Reason Foundation

How to Avoid Closing Washington State Parks

Posted on May 17, 2013, 1:57pm | Leonard Gilroy

Many thanks to the Washington Policy Center for publishing my legislative memo today on how to avoid the closure of dozens of Washington State parks, as Gov. Insley has proposed if his tax increase package fails to advance. Here's an excerpt:

The threat of closing five dozen state parks is yet another variation on the well-worn “Washington Monument Syndrome” tactic designed to threaten closure or disruption of popular amenities if tax increases are not approved.

Political tactics notwithstanding, Washington’s state parks system does indeed face significant funding challenges. General fund appropriations for parks have been on the decline for years, a predictable circumstance in a fiscal football game in which funding for major spending priorities like education, healthcare, public safety and public-sector retiree benefits increasingly crowds out funding for the “nice-to-have” amenities like state parks. The sooner that policymakers and citizens understand this basic trajectory is only going to intensify — and that new solutions are needed to sustain the “nice-to-have” items like state parks — the better.

Some in Washington have begun to realize this when it comes to parks. In recent years, the legislature pushed the Washington State Parks Commission to pursue financial self-sustainability, and to its credit, the agency has pursued a range of strategies that include staff reductions, an increasing reliance on user fees and non-recreational leases, and expanding revenue-generating assets within the parks themselves. While these actions have not solved the funding challenge, they have been useful steps to keep the parks system afloat.

Short-term infusions of funding along the lines proposed by the governor are not a sustainable financial strategy if the goal is to keep parks open and thriving for the long term. Washington, like many other states, is due for a major rethinking of the structure and operation of the parks system itself. […]

Though it may be anathema to the preconceived visions held by some parks advocates, there is indeed a strong role for private-sector and non-profit operators in the state parks. For example, nonprofits played a major role in taking over operations of dozens of California state parks to help avoid closure amid 2012’s budget battles, and many municipal parks, zoos and aquariums, including New York City’s famed Central Park, have long been operated by nonprofit conservancies and “friends” groups.

Read the whole thing here or here for more on the role of the for-profit sector in operating Evergreen State parks.

Louisiana Republicans Introduce Bills to Replicate Massachusetts's Pro-Union, Anti-Privatization “Pacheco Law”

Posted on May 9, 2013, 7:36pm | Leonard Gilroy

My latest column offers a critique of two bills introduced in the Louisiana legislature that are modeled after the Massachusetts "Pacheco Law," which is widely regarded as the most onerous and stringent anti-privatization law in the country. Here's a brief excerpt:

Two proposed bills introduced in the Louisiana legislature—and passed by a House committee earlier this week—raise serious barriers to fiscal responsibility, as the bills would effectively shut down the ability of the current and future governors to use the proven tool of competitive contracting to lower the costs of state government.

House Bill 240 (sponsored by Rep. Kenny Havard) and House Bill 519 (sponsored by Rep. Cameron Henry) are two alternative versions of a “Privatization Review Act” designed to place significant hurdles in front of routine, sensible privatization efforts used by governors of all political stripes across the country. Given the similarity to a 1993 law enacted in Massachusetts at the behest of government employee unions—and which has stymied privatization efforts in that state for two decades since—a more appropriate title for the proposed Louisiana bills would be the "Louisiana Government Employee Protection Act."

Specifically, HB 240 and HB 519 would prohibit agencies from entering into privatization contracts without prior legislative review and approval, and they would subject routine contracting decisions to onerous pre-procurement and contract review processes clearly designed to protect state employee jobs and elevate the interests of government employee unions over those of taxpayers at large.

The proposed bills are modeled nearly word-for-word after Massachusetts’ “Pacheco Law” (named for its legislative sponsor) that “has basically shut down all privatization efforts in state government,” according to an April 2013 Boston Globe editorial, which also noted that, “the purpose of state government isn’t to be a jobs program, particularly one that turns a blind eye to opportunities for savings.”

[...]

In January 2011, the Globe's editorial board wrote that the anti-privatization Pacheco Law “doesn’t just keep government agencies from saving money by hiring outside contractors to perform certain services. It also sends a broad message: In Massachusetts, the demands of special-interest groups — in this case, public-employee unions — can outweigh the obligation to run government efficiently."

Louisiana taxpayers would be right to question why some of their own state legislators are trying to replicate the law that has been so counterproductive in the Bay State for decades. Does Louisiana really want to become a profligate, big-spending state like Massachusetts and remove proven cost-cutting tools from the toolbox?

Read the full article here.

Innovators in Action: Jacksonville, FL Commissioner of Public-Private Partnerships Renée Finley on Building the City's PPP Program to Drive Efficiency, Quality of Life

Posted on May 7, 2013, 3:36pm | Leonard Gilroy

Soon after taking office in July 2011, Jacksonville, Florida Mayor Alvin Brown established the city’s first Office of Public-Private Partnerships (PPPs) as a means to leverage greater returns from public resources by cultivating new funding sources for city initiatives, forging new partnerships with the private and nonprofit sectors, and optimizing the use of public assets and city-owned real estate.

Consistent with the office’s mission, Mayor Brown looked to the private sector for leadership of the new PPP office, ultimately appointing Renée Finley—an executive-on-loan from Florida Blue (formerly Blue Cross and Blue Shield of Florida)—in November 2011 to build the new office and set a course for PPPs in Jacksonville. In less than two years, the PPP office has already generated some significant results, including tapping approximately $7 million in direct private sector donations and grants, and approximately $2 million in identified cost savings opportunities through efficiency and competition initiatives.

In our latest interview in the Innovators in Action 2013 series, I interview Finley on the origins and accomplishments to date of Jacksonville’s PPP program, lessons learned along the way, and more. Here's a brief excerpt of the interview:

Leonard Gilroy, Reason Foundation: What drove Mayor Brown's decision to launch the Office of PPPs so early in his administration?

Renée Finley, Commissioner of Public-Private Partnerships, City of Jacksonville, Florida: The concept started with the mayor and his vision to reform government. Coming into office, he was faced with a $53 million budget deficit, so he articulated a number of reform goals, one of which was to position the city government for the new economic reality that we were facing. And he had a second goal of improving the effectiveness and efficiency of government. Mayor Brown believes that we can attain more efficiency in the delivery of public services and achieve better results by leveraging the strengths of both the private and nonprofit sectors.

Gilroy: What goals did the mayor have in setting up the Office of PPPs? What were the areas of focus?

Finley: There were really four key areas of focus. The first was around optimizing assets and services, and the thought was, “how do we leverage the strengths and resources of the private and nonprofit sectors in the delivery of public services and public works?” And furthermore, he wanted to explore opportunities to leverage city assets—in particular, real estate assets—by getting them in the hands of the private sector so they can drive additional private investment for further economic development for the city.

The second area of focus was around the facilitation of private interest in economic and urban development. The third area of focus was to facilitate private support and nonprofit involvement in education and workforce development initiatives. And, the fourth area focuses on delivering partnerships that improve the quality of life for Jacksonville citizens.

Check out the full interview here for details on the results of Jacksonville's PPP initiatives thus far, which will hopefully inspire other cities to pursue similar endeavors.

Other articles featured in the Innovators in Action 2013 series are available here.

New at Reason: Looking Back at the Last Year in Local Government Privatization

Posted on May 6, 2013, 4:25pm | Leonard Gilroy

The rollout of Reason Foundation's Annual Privatization Report 2013 continues today with the release of the Local Government Privatization section—authored by Reason's Harris Kenny, Adam Summers and Steven Titch—which provides an overview of the latest on privatization and public-private partnerships in local government. Articles include:

• Mayor Emanuel Establishes Chicago Infrastructure Trust
• Public-Private Partnerships for Parking Assets
• Yonkers, New York Pursuing Innovative School Partnership Approach
• City of Austin Releases Surprising Outsourcing Study
• Georgia Contract Cities Continue to Evolve
• Finding New Ways to Provide Parks and Recreation Amenities
• Water and Wastewater Privatization Update
• Solid Waste Collection Update
• Non-Profit Partnerships for Animal Shelters Grow
• ANALYSIS: Is Managed Competition Dead in San Diego?
• ANALYSIS: San Diego, San Jose Lead the Way in Local Pension Reform
• ANALYSIS: Despite Glossy Reports, Muni Broadband is Still a Net Money Loser
• Local Government Privatization News and Notes

» Annual Privatization Report 2013: Local Government Privatization
» Complete Annual Privatization Report 2013

New at Reason: Looking Back at the Last Year in State Government Privatization

Posted on April 22, 2013, 1:43pm | Leonard Gilroy

The rollout of Reason Foundation's Annual Privatization Report 2013 continues today with the release of the State Government Privatization section—authored by Reason's Leonard Gilroy and Lisa Snell—which offers an overview of the latest on privatization and public-private partnerships in state government. Topics include:

• State Budget Update
• Privatization of State Lottery Management
• The Emergence of Social Impact Bonds: Paying for Success in Social Service Innovation
• California Pioneers Public-Private Partnerships for Private Operation of State Parks
• Higher Education Public-Private Partnerships Update
• State Liquor Privatization Update
• Social Infrastructure Public-Private Partnerships Update
• Child Welfare Privatization Update
• State Privatization News and Notes

» Annual Privatization Report 2013: State Government Privatization
» Complete Annual Privatization Report 2013

New Jersey Announces Lottery Privatization Contract Award

Posted on April 12, 2013, 5:12pm | Leonard Gilroy

The New Jersey Department of the Treasury today announced its intention to award a 15-year contract for the private operation of the state's lottery that will bring a $120 million upfront payment to the state and an estimated $1.4 billion in additional net lottery revenue to the state over the life of the deal, relative to in-house operation. From the state's press release:

To ensure the future performance of the New Jersey Lottery exceeds its past record of providing essential support to State institutions and education programs, the Department of the Treasury’s Division of Purchase and Property has issued a Notice of Intent to award a 15-year contract to Northstar New Jersey Lottery Group to provide the Lottery with services to support its marketing and sales operations.

As part of the contract terms which guarantee the State a minimum amount of income, Northstar NJ will provide an accelerated payment of $120 million to the State upon the final award and execution of the contract. It has also committed to generating at least $1.42 billion of total additional net income for the State from Lottery operations over the life of the contract with a potential actual increase in net income of $6.88 billion. The $1.42 billion mark is above and beyond what the State could expect to see if Lottery operations remain unchanged.

Northstar NJ is a joint venture consisting of GTECH Corporation of Providence, Rhode Island, Scientific Games International of Alpharetta, Georgia, and OSI LTT NJ Holdings, a unit of the Ontario Municipal Employees Retirement System (OMERS). GTECH and Scientific Games are two of the world’s leading companies in lottery management and OMERS is one of the largest pension funds in Canada.

“For more than 40 years, the Lottery has provided critical financial support to New Jersey’s institutions and educational programs. The contract we plan to enter into with Northstar New Jersey protects that legacy commitment to New Jerseyans by positioning the Lottery for sustained growth and continued success in the face of an increasingly complex and competitive marketplace,” said State Treasurer Andrew Sidamon-Eristoff.

Carole Hedinger, executive director of the Lottery, said the contract will immediately strengthen its operations. “GTECH and Scientific Games have outstanding records of success in helping public lotteries grow their revenues and improve their operations. Their business plan for the Lottery is solid, well-researched and builds upon our existing strengths.”

New Jersey now becomes the fourth state—after Illinois, Indiana and Pennsylvania—to move forward with a private management agreement for lottery operations in recent years. The shift to private management has already occurred in Illinois and Indiana, while officials in Pennsylvania continue to renegotiate their contract after the state's Attorney General raised several legal concerns in February, which has slowed the process in the Commonwealth.

Check back to reason.org in the coming weeks for my state lottery privatization roundup as part of our Annual Privatization Report 2013.

Innovators in Action: Swampscott, MA Selectman Barry Greenfield on Breaking the State’s Control of Municipal Pensions in Massachusetts

Posted on April 8, 2013, 8:45am | Leonard Gilroy

In Massachusetts, the state mandates the types of retirement benefits that municipal governments provide to employees, effectively precluding local governments from having full control of their fiscal destiny. As unfunded pension and retiree healthcare obligations continue to mount in local governments in Massachusetts—as across the country—at least one town is trying to end the state's grip on local governments and give them the ability to pursue their own tailored, financially sustainable retiree benefit reforms.

The push for local control is being driven by Barry Greenfield, a selectman in Swampscott, Massachusetts and the founder and publisher of EfficientGov.com, a publication aimed at spreading public policy innovations. Greenfield has led the push to build a coalition of Massachusetts cities and towns—all of which have unfunded retiree benefit obligations—to build support for legislation that would give local governments the power to determine retirement benefits, rather than having the state mandate what municipalities provide.

Swampscott offers an illustrative example of the challenge local governments face. The town of 13,700 people has an unfunded liability of approximately $38 million dollars, and current pension costs account for close to 10% of the town’s budget. Worse, the town faces an $80 million unfunded liability in retiree healthcare. Together, retiree pension and healthcare benefits are currently consuming almost 20 percent of the town’s annual budget.

In our latest interview in the Innovators in Action 2013 series, I interview Greenfield on his efforts to give local governments the power to determine public employment retirement benefits in Massachusetts, getting the state out of a key aspect of municipal decisionmaking. Here's a brief excerpt of the interview:

Leonard Gilroy, Reason Foundation: Can you describe what prompted you to launch your current pension reform initiative?

Barry Greenfield, Town of Swampscott, MA Selectman: My town, Swampscott, is involved in a state-run public employee pension plan—a mandated retirement system that we pay the cost for, but which is overseen by the state. This plan covers public employees and teachers as well. It’s a defined-benefit plan where the retirement benefits for your pension are based on years of service, a multiplier that’s based on what type of employee you are, and what age you retire, in addition to employee contributions and investment return. The town contributes to those retirement benefits primarily through property taxes. A similar state-run system dictates OPEB [other post-employment benefits] like retiree healthcare benefits as well.

What’s happened over the years is that when they first implemented this program—which I believe was in 1911—the number of active employees to retired employees was at least 40-to-1. And that’s what most of these plans were designed on—a high level of active employees with relatively few retired employees. But over time, as the country has aged and people have aged, we in Swampscott are now down to a 1-to-1 ratio.

Most pension experts—and by that I mean academics, as you’ll get different answers from the actuaries involved in the state-run pension system—will tell you that the research has shown that once you get to a 5-to-1 ratio of active to retired employees, you’re really heading for trouble because you just don’t have enough new active employees paying contributions into the system to keep it afloat. There’s a myth that each employee contributes enough to pay for their own pension. Even when you add the projected investment return, the numbers simply don’t add up.

We’re at a 1-to-1 ratio in Swampscott, and it’s only going to get worse, because we have an aging workforce. If you look at the age of our municipal employees, they’ve all been working for 10 to 15 years and there are very few new employees coming into the system. People are working longer because the longer they stay working, the better the pension and OPEB benefits are.

So what I started reading and writing about in other states is what I would describe as the ability of cities to take control of their pension issues and realize that they’re unsustainable, as city and town services are falling by the wayside simply to fund retirement benefits. So what you’re seeing is that property taxes are rising—mine have gone up 50% in six years—but the services in the town have not improved. Almost all of that money has gone to pension or OPEB benefits.

[. . .]

This April, the town will be voting on a home rule petition that says we should have the freedom to decide what retirement benefits are a fit for our financial situation. The reality is that each town is not identical in terms of its fiscal footprint. We’re a small town trying to offer city-like services with few prospects for regionalization. It’s not necessarily saying that we’re going to move away from a defined benefit plan, nor does it say that we’re going to move toward a defined contribution plan. It’s not saying exactly what we’re going to do—all we want is the freedom to pursue options because we’re $38 million underfunded in our pension obligations and close to $80 million underfunded in our OPEB obligations. While those numbers may change a little on a day-to-day basis, they are still significant numbers when you’re talking about a town of only 13,700 people.

So I think that our town has proven that this particular mandate from the state—and I actually believe it’s an unfunded mandate—we need to be able to determine what’s best for us. We’ve proven that the current system doesn’t work for us, so that’s what this issue is all about.

The full interview is well worth a read and is available here. Other articles featured in the Innovators in Action 2013 series are available here.

Reform California’s Tax System to Boost Economy

Posted on February 13, 2013, 6:26pm | Adam Summers

In my most recent policy study study, co-published by Reason Foundation and the Howard Jarvis Taxpayer Foundation, I analyze what I consider to be some of the more egregious special-interest corporate and sales and use tax carve-outs in California and argue that the state could improve its woeful business climate—and, thus, the economy in general—by eliminating such tax breaks and lowering the general corporate tax rate by an amount equal to that of the "extra" tax revenues that the state might expect to get without these tax breaks.

As I note in the study, the impact of reducing California's corporate tax rate in a revenue-neutral way by eliminating these targeted and unfair tax breaks could be significant. As Howard Jarvis Taxpayers Foundation chairman Jon Coupal and I note in a recent Orange County Register column,

The Franchise Tax Board says the corporate tax rate could be reduced 14 percent across the board, without losing any net tax revenue, simply by getting rid of one tax break—the Research and Development Tax Credit.

Furthermore, the Reason-Howard Jarvis study shows that eliminating other corporate tax breaks for things like movie companies, computer software, timber growing, farm machinery, and the "Accelerated Depreciation of Research and Experimental Costs" credit would allow the state to reduce the overall corporate tax rate by 20 percent or more.

Each time state lawmakers carve out a special tax credit or implement policies that favor certain businesses or industries through the tax code or through regulation, they also harm other industries.

[. . .]

The error of such tax breaks is compounded when one considers that they are effectively subsidizing many business activities that would have taken place even without the tax breaks. It's corporate welfare that California doesn't need and can't afford.

In addition, the state is notorious for its lack of oversight of these tax policies. A Department of Finance analysis of state tax credits concluded that the legislative intent was "not specified" for 70 of the 82 tax expenditures reviewed.

California's terrible business climate—due primarily to its burdensome taxes and regulations—has played a significant role in its economic stagnation and malaise. California has the ninth-highest corporate tax rate in the nation, at 8.84%, and the highest rate in the entire western half of the continental United States (which gives one an idea why so many businesses are fleeing to states like Texas, Utah, Nevada, Idaho, and North Dakota).

According to Chief Executive magazine's Best/Worst States for Business survey, California's business climate ranked dead last for the eighth year in a row. Among the responses from the CEOs surveyed were the following:

• “California continues to head in the wrong direction as its tax policies will drive more businesses and people to relocate in other states. State politicians feel business and commerce are ‘necessary evils’ that provide the funds to enable pursuit of their misguided agendas.”
• “California government is difficult to work with and very bureaucratic. Taxes and regulation are high and unruly.”
• “California is begging for businesses to leave its state.”
• “California is going in the wrong direction if that’s even possible.”
• “California is out of control. They have too much government who have nothing better to do than to harass businesses in the state. They need to cut the size of their regulatory bodies in half.”
• “California is the worst! They are doing everything possible to drive a business out of their state. If the environment in CA was not so good, they would have lost half of their population.”
• “California regulations, taxes and costs will leave only tech, life sciences and entertainment as viable. If you aren't an elitist no room here for the middle or working classes.”
• “California’s regulation and specifically labor regulation is a job killer. We will be moving our business out of CA and the State will lose 100’s of jobs simply due to the poor regulatory environment.”
• “California’s taxes and ongoing changes for regulations are devastating. One never knows from even day to day what new interpretation of an existing regulation or new regulation will befall you and your small business.”

It is time policymakers in California realize the more taxes and more regulations are not getting the job done. If they truly want to jump-start the state's economy and "create jobs" (which, of course, only private-sector businesses—not the government—can do), they should reverse the many years of failed policies by reducing the high taxes and voluminous red tape that are strangling the state's economy. A good place to start would be to level the playing field by getting rid of special tax breaks for politically-favored industries and cutting business taxes across the board.

» See the full op-ed article here.

» The Reason Foundation-Howard Jarvis Taxpayers Foundation California tax credits study is available here.

» See my previous blog post about the California tax credits study here.

California Tax Increases are Bigger Than They Look

Posted on February 9, 2013, 6:23pm | Adrian Moore

Richard Rider, who runs San Diego Tax Fighters, had a great letter to editor in the Wall Street Journal about the actual increase in CA state taxes. You can read the original here, but the letter read:

 

Regarding your editorial "The State Tax Reformers" (Jan. 30): Here's what everyone has missed concerning state income taxes. For the really rich (people with over $2 million income), in 2013 the deductibility of state and local taxes (income, property and other taxes) is 80% disallowed. The effect can be dramatic.

Consider the recent flap concerning the hapless Phil Mickelson who spoke out about the new, higher taxes. Between the 29% California income-tax increase on millionaires (to 13.3%) and the loss of the deductibility on federal returns, his 2013 net California income tax will be 12.3%. In 2011, it was 6.7%. That's an astonishing 83.6% increase.

When you make that much income and have relatively few deductions (even when deductions were allowed before 2013), you seldom if ever trigger the Alternative Minimum Tax. Mr. Mickelson earns income with relatively few deductions, tax credits, etc., so he's probably been paying the full rate for many years. It's only the returns where special income (some municipal-bond income, for instance) or massive deductions are used that the AMT is triggered—ironically, mostly for incomes below $1 million.

In 2005, the maximum California tax went up from 9.3% to 10.3% for those with over a million-dollar income. At the time, the state income tax was fully deductible. With a 35% maximum federal tax bracket, that meant that the increase cost the rich a net 0.65%.

With the changes I've discussed, the 2013 net California income-tax increase is 5.6 percentage points—8.6 times higher than the 2005 increase. Only a fool would think that such a massive increase would not motivate many of the wealthy to depart California.

 

 

Discussing Prison Privatization on HuffPost Live (VIDEO)

Posted on February 8, 2013, 1:20am | Harris Kenny

I recently had the opportunity to appear on HuffPost Live, The Huffington Post's new Internet-based video streaming network, to discuss how federal and state policymakers partner with private prison operators (video embedded below).

The idea of partnering with for-profit operators can be challenging to some, however it is important to note public sector agencies (and their employees) don't work for free. In fact, as the host of this program notes, they share many of the same incentives as for-profit prison operators. Meaningful criminal justice reform seeks to change these incentives and move towards performance-based outcomes on critical metrics like inmate education, recidivism reduction and more. My colleagues Adrian Moore and Leonard Gilroy outlined this new approach, dubbed Corrections 2.0, in a study of the same name available online here. Well-structured public-private partnerships also allow accountability through rigorously enforced contracts.

For more of Reason Foundation's work on corrections and criminal justice, see the Prisons and Corrections Research Archive online here.

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  Follow Harris Kenny on Twitter @harriskenny

Some Steps for Congress on Pension Reform

Posted on February 7, 2013, 5:58pm | Adrian Moore

In this Wall Street Journal column Reason's Carl DeMaio explains how severely unsustainable are many state and local government pension plans.

A 2011 study by the Congressional Research Service pegged the combined liabilities faced by state and local pension funds at over $3 trillion. That is more than all the bonded debt officially listed on state and local balance sheets combined. To put the issue in perspective, all the federal tax hikes approved by Congress on Jan. 1 would pay less than 20% of America's state and local pension debt over the next 10 years.

Naturally, solving that problem is mostly a state and local issue. 

But there are a few useful things Congress can do. It seems odd these days to ask Congress to do something fiscally responsible, since that seems so far from their agenda, but the fixes have to start somewhere. 

First, Carl points out that 

Washington has tightly regulated private pension systems since the 1974 Employee Retirement Income Security Act, but that law exempted the pension systems of state and local governments. Four decades and $3 trillion in debt later, it is clear Congress made a mistake.

Second, 

Scores of state and local governments are using "pension obligation bonds" to bail out troubled pension programs on the risky wager that they can beat Wall Street investment returns. There is $64 billion in such bond debt outstanding in the U.S., with more expected to flood the market this year. 

Borrowing to make payments into a fund for future pension obligations is like me borrowing from my bank to pay my credit card. Bad financial management. Unfortunately, federal tax policies encourage pension obligation bonds, and Carl recommends changing that.

Read the whole thing here.

Taxing and Regulating Recreational Marijuana in CO, WA (AUDIO)

Posted on February 6, 2013, 12:57pm | Harris Kenny

I recently appeared on the Tax Policy Podcast hosted by Richard Morrison, Manager of Communications at the Tax Foundation, to discuss taxing and regulating recreational marijuana in Colorado (Amendment 64) and Washington State (Initiative 502). The roughly fifteen minute interview covers a wide range of issues, such as:

• Providing background on marijuana policy issues in Colorado;
• Defining the language, regulatory and tax concerns of Amendment 64 within the context of implementation;
• Explaining the challenges of formalizing the recreational marijuana industry;
• Comparing repealing prohibition of alcohol to marijuana;
• Highlighting federal and state concerns that may inhibit implementation; and much more.

Listen to the full interview online (MP3 audio file) here.

To clarify one comment I made in the interview, technically the Oregon's Measure 80 would not have created state owned and operated stores. However, it would have put strong state controls in place, including price setting, the summary of the certified ballot reads:

Currently, marijuana cultivation, possession and delivery are prohibited; regulated medical marijuana use is permitted. Measure replaces state, local marijuana laws except medical marijuana and driving under the influence laws; distinguishes "hemp" from "marijuana"; prohibits regulation of hemp. Creates commission to license marijuana cultivation by qualified persons and to purchase entire crop. Commission sells marijuana at cost to pharmacies, medical research facilities, and to qualified adults for profit through state-licensed stores. Ninety percent of net goes to state general fund, remainder to drug education, treatment, hemp promotion. Bans sales to, possession by minors. Bans public consumption except where signs permit, minors barred. Commission regulates use, sets prices, other duties; Attorney General to defend against federal challenges/prosecutions. Provides penalties. Effective January 1, 2013; other provisions.

For more on this issue, see Reason Foundation's drug policy research archive here.

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  Follow Harris Kenny on Twitter @harriskenny

New Reason Study Calls for California Tax Reform

Posted on January 30, 2013, 2:04pm | Adam Summers

In his State of the State Address last week, California Governor Jerry Brown asserted, "California is back, its budget is balanced, and we are on the move." Sadly, economic reality belies the governor's optimism. California still has the third-highest unemployment rate in the nation at 9.8%, a rate 26% higher than the national average of 7.8%. It has the highest income tax rate in the nation, the highest state sales tax, the highest gas tax (tied with New York), and the eighth-highest corporate tax rate (and the highest rate west of the Mississippi River, making it even less competitive with its neighboring states). Add to this the fact that California has the worst credit rating in the nation (now tied with Illinois), mainly due to its significant debt and hundreds of billions of dollars in unfunded pension and retiree health care liabilities, and one of the worst—if not the worst—business climates in the country. The passage of Proposition 30, with its roughly $50 billion in new tax increases over the next seven years, last November certainly won't help matters. This is certainly not the track record of an economic powerhouse, or even a state on the upswing.

There are many ways to turn around the California's fiscal and economic fortunes—cutting spending, eliminating burdensome regulations, privatizing government services, ditching boondoggles like the California high-speed rail plan, implementing real pension reform, etc.—but today I would like to focus on how tax reform could help to revitalize the state. In addition to its high general personal income, corporate, and sales tax rates, California's tax code is plagued by numerous special carve-outs for politically-favored businesses and industries. In a new study by Reason Foundation and the Howard Jarvis Taxpayers Foundation, I highlight some of the more egregious corporate and sales and use tax credits, exemptions, and deductions offered by the state and argue that eliminating such tax breaks and using the "savings" to lower the overall corporate tax rate would promote a better business climate, and thus help improve the state's economy.

The results of such tax reforms could be significant. The Franchise Tax Board estimates (see page 10 of this California Senate Office of Oversight and Outcomes report) that if the Research and Development Credit alone were eliminated, the overall corporate tax rate could be reduced by about 14 percent, thus improving the business climate for all industries. If some of the other tax breaks discussed in this report were also eliminated—including the Accelerated Depreciation of Research and Experimental Costs, Double-Weighted Sales Factor, Film Credit, Low-Income Housing Credit, Hiring Credit, Percentage Depletion of Mineral and Other Natural Resources, and Expensing of Timber Growing Costs breaks (see Table 1 on page 14 of the study)—the Reason-Howard Jarvis report finds that California could likely reduce its overall corporate tax rate by more than 20 percent.

The infamous Solyndra case is a perfect example of why tax breaks are a bad idea. In addition to the $528 million in federal loan guarantees that taxpayers lost when the company went belly-up, the company also wasted $25 million in California state tax exemptions from a "green energy" tax credit program. Rather than trying to play favorites or cater to special interests through preferential treatment in the state's tax code, politicians should ensure that the playing field is level, and that tax rates are as low as possible, and otherwise let the free market and the choices of consumers and entrepreneurs—through the forces of supply and demand—determine which businesses and services are most desirable and best meet their needs.

When the state encourages economic activity in one segment of the economy—be it through tax breaks or direct subsidies—it necessarily discourages economic activity in all other segments of the economy by making them relatively less competitive. These opportunity costs are often ignored by policymakers. The error is compounded when you consider that much of the tax breaks end up being used for business activity that would have occurred with or without the tax breaks.

If this were not enough, another negative consequence of such tax breaks is that they breed even more special-interest lobbying. The more industry groups, environmental lobbys, or other special interests see that lobbying "investments" pay off, the more money is directed to lobbying Sacramento and the less is put to productive use in the economy.

If California wants to jump-start its economy and become a place that Gov. Jerry Brown and taxpayers across the state can be optimistic about, a good start would be to simplify and reduce its onerous taxes. The new Reason-Howard Jarvis study offers some recommendations about how to go about this:

 

• Eliminate special tax treatment wherever possible, particularly in cases where:

 

a)     The tax break’s purpose is not clearly defined,

b)     The tax break is not serving its intended purpose or has outlived its intended purpose,

c)     The tax break is narrowly tailored to benefit a specific industry or type of business, or

d)     The tax break is clearly an example of the government picking winners or losers for ideological or special-interest reasons.

• Wherever possible, lower broad tax rates down to tax break levels, rather than raise tax break levels up to broad tax rates.

 

• Require a clear statement of purpose and performance measures for each tax break—including existing tax breaks without a clear statement of purpose or relevant performance measures—in order to facilitate evaluations of the impact of tax breaks on taxpayers and the state budget.

• Eschew static analysis of state tax breaks and return to dynamic analysis of their effects on taxpayers and the state budget.

• Establish a sunset commission to periodically evaluate tax breaks and other state regulations. A citizen’s commission would aid the legislative sunset commission similar to the state of Washington model. Adopt legislation requiring that both existing and future tax breaks must be evaluated every 5 or 10 years. Tax breaks not acted upon within this period would automatically be repealed.
• Adopt a BRAC-style commission (similar to that used to close unneeded federal military bases) to evaluate existing tax breaks and regulations. The two-thirds supermajority makes it difficult enough to repeal existing tax breaks. Under such a process, an independent panel of taxpayers, perhaps with additional representatives from the Franchise Tax Board, State Board of Equalization, and Legislative Analyst’s Office, would be appointed to evaluate and recommend tax breaks for elimination. The recommendations, once approved by the governor, would be submitted to the legislature, which would not be allowed to make any amendments and could only vote up or down on the entire package. A simple majority of both houses would be required to approve the recommendations.

 

See the California tax credits study here.

California Shouldn't Raise Minimum Wage

Posted on January 28, 2013, 2:31pm | Adam Summers

Democratic lawmakers in Sacramento, emboldened by their new supermajority status, are now tempted to use their added power to push an aggressive legislative agenda. One such effort, which they have tried, but failed, to implement during the past several years is an increase the state’s minimum wage, currently $8 an hour. Assemblyman Luis Alejo (D-Salinas), has introduced AB 10, which would increase the minimum wage to $9.25 an hour over three years and tie additional increases to inflation growth thereafter.

In a recent column for the Orange County Register, I argue that while a minimum wage might sound like a good and compassionate policy, it actually destroys job opportunities for many (not to mention the damage it does to the freedom to voluntarily agree to the price of one's labor).  The recent imposition of a living wage ordinance on large hotels in the City of Long Beach, California, is a case in point.  Consider the following excerpts from the O.C. Register article.

In the November 2012 election, voters in Long Beach overwhelmingly passed Measure N with 64 percent of the vote. The measure, pushed by labor unions such as Unite Here 11 and the Los Angeles County Federation of Labor, AFL-CIO, requires hotels with 100 or more rooms to pay their employees at least $13 an hour and guarantee annual raises.

After the passage of Measure N, Christine Petit of the Long Beach Coalition for Good Jobs and a Healthy Community, which sponsored the measure, crowed, “This ordinance means a lot to the workers, who will get the wage increases just in time for the holidays.” But this was a case of “Be careful what you wish for.”

In response to the measure's passage, some hotels were unable, or unwilling, to shoulder the extra financial burden. Instead of paying their employees more, they announced they'd lay off workers and reduce their number of available rooms so they would not have to comply with the new rules. The 174-room Best Western Golden Sails and the 143-room Hotel Current plan to dramatically reduce their number of available rooms to 99 rooms each to avoid the ordinance.

In December, just before the rules went into effect, the Best Western Golden Sails also reportedly posted a notice that "all employees will be considered terminated after their last shift of duty on or before Dec. 15." The Long Beach Press Telegram reported that "some" of the employees would be rehired but around 75 people were expected to permanently lose their jobs.

[. . .]

When a minimum wage law is imposed, or increased, business owners have a choice to make. They can reduce their costs, usually by laying off employees or cutting employees' hours, or they can try to increase their revenues by hiking prices and hoping customers will pay the higher prices.

[. . .]

Politicians in Sacramento should think long and hard about the fragile economy before pushing a minimum wage increase. For local and state businesses teetering on the edge of survival, the increased costs could be the last straw.

The good intentions of those who propose raising the minimum wage cannot outweigh its unintended consequences and economic reality. Try as they might, politicians can change the laws with regard to the minimum wage, but they cannot repeal the laws of supply and demand.

If the minimum wage was truly a wise and compassionate policy, then why stop at $9.25 an hour, as AB 10 proposes, or $13 an hour, as Long Beach mandated for large hotels? If arbitrarily raising the minimum wage to $13 an hour could magically create prosperity, why not raise it to $100 an hour? Wouldn't we all be rich if the minimum wage was raised to $100 an hour? The answer is obvious: business owners simply could not afford to pay $100 an hour, people would lose their jobs, stores would go out of business in droves, and commerce would grind to a halt. The fact that a minimum wage of $9.25 an hour or $13 an hour will not destroy quite as many jobs and businesses as a $100 an hour minimum wage is hardly reason to support it.

If simply passing laws could create wealth and eradicate poverty, politicians would be the most popular and celebrated people on the planet and people would avoid being poor without even having to work their way up the economic ladder. But take a good look around and ask yourself: Is this the way the world really works?

See the full op-ed article here.

Parks 2.0: Operating State Parks through Public-Private Partnerships

Posted on January 9, 2013, 8:00pm | Leonard Gilroy and Harris Kenny

Yesterday we had the privilege of having our new policy study—“Parks 2.0: Operating State Parks through Public-Private Partnerships” (Parks 2.0) —published by the Conservation Leadership Council (CLC). Our paper is one of six commissioned by CLC on a range of environmental topics intended to offer a set of actionable recommendations that focus on private sector and market-based policy initiatives reflecting the CLC’s principles of limited government, community leadership and public-private partnerships.

The papers were launched yesterday at an event hosted by CLC in Washington, D.C. that included Gale Norton, former U.S. Interior Secretary and former Colorado Attorney General; Ed Schafer, former U.S. Agriculture Secretary and former North Dakota Governor; and Lynn Scarlett, former Deputy Secretary of the Interior (and former Reason Foundation president). The event was recorded by C-SPAN and is available online here.

Parks 2.0 acknowledges that the ongoing fiscal challenges facing state governments are creating an existential crisis for state parks. With budgets stretched increasingly thin, state parks must compete for limited funds with other (usually higher) policy priorities like education, health care, public pensions and public safety. These budget pressures have prompted policy makers in California, New York, Florida, Arizona, Georgia, Massachusetts and other states to close or significantly reduce services in hundreds of state parks, or at minimum reduce parks budgets, nationwide. In other states, like Washington and South Carolina, governors and legislatures have recently launched efforts to require parks to become self-sufficient to wean them off state appropriations, in seeming recognition that parks funding will increasingly be crowded out by other spending priorities.

Yet state parks remain popular while their maintenance needs continue to worsen; according to America’s State Parks Foundation, state parks received 725 million visitors at over 6,000 sites around the country in 2010 alone. Can this popularity be turned from a cost into a benefit? One way to keep state parks open without imposing additional burdens on the taxpayer is to utilize public-private partnerships (PPPs). 

Many states already successfully use private concessionaires to provide piecemeal services within parks—including food, retail, lodging, marinas, and other commercial activities—so a shift to more extensive involvement can build on that. Such a whole park operation PPP would transfer the responsibility of maintaining the park to a private operator, while enabling that operator to raise revenue through entrance and other fees. The U.S. Forest Service has used this PPP model for over 25 years to operate thousands of its developed recreation areas nationwide, and in 2012 California began the first state to turn over the operation of state parks to private recreation management companies to avoid closure.

Parks 2.0 seeks to describe such a PPP model and explain how it can best be applied to the operation of state parks. Reason Foundation has been on the forefront of this issue for years, both by conducting research and engaging in policy implementation. For example, last year we outlined the state of California’s decision to issue a request for proposals (RFP) for private operation of five state parks. Our Annual Privatization Report 2011: State Government Privatization detailed steps taken towards partnering with for-profit and nonprofit operators for state parks operation across the U.S. And a 2010 ReasonTV video suggested that PPPs, not a proposed new tax on car registration, offered a more sustainable solution to the state’s park funding challenges. Watch the full ReasonTV video below:

To learn more about the Conservation Leadership Council visit their website and watch the CSPAN event here. To learn more about Parks 2.0, read our study “Parks 2.0: Operating State Parks through Public-Private Partnerships,” available online here and visit Reason Foundation’s Parks and Recreation Research Archive here. 

 

[Interview] Conversation with Colorado's High Performance Transportation Enterprise

Posted on January 2, 2013, 9:00am | Harris Kenny

On Monday, I chronicled the year in review for Reason Foundation's Innovators in Action 2012. Today, I'm publishing the first interview of Innovators in Action 2013, available here. I recently had the privilege to sit down with Michael Cheroutes, director, and Nick Farber, enterprise specialist, of the Colorado Department of Transportation's High Performance Transportation Enterprise (HPTE) to discuss their work.

States are struggling to adequately invest in infrastructure, a challenge compounded by the declining purchasing power of revenue from the federal gas tax and lower revenue from more fuel efficient automobiles. Meanwhile, continued deadlock at the federal level fails to inspire confidence that help is coming. Innovative policymakers, like the ones at HPTE, are applying new approaches to solve these problems. 

Read an excerpt from the interview below:

Harris Kenny, Reason Foundation: How is HPTE unique from the rest of the Colorado Department of Transportation?

Michael Cheroutes and Nick Farber, HPTE: HPTE is unique because it is the innovative transportation finance arm of CDOT. HPTE’s vision is to pursue public-private partnerships (and other innovative and efficient means of financing multimodal projects), make sure innovative projects are properly prioritized and accelerate delivery of those projects to facilitate the state’s economic recovery – we’re much more than just a tolling agency. 

Kenny: What is one of HPTE’s most successful projects underway today?

Cheroutes and Farber: One would be Phase 2 of the US 36 Project, which is currently underway. The US 36 Project is an eighteen-mile (from downtown Denver to Boulder), 50-year DBFOM project. Construction for the project is an estimated $100 million, in addition to operation and maintenance. US 36 is funded in part by tolls paid to the concessionaire. CDOT, the Regional Transportation District (RTD), the Denver Regional Council of Governments (DRCOG) and some local governments are also contributing funds to help finance the project. In other words, private equity is playing a role, but it’s not all private equity.

Kenny: What are some upcoming projects that HPTE is excited about?

Cheroutes and Farber: We issued an RFP for the I-70 East project, which, among other things, will replace a viaduct going into Denver on the east side of the city that was built in 1964. The RFP is specifically seeking a financial advisor to help evaluate options on how to finance the preferred for the I-70 East project. 

For more, read the full interview here. Stay tuned to reason.org/innovators for new content, or visit here to read our interviews from 2012.

 

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Innovators in Action 2012, Year in Review

Posted on December 31, 2012, 12:00pm | Harris Kenny

Reason Foundation's Innovators in Action series profiles innovative policymakers in their own words, highlighting good government efforts that are delivering real results and value for taxpayers. In 2012, these thought leaders joined us from across the United States--and even Puerto Rico--to share insight into their process. Check out our year in review, below:

• Privatizing Lottery Management in Pennsylvania
  Interview with Pete Tartline, Executive Deputy Secretary of the Budget, Commonwealth of Pennsylvania
  Leonard Gilroy
  December 20, 2012
• Delivering Florida's 21st Century Transportation System Through Tolling, Managed Lanes and Public-Private Partnerships
  Interview with Ananth Prasad, Secretary, Florida Department of Transportation
  Leonard Gilroy
  November 21, 2012
• Addressing Ohio's Transportation Funding Challenges Through Streamlining, Public-Private Partnerships
  Interview with Jerry Wray, Director, Ohio Department of Transportation
  Leonard Gilroy
  November 13, 2012
• Implementing Managed Lanes in Minneapolis-St. Paul 
  Brad Larsen, MnPASS Policy Manager at the Minnesota Department of Transportation, Discusses Successfully Adopting Managed Lanes
  Baruch Feigenbaum
  September 10, 2012
• Transforming Education at the Local Level: Douglas County Leading the Way 
  Interview with Dr. Elizabeth Fagen, Superintendent of Douglas County (Colorado) School District
  Harris Kenny
  August 28, 2012
• Making Phoenix a 24-Hour City: Privatizing City Permitting to Cut Red Tape and Drive Economic Development
  Interview with Sal DiCiccio, Phoenix (AZ) City Councilman
  Leonard Gilroy
  July 31, 2012
• Looking Back at Indianapolis’ Parking Meter Lease, One Year Later
  Interview with Michael Huber, Deputy Mayor for Economic Development, City of Indianapolis, Indiana
  Leonard Gilroy
  June 27, 2012
• Creating a Culture of Competition to Improve Corrections
  Interview with Gary Mohr, Director of the Ohio Department of Rehabilitation and Correction
  Leonard Gilroy
  May 31, 2012
• Reinventing Libraries in Osceola County, Florida: Partnering with the Private Sector to Create Standards of Excellence
  Interview with Osceola County, Florida Commissioner Frank Attkisson
  Harris Kenny
  April 12, 2012
• The Dynamic Duo of Carrollton, Texas: Creating a Culture of Competition in City Government
  Carrollton, Texas City Manager Leonard Martin and Director of Competition Tom Guilfoy
  Leonard Gilroy
  April 5, 2012
• Offering State and Local Governments New Tools for Infrastructure Delivery in Texas
  Interview with Texas State Rep. Jim Murphy
  Leonard Gilroy
  March 5, 2012
• Reforming Local Government in Colorado Springs
  Interview with Chuck Fowler, CEO and Chairman of The City Committee of Colorado Springs
  Harris Kenny
  February 14, 2012
• Tulsa: Open for Business
  Tackling city's challenges requires willingness to embrace innovation, competition and market ideas
  Dewey Bartlett, Jr., Mayor of Tulsa, Oklahoma
  January 13, 2012
• Building a World-Class Infrastructure PPP Program in Puerto Rico
  Interview with David Alvarez, executive director of the Puerto Rico Public-Private Partnerships Authority
  Leonard Gilroy
  September 8, 2011

Innovators in Action kicks off again in the new year with my interview with Michael Cheroutes, director, and Nick Farber, enterprise specialist, for the Colorado Department of Transportation's High Performance Transportation Enterprise. Visit reason.org/innovators for the latest content.

 

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Should States Duplicate Washington Initiative 502?

Posted on December 27, 2012, 7:00am | Harris Kenny

Last month, voters in Colorado and Washington legalized recreational marijuana through Initiative 502 (I-502) and Amendment 64 (A-64) respectively. These two ballot measures marked an historic shift in state-level drug policy, but they had several important differences. So, which approach should the other 48 states consider duplicating? 

Nina Shapiro for Seattle Weekly reports that Norm Stamper, Seattle police chief and a marijuana legalization advocate, despite endorsing I-502, “now question(s) whether or not Washington state’s initiative needed to be as restrictive as it is.” Stamper also anticipates either judicial or legislative action will reexamine I-502’s more controversial provisions. Shapiro explains,

Well, before the election, 502 campaigners said that such restrictions were necessary to get a legalization initiative approved by the general public—drawing upon lessons learned from California's failed initiative, Proposition 19, especially in regards to the DUI provision. As 502 campaign director Alison Holcomb told SW, post-election surveys indicated that California voters were worried about stoned drivers.

But Colorado's successful legalization measure, Amendment 64, didn't have any DUI provision. It also allows limited home grows (six plants, to be exact). And yet, Stamper points out, that amendment passed by a "very, very healthy" margin, with 55 percent of voters giving it the thumbs-up—almost the same margin as Washington's more restrictive initiative.

NORML (National Organization for the Reform of Marijuana Laws) legal director Keith Stroup said the results in Washington and Colorado "open up the possibility that issues like DUID [driving under the influence of drugs] and home cultivation may not be as important as we initially thought."

Despite Colorado’s perceived successful legalization approach, local officials have significant latitude when it comes to implementation, thereby stoking uncertainty. For example, the El Paso County Commissioners recently voted to ban retail marijuana stores despite a majority of their constituents voting for A-64. El Paso County Commission Chairwoman Amy Lathen levied a peculiar criticism when she argued a “huge portion” of the campaign to legalize marijuana was “just a complete lie to voters.” She continued,

“I have no problem in saying that… Telling people that we’re going to get have these great taxes for schools when it takes another very arduous process to do so, I think, is deceptive. There’s no question that that was deceptive in the campaign.”

This criticism is one that I haven't heard very often, but regardless of its veracity, A-64 does grant local governments authority to make decisions like bans. If local government policymakers act in conflict with the will of their constituents, voters may seek accountability through the ballot box to ensure their voices are heard. 

The ongoing dialogue in Washington and Colorado is arguably the most important state-level policy debate happening today—and it is about to start having a serious impact on other states too. Marijuana Policy Project spokesperson Mason Tvert, who worked on the Yes on (Amendment) 64 campaign, explained to Shapiro that legislators in at least five states (Maine, Rhode Island, Vermont, Massachusetts and New Hampshire) have indicated an intent to submit marijuana regulation and taxation bills in the 2013 session.

For more of Reason Foundation’s work on marijuana legalization implementation, read the op-ed Leonard Gilroy and I recently authored for The Colorado Springs Gazette here, and additional writing here and here.

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[Op-Ed] Legislature has the Chance to Set a Standard on 64

Posted on December 21, 2012, 7:20pm | Harris Kenny

Yesterday, Leonard Gilroy and I co-authored an op-ed published in The Colorado Springs Gazette for the Independence Institute (a Denver-based free market think tank) entitled, "Legislature has the chance to set a standard on 64." The piece specifically explores implementation of Amendment 64 to the Colorado state constitution. It begins:

Last month Colorado voters resoundingly passed Amendment 64 into the state constitution, legalizing both recreational marijuana and industrial hemp. So far, realizing the will of the voters is on track, but implementation risks threaten to undermine the intentions behind Amendment 64. Policy makers are contending with thriving black markets and gray markets (goods or services that while legal, are still traded outside of any tax or regulatory regime), so it is in their best interests to get this right—even if they didn’t support the initiative in the first place.

The piece goes on to explore challenges at the federal level, and potential solutions to those challenges. However, issues of federal preemption need to be considered in their proper context while state and local policy makers move forward with implementation. The piece continues:

Amendment 64 allows possession and transfer without remuneration of up to one ounce of marijuana, and home cultivation of up to six marijuana plants for adults over 21. It also calls for Colorado policy makers to adopt laws taxing and regulating marijuana, a critical step towards creating a legal, commercial market. But a failure of the legislature to follow through could work to perpetuate prohibition-enabled black and gray market operations.

The best way for policy makers to avoid this scenario would be to swiftly establish the tax and regulatory components of the new system, so marijuana is regulated akin to alcohol. Unlike alcohol, though, the policies must be clear and effective on both sides of the cash register...

We go on to explain that Colorado's regulatory regime for alcohol is not the ideal model, for several reasons. We then highlight issues that will likely impact consumers. Looming excise tax increases pose a threat to implementation efforts as well. The piece concludes:

Black and gray market operators have proven resilient throughout the so-called “War on Drugs,” while policy makers obstinately continue ineffective prohibition that squanders countless dollars and ruins lives. Instead, the people of Colorado tasked policy makers with adopting more sophisticated drug policy by legalizing recreational marijuana and industrial hemp. While early signals are encouraging, implementation risk looms large, and voters are watching.

Read the whole piece online here.

For more of Reason Foundation's work on Amendment 64, see here and here; and watch my appearance on Devil's Advocate with Jon Caldara on Colorado Public Television alongside Joe Megysey here.

NCIA Panel Asks, 'Amendment 64: What's Next for the Feds?'

Posted on December 19, 2012, 8:00am | Harris Kenny

Last night I attended a panel event hosted by the National Cannabis Industry Association (NCIA) entitled, "Amendment 64: What's Next for the Feds?" in Denver, Colorado. According to their website, NCIA is, "the only trade association in the U.S. that works to advance the interests of cannabis-related businesses on the national level." The panelists (pictured above, from left to right) included:

• Steve Fox, director of public affairs for NCIA and co-founder of SAFER (Safer Alternative For Enjoyable Recreation);
• Troy Eid, former U.S. Attorney appointed by President George W. Bush; and
• Christian Sederberg, founding member of Vicente Sederberg, LLC and member of Colorado Governor John Hickenlooper's Amendment 64 Task Force.

The panel was moderated by NCIA deputy director Betty Aldworth (pictured above, standing on the far right) who was also the spokesperson and advocacy director for the Yes on 64 campaign. 

So far, the federal government has not given a clear indication of what actions to expect, and this event reinforced that uncertainty.

Steve Fox's comments were optimistic, citing support from members of both the House and the Senate at the federal level. He also emphasized that federal guidance would help both Colorado and Washington move forward. Fox notably warned that while rescheduling of marijuana is worthwhile, in his opinion, it is also "not a panacea" to issues facing the cannabis industry.

Troy Eid's comments were staid, emphasizing that the federal government's enforcement of marijuana prohibition is unlikely to change because only two states are in conflict with federal law. He warned of "under the radar" strategies that fall short of litigation, but would be disruptive for producers, retailers and consumers. He suggested the federal government would not communicate its approach clearly or ahead of time, instead likely opting for opaque pronouncements and continued action. Eid did note that, politically, "there's a world of difference," after Amendment 64 and Initiative 502 passed in Colorado and Washington respectively, which he expects will have an impact.

Christian Sederberg's comments were pragmatic, both recognizing the risk that federal intervention poses and underscoring the need to keep that risk in context. Sederberg reiterated several points he raised in Governor Hickenlooper's first Amendment 64 Task Force meeting (which I wrote about here). Most notably, he explained that the debate over federal preemption of state laws should focus on, "(the) legitimate concerns of the federal government," e.g. public health issues and diversion to minors and/or neighboring states. 

A variety of other issues were discussed over the course of the event, such as banking restrictions and ways for NCIA members to engage the community. Overall, this was a thought provoking discussion that indicates the cannabis industry is seriously engaged in the ongoing policy debate, not just focused electoral victories.

For more of Reason Foundation's work on Amendment 64, see here and here, and watch my appearance on Devil's Advocate with Jon Caldara on Colorado Public Television alongside Joe Megysey here.

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Amendment 64 Task Force Concludes First Meeting

Posted on December 18, 2012, 8:00am | Harris Kenny

Last month, Colorado voters passed Amendment 64 to the state constitution, essentially legalizing marijuana in Colorado. (For more on this, see Reason’s work here, here and here.) Several weeks later, Governor John Hickenlooper announced the formation of a task force to hammer out specific implementation concerns.Yesterday, the 24-member task force (pictured on the right) met for the first time in an unassuming room at the Department of Revenue’s office building in Golden, Colorado.

After introductory remarks, Jack Finlaw, the Governor’s Chief Legal Counsel and co-chair of the marijuana task force, framed the task force’s duties and set the tone for the meeting saying: 

“Pursuant to the Governor’s executive order establishing the task force, he’s asked that we have a real focus on identifying the legal and the policy issues that are necessary to tackle, to implement Amendment 64. We’re not here to revisit the merits of Amendment 64, we’re not here to have a discussion as to whether or not legalizing marijuana in general, or if legalizing marijuana in the way Amendment 64 has done, is the right thing to do. We know it was put on the ballot, the voters approved it, so our job is to find ways to efficiently and effectively implement it.” 

Barbara Brohl, task force co-chair and executive director of Colorado’s Department of Revenue, explained the important administrative and technical matters that lay ahead. Brohl continued by outlining the five working groups that will be responsible for assisting the task force in its duties. The five working groups (with examples of their likely discussion topics) are listed below:

• Regulatory Framework
  • Legislative construction (like medical marijuana, liquor or a hybrid?)
  • Blending medical marijuana and recreational marijuana
  • Rule making processes
• Criminal Law Issues
  • Required changes to existing criminal statutes and impact on prosecution
  • Defining impairment, specifically in the case of motor vehicle use
  • Traffic stops and probable cause
• Local Authority and Control
  • Role of local government in the regulatory model
  • Local government’s authority to opt out
  • Clarifying mandates and sources of revenue for state and local bodies
• Tax Funding and Civil Law Issues
  • Collection and revenue generation, and constitutionality of the tax mandate
  • Fee structure to support regulatory enforcement
  • Impact on employment in the public and private sector
• Consumer Safety and Social Issues
  • Substance abuse and prevention, including outreach to minors
  • Restrictions on advertising
  • Products standards and labeling

Task force members went on to discuss and submit a range of additional concerns they have, with the assistance of a facilitator brought in for the meeting. Finally, there was a period for public comment giving an opportunity for laypeople, cannabis industry participants and medical marijuana patients, among others, to speak. 

Click here for a full-length audio recording of the meeting, approximately two hours and ten minutes.

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Video: Colorado Marijuana Legalization Update

Posted on December 14, 2012, 11:12am | Harris Kenny

Last month Colorado voters passed Amendment 64 to the state Constitution, which essentially legalized recreational marijuana in Colorado. My colleague Leonard Gilroy and I explained the implementation hurdles that policymakers face in the months and years ahead at Real Clear Markets, we wrote:

Cash strapped states no doubt are salivating at the potential deluge of new revenue. (Both measures are unique, so for clarity this piece will focus on Colorado.) The Colorado Center on Law and Policy estimates Colorado's Amendment 64 will generate $60 million annually, a figure that could double after 2017. This fiscal bonanza would come primarily from new tax revenue generated from excise taxes on wholesalers and new state and local sales taxes -- but also avoided costs to the criminal justice system. However, these revenues will materialize only if the legalization is done right.

The piece goes on to explain the various tax and regulatory concerns that constitute legalization being "done right."

More recently, I appeared on Devil's Advocate with Jon Caldara (a program hosted on Colorado Public Television) to discussion the subject in depth. I appeared on the program alongside Joe Megyesy who consulted the Yes on 64 campaign and will remain involved to oversee its implementation efforts. This episode is approximately 27 minutes long, watch it online below:

For more of Reason Foundation's work on implementing marijuana legalization, see our Real Clear Markets piece here (which also appears on reason.com here) and this blog post (which I wrote the day after the election after attending a press conference held by Yes on 64 across from the State Capitol.)

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Innovators in Action: FDOT Secretary Ananth Prasad on Delivering Florida's 21st Century Transportation System Through Tolling, Managed Lanes and Public-Private Partnerships

Posted on November 21, 2012, 9:00am | Leonard Gilroy

Like most states, Florida faces a significant challenge in delivering future transportation infrastructure, given the declining purchasing power of the federal gas tax, uncertain future revenues resulting from the increasing efficiency of automobiles, and other challenges that are making it increasingly difficult for most states to even maintain the infrastructure they already have, much less expand and modernize their transportation systems to meet the demands of the 21st century economy.

The Florida Department of Transportation (FDOT) has been working to meet that challenge in recent years, increasingly embracing innovations in project finance, road pricing and other areas of transportation policy that allow them to better control costs, as well as deliver major projects to reduce congestion and improve mobility amid an uncertain transportation funding future.

In our latest interview in the Innovators in Action 2012 series, I sat down with Florida Department of Transportation (FDOT) Secretary Ananth Prasad to discuss how his agency has embraced innovations like public-private partnerships, cutting-edge tolling projects, private highway maintenance and more.

Here's a brief excerpt from the interview:

Leonard Gilroy, Reason Foundation: Florida has become one of the leading states in the U.S. with regard to embracing innovations like public-private partnerships, private infrastructure financing and cutting-edge tolling projects. What challenges prompted this shift? And can you explain why partnering with the private sector makes sense for FDOT?

Ananth Prasad, Secretary, Florida Department of Transportation: As you know, Florida is a very outsourced state, and we rely on the private sector to deliver a lot of our projects. As with most states, 100% of the construction is done by the private sector in Florida, but we’re also at upwards of 80% when it comes to planning, design, engineering, inspections and the like. So in our work, we rely a significant amount on the private sector to help us deliver.

When it comes to public-private partnerships (PPPs), I think it’s just another tool in the toolbox, trying to leverage what private investment is out there, what innovations may be there when it comes to a procurement or contract management or a delivery technique. That’s basically what prompted us going into PPPs.

At the outset, Design-Build was our first foray into trying to take a traditional design function that was done by a department—either in-house or by consultants—and combine it with a construction contractor and package it together. And that evolved into “OK, if you can do design and build together, why can’t you operate and maintain together?” And that morphed into “why can’t you finance it, if it’s a long-term, corridor-type project?” It’s a natural evolution of what various departments of transportation do, and we’re just trying to make sure that we utilize all of the tools in the toolbox to deliver infrastructure improvements.

When we look at unfunded transportation needs, we estimate Florida would need in excess of $131 billion for the state’s most critical assets between now and 2040. PPPs are not going to close that gap, but they can help us deliver long corridors today by leveraging private equity and financing, and then also bringing innovations through combining the design and the operations and maintenance into a contract so that we’re designing and building a project with a holistic view rather than just designing it or just building it or just operating and maintaining it.

When it comes to tolls, we obviously have a long track record with our toll road—the [Florida] Turnpike—and in the last few decades with the various expressway authorities. Tolling allows us to diversify the revenue stream to fund transportation. As you know, the gas tax is not keeping pace and while Florida’s gas tax is indexed [to inflation], the federal gas tax is not. And with fuel efficiency standards going up and with alternative fuel vehicles, people will be driving the same amount of miles but not contributing to the upkeep and future improvements to the infrastructure. Toll roads answer that question because if you use it, you pay for it.

The full interview is well worth a read and is available here. The topics discussed include the state's current public-private partnership projects, the expansion of managed lanes in different regions, the use of "toll lanes within toll lanes," the state's efforts to capitalize on the expansion of the Panama Canal, and much more. 

[Note to readers: In previous years, we have published Innovators in Action in an annual report format, the last edition having been released in early 2010. The publication was on a temporary hiatus in 2011, but we have resumed publication in a slightly different format. In order to deliver timely content to our readers on a more frequent schedule, we're publishing one Innovators article per month on reason.org. Other articles featured in the Innovators in Action 2012 series are available here.]

Innovators in Action: ODOT Director Jerry Wray on Addressing Ohio's Transportation Funding Challenges Through Streamlining, Public-Private Partnerships

Posted on November 13, 2012, 11:26am | Leonard Gilroy

State departments of transportation are increasingly cutting costs and seeking new ways to finance and deliver transportation projects as revenues from traditional funding sources—primarily federal and state fuel taxes—continue to erode. In our latest interview in the Innovators in Action 2012 series, I sat down with Ohio Department of Transportation (ODOT) director Jerry Wray to learn how the agency is trying to address its long-term challenges by innovating today through streamlining measures, public-private partnerships (PPPs), and other strategies.

Facing an estimated $1.6 billion highway funding gap in coming years, Ohio policymakers began taking concrete steps to develop new cost-saving and project financing tools in 2011, passing legislation authorizing a potential long-term lease of the Ohio Turnpike to private investors and granting ODOT the authority to enter into PPPs to finance and develop new transportation projects.

ODOT took another major step earlier this year in establishing a new internal Division of Innovative Delivery to identify alternative transportation funding solutions. Among its early initiatives, the Division is exploring PPPs to modernize the Ohio Turnpike, develop non-Interstate rest areas, and establish a corporate sponsorship program for state-owned rest areas, bridges, interchanges and sections of highway. Further, the Division is also exploring innovative financing approaches for several different state transportation projects, including the Brent Spence Bridge over the Ohio River in the Cincinnati area, the Portsmouth Bypass in Scioto County.

Here's a brief excerpt from the interview:

Gilroy: Can you describe some of the solutions you’re advancing at ODOT today?

Wray: We have to produce projects at the retail level: quick delivery of projects is what people want from us. Everything we do—from plowing snow to building new interchanges and highways—our citizens want faster and better.

To help us meet citizens' expectations, we've been exploring many different ways of saving money since January 2011. For example, we've reduced staff by over 400 through attrition and saved over $34 million annually, a savings that will repeat year after year. We expect further staff reductions through attrition in the coming years as well, which we expect will generate further savings.

We've also moved to zero-based budgeting this year. ODOT used to carry forward lots of money as a cushion for future years, but we can't afford to let that money sit on the books when we can use it to build projects around the state. We will free up millions of dollars this year alone.

We've also re-budgeted $150 million off of our previously adopted biennium budget, taking a hard look at areas like equipment usage, overtime control, and vehicle usage and purchasing. We believe we could reduce our vehicle fleet by up to 40 percent, for example.

That's what we can do internally, as an agency, to identify areas where we can deliver the same great service ODOT is known for and do it at a lower cost to our customers. But we’re not stopping there. I oftentimes tell groups of people when speaking at public events that, “this isn’t your grandpa's ODOT.” And it isn’t. We’re embarking on a new program—the Division of Innovative Delivery—that will allow us to essentially do two things: 1) reduce construction costs by partnering with the private sector, and 2) generate additional money by leveraging the value of state-owned assets.

For instance, we are conducting a top-to-bottom review of all of ODOT’s assets that could potentially generate money for the department. We have a website that provides real-time traffic information to the motoring public. Is there a market for ODOT to sell advertising space on that website? We’re about to find out. We have thousands of bridges, interchanges and other transportation features that private businesses could pay us millions of dollars to sponsor. So, we’re pursuing an aggressive sponsorship and advertising program.

We're also looking at new and innovative ways to finance transportation projects, and we see great value in engaging the private sector through public-private partnerships.

The full interview is well worth a read and is available here.

[Note to readers: In previous years, we have published Innovators in Action in an annual report format, the last edition having been released in early 2010. The publication was on a temporary hiatus in 2011, but we have resumed publication in a slightly different format. In order to deliver timely content to our readers on a more frequent schedule, we're publishing one Innovators article per month on reason.org. Other articles featured in the Innovators in Action 2012 series are available here.]

Questions Remain About Amendment 64's Tax Component

Posted on November 10, 2012, 8:00am | Harris Kenny

On Wednesday morning Mason Tvert, Brian Vicente and Betty Aldworth of Yes on 64 stood in Civic Center Park between the Colorado state capitol and Denver’s city hall to clarify “next steps” after Coloradans voted to legalize marijuana through Amendment 64 to the state Constitution.

A statement issued by the campaign reiterated voters intentions and provided economic analysis from the Colorado Center on Law and Policy that estimates implementation could produce $60 million annually in combined savings and revenue for the Colorado state budget; a figure that could potentially increase to $120 million by 2017. The excise tax language that would raise some of that revenue remains to be determined by the state legislature, and would likely have to go back to Colorado voters for approval in compliance with TABOR (the Taxpayer’s Bill of Rights).

When Amendment 64's organizers were asked if they’ve spoken with leaders in the state house or senate about implementing the bill, Aldworth said there have been, “Private conversations with state legislators and the Colorado national delegation on what it’s going to take to implement the will of the voters.”

Meanwhile, Vicente explained that language in the bill does mandate state action, however it has a dual licensing regime that also empowers local governments to institute their own licenses for retail locations that are expected to open in January 2014, regardless of state action.

I bumped into State Senator Rollie Heath (D-18), whose district includes Boulder, in front of the Capitol afterward, and asked him about Amendment 64. He did not give me a clear indication of how state legislators might respond.

There have been clearer signs of support from Colorado Governor John Hickenlooper at Snell & Wilmer’s “Fourth Annual Colorado Focus” late Wednesday afternoon. When asked about whether or not state and local law enforcement resources would be used to pursue possession or use of marijuana, he said it was “not likely,” but it would depend on language in state legislation. Gov. Hickenlooper went on to explain, “When you see a vote like that, it’s pretty clear what the people wanted. (The government) would be poor served to disregard it.” (According to the latest data issued by the Secretary of State, Amendment 64 won by almost ten points, with 54.8% supporting and 45.2% opposed.)

The Colorado Department of Revenue will be responsible for implementing significant parts of the legislation for the executive branch. Aldworth later explained that the Medical Marijuana Enforcement Division is expected to assume many of the enforcement duties.

This makes sense from a policy perspective, but intuitively Coloradans appear to have presumed the connection too. Yesterday KOAA News 5 reported, “Marijuana dispensaries (are being) overwhelmed with ‘recreational’ inquiries.” Tanya Garduno, president of the Colorado Springs Medical Cannabis Council, explained that medical dispensaries are not allowed to sell recreationally right now. Interestingly, she say the industry is split 50-50 between dispensaries that want to serve recreation clients, and dispensaries that want to remain patient-oriented and provide medical grade marijuana.

This post originally appeared on reason.com on November 9, 2012.

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