A bad bargain then, a bad bargain now.

25 March 2021

It is budget season in Rhode Island, and the discussions at the state house are perhaps a little less panicked since the Biden administration has come through with some badly-needed aid.

You can tell there is breathing room because we now hear how we don't really need to revisit our tax policy. For the record, the state plans to spend $100 million on a tax cut this year, but only to people whose cars are worth over $4,000. And both the new Governor McKee and new Speaker Shekarchi seem interested in ignoring the issue of taxes, letting the car tax cut stand and resisting the call to restore income taxes on high incomes.

Let's talk about education. The Governor is proposing to spend $911 million on local public school aid. This is about a 3% bump up from last year, which is certainly not awful. Charter schools get a 9% bump, though.

Time for some history. What $911 million actually means is that we may finally reach the education funding levels of... the Almond administration. The 2003 budget of Lincoln Almond, not exactly a profligate spender, gave $904 million (in 2020 dollars) to fund local public schools. After him, Governor Carcieri pretty much level-funded education until he slashed it mercilessly when the financial crisis hit in 2008.

The story was not all bleak. Over his term, Carcieri managed to triple the state budget for charter schools. And between 2008 and 2011, when our traditional public schools were seeing a 20% cut in state aid (again, correcting for inflation), charter schools saw a 33% increase. Governors Chafee and Raimondo managed to restore some funding, but not nearly what was lost. (Though they did manage to triple charter school funding again.)

Over the past two decades, we have cut a truly devastating amount from traditional public schools. Had we only kept pace with inflation since 2003, we would have spent more than $1.8 billion more on supporting our schools over that time. But we didn't do that. We gave away money instead.

Aside from the hugely expensive car tax cut, there was a capital gains tax cut in 2001, then the "flat" tax slashed tax rates (only for the rich) every year from 2007 until 2012. The top income tax rate on the richest Rhode Islanders is now below 6%, down from over 12% in the early 1990s while the top rate on the median taxpayer only went down from around 4% to around 3.75% over that same time.

Not only did the state cut the money available to schools, we added new testing mandates, reporting mandates, curriculum standards, financial mandates, and more. This has meant perennially strapped school budgets, property tax increases, and a tremendous amount of budgeting uncertainty at public schools as sometimes the state education department manages to throw some extra scraps.

During the past 20 years, my children went through the public schools in my relatively prosperous town. I could not help notice that even here, each year the opportunities available to them shrank as elective classes were canceled, school buildings closed, art and music teachers shared between schools and much more. The bargain was supposed to be this would be made up by the economic boom powered by the hundreds of millions of dollars we gave away.

It seemed like a bad bargain at the time, and I'm afraid it seems even worse in hindsight. We gave away tons of money and got essentially nothing for it except weaker government and worse services, education only one among many.

There are bills in both the House and Senate this year, to increase the top income tax rate from the current 5.99% to 8.99% on incomes over $475,000. These will not even get back to the 1990s rates, but will at last maybe show we begin to recognize what a terrible bargain those tax cuts were.

Vote no on question 4 -- op-ed

01 February 2021

(Appeared Monday Feb 1 in the Providence Journal.)

On March 2, Rhode Island will hold a referendum on some bond issues. This special election was made necessary by the General Assembly's inability to pass a budget in time for last November’s election. Question 4 will ask for approval of $71.7 million as a state match for $287 million in federal highway funds. Sounds like a good idea? Not so much.

DOT says: "The dollars will be used as the match for ongoing construction projects. Projects included, but not limited to, would be Route 37, Pell Bridge Ramps Phase 2, Providence Northbound Viaduct, Washington Bridge, Henderson Bridge, Huntington Viaduct Bridges, Route 146 Safety Improvement Project, Cranston Canyon Corridor Project and Pawtucket/Central Falls Train Station."

In other words, the bond is for nothing special, just a way to accelerate projects already in the pipeline.

So is this bond a good idea? We have a depressed economy and low interest rates, so it makes sense to borrow for ambitious projects. And yet, this is an awful list, for three reasons.

Reason One: Don't borrow for maintenance. It is a terrible plan to use debt for ongoing expenses like maintenance. Many of these projects are just maintenance -- fixing bridges, repaving roads -- disguised by just enough safety improvements or capacity increases to call them new construction.

For the most part, the state cannot use Federal highway funds for maintenance, but this kind of relabeling gets around that. Since at least the 1970s, this has been standard operating practice at DOT, with two legacies. One is that lots of people have smaller front yards than they used to, and the other is a huge pile of unnecessary debt incurred by the state.

In truth, DOT has been underfunded for years, accumulating a massive debt freely building roads it does not have the budget to maintain. This must stop.

Reason Two: We cannot solve capacity issues by widening roads. We have known for decades that widening roads only attracts more traffic. Building new lanes on I-95 only invites more people to use them, and use them they will. You battle congestion by providing transportation alternatives -- buses, bicycles, trains, sidewalks -- not by doubling down on wider roads, which only buys a few years' relief.

It's true that among the projects DOT lists is a train station -- one! -- but it's the last project they named and represents around 3% of the total. DOT refuses to take transportation alternatives seriously. Last year, they tried to reallocate $28 million for bicycle and pedestrian infrastructure to resurfacing streets, and a proposal to rebuild the 6/10 connector as a boulevard with pedestrian and public transit features was dismissed out of hand. RIDOT priorities are all about building highways for cars. Period. This must change, but it shows no sign of changing, which brings us to the third point.

Reason Three: Our world is melting, and it is breathtakingly irresponsible for the state to treat public transit and other alternatives as a mere afterthought. Carbon emissions from transportation are the single largest component of greenhouse gases. 2020 was among the hottest years ever in recorded human history; is building wider highways really the highest priority RIDOT can imagine?

In Massachusetts, Governor Baker just signed a $16.5 billion transportation bond proposal. Over $6 billion of it is for rail and public transit projects, well over $600 million for pedestrians, bicycles, and other alternatives, along with another $2 billion in it for local projects, of which at least a billion is to fund transit or alternative transportation improvements. This is after the bill was revised to include more highway projects.

Until we see transportation priorities that reflect the climate threat and the real needs of an Ocean State, vote NO on RIDOT borrowing, question 4, March 2.


Saying no to an austerity budget in RI, op-ed

20 November 2020

op-ed appeared in the Providence Journal, 19 November 2020 as "Saying no to an austerity budget in RI" This is the version as written, before being squeezed down to 650 words.

Reclaim RI is a new organization out there this year, organizing people to demand that legislators stop the austerity budget that everyone in the statehouse expects is coming. Unfortunately, in important ways, that ship has sailed, since we have been suffering under austerity budgets for a couple of decades. The question this year is only, "Will it get even worse?"

As vital public services and schools suffer, the rich are not paying their fair share. Not even close. The sad fact is that the last time there was a meaningful state tax increase on high earners (on anyone, actually) was in response to the credit union crisis and the economic slowdown that it provoked, back in 1992. That year, the legislature passed a surtax on the incomes of the top 10% of taxpayers. That tax (known at the time as the "90/10" plan) was repealed in 1994 by the state tax administrator while the legislature was out of session, using the excuse that the Clinton tax reform act of 1993 made it
unnecessary. This was an astonishing usurpation of taxing authority taken on behalf of Rhode Island’s wealthiest. But no member of the General Assembly was willing to challenge it in court, perhaps because they already had it in mind to follow suit.

And follow suit they did. The Assembly cut income taxes each year from 1997 to 2002, they cut capital gains taxes in 2001, established the "flat" tax to slash tax rates on rich people every year from 2006 until 2011, and rearranged those cuts in 2012 to make them permanent. The vast majority of those cuts went to benefit only the richest of your neighbors. The top income tax rate on the richest Rhode Islanders is now below 6%, down from over 12% in the early 1990s while the top rate on the median taxpayer only went down from around 4% to around 3.75%.

And it didn't stop there. We are currently in year three of a program to cut car taxes, though as of this year, the benefit will only accrue to people whose cars are worth more than $3,000.

So what's the problem? Don't people enjoy lower taxes? Do I yearn to pay more tax?

The problem is that exactly none of these tax cuts were paid for. Not a single time in the past 30 years can I recall a governor or speaker of the House or Senate president saying, "You know what? This tax cut is going to result in the end of this benefit or program, but I think it's worth it." Not once can I remember that kind of honesty from the tax cutters who have been in charge through these long decades.

Since 1994, all of those cuts have been made with the false promise that they can be had for free, with no sacrifice from anyone. That's why they're always phased in over several years, to make the constriction in revenue slow and unnoticeable. But the result is that every year the state tries to do more, with less. Instead, of course, they have done less for you. Less education, less environmental protection, less help for the poor. Legislators promise the state must do “more with less,” but we just get less instead.

There are a few ways to cut a government program: you can end it; you can do it more efficiently; you can borrow to hide the deficiency; you can find someone else to foist the expense onto; or you can just do a shoddier job every year and hope nobody notices. Over the past few decades, I can think of virtually no examples of the first, a small number of examples of the second, but lots of examples of the others.

The Department of Transportation is the champion at borrowing to hide their deficit. The practice was curtailed a bit under Governor Chafee, but now they borrow against future federal grants (so-called GARVEE bonding), which isn't so much better. And we borrow every year to build affordable housing, which is far more wasteful than simply budgeting money to do it. But hey, those bond lawyers and underwriters have families to feed, don't they?

Every mayor, town manager, and superintendent in Rhode Island knows the state has done more than its share to foist expenses onto them, and hold back funding. Mandates for water quality, land use, tax abatement, classroom accommodations, and much more have passed the Assembly without funding to pay for them. State taxes have been cut year after year because the General Assembly knows the mayors and town council members are there to take the heat for them and there's nothing they can do about it. That, in turn, puts more pressure on municipal taxpayers, which exacerbates inequality by putting the heaviest burden onto those communities least able to pay for it.

But the real crime is in the deterioration and shoddiness of state services. We have let the state's universities and public schools decay, along with our roads and bridges, and much more. We have watched as health inspections, labor and job safety regulation, environmental enforcement actions, and public transportation services have all declined. The state institutions meant to help the economy, like RI Housing, CommerceRI, or the Infrastructure Bank see their capital “scooped” from them to fund other state departments, depriving them of the funds they need to do their jobs. And our state's support for our neighbors who are struggling is abysmal: cash payments to help poor families with children have not increased since 1991.

So by all means, let's stop austerity. It's been terrible for Rhode Island, even if it's been a lark for the rich among us. And let's join Reclaim RI in holding the line to prevent it from getting even worse this year. The election season should serve as a wake-up call for those who favor the same old austerity since Reclaim’s candidates all won.

Call your legislator and demand they withhold their assent from a budget that makes things worse. And withhold your vote from the ones who refuse. Rhode Island deserves much better.



Pension "reform" and the governor's race

08 August 2018

[Remarks delivered at a Matt Brown for Governor event, August 6, 2018 -- We heard a bunch of stories from people who had relied on the state to uphold its promises to them, but who now find themselves stuck, rethinking career decisions made 30 years ago on the basis of trust in the government.]

The stories you're hearing hear are sad - and infuriating, but let's not leave things at that, and I want to tell you about the larger effects. And I'm not even talking about the story in this morning's New York Times about how bankruptcies among elderly Americans have tripled since 1991.

Since the 1980s, public pension funds across the country have amassed around $4~trillion in assets. The total GDP of the US is around $20~trillion. But it took 400 years of growth to get to $20~trillion, and less than one-tenth the time to get to more than one-fifth that amount in pension fund assets. This means that there have been years in my life when the bulk - if not all - the economic growth in the country was poured not into productive investments in our children, our roads, our citizens, but into sterile financial assets. This was great for stock market investors, but not so much for the rest of us.

If there were no other way to fund these benefits, one might say oh, our nation can't possibly afford these benefits, but there are other ways. We have chosen - our accountants have chosen - a very expensive way to pay for these benefits, and only a few politicians are bold enough to push back against the radical choices they have made for us.

I first wrote about pensions and the funding of pensions in 2005. When I was doing that, I kept reading things that didn't make a lot of sense to me. I wrote a little bit about how arbitrary the rules are way back then. How they seem to exaggerate the degree of crisis and how following the rules is more expensive than it needs to be just to pay benefits. And I heard a lot about it as a result.

Last year, the Haas Institute published a paper I wrote - a critique of the goal of fully funding a pension. I wrote that it's not necessary for a permanent enterprise like a government, that it's politically risky to be at 100% funding, that the urgency of the debt is exaggerated by the rules, that the size of these debts should be compared against the 50 years over which they're due, not the next year's budget. There were eight separate arguments, the legal, chronological, actuarial, mathematical, financial, economical, political, and philosophical.

And I heard a lot about that, too. John Arnold personally insulted me on Twitter, which was indeed an honor, though I don't think he actually read the paper. And right now I am working on a small research grant from the National Conference of Public Employee Retirement Systems to write a report about a broader critique of the accounting rules - full report is due in September, stay tuned. The research project included a substantial amount of solicited feedback from experts in the field, at workshop events in California, Illinois, and here. I had two actuaries come to one of the feedback events in California, just to tell me how wrong I am.

So I've heard a lot of response about my views on the accounting rules. But here's the funny thing, nobody refutes my points. Eight of them. I haven't seen one critic take on any of them with an actual argument - something that would say, here is what refutes that argument you're making. Not those actuaries, not the twitter critics, nobody. Instead they say, "Yes, but that's not the way we do it," or "Yes, but this makes the accounting work better," or "You're not an actuary." Or they say, "It's only fair to do it our way." Which is pretty funny to say to these teachers: that we're slashing their pension benefits in the name of fairness. But I kid you not, this is the quality of the responses that I've received.

And they say stuff like "You don't want us to end up like Detroit, do you?" Which is pretty funny, because pension debt didn't bankrupt Detroit, cuts in state aid did. Long-term debt might be worrisome, but it can't create a cash-flow problem, which is what actually sent Detroit into receivership. Besides, they can't even say who this debt is to. That is, unlike any other public debt you can name, nobody gets to book that pension debt as an asset.

Pretty strange, isn't it? Time is short, and last year's article is online. I'll just run through a few other weirdnesses, like being forced to put a number in the balance sheet whose potential error is larger than all the rest of the numbers in the same balance sheet. I'm a data guy -- you don't do that if you want good data. Or the way that you can pay off every dime of a debt and never be at full funding. These numbers just do not mean what they are widely supposed to mean.

So what do I want in a governor? I'll tell you what I don't want: just someone who is the best in the class at coloring between the lines. I want someone who questions why the lines are there and what they mean. If you're not doing that, you're not leading, you've just scrambled to the front of the pack. There is a difference.

What I want in a governor is someone who, when faced with a policy decision to make that could cause great pain to tens of thousands of citizens, will ask ALL the important questions. I want someone who will question the experts about their assumptions and make sure that there is no other way before inflicting that pain. We don't have that now, but we could. And that's why I'm happy to be helping Matt Brown today.

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