Category Archives: Local Government

I Don’t Know What This Is, But It Sure Isn’t Capitalism…

A number of media outlets have recently reported that Foxcomm, a company usually referred to as a “Taiwanese giant,” will open a plant in Scott Walker’s Wisconsin. As the Guardian prefaced its article,

The announcement by the Taiwanese giant Foxconn that it will build an LCD-manufacturing facility in Wisconsin worth an estimated $10bn was met with considerable fanfare.

But the state has a troubled history in matters of economic development, and the company, a supplier to Apple, Google, Amazon and other tech giants, has a lackluster record when it comes to fulfilling its promises. The news should raise red flags.

In a way, it is a transaction that barely merits publicity; for as long as I can remember, states and municipalities have been trying to entice “job creators” to their areas by offering bigger and better incentives: tax abatements, infrastructure improvements, job training “grants”–all manner of goodies funded out of our tax dollars.

The deal, backers say, will create 13,000 jobs in six years – in return for a reported $3bn in state subsidies. Only 3,000 of those jobs will come immediately. Furthermore, the Washington Post has reported that Foxconn has a track record of breaking such job-creation promises. In 2013, the company announced plans to hire 500 people and invest $30m in Pennsylvania. The plan fizzled out.

Walker and Paul Ryan aren’t the only politicians taking credit for this deal; the White House immediately weighed in, with President Trump reportedly saying, with his characteristic modesty and eloquence: “If I didn’t get elected, [Foxconn] definitely would not be spending $10bn.”

Jennifer Shilling, a Democratic Wisconsin state senator, is one of those who have criticised the deal, noting that the company “has a concerning track record of big announcements with little follow through,” and questioning the legislative appetite for a $1bn-to-$3bn corporate welfare package. Of course, Wisconsin’s legislature is controlled by Republicans who won’t need bipartisan support to pass the enormous subsidies.

The Guardian noted the patchy performance of Foxcomm elsewhere–Foxconn investments in Indonesia, India, Vietnam and Brazil failed to live up to the hype, despite written agreements–and also referred to the less-than-impressive performance of Wisconsin’s previous economic development efforts.

The Wisconsin Economic Development Corporation (WEDC) is a participant in the Foxconn deal. During Walker’s brief presidential run, it was dogged by questions over failed loans. Businessman and Republican donor Ron Van Den Heuvel was indicted for fraudulently borrowing $700,000 from a local bank. Months after WEDC was created in 2011 the agency, then led by Walker, lent him more than $1.2m, without performing a background check.

Likewise, the state’s manufacturing and agriculture tax credit has been widely criticized as a simple refund for millionaires, according to the Wisconsin Budget Project (WBP) nearly “wiping out income taxes for manufacturers and agricultural producers”.

What the Guardian and other outlets failed to address was the absolute absurdity of these sorts of “job creation” efforts. The use of tax revenues to lure large, profitable corporations to one’s city or state may or may not be immoral (I vote for immoral), but the practice is hardly consistent with genuine capitalism and free enterprise, which require that entrepreneurial activities take place on a level playing field.

Criticisms of these sorts of economic development agreements tend to focus on whether the state or city has made a “good deal.” (Evidently, Wisconsin has not.) But that is almost beside the point. The local factory or other home-grown enterprise that prospers enough to hire new workers doesn’t receive these perks; meanwhile, new, sometimes competitive enterprises are being lured to their state with their tax dollars.

This is corporatism, not capitalism. Paul Ryan and Scott Walker are said to be fans of Ayn Rand, but I’ve read Atlas Shrugged. Rand was a capitalism fundamentalist, and would have been disgusted by this deal; she would have labeled the beneficiaries “looters.”

And she’d have been right about that.

 

 

 

Reality Bites….

It’s really a shame that American policymakers are so allergic to evidence, because we have recently had a couple of natural experiments testing the GOP’s most fervent economic ideologies, and we could learn a lot from both of them.

Most people who follow the news are aware of Sam Brownback’s effort to make Kansas a shining example of economic growth to be achieved by drastic reductions in state taxes. To say it didn’t go well would be an understatement. Eventually–after brutal cuts to public education, infrastructure and public services and no sign of the promised offsetting economic growth–more rational Republicans in the state legislature forced him to accept tax increases.

Fewer people are aware of an even more dramatic experiment in Colorado.

The story began with the 2008 recession; like many other municipalities, Colorado Springs was experiencing fiscal distress.

To fill a $28 million budget hole, Colorado Springs’ political leaders—who until that point might have been described by most voters as fiscal conservatives—proposed tripling property taxes. Nearly two-thirds of voters said no. In response, city officials (some would say almost petulantly) turned off one out of every three street lights. That’s when people started paying attention to a city that seemed to be conducting a real-time experiment in fiscal self-starvation. But that was just the prelude. The city wasn’t content simply to reject a tax increase. Voters wanted something genuinely different, so a little more than a year later, they elected a real estate entrepreneur as mayor who promised a radical break from politics as usual.

For a city, like the country at large, that was hurting economically, Steve Bach seemed like a man with an answer. What he promised sounded radically simple: Wasteful government is the root of the pain, and if you just run government like the best businesses, the pain will go away. Easy. Because he had never held office and because he actually had been a successful entrepreneur, people were inclined to believe he really could reinvent the way a city was governed.

Bach promised to transform city government, making it work for everyone without tax increases. (Sound familiar?) He promised to do away with the personal property tax for businesses and to reduce the time needed for developers to get permits. He promised that these and his other “businesslike” measures would promote job growth–he promised 6,000 new jobs a year. He sold himself as an outsider fighting the city’s “regulatory agency mind-set.”

“Sixty Minutes” and “This American Life” covered the election and the town’s new “business friendly” governance. We haven’t heard much from the media since then, and it turns out that a lot has changed. As Politico noted, “seven years after the experiment began, the verdict is in—and it’s not at all what its architects planned.”

It turned out that putting people who don’t understand government in charge of government isn’t a formula for success. The new mayor fired people who had institutional memory and governing expertise; deferred critical infrastructure maintenance, and quarreled with the City Council when its members had the nerve to act like a co-equal branch of government rather than as his subordinates. The promised job growth didn’t come. Chaos did.

The next election, Colorado Springs elected as mayor a man who  had spent his entire professional life in government.

It’s still a conservative town. Donald Trump beat Hillary Clinton by more than 22 points in Colorado Springs’ El Paso County. But even with that “small-government mind-set,”

[T]hree times in his first two years as mayor, Suthers has gone to voters either proposing a new tax or asking to keep extra tax revenue. By overwhelming margins, he has now persuaded the supposedly anti-tax zealots of Colorado Springs to commit $250 million to new roads, $2 million to new park trails and as much as $12 million for new stormwater projects.

What has all this “wasteful” government spending done to economic growth? Some 16,000 jobs have been created in the past 24 months, and unemployment is at 2.7%.

Amazing as it may seem, running a government requires different skills than running a business–and fiscal prudence is not a synonym for low or no taxes.

Who knew?

Deconstructing The Rhetoric

A week or so ago, an Indiana legislator–a Republican– posted a comment to Facebook about the current effort to “repeal and replace” the Affordable Care Act. I know this particular Republican to be thoughtful and well-intentioned; he’s not one of the mean-spirited or rigidly ideological partisans who populate our Statehouse.

His “logic,” however, defied reality.

He began by saying that we are not debating healthcare–we are debating access to health care via insurance coverage and that government  should “let the insurance market work.”  (Why he thought the distinction significant mystifies me, but okay.)

I am a huge proponent of markets–in areas of the economy where they work. Most people recognize that healthcare is an area where markets do not work; market transactions require a willing buyer and a willing seller both of whom are in possession of all information relevant to the transaction. That definition doesn’t characterize doctor-patient interactions, and it also doesn’t characterize the health insurance “marketplace.”

Even if you assume that all citizens understand the complexities and “fine print” of the policies offered by health insurers, that they all understand the technical terminology employed and are able to make considered opinions about the nature and extent of their desired coverage, you are left with several major problems that cannot be solved by “market magic.”

First of all, most Americans get their health insurance through their employers. They don’t get to participate in the choices involved. (This coupling of insurance and employment is problematic for lots of reasons unrelated to the subject of this post; for one thing, it makes American businesses less competitive in the global economy. But that’s a subject for another day.)

Second, significant numbers of people who do not get their insurance through their jobs–either because they don’t have jobs or their employer doesn’t offer it–cannot afford the coverage they need. (That’s why we have Medicare and Medicaid.) In the U.S., non-governmental health insurance policies are priced to cover expenses that include not just the expected payouts to providers, but the costs of marketing, profits and taxes. Private insurance overhead also includes very substantial salaries paid to insurance companies’ management, costs not incurred by Medicare and Medicaid. Last time I looked, Medicare overhead averaged around 3% while private insurance overhead averaged around 24%.

Third, and most important: markets, by definition, are voluntary. (That “willing” buyer and seller…). Insurance works by spreading risk. If younger, healthier people decide they aren’t “willing” buyers–if only the elderly and sick and people with pre-existing conditions participate in the market–the whole system comes crashing down. Insurers have to charge higher and higher premiums, and policies become more and more unaffordable. That’s why the ACA’s mandate was an essential part of the law.

If we accept the premise that access to healthcare is a human right–and I am well aware that most Republicans do not accept that premise–then people who cannot afford insurance must be subsidized. For the reasons I’ve listed, providing access through “market forces” would add enormously to the costs of the insurance and thus to the amount of the subsidies.

There is a reason other developed nations have pursued a variety of ways to nationalize health insurance; it’s the only way to make universal access cost-effective.

When you deconstruct Paul Ryan’s rhetoric about giving people the “freedom” to go uninsured, and the GOP’s reverential references to “market economics,” what you get is what the Congressional Budget Office described: millions of Americans losing insurance entirely, and millions of others paying much more for much less coverage.

Eventually, Americans are going to have to decide between a system like “Medicare for All,”  that pays for actual healthcare, and our current, unsustainable and immensely more expensive insistence upon subsidizing the bottom lines of Big Insurance and Big Pharma in the name of “the market.”

The purchase and sale of health insurance in today’s U.S. can be called many things, but a genuine market isn’t one of them.

 

What Cities Can Do

Yesterday, I attended a “lunch and learn” session of Indianapolis’ Department of Metropolitan Development. I was asked to address the impact of poverty on the City’s efforts at neighborhood revitalization. Regular readers will recognize much of what I said.

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One of the criticisms of academia is that we are “siloed”–focused so narrowly on our own research we fail to see the larger picture . In a way, divisions of government face a similar challenge. Urban revitalization efforts—what we used to call urban renewal– especially requires “connecting the dots,” because those efforts have to include public safety, transportation, sanitation, parks and recreation, economic development…the term “holistic” gets overused, but it’s definitely apt in this context.

Blighted neighborhoods are a reflection of poverty. We need to realize that 80 percent of Americans are currently trapped in the low-wage sector, and those are the folks who disproportionately inhabit these neighborhoods. These are areas where human possibility is shrinking, often dramatically. Most of the people who live in distressed areas are burdened with debt and anxious about their insecure jobs– if they have jobs at all.

Recent research tells us that inhabitants of the low-wage sector are getting sicker and dying younger than they used to. They rely on inadequate public transportation and/or cars they have trouble paying for. Family life is crumbling; people often don’t partner for the long-term even when they have children. If they go to college, they finance it by going heavily into debt. They aren’t thinking about the future; they are focused on surviving the present. As one scholar put it, members of America’s (shrinking) middle class act, these people are acted upon.

Worst of all, recent studies tell us that most of those in the low-wage sector have no way out. American social/economic mobility may have been real once, but it is a myth today. And I see no evidence that either this Congress or this Administration is interested in policies to ameliorate any of this.

In the wake of the House healthcare vote, one of my former students, now a government employee, posted a diatribe to Facebook, and I want to share it because I think it sums up where policymakers are right now:

The United States has more citizens in prison than any country in the world. Even more than China, which has four times as many people. Republican legislators chose to focus on eroding healthcare protections.

The United States has a public education system ranked lower than Russia. Republican legislators chose to focus on eroding healthcare protections.

The United States has average Internet speeds three times slower than Romania. Republican legislators chose to focus on eroding healthcare protections.

The United States has infant mortality rates nearly twice as high as Belarus. Republican legislators chose to focus on eroding healthcare protections.

The United States has 2.5 million citizens without access to improved drinking water. Republican legislators chose to focus on eroding healthcare protections.

The United States has a youth unemployment rate of 13.4%. Republican legislators chose to focus on eroding healthcare protections.

The United States has 50 million citizens living below the poverty line. Republican legislators chose to focus on eroding healthcare protections.

The United States has greater income inequality than Morocco, Jordan, Tanzania, Niger, Kyrgyzstan, East Timor, and 95 other countries. Republican legislators chose to focus on eroding healthcare protections.

The United States is responsible for nearly twice as much CO2 emissions as the entire European Union. Republican legislators chose to focus on eroding healthcare protections.

The United States has more railways than any country on Earth, by more than 100,000 kilometers, but has virtually no long-range public transportation system. Republican legislators chose to focus on eroding healthcare protections.

The United States spends more on national defense than every other nation on Earth COMBINED, yet seems to be in perpetual warfare and has a barely functioning veteran-support system. Republican legislators chose to focus on eroding healthcare protections.

Local governments can’t do much about defense spending or national healthcare policy, but cities can address, at least, most of the other deficits my former student identified, from transportation to drinking water to youth unemployment to criminal justice. And every one of those improvements would help address urban blight.

Let me just share some statistics closer to home. A couple of years ago, the United Ways of Indiana took a hard look at “Alice.” Alice is an acronym for Asset Limited, Income Constrained, Employed; it describes households with income above the federal poverty level, but below the actual, basic cost of living. The report is eye-opening.

Here are some “highlights” (highlights being something of a misnomer here):

  • More than one in three Hoosier households cannot afford the basics of housing, food, health care and transportation, despite working hard.
  • In Indiana, 37% of households live below the Alice threshold, with some 14% below the poverty level and another 23% above poverty but below the cost of living.
  • These families and individuals have jobs, and many do not qualify for social services or support.
  • The jobs they are filling are critically important to Hoosier communities. These are our child care workers, laborers, movers, home health aides, heavy truck drivers, store clerks, repair workers and office assistants—yet they are unsure if they’ll be able to put dinner on the table each night.

For families living on the edge, families struggling just to feed the baby and keep the lights on, saving money is a pipe dream. There is nothing left to save. These families are vulnerable to any unexpected expense—a car repair, an uninsured illness, even an unexpectedly high utility bill can be enough to plunge them into debt or worse.

What does this rather grim picture have to do with community redevelopment? Let’s leave our silo and connect the dots:

For one thing, there is no money to paint the house or repair the gutters, or otherwise tend to the appearance of the property. Rundown and blighted neighborhoods send a variety of messages to those who drive through them—most visibly, no one cares. That may be unfair—they may care, but feeding the baby comes first. When unkempt houses are in neighborhoods the city has neglected, the problem is compounded. You don’t have to be a proponent of “Broken windows” theory of criminal justice to understand that broken sidewalks and weed-filled lots encourage littering and worse, and abandoned houses tempt squatters.

Research tells us that financial and personal insecurity increase all sorts of social dysfunction, from out-of-wedlock births to crime, drug use and gun violence.

Pew researchers recently confirmed that financial insecurity causes a range of so-called “secondary effects” for communities, including diminished participation in civic and political life. As we all know, the squeaky wheel gets the grease, and these are people who rarely squeak. When I was in City Hall, the Hudnut Administration really did care about addressing blight and helping the poor—but the streets that got plowed first were those between the affluent area where the Mayor lived and downtown. Ditto with chuckholes that got filled and streetlights that got repaired.

Low-interest loan programs are important, but most ALICE families have neither the time nor the energy—let alone the resources—to take advantage of them. “Affordable” housing is affordable primarily for those above the ALICE thresholds—there is very little truly affordable housing available for those below it, and none at all that I’m aware of for what my husband—who used to be Director of DMD—calls “no income” families.

In Indianapolis, as you all know, transportation is a huge problem. Automobiles eat up an enormous percentage of a low-income household’s income, and the lack of a car puts a majority of job opportunities out of reach. Without reliable public transportation with reasonable headways, poor people, old people and disabled people are stranded.

There’s actually a lot that cities can do, assuming the existence of political will: improved infrastructure in poor areas, vastly improved public transportation, beefed-up, timely enforcement of building codes and weed ordinances. Working with public safety to minimize criminal activity is critical. Ditto working with IPS to improve educational opportunities, and support for raising the minimum wage.

As my husband likes to say, we should do everything we can to make poor neighborhoods livable. That means ensuring convenient access to public services, to parks, to efficient public transportation. It means attention to public safety, not just through increased police presence, but by promptly taking down dangerous abandoned structures, providing adequate street lighting, and actually rebuilding decaying infrastructure—not just haphazard patching of streets and sidewalks when the holes become too big to ignore. It means paying attention to alleys, which the city ignores, so that their extreme deterioration doesn’t degrade whole neighborhoods. It means walkable neighborhoods with access to wholesome food and health care facilities.

Some of these measures are easier than others, but they all take money, and we live at a time when tax is a dirty word. We can’t easily make up for dwindling federal dollars, thanks to what I consider Indiana’s worst public policy decision during my lifetime–the constitutionalizing of the tax caps. I don’t have to justify that opinion in this room. But we also shouldn’t minimize the importance of political will. Until those of us who remain privileged members of the middle class understand the importance of economic and racial integration to our own well-being, significant improvement to depressed neighborhoods will remain elusive.

We often hear that a rising tide lifts all boats. But it is also true that an ebb tide lowers all boats. Investments in the built environment and in human capital help to raise the tide; continued disinvestment and neglect will ultimately hurt us all.

 

 

 

 

 

 

 

 

A Hoosier Cautionary Tale

First Kansas. Now Indiana. One by one, the pillars of conservative fundamentalism are failing real-world tests.

Under then-Governor Pence, Indiana negotiated a much-ballyhood 35-year “public-private partnership” with the Spanish firm Insolux Corsan to build and maintain a portion of Interstate 69, between Bloomington and Indianapolis. The project has dragged on and on, making trips between Bloomington and Indianapolis slow and treacherous. (I know this from personal experience; faculty of IU routinely make the trip between campuses, and I’ve done my share of cursing while in transit.)

The original contract called for a completion date of October, 2016; that date has been pushed back four times amid media reports suggesting that the state’s private partner was as slow in paying subcontractors as it was in building the highway. Now, it appears the contractor is going bankrupt. The Indianapolis Star reports that the state “intends to take control of the troubled I-69 project from Bloomington to Martinsville as the public-private partnership used to finance and build the highway crumbles.”

It is a GOP article of faith that the private sector is always more efficient and more competent than government, and that contracting out–privatization–saves money. In the uncongenial place called the real world, it seldom works out that way. The collapse–or “crumbling”–of this particular partnership joins a long line of failed privatization schemes, some scandalous and corrupt, many simply ineffective and expensive, that have ended up costing taxpayers more than if government had done the job.

This isn’t to say that contracting out is always a bad idea. As I’ve said repeatedly, the issue isn’t whether to work with the private sector, but when and how. Public officials need to carefully evaluate proposed contracting arrangements: is this something government routinely does, or an unusual task requiring specialized expertise that the agency doesn’t have? If the motive is saving money, how realistic is that? (After all, private entities have to pay taxes, and their bids will reflect that expense.) Does the contracting agency have the expertise needed to properly negotiate the contract and monitor the contractor? Have all the risks been weighed, and due diligence exercised?

Do the officials making the decision recognize that contracting with a third party won’t relieve the government agency of its ultimate responsibility to see that the project is properly completed or the service is properly rendered?

Are there situations where public-private partnerships are both appropriate and competently structured? Of course. The Brookings Institution recently reported on the success of the Copenhagen City and Port Development Corporation in revitalizing Copenhagen’s waterfront. I was particularly struck by this description of that effort:

The approach deploys an innovative institutional vehicle—a publicly owned, privately run corporation—to achieve the high-level management and value appreciation of assets more commonly found in the private sector while retaining development profits for public use.(emphasis mine)

Two elements of this particular partnership stand out: (1) it was formed to execute a lengthy, difficult and highly complex project requiring skills that few municipal governments have in-house; and (2) it distributed risk and reward in a way that ensured taxpayers would benefit financially from the project’s success.

In contrast, virtually every American contract I’ve seen has socialized the risk and privatized the reward; that is, taxpayers have assumed the risks of cost overruns, unanticipated problems and project failures, while the private contractors have reaped the lions’ share of the profits.(Trump’s infrastructure plan–to the extent it exists–would take that formula to new heights. Or lows…)

I69 and the Indianapolis parking meter fiasco are just two of the more recent examples of what happens when privatization is a mantra–a semi-religious belief–rather than one of several strategically deployed tools in the public toolbox.

Personal P.S. Thanks to all of you who posted good wishes for my husband’s surgery. All went well, and he’s home (with a very rakish temporary eye patch).