, $276 million for the Pipeline and Hazardous Materials Safety Administration, and $344 million for the Maritime Administration. The Office of the Secretary again proposed $500 million for the TIGER style discretionary grants. The full transportation proposal is available on the Office of Management and Budget website here

This transportation part of the budget proposal has several major problems: 

1) Parts of it are already moot. The House and Senate have agreed on a new aviation bill that the President signed yesterday. The Senate has proposed a new transportation bill that the President intends to support. As a result, the highway, aviation, and transit parts are irrelevant.

2) The President’s plan ignores the failure of the Super Committee. The failure of the committee lowers the budget cap from $1.05 trillion to $958 billion. The President’s plan assumes this cap will be tossed aside.

3) The budget reclassifies high-speed rail, Amtrak funds and new subway and light-rail projects as mandatory. Previously these programs were discretionary. What does this mean? “Mandatory funding” operates under different budgetary rules. The President can include large funding increases for mandatory programs that he cannot include for discretionary programs.

4) A $50 million national infrastructure bank is included (again). The President has cajoled Congress into passing this proposal. Congress has been studying the issue since 2009. At least three bills have been proposed and subsequently died in the Senate. An infrastructure bank is a good idea in theory. However, the U.S. already has an infrastructure bank called TIFIA. The recently passed Senate bill increases TIFIA funding to $1 billion. The President’s proposal is not a bank but rather a discretionary grant program. The White House already has discretionary grant programs, including TIGER. Another grant program is not needed and only figures to increase politically motivated discretionary grants. (My colleague Robert Poole previously discussed the problems with creating a good infrastructure bank here.)

5) The President’s proposal has no funding plan. It is easy to dream of grandiose solutions but without funding they are just dreams. Both the House and Senate bills have funding issues. The House bill relies on unrealistic revenue from oil and gas leasing. The Senate bill has a large funding hole. However, at least both the House and the Senate have attempted to find revenue and explore different revenue sources. What revenue sources is the president considering? Will he consider a vehicle-miles-travel fee? No. Is he willing to cut non-motorized transportation that benefit only local interests from the bill? No. Will he cut local transit? No. Will he cut high-speed rail funding or the TIGER Grants Program? No, and No.

6) It is a campaign document. Budget documents are always somewhat unrealistic. The past three Presidents have used even year budgets to promote their policies. Presidents limited to proposing legislation, not passing it. The 2013 budget is intended to please his base. However, past transportation proposals have included sensible programs with a realistic sense of passage. 

Perhaps it was too much to expect this President to make transportation a priority. When SAFETEA-LU the last long-term transportation bill expired in 2009, the President did not place a high priority on enacting a new bill. Over the last two and half years he has been content to create the political TIGER Grant Program while his Secretary LaHood focuses on distracted driving. This budget is exactly what we should have expected from the White House.

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Occupy the SEC

 

So as not to be remembered as mace-enticing defilers of public property, the more productive members of the “Occupy” movement have collaborated to produce the most comprehensive, coherent, and noteworthy assessment of the Volcker Rule on record. A non-profit group called “occupy the SEC” submitted a 325-page comment to the agencies tasked with implementing and enforcing the Volcker Rule, found here, which is of the thousands of submissions, one of the most educated and well-researched.

The authors of the comment letter sent to the Securities and Exchange Commission (SEC), Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency label themselves as “a group of concerned citizens, activists, and financial professionals with decades of collective experience working at many of the largest financial firms in the industry. Together, we make up a vast array of specialists, including traders, quantitative analysts, compliance officers, and technology and risk analysts.”

Though the group claims to be of the 99% with “bank deposits and retirement accounts that are in need of protection through vigorous enforcement of the Volcker Rule,” the comment letter goes far beyond simply calling out for help, and slinging mud at our giant banking institutions.

It documents scores of loopholes laden within the proposed rule that highlight either the sheer incompetence of the Volcker Rule’s authors or the author’s clear succumbing to regulatory capture from the lobbying efforts of the financial industry. The rule as proposed, from the point-of-view of occupy the SEC, is in need of serious reform.

Nearly every major financial institution, exchange, and industry group has submitted one or multiple comment letters, and has their hands all over the agencies adopting this rule and the legislators influencing it. It’s just one example of the crony capitalism rampant within high finance. Whether the productive members of a movement tarnished by ignoramuses have any breakthrough is yet to be seen. The rule is set to take effect in July. If trend is any indicator of the institutional growth in the financial industry, chances are, it will likely be more of the same.

 

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President's Transportation Budget Proposal in a Nutshell: Nuts.

It is pretty obvious that President Obama's team allocated about 10 minutes of thought, and that by a campaign staffer, on the transportation section of his budget proposal.  Ken Orski, who writes at Innovation Briefs, put it well. Rather than a thoughtful proposal,

What we got instead is partisan invective from Secretary LaHood, and a politically inspired proposal from the White House for a six-year $476 billion surface transportation program that even congressional Democrats have declared as dead on arrival.

The Administration's reauthorization proposal --part of its FY 2013 budget submission --- is a warmed over version of its FY 2012 transportation package that had been soundly rejected both by the Republican House and the Democratic-controlled Senate last year. To partially pay for the new program the Administration has proposed to use $231 billion in "savings" achieved from "reduced Overseas Contingency Operations"--- bureaucratic jargon for ending military operations in Iraq and Afganistan. Such offsets have been dismissed as accounting gimmicks by Republicans and Democrats alike.

Proposing annual funding levels for transportation that are 40 percent higher than the current spending levels (as well as the levels proposed in the House and Senate reauthorization bills) and offering to fund the bill in a cavalier manner is hardly a way to establish credibility in the ongoing reauthorization debate

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States Spurning Film Tax Credits, CO Pursuing Them

Last week I wrote about how the fight over film tax credits resumed in Colorado in the form of House Bill 12-1286 sponsored by state Reps. Tom Massey (R-Poncha Springs) and Mark Ferrandino (D-Denver). HB 1286 can be evaluated from two angles:

  • First, the impact the bill might have on the state's film tax credit (or movie production incentive) fund. In its current form HB 1286 would significantly expand the size and scope of the state's film tax credit fund.
  • Second, the bill would establish a new government secured loan guarantee for film, television and media producers. This expansion, though not unprecedented nationally, would be a dramatic change for the state of Colorado.

I address the first concern in my latest commentary for Colorado Peak Politics entitled, "Picture This: Film Tax Credits Demonstrably Wasteful, Ineffective." Here's an excerpt from the piece:

Ironically, as Colorado attempts the most aggressive expansion of this program yet, many states are going in the opposite direction. 2010 is widely considered the peak year for states paying out aggregate dollars for film tax credits. Last summer The Economist described this trend bluntly saying, “After a decade of escalation, a stupid trend may have peaked.”

Over the last few years states like Washington and Arizona have phased out their programs, and others refused to appropriate them money. Meanwhile groups like the Center on Budget and Policy Priorities and the Tax Foundation have effectively discredited film tax credits through comprehensive national studies. The details are especially grisly when honing in on specific states.

Let’s start with the “high flyers”: Michigan, New Mexico and Louisiana. For years film tax credit proponents cited these states as success stories. A 2008 New York Times article critical of film tax credits (considered contrarian at the time) has proven prescient. Author Michael Cieply wrote, “(S)tates are moving to rein in their largess that has allowed producers to be reimbursed for all manner of expenditures, whether the salaries of stars, the rental of studio space or meals for the crew.”

I will address the second concern (government secured loan guarantees for filmmakers) in a forthcoming op-ed. In the meantime, check out the full piece available online here. For more on film tax credits in Colorado, see my Denver Business Journal op-ed here; and my previous blog posts here and here.

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Innovators in ActionReforming Local Government in Colorado Springs

As is often documented here on Reason Foundation's Out of Control Policy blog, the Great Recession gut checked federal, state and local government budgets across the United States. Overspending finally caught up to state capitols and many policymakers realized how vulnerable their budgets were (and still are) to economic uncertainty. However, policymakers weren’t the only ones who noticed. In Colorado Springs, concerned citizen and president of The Broadmoor Hotel, Steve Bartolin, wrote a letter to then Mayor Lionel Rivera criticizing the city’s unsustainable fiscal policy and lack of transparency.

At the time, Colorado Springs faced two major long-term issues: First, unsustainable fiscal policy exacerbated by a lack of transparency; and second, burgeoning civil employee pension liabilities that are outside the control of local government [civil servants are part of the state’s Public Employee Retirement Association (PERA)]. These concerns, combined with citizen dissatisfaction, created a distrustful environment blocking meaningful government reform.

Letter writing was a respectable start, but that's not where Bartolin's efforts ended. Bartolin’s letter ultimately rallied community, business, and political leaders (like former City Councilman Sean Paige), who partnered to create The City Committee in 2010. The City Committee is a nonprofit, nonpartisan civic organization focused on applying best business practices to improve the operators of Colorado Springs' city government and its enterprises.

I recently sat down with Chuck Fowler, CEO and Chairman of The City Committee, where he discusses the formation of the organization, the changing structure of city government in Colorado Springs, and future government reform efforts in store for The City Committee. Here's an excerpt:

Kenny: Do you have any recommendations for concerned citizens who might be interested in starting something like The City Committee in their community?

Fowler: First, the common thread is the recognition there's a problem. Second, that it's time to do business differently. Every community is different and the variables that have shaped communities over time are what make them different. Recognition of the problem and willingness to find the courage to make changes is what will bind communities together. Communities need to find their collective courage, tear down their silos, to look at the issues they’re confronting in a realistic way, which I think if one trusts the current economic forecasts its going to be a while before governments have the type of revenue that they enjoyed the past few decades—something’s got to give. 

Growing the revenue to government enterprises is less likely of an outcome than a reduction of public services by the government. The only way to pay for a level of service that some have come to expect from government is to question: is this something government should do? And if it is, maybe their role is to oversee procurement to give the private sector the privilege to provide these services competitively. This practice is widely known as managed competition.

Economic cycles come and go. Financial tides rise and fall. At this moment in our country’s unique economic and political history, all citizens—whether individuals, businesses or public servants—can and should participate in redefining appropriate solutions for more effective and efficient government. American ingenuity has always led to innovative solutions. That’s foundational to the mission of the City Committee. 

Read the full interview available online here. For more, see Reason Foundation's full Innovators in Action 2012 series available online here.

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What Happens When You Diss Your Biggest Energy Importer?

They send their product to China instead.

Last November, Canadian Prime Minster Stephen Harper called approval of the Keystone pipeline a "no brainer." Much to his chagrin, President Obama chose to deny the application for Keystone, a $7 billion project that would transport Canadian crude oil between Alberta, Canada and Port Arthur, Texas via a 1,700-mile pipeline. Canada is not only our largest trading partner; it has the third largest proven reserves of oil in the world, only surpassed by Saudi Arabia and Venezuela.

But PM Harper has made it clear that Canada isn't going to sit around waiting for American politicians to get their act together. Recently in a speech to Chinese businessmen Harper noted: "Currently, 99% of Canada's energy exports go to one country -- the United States. And it is increasingly clear that Canada's commercial interests are best served through diversification of our energy markets." In other words, Canada better find more stable trading channels.

Harper's speech is part of a four-day tour of China where he hopes show Canada's commitment as a potential trade partner. Canada doesn't have a viable way to transport oil sands crude to Asia, but with the current state of Keystone in the U.S., that option may prove to be more economically viable. Plans have been crafted to carry the crude from Alberta across the Canadian Rocky Mountains and to the coast. 

Meanwhile, lawmakers in Congress continue to squabble over how to deal with Keystone -- some want to kill the project entirely, some want to take the permiting power away from the President, some want to put up protectionist measures that ban exporting of oil from Keystone crude, some want to tax the hell out of any revenues that come from the project.

Back in China, PM Harper noted Canada would "uphold our responsibility to put the interests of Canadians ahead of foreign money and influence that seek to obstruct development in Canada in favor of energy imported from other, less stable parts of the world."  

Sound familiar?

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Federal Bureaucracy is Sinking Port Deepening Projects

When the deepening of the Panama Canal is complete in 2014, ships from Asia will be able to unload their cargo at Atlantic Ocean ports. Currently, electronics, clothing, and other products shipped from Asia are unloaded at Pacific Ocean ports, such as Long Beach, Los Angeles and Oakland, and then carried by truck, train, plane or some combination of these to reach East Coast markets. This increases costs for consumers and decreases profits for producers. The deepening of the Panama Canal could speed up the movement of goods and be a boon for consumers. Unfortunately, with the exceptions of New York and Norfolk, no East Coast ports are currently deep enough. As a result, these ships will have to come in only half-full to avoid running aground.

With the federal debt soaring, there is little money for harbor deepenings. Public-private partnerships can help supply the needed port funds. Most ports do not have the local funds to deepen their harbors. The cost of deepening ranges from $600 million for the port of Savannah to $1.3 billion for the port of New York. Ports must go through a cumbersome, lengthy, and unpredictable process to obtain federal funding that is governed by the Water Resources Development Act of 2007 (WRDA 2007). The Port of New Jersey/New York is the only port to have received sufficient funds -over $600 million- to deepen its harbor. And it took the port almost 10 years from the start of the process until the port began the dredging process in 2008.

Port PPPs would deliver needed infrastructure, raise new sources of capital, shift risks to investors, provide a business-like approach, and encourage innovations.

How would a PPP process work at US ports? The private company would pay for and perform the initial deepening and future maintenance of the harbor. To recoup this investment, the company would likely operate the port. Often times, the private company would rent the port from the state via a fixed annual payment to the state, a variable payment or a partial lease.

Public-private partnerships (PPPs) can bring much-needed money to ports at this critical juncture. Busy ports such as Charleston, South Carolina and Galveston, Texas would likely attract a lot of interest from private companies willing to finance expansion and improvement projects.

For more information see my full commentary here.

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Follow the Swedes to Market-Based Taxi Deregulation

One of the most common objections I run into with respect to taxi deregulation is the concern that taxi drivers might have the audacity to charge different prices for different trips and customers. I think ultimately this fear is born from a lack of experience with riding in a taxi, but many people, including "experts," believe that the taxi market is so dysfunctional that drivers and customers couldn't voluntarily settle on a price based on willingness to pay. Thus, the government has to set a "fair" price. (Ironically, most taxi users think that taxi laws are protecting their interests when, in fact, they protect the interests of the established taxi companies as I discuss in a January/February 2012 article in the Freeman.)

Moreover, a number of cities in the US, usually smaller ones, don't regulate taxi fares at all. Most big cities do, however, and that's where most people draw on their experience.

I didn't realize until recently that one of the best examples of taxi deregulation didn't exist in the US at all. Rather, taxi deregulation is working quite well in the cradle of the modern weflare state: Sweden. Deregulation began in earnest in 1990, and the Swedes deregulated fares as well as entry into the market and created dynamic and competitive market that serves consumers quite well as a result. A full analysis can be found in a 2007 report from the Organization for Economic Cooperation and Development (OECD) beginning on page 174. One important rule that still exists? Taxis have to publish their fares so that users can see them before they step into the cab. As the report notes:

"Since the deregulation taxi companies are free to set their fares but are required to inform customers about the fare prior to trips. There are guidelines and agreements on how prices should be presented to customers both inside and outside the taxicab. Taxicabs must also be equipped with receipt writing meters."

The system has been working well ever since (although new regulations were added in 1995 to beef up driver requirements such as background checks for violent crimes). Perhaps it's time US cities followed the Swedes toward this market reform.

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LA Times Misreports the Mortgage Settlement Story

The Los Angeles Times wrote a story last Thursday about the mortgage settlement. And it is seriously off base. We'll have a column on the settlement later this week, but first, let's clear up a few errors in this near editorial.

First off, the basic premise of this whole story is off: banks foreclosing is not a crime. Borrowers who have defaulted on their payments may not be "deadbeats," but they nonetheless are not entitled to live in a home they can't pay the mortgage/rent on. This doesn't mean the process should not be followed, or that banks should treat their customers like crap. But bad customer service doesn't mean shirking the justice system. With this in mind, let's look at the LA Times piece:

The massive mortgage settlement may be setting new national standards for loan servicing, but it may be too little and too late to help troubled homeowners.

Many homeowners will see reductions in the principal they owe on their mortgages. In California, those who endured foreclosure probably will see checks averaging $1,500 to $2,000.

"It's a form of very rough justice," said Paul Leonard, director of the Center for Responsible Lending's California office. "There's really no screening to determine whether these were wrongful foreclosures; they're going to give something to everybody regardless of the circumstances."

Mr. Leonard is right that it is rough to just hand out money to anyone who was foreclosed on. The early details we've seen suggest that anyone foreclosed on by one of the five banks involved in this settlement between 2008 and 2011 will get a check. That is not justice. That is what happens when class action styled settlements do not go to court. But as there were thousands who were foreclosed on early because the paperwork was not reviewed properly, it is just that there be a fine for the robo-signing activities. 

But to underwater homeowners such as Samuel Guzman, whose three-bedroom Westminster home was foreclosed in August, it's all "too little too late."

"It's not going to solve the problem," said the hairdresser, who along with four family members is trying to avoid eviction. "It's not going to make things right."

Let's get something straight, the mortgage settlement was supposed to be about robo-signing. There was foreclosure paperwork, most of which was justified as borrowers were four-months or more late on their payments, that was not properly reviewed. Underwater homeowners were not supposed to be helped out by this deal. So of course it does not solve their problem. Nor do the banks have to "make things right" with borrowers whose homes have lost value. Most financial officers thought housing prices were not going to go down ever. Most borrowers thought housing prices would rise forever too. This was way off base, but not a crime on either part. The LA Times dropping this bit in the early part of the story is distracting and distorting. 

Guzman, 61, bought the home in 2001 for $211,000. When he added a room several years later, he took out a risky, adjustable-rate loan, which he quickly realized was "a balloon that was going to explode."

But he was locked in. By mid-2009, he was running behind on payments. Wells Fargo Co. rejected his loan modification application five times, he said. Guzman said he tried to pay off some of his $500,000 debt with a Treasury bill, which he said Wells Fargo declined.

He hired a lawyer. No luck: The bank foreclosed on the home in August and began threatening eviction.

So in December, Guzman filed for bankruptcy as "a kind of hail Mary to keep from being locked out." He's put "No Trespassing" signs in front of the property in an attempt to keep authorities away.

But just in case, he's slowly clearing out his furniture.

"Right now, I'm on my last leg," he said. "I've done everything I can. I'm just waiting for somebody to crush me."

That situation is really tough. No doubt. And there are plenty more like it. Banks are not really obligated to modify a mortgage, so there is no one to blame here. Bankruptcy is a good option in many cases though.  

The sentiment was echoed outside a downtown Los Angeles building where California Atty. Gen. Kamala D. Harris announced the state's role in the settlement. About 100 Occupy L.A. activists assembled to deride the deal, calling the government a "sell-out" that lets banks "off the hook."

The deal is certainly a sham that won't hit the banks hard, but not in the way Occupy L.A. might think initially. Bear in mind, though, that the crime committed here was 1) foreclosing on people who were not supposed to be foreclosed on, and 2) not reviewing foreclosure paperwork properly, resulting in some borrowers being foreclosed on faster than the backlog of processing would have had them out of their homes otherwise. 

The penalty for wrongful foreclosure should be steep. But even if everyone that was foreclosed on was given the full value of their mortgage and their homes back, plus even some kind of high restitution payment of $100,000, since there are only a dozen or so cases like this, the total costs would be something like $50 million to $100 million. So how is a $1.5 billion settlement pool for homeowners that were robo-signed letting the banks "off the hook"?

It is when you look at the other parts of the settlement, the principal modifications and refis, that the settlement begins to look sketchy. The headlines make it seem like the banks are paying $25 billion—but in fact since modifications and refis are paid for by the investors in the mortgages taking the loss, the headline is deceptive.

Real estate consultants Gayle and Ceara Threets lost four Bay Area homes — three to foreclosure and one to a short sale — when the recession hit. The couple, whose decimated credit now forces them to rent, said the settlement should have included provisions to help foreclosed homeowners repair their credit faster.

"People have already lost their homes — you can't replace that," said Ceara, 37. "The thing that would really help is if there was a way for homeowners who have lost their homes to come back to the market faster instead of having to wait."

Why should a legal investigation into foreclosure processing failures help borrowers who buy homes as an investment restore their credit? Do we let people with investments in other asset classes get a pass when their investment goes south? If borrowers lost their homes because they could not afford them, then why would they be trying to get back into homeownership quickly? One of the biggest problems of the housing bubble was the instant gratification mentality that drove so many into homeownership too quickly. And if you were a real estate consultant that did not see the housing price trend as falsely understood, should you really be getting back into homebuying?

Like many other struggling homeowners, the couple said they had been up to date on payments until the recession hit. Three of their properties were rental units. They said they were proactive about calling Washington Mutual — since taken over by JPMorgan Chase & Co. — about their options before they began to fall behind.

But the bank, the Threetses said, wouldn't talk to them until their homes were underwater. So it only makes sense for mortgage servicers to give such home buyers a second chance, they said.

"These are people who entered the market with 700 credit scores, who were and still are very responsible," said Gayle, 41. "It took a whole collapse of the system to make them fall delinquent."

Being underwater on a home does not mean being in default. The system's collapse did not make people delinquent, but rather people defaulting on their mortgages, piling up losses for financial institutions, led to the collapse of the system. (And this is not to mention that the "collapse" of the system was more about prices returning to their normal level.)

So if these investors were up to date on their payments when the recession hit, and they eventually lost their homes, then either people stopped renting from them—which is always a possibility for investors in rental properties—or they stopped making payments to avoid "throwing money away." In either case, the investor is clearly the one who took the risk, would happy take all of the upside, but is looking for a handout on the downside. Not a very sympathetic example. And nothing—nothing—to do with robo-signing. Why is the LA Times including them in this story?

It took another, well-publicized Occupy protest last month to get Bank of America to offer to work on Virginia Hosking's loan — just as the bank was kicking her out of her foreclosed Whittier house, she said.

Hosking, 55, had participated in the protest to vent her frustration with the bank. After her husband died in 2010, the institution refused to let Hosking replace his name on their modified loan with that of her son, she said.

Bank of America then stopped accepting her payments and told her she no longer qualified for the modified loan, she said. Hosking, who lost her job as a security guard in November 2010, was told that she owed $34,000 immediately on her home of 30 years — a number that failed to factor in the $14,400 she had paid over the past year, she said.

Unable to pay, she was forced to move. After she showed up in local news coverage of the Occupy protest, Bank of America said it would help refinance her loan — but only after she landed a job, she said.

Thursday's settlement, she said, offers a mere pittance.

"Look at what it's cost me, the emotions I've had to go through," said Hosking, who said she's lost 25 pounds since August. "They want to give me $2,000? That's nowhere near enough. Why would they think they could buy their way out of this?"

Again, that is a rough story. And the bank was clearly at fault. But that is not the robo-signing issue. This is a separate matter from the robo-signing case. This woman should get separate restitution, rather than being lumped together with processing failures.

Also upset are veterans such as Roland Yee, 45, who began falling behind on his mortgage payments three months ago and received a foreclosure notice from his bank not long afterward. But because he has a Department of Veterans Affairs loan, which along with loans from the Federal Housing Administration, Fannie Mae and Freddie Mac are not included in the settlement, he's excluded from the benefits of Thursday's deal.

The settlement covers only about 10% of all the mortgages in the country, according to the Neighborhood Assistance Corp. of America.

The settlement does not include the GSEs because they did not robo-sign anyone. Certainly some of the servicers that they contract to engaged in some robo-signing, but they didn't negotiate to be in this deal. It was the five banks that got on board, and other nine banks or so could also join in the coming months. Also, according to Inside Mortgage Finance, Ally/GMAC, Bank of America, Citi, JPMC, and Wells Fargo handle payments on 55% of U.S. mortgages. Not sure what the LA Times source could have been measuring, especially since we don't have a detailed settlement document yet. This is the kind of information that a leading news paper like the LA Times should be including in its reporting. 

"I know the economy's bad," said Yee, a Desert Storm veteran and Corona resident. "But it's upsetting that the government would implement all these different funds, but I'm not able to get any of it. It could have lowered my principal and interest and made it affordable."

Since the recession hit, his wife has lost her teaching position and Yee's construction work has been spotty. The family tore through its savings to keep paying the mortgage and is now "struggling to keep the lights on" with $9,000 in debt, he said.

"We're not asking for them to take the payments away," he said. "We just want help, to get to a clean slate again."

The entitled attitude of the borrower is understandable. But what is upsetting is that the government went along with this unjust scam of a mortgage deal. Why should the government be lowering principal on homeowners today because of mortgages they robosigned in the past few years? Whether or not this last family featured by the LA Times is able to modify their mortgage is unrelated to the settlement and the story should not be framed this way. It is misrepresenting the true narrative and missing the whole point of the settlement's problems. 

 

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Portland Area City Does Unthinkable: Adapt to Market

Events in Beaverton City near Portland, Oregon would be unremarkable in most cities in the U.S.: Faced with property that has been undeveloped for 15 years, the city has approved rezoning that will allow developers more flexibility. Local residents are up in arms.

The protests surround the designation of the Sunset Transit Center as a transit-oriented develoment in a devleopment called Peterkort Town Center. Peterkort is a 250 acre development, and the rezoning, which would allow for less commercial development in the short term, applies to 13 properties making up 138 acres of the total development. The city of Beaverton's planners argue the maximum development potential designated in the plan--11 millions square feet of commercial develoment and high densityhousing at the transit stop--is unrealistic. So, the rezoning allows the developers to start out with 2.7 million square feet of commercial and higher density development in places within the zone (but not at the transit stop) where they think it will be commercially viable.

As one city planner told OregonLive.com (Feb 8, 2012):

"The county generally agreed with the city's approach, said Stephen Roberts, a county planner, but there were points of concern.

"In a letter to the Beaverton Planning Commission, county staff asked the city to consider more housing density close to the transit center, permitting less retail north of Barnes Road, the significance of a park or civic space near the station, and when housing would be phased in.

"McIntyre said the problem with the leeway provided by the new zoning is that up to 80 percent of commercial development could occur before any of the mixed-use housing is built, a recipe for spread-out strip malls.

"For example, in theory, Beaverton's code allows for a maximum of 11 million square feet of commercial development, about eight times larger than Washington Square mall.

"Realistically, city officials said, that won't happen, because the layout of the land, residential densities and traffic would prevent such a plan.

"The likelihood of that happening is so remote that it's not a real possibility," [Beaverton city planner Steven] Sparks said. A more likely scale is 2.7 million square feet of mixed residential, office and retail development, he added."

In some ways, this is a classic problem of modern planning implementation: modern comprehensive plans are by definition static, prescribing outcomes that aren't supported by the market. Beaverton is simply trying to change the plan to conform to what the market is willing to support.

If Beverton followed the original plan, or Washington Counyt's harder line prescriptive approach, Peterkort Town Center could lay undeveloped for another 15 years.

Of course, this outcome wouldn't be new. The land that the City of Euclid, Ohio prevented from being developed in the precedent setting case that established zoning, Village of Euclid vs Ambler Realty, lay vacant for more than 20 years after zoning precluded its development. Even more infamously, the acres cleared by eminent domain in New London, Connecticut (Kelo vs. New Londdon) to make way for private development also never materialized.  

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