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Out of Control Policy Blog Archives: 3.17.13–3.23.13

Senate Expected to Vote on National Internet Sales Tax

Under pressure from retailers such as Amazon, Walmart, Macy's and Best Buy, the Senate is expected to vote on amendment to a budget resolution that would implement the first national Internet sales tax.

The Hill reports:

Senators clashed on Thursday over a budget resolution amendment to empower states to tax online purchases.

Sens. Dick Durbin (D-Ill.), Mike Enzi (R-Wyo.) and Lamar Alexander (R-Tenn.) argued in speeches on the Senate floor that the amendment, which is based on their Marketplace Fairness Act, would close an unfair loophole that benefits online retailers over local brick-and-mortar stores.

But Sen. Max Baucus (D-Mont.), the chairman of the Senate Finance Committee (R-Mont.) called the proposal "revolutionary" and said lawmakers should take more time to consider potential consequences before rushing to a vote.

The Heritage Foundation is concerned, saying the Act would:

...overturn a Supreme Court decision setting limits on a state’s ability to require out-of-state retailers to collect sales taxes for them, turning every out-of-state retailer into a sales tax collector for nearly 10,000 separate state, local and municipal tax jurisdictions.

This would be a dangerous extension of state power into other states. Not only would it place costly burdens on retailers, but it would allow states to impose taxes in a way that favors their local businesses over out-of-state firms, who have no representation in the taxing state.

Reason Foundation’s Steve Titch wrote about the proposal last July explaining how the legislation would undo two Supreme Court decisions and fundamentally change how we are taxed:

While proponents say the law will level the playing field for brick-and-mortar stores that collect taxes, it will actually fundamentally change the basis on which merchants collect sales tax. As of now, sales tax is calculated based on the retailer's location. A New Jersey resident shopping on Manhattan's Fifth Avenue pays sales tax to New York City. Does the Marketplace Fairness Act set up a legitimate sales tax claim by Trenton to any purchase made in any state by a Garden State resident? Don't discount it. The logic behind the bill is "what applies to local retailers should apply to Internet retailers." From there it's easy to argue the reverse.

All the talk of loopholes and level playing fields diverts attention from the real issue. The Marketplace Fairness Act is not about the Internet, e-commerce, the marketplace or fairness-it's about what the Constitution says about the power of state governments to tax citizens beyond their borders.

The Marketplace Fairness Act treats the Internet sales tax issue as a procedural issue when it actually ushers in something unpecedented: cross-border taxation. The bill requires an unusual quid pro quo, states must simplify the way they collect taxes before the law goes into effect. This may be because Congress is trying to offer states the appearance of buy-in. Perhaps they forsee that any federal attempt to impose a national internet sales tax structure wholesale on the states would likely face constitutional challenges on 10th Amendment grounds of states' rights.

series of tubes

Image by Plastic Tubing.

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New Report Gives Americaís Infrastructure a D+, But Finds Improvement

The New York Times reports:

America’s roads, bridges, water systems and energy networks have long been in poor repair. The American Society of Civil Engineers, which releases a report every four years that evaluates the problem in a letter-grade format, awarded the nation a “D” in its last report, published in 2009.

The latest Report Card for America’s Infrastructure, released Tuesday, has an unexpected bit of qualified good news: the grade has inched up to a D+. It is the first time in the 15 years that the engineering organization has conducted its study that the grade has improved.

The report is showing progress in six areas, including bridges, rail, wastewater and drinking water. No category saw a lower grade than that given in the previous report, though the nation’s inland ports, waterways and levees received a near-flunking grade of D-. (The full report can be downloaded, along with interactive analysis of all 50 states, at www.infrastructurereportcard.org.)

...An expert in infrastructure who is more skeptical of government investment, Robert W. Poole Jr. of the Reason Foundation, said the results of the new report card tracked what he has been arguing for some time in the face of doom-and-gloom pronouncements: “There actually is progress.”

Reason’s Baruch Feigenbaum discussed the new report at Huff Post Live:


A recent Reason Foundation study showed that the nation’s highways and bridges are making progress:

…a new Reason Foundation report examining 20 years of state highway data finds the condition of America’s state-controlled roads has improved in seven key areas including deficient bridges and pavement condition.

All 50 states lowered their highway fatality rates from 1989 to 2008 and 40 states reduced their percentages of deficient bridges during that time. Nationwide, the number of deficient bridges in the country fell from 37.8 percent of all bridges in 1989 to 23.7 percent in 2008.

The Reason Foundation study tracks spending per mile on state-owned roads and measures road performance in seven categories: miles of urban Interstate highways in poor pavement condition, miles of rural Interstates in poor condition, congestion on urban Interstates, deficient bridges, highway fatalities, rural primary roads in poor condition and the number of rural primary roads flagged as too narrow.

In the 20 years examined, 11 states (North Dakota, Virginia, Missouri, Nebraska, Maine, Montana, Tennessee, Kansas, Wisconsin, Colorado, and Florida) made progress in all seven categories and 37 states improved in at least five of the seven metrics.

California was the only state that failed to improve in at least three areas, making strides only in deficient bridges and fatalities. Five states—New York, Hawaii, Utah, Vermont and Mississippi—progressed in just three categories.

Reason’s transportation research and commentary is here.

shaky bridge

Photo by Shakeelgilgity

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Small-Government Former Gov. Mark Sanford and Stephen Colbertís Sister Win South Carolina Primaries

Long before Mark Sanford’s very public affair and divorce, Reason featured the former South Carolina governor in our Annual Privatization Report for his work cutting the size of, and improving the efficiency of, government in South Carolina.

Former Gov. Sanford continued his road back on Tuesday night winning South Carolina's special congressional GOP primary. If he wins a Republican runoff election against the primary’s second place finisher (a recount is needed to determine Sanford’s opponent), he will face Elizabeth Colbert Busch, comedian Stephen Colbert’s sister.

NBC News has the details:

A disgraced ex-governor and the sister of a popular comedian came out victorious on Tuesday in South Carolina's special congressional primary, possibly setting the stage for an uncommonly tight race for what is normally a Republican safe seat.

Republicans in South Carolina's 1st congressional district showed forgiveness by supporting Mark Sanford after a campaign focused as much on the former governor's personal transgressions as his record. Sanford came out on top of the crowded 16-candidate Republican primary, according to the Associated Press.

Sanford, who gained more than 35 percent of the vote, will face a runoff election on April 2 against the second place finisher. The race for the Republican runner-up was much closer and votes were still being tallied late into the night.

Also victorious on Tuesday was Elizabeth Colbert Busch — the sister of comedian Stephen Colbert — who easily won the Democratic primary and will face off against the winner of the Republican run-off election in May.

The seat opened in December when then-Rep. Tim Scott was appointed to fill the Senate seat vacated by Jim DeMint.

In the Annual Privatization Report, then-Gov. Sanford wrote:

Let me be clear up front that in the long run the only way to make government truly efficient is to make it smaller, and this seems to me to be the real clarion call in highlighting the importance of privatization efforts. Efficiency and government are mutually exclusive in our system, and if our Founding Fathers had wanted efficiency I suppose they would have looked more closely at totalitarian systems. They wanted not efficiency, but checks on power in our republic.

In attempting to advance limited government, personal freedom and free markets over government fiat, here are a few things we have found in South Carolina:

Friedman, not freedom, sells: So much of why we should limit government is tied to freedom, but sadly we have found greater leverage in talking about how Thomas Friedman's new-found and so-called Flat World necessitates limits to government. The point we have made continually over the past three-plus years is that for our state to survive and thrive in this new competition of 6.5 billion people across planet earth, we must make changes to our government cost structure.

Business principles trump ideology in advancing limited government: As an example, many of the successes that were built into the $100 million in last year's budget savings in South Carolina were sold by talking about business principles. We argued that in the world of business, when your business model changes, you change with it.

It will be interesting to see if Sanford can continue his comeback by winning this House seat and return to his earlier efforts to limit the size of government.

Mark Sanford

Photo by Red Ventures

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Pull the Plug on Electric Vehicle Charging Stations

The Atlanta Journal-Constitution published my op-ed against subsidizing electric vehicle charging stations.

In summary, the city of Atlanta is using federal subsidies to install electric vehicle car-charging stations. This may sound like a good way to invest in the future. Unfortunately, there are several significant problems with this taxpayer supported subsidy.  

First, electric vehicles in GA are not cleaner than traditional gas-powered vehicles. Most electricity in Georgia is generated by coal power, which produces far more carabon dioxide than gas engines. And the lithium batteries, which power most electric vehicles, requires mining lithium. The negative environmental consequences of mining lithium far outwiegh any positive benefits from operating electric vehicles. 

Electric vehicles are used mostly by the wealthy. For example, the average income of a Chevrolet Volt owner is $170,000. The only automaker whose customers have a higher income is Mercedes-Benz. Why are taxpayers subsidizing new cars for the rich who can already afford them?

And even with the subsidy auto sales are not exactly taking off. Ford sells more F-Series pickups in a year than Chevrolet sells Volts and Nissan sells Leafs combined in a year. The combined federal and Georgia subsidy of up to $15,000 cannot make customers but a product they do not want. 

The complete op-ed is available here.

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Innovators in Action: Georgia DOT, Tolling Agency Officials on Atlanta's Managed Lanes Network

Earlier this month, I interviewed GDOT Deputy Commissioner Todd Long, incoming SRTA Executive Director Chris Tomlinson and SRTA Director of Operations Steve Corbin about the Georgia Managed Lane Network. 

There are different types of Managed Lanes. High-Occupancy Vehicle (HOV) lanes allow vehicles with a specified number of occupants [usually 2 or 3] to use the lane while High-Occupancy Toll (HOT) lanes allow drivers who pay a toll to use the lane. All transit vehicles may use HOV lanes for free and all registered transit vehicles may use Georgia’s HOT lanes for free. HOT lanes are a better solution for most of Georgia’s corridors. 

These managed lanes can offer this reliable travel time 24 hours per day for many years because their tolls increase or decrease based on congestion in these lanes. Building a complete network is important because Atlanta has at least 10 distinctive employment centers. 

The I-85 conversion project between Chamblee-Tucker Rd and Old Peachtree Rd was the first managed lanes project in Atlanta. The launch was rough. Our initial toll rates the Monday of the launch were too high. The dynamic pricing algorithm placed too much emphasis on the congestion in the general purpose lanes and not enough emphasis on the light volume in the express lane. Many people wanted to use the lane but did not have Peach Passes. The combination resulted in relatively empty lanes. We needed to make adjustments and we quickly did. 

Several new managed lanes are being planned or under construction. We are currently extending the I-85 lane from Old Peachtree Rd to Hamilton Mill Rd. We are also building 2 reversible Managed Lanes on I-75 south from SR 155 to the I-675/SR 138 area. We hope to have this project under contract later this summer. Lastly, the I-75/I-575 North project is the largest of our efforts. This project will add two reversible lanes on I-75 and one lane on I-575. Bids for that project open in April and a record of decision is expected by next January. We plan to start construction next year; we estimate that project will open in late 2017 or early 2018. We have several other corridors we are looking at for the future. SR 400 and I-285 from I-75N to I-85N are the next two. Currently, we lack funding for either of those projects. All of these managed lanes projects will add capacity. 

The full interview is available here.

Like most states, Georgia faces a major challenge in delivering future transportation infrastructure given the declining purchasing power of the federal gas tax, the rising maintenance needs of an aging highway network and the increasing costs of construction materials. Georgia spends a majority of its gas tax revenues on maintenance; finding sufficient money to build a transportation system fit for the 21st century is very challenging. 

The Georgia Department of Transportation (GDOT) and State Road and Tollway Authority (SRTA) have embraced a managed lanes network plan as the best way to use existing resources and reduce congestion on metro Atlanta interstates and freeways. There are different types of Managed Lanes. High-Occupancy Vehicle (HOV) lanes allow vehicles with a specified number of occupants [usually 2 or 3] to use the lane while High-Occupancy Toll (HOT) lanes allow drivers who pay a toll to use the lane. All transit vehicles may use HOV lanes for free and all registered transit vehicles may use Georgia’s HOT lanes for free. The current plan was approved in 2010 and is being implemented across the region. 

In March 2013, Reason Foundation Transportation Policy Analyst Baruch Feigenbaum interviewed GDOT Deputy Commissioner Todd Long, incoming SRTA Executive Director Chris Tomlinson and SRTA Director of Operations Steve Corbin to discuss the concept of Managed Lanes, current operations and future plans for the network. 

Baruch Feigenbaum, Reason Foundation: Many metro areas across the country are studying and implementing Managed High Occupancy Toll (HOT) Lanes as a way to reduce congestion. What are the principles behind a HOT Lane Network and why is it appropriate for Atlanta? 

Todd Long, Deputy Commissioner, Georgia Department of Transportation: Due to right-of-way costs we cannot continually widen highways. And in a growing metro area like Atlanta, new unpriced highway lanes will quickly become congested again. This principle called induced demand limits the effectiveness of adding general-purpose lanes. When complete, the Managed Lanes Network will offer a reliable travel time throughout the metro area. These managed lanes can offer this reliable travel time 24 hours per day for many years in the future because their tolls increase or decrease based on congestion in these lanes. Building a complete network is important because Atlanta has at least 10 distinctive employment centers. We need the entire network to provide quality connections between residential locations and these centers.

Chris Tomlinson, Incoming Executive Director, SRTA: Metro Atlanta has significant congestion issues. As Atlanta continues to grow economically, congestion will become much worse. Although GDOT has eminent domain powers at its disposal, taking land for improvements is never popular. Additionally, it is not a realistic solution because of constrained funds and induced demand. GDOT realized that the combination of growing demand, limited funding, and lack of right-of-way made continuing on our current path of traditional road widenings unsustainable. So staff recommended that the State Transportation Board adopt a Managed Lanes plan. In 2007, the board adopted the Managed Lanes plan in which any additional capacity in metro Atlanta is to be “Managed.” Managing, or in this case pricing, capacity can help control congestion and increase reliability. The network primarily relies on adding new priced lanes; however, in limited situations it considers converting existing lanes. When considering a conversion we examine both performance of the corridor and accessibility of the lane. The first project, the I-85 demonstration project, was a conversion project. In 2008, Georgia received a $110 million Congestion Reduction Demonstration (CRD) Program Grant to Atlanta. This federal government transit grant led to the implementation of a managed lane, enhanced transit service and innovative technology. 

Feigenbaum: Does the network have to be priced? Did metro Atlanta consider a (HOV) network? 

Long: The plan started as an HOV network, in 2000, before High Occupancy Toll (HOT) lanes became popular. After conducting revenue studies, we determined that there was neither sufficient funding nor projected demand to justify building an HOV network. While the HOT network has higher user forecasts and more forecast revenue, total revenue is not quite sufficient to fund the project. Working with the private sector and using Public Private Partnerships can provide 20-25% of the total project costs. The best solution is a Managed Lanes network that utilizes PPPs. 

Feigenbaum: What are the specific benefits of tolling or managing a lane? 

Long: For the I-85 lane specifically, data shows a slight reduction in the travel times in the I-85 general-purpose lanes but over time the general purpose lanes have returned to about the same level of congestion as before the HOT lanes were installed. However, the managed lanes now offer a reliable trip for cars and buses compared to the previous HOV lane where there were significant delays. One of the biggest improvements in the corridor has been to transit service. Both the number of buses and total ridership have increased as a result of the federal grant and new managed lane. Both the regional transit agency Xpress and local operator Gwinnett County Transit (GCT) have increased service, which is exactly what we hoped.

Tomlinson: The number one goal is for the lane to provide a predictable and reliable trip for both auto and transit users. Our customers highly value this benefit and are willing to pay for this higher level of service.

Feigenbaum: Is the I-85 lane different from other HOT Managed Lanes? Have there been any issues with customers being charged the wrong toll?

Steve Corbin, Director of Operations, SRTA: SRTA has a special program to monitor reliability. If something happens in the lane that significantly affects motorists such as an accident, we have the ability to refund or waive a portion of the customer’s trip or waive a violation. This is used to address some special circumstances unique to having a non-barrier separated HOT facility. We are the only non-barrier Managed Lane in the U.S. to offer such a program. Our goal is to be the number one customer-centric tolling agency in the country. 

Occasionally a customer will have a payment issue. One of the best tests of whether or not we are providing good customer service is if we resolve the customer’s problem. For example, during the past calendar year we have had only a few customers who notified of us an issue with the price they paid for the Managed Lanes. All were resolved to the customer's satisfaction. We believe providing this level of service is the best way to find new customers.

The rest of the interview is available here.

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Chicago Schools to Implement Student-Based Budgeting and Principal Autonomy

In the 2013-2014 school year, the third largest school district in the country - Chicago Public Schools (CPS) - will join other districts across the country in moving from funding institutions to funding students. Student-based budgeting - also known as weighted student formula or backpacking - is a more equitable, decentralized method of funding schools where money follows the child and principals are given more autonomy over their school's budget.

For the past six years CPS implemented a pilot program on student-based budgeting covering 40 schools city-wide. CPS CEO Barbara Byrd-Bennett and Chicago Mayor Rham Emanuel have recognized the success of the program and champion full implementation of student-based budgeting.

But, not everyone is a fan of student-based budgeting.

Earlier this week, Chicago Teachers Union Vice President Jesse Sharkey released a statement warning about the dangers of Chicago Public School's (CPS) decision to move away from the outdated and complex school funding formulas currently in place, and toward the simpler and more equitable per-pupil school funding.

Sharkey argues that the per-pupil funding would promote discrimination among veteran teachers by incentivizing principals to hire less expensive novice teachers, and that there are oversight concerns over principals having more autonomy over their budgets.

There is little evidence from other districts that have implemented student-based funding that principals routinely discriminate against veteran teachers. On the other hand, the current school funding formula actually discriminates against a more vulnerable demographic - students.

Under the current funding formula CPS provides a regular classroom teacher for every 28 students in K-3rd grade, and for every 31 students in 4th grade and higher. Also for every 750 students the district provides an assistant principal, an art or music teacher, and a librarian or gym teacher. The district simply averages salaries across schools and reports school-level resources based on a district average. In reality, schools which have more senior staff get more dollars.

Seniority and personnel costs may result in vastly different per-pupil spending from one school to another even with similar students at each school. A US Department of Education study based on the school-level reporting requirement of the ARRA stimulus funds, found that more than 40 percent of schools that receive federal money to serve disadvantaged students through Title I spent less state and local money on teachers and other personnel than schools that don't receive federal money at the same grade level in the same district. The federal analysis identified 300 Chicago public schools that were receiving less money than the average non-Title I school. These schools had an average of 89 percent poverty and these low-spending Title I schools in Chicago had average per-pupil expenditures that were 13 percent below the average for non-Title I schools ($3,780 vs. $4,329).

Student-based budgeting is an efficient and transparent way to remedy funding inequities for the most disadvantaged students by funding schools with actual dollars rather than staffing positions. Baltimore Public Schools, for example, has made great strides in terms of within-district equity from one school to another since implementing their own form of student-based budgeting in the 2008-09 school year - Fair Student Funding.

In 2008, only 52 percent of Baltimore public schools were within 10 percent of the district's median per-pupil expenditure. By 2012, 81 percent of the district schools were within 10 percent of the median-funded school. In fact, in an analysis by Education Resource Strategies, Baltimore was shown to have the highest percentage of schools within 10 percent of the median per-pupil spending when compared with several similar districts.

Not only is student-based budgeting a more equitable way of funding students, it provides a more transparent and stable way to fund schools. Rather than have many complicated budgeting formulas for different schools, student-based budgeting applies one simple formulas across all schools. Also, by allowing money to follow students rather than set enrollment numbers there is more stability in funding. Under the current CPS formula, if a school falls short on the number of students enrolled in a given year by even one student it creates a fiscal cliff where the school could lose a teacher or two. Many times principals have had to cut back on supplies and equipment to avoid losing their staff, which can be disruptive to students.

Student-based budgeting is not unique to Chicago Public Schools. Over 30 school systems across the country have shifted to funding their schools through a type of student-based budgeting. Principals at these schools have successfully managed their school budgets after being given the flexibility they need to make the decisions that are best for their schools and their students.

Under student-based budgeting, CPS principals will gain autonomy over 50 percent of school budgets which will be directed to core instruction including hiring teachers, support personal, supplies, and additional instructional programs. The remaining 50 percent of the schools budget will continue to be allocated through the old funding formula for non-core instruction funding, including supplemental general state aid money for special education, magnet schools, International Baccalaureate, limited English proficiency programs, STEM, bilingual students, and Title I. Once principals complete their budgets, they must submit and get them approved by the district financial offices.

As stated by CPS CEO Barbara Byrd-Bennett, "Great schools are led by strong leaders. They set high standards and they know how to best support their students. They should have the autonomy to decide how to direct their resources toward the most important people in any school - their students."

CPS administrators and teachers must make their students their first priority. By implementing student-based budgeting, CPS is making a good start at increasing equity, spending transparency from one school to another, and ultimately student performance as principals have more control over using their resources to drive improvements in instruction and achievement.

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