Archive for May, 2008
On Wednesday I zipped down the highway to Pittsfield to meet with community and business leaders about Pioneer’s Middle Cities Initiative. They think of the city as the “Hub of Berkshire County” - which includes 31 municipalities.
I haven’t spent time in downtown Pittsfield since 1997. Wow, has it changed. The downtown looks great.
Is the Hub drawing the tourists who come to the region? Remains to be seen, but Pittsfield’s business owners are hoping for a good summer. Maybe with high gas prices, more New Yorkers and New Englanders will spend their vacations in the Berkshires, and visit downtown Pittsfield while they are there.
If you go, let me know what you think.
May 30th, 2008
…and from Michelle Rhee no less!!
The Washington Post reports her latest shenanigans:
The Washington Teachers’ Union is discussing a proposed three-year contract from the school system that would eliminate seniority, giving Schools Chancellor Michelle A. Rhee more control in filling vacancies, a union member familiar with the talks said yesterday.
Without seniority, Rhee could place teachers based on qualifications or performance rather than years of service, said the union member, who spoke on condition of anonymity because the talks are confidential. The union member said Rhee sought the provision as a recruiting tool so she could offer talented candidates the position of their choice.
Oh, the humanity!!
Tip of the pen to Eduwonk for the story.
May 30th, 2008
Chancellor Rhee on setting expectations in the public school system (from, again, John Merrow’s PBS reports):
Nobody had ever said to them – these are my expectations. If you meet this and exceed this, great. If you don’t…
In any other sector, employees are expected to meet certain outcomes or deliverables, and everybody knows that if you don’t meet those numbers, you go. That’s what we are creating.
That is what Pioneer has been arguing for as far as I can remember. Yet in the Massachusetts education debate of today where we must all avoid calling failure failure, this sort of thinking comes as a shock.
May 30th, 2008
CORRECTION: Jim Lamenzo found two errors, one major, in this post. First, a clarification, all this chatter refers only to state and teachers pensions, not locals. The first error — I said 2008 below, when I meant 2028.
Second, and this is a major one — I screwed up summing the figures from the PERAC 2005 report. Summing them correctly, gives you a range of $2.7b - $3.5b (not $4.7b - $5.5b). So, my original estimate was clearly too high. Its still substantial but below the original estimate. I regret the error.
I am, however, still sticking with my original point — that this is a large sum of money to be spending and should go through a transparent process.
ORIGINAL POST:
Buckle up folks, this is going to be a long, jargon-laden post.
I first came up with an estimate of the proposed COLA increase on this blog, taking the cheapest three years of the pension funding schedule ($3.8b) and the highest three years ($8b). Here’s my exact wording:
An additional three years of funding the state’s pension liability would require between $3.8 billion to $8 billion in additional operating budget expenditures.
I had a conversation with a reporter on the topic and noted that my calculation did not account for the time value of money, only the actual dollar cost over time, and was based on the information available to me at the time. The number subsequently was carried in the Globe.
I made a mistake in this estimate but I believe that the actual number remains within this range. PERAC, in the form of Jim Lamenzo, the state’s chief actuary, got in touch and pointed that my original calculation was including normal cost (in layperson’s terms — what the state should be paying in to cover the future costs of current employees; which is distinct from funds paid in to retire the unfunded liability) in my original calculations. Those should not be counted as part of the unfunded liability. He was kind enough to give me the figures for normal costs. With those taken out, my original estimate should have been between $2.7b - $5.5b.
I’m more confident now that the actual dollar cost (again over time and ignoring the time value of money) will be closer to $5b, well within the range of my original estimate. PERAC itself has a report from 2005 that calculates the incremental cost of funding the COLA increase under the current funding schedule and a second scenario funding it out to 2008. It is no longer 2005, but the numbers are directionally accurate and they put the cost in actual dollars at between $4.7b and $5.5b to fund the COLA increase.
Jim’s primary objection to my estimate was over the issue of the time value of money, which he believes overstates the case. He puts the present value of the additional liability from the COLA increase at roughly $1.1 billion. In other words, to fully fund the COLA increase, we would need to put $1.1 billion into the pension fund this year. He is correct, but…
My point is that we are not going to fund it immediately and we are going to fund it over time. I accept Jim’s point, and would use his number with a specific audience, but I’m trying to make a case to the broader policy community that the current outside sections will allocate roughly $5 billion in operating budget funds over the next 18 years that will not be spent on other items. I don’t think the process has had the transparency or public debate that is needed for a decision of this magnitude.
I regret the error in the initial estimate, but I’m more confident now that the correct estimate of operating budget expenditures (again, if you ignore the time value of money) is in the area of $5 billion and within the range of the original and corrected estimate.
For the few remaining readers, thanks for your patience and I’d appreciate any comments. Also, I’m going to give Jim a chance to respond if he’d like to.
May 29th, 2008
Tip of the hat to Bridgett Wagner of Heritage for passing on “Federal Funds and State Fiscal Independence” by Sven Larsen. Larsen notes:
Today, federal aid to states and state matching funds account for 45 percent of state spending, and that share is rising. As a result, state spending is gradually being reduced to the mere execution of federal spending programs. In addition to blurring the lines of accountability, this trend also erodes state fiscal independence.
Considering the large role of off-budget state expenditures, she certainly has a point. Larsen finds that the increasingly large role of federal transfers
erodes legislators’ accountability to voters, increases the public’s and the states’ dependence on the federal government, weakens incentives to restrain government spending, and even encourages state lawmakers to design and expand their spending to maximize federal aid to their states.
What would the last of the true federalists (Ronald Reagan) have thought? See his “Federalism, Statement of Principles” (1986):
I. Federalism is rooted in our knowledge that our political liberties are best assured by limiting the size and scope pf the national government.
II. The people of the United States created the national government when they delegated to it those enumerated governmental powers relating to matters beyond the competence of the individual States. All other sovereign powers, save those expressly prohibited the States by the Constitution, are reserved to the States or to the people.
III. The Constitutional relationship among sovereign governments, State and National, is formalized in and protected by the Tenth Amendment to the Constitution.
IV. The people of the States are free, subject only to restrictions in the Constitution itself or in constitutionally authorized Acts of Congress, to define the moral, political, and legal character of their lives.
V. In most areas of governmental concern, State and local governments uniquely posses the constitutional authority, the resources, and the competence to discern the sentiments of the people and to govern accordingly. In Jefferson’s words, the States are the most competent administrations for our domestic concerns and the surest bulwarks against anti-republican tendencies.
VI. The nature of our constitutional system encourages a healthy diversity in the public policies adopted by the people of the several States according to their own conditions, needs, and desires. in the search for enlightened public policy, individual States and communities are free to experiment with a variety of approaches to political issues.
VII. Acts of the national government — whether legislative, executive, or judicial in nature — that exceed the enumerated powers of that government under the Constitution violate the principle of federalism established by the Founders.
VIII. Policies of the national government should recognize the responsibility of — and should encourage opportunities for — individuals, families, neighborhoods, local governments, and private associations to achieve their personal, social, and economic objectives through cooperative effort.
IX. In the absence of a clear constitutional or statutory authority, the presumption of sovereignty should rest with the individual States. Uncertainties regarding the legitimate authority of the national government should be resolved against regulation at the national level.
X. These principles should guide the departments and agencies of the national government in the formulation and implementation of policies and regulations.
A pretty darn clear and common sense vision of the states’ role in driving innovation and ensuring a heterogeneous (diverse) political culture.
May 29th, 2008
As impressive as Michelle Rhee’s bold actions have been since she was appointed chancellor of the D.C. schools, it must be remembered that she is there because there is a mayor who wants her — and wants her focused, energetic, and without pause. That mayor is Adrian Fenty, who swept into power with 89 percent of the vote and winning every precinct in the city.
Fenty means business. His first act as mayor was to take total control of the DC Public Schools. Consider the following quotes and items from PBS reports. Fenty on what the city needed in a chancellor of the public schools:
What this city needed was a change agent, a fresh face, someone who knew the city and urban school systems, but someone who was not tied to the past or who thought that things could never be excellent.
Rhee warned Fenty when he approached her that she was not the right woman for the job. Rhee:
I told him that you don’t want me for this job. You are a politician. Your job is to keep the noise level to a minimum and to keep your constituents happy. I am a change agent. And change does not come without significant pushback and opposition, which is absolutely counter to what you want.
Then Rhee asked Fenty the million dollar question, “What would you risk just at the chance to change the school system?” Fenty’s reply? “Everything.”
May 29th, 2008
I guess the editorial page of the Wall Street Journal does not think that cost overruns of $4 billion over a decade are a good idea. Parochial thinking to be sure. When an editorial opens “Mitt Romney’s presidential run is history, but it looks as if the taxpayers of Massachusetts will be paying for it for years to come,” you can tell it is going to get worse from there.
Some two-thirds of the growth in coverage owes to a low- or no-cost public insurance option. Called Commonwealth Care, it uses a sliding income scale to subsidize coverage for everyone under 300% of the federal poverty level, or about $63,000 for a family of four. Commonwealth Care also accounts for 60% of statewide growth in individual insurance over the last year, and the trend is expected to accelerate, perhaps double.
One lesson here is that while pledging “universal” coverage is easy, the harder problem is paying for it. This year’s appropriation for Commonwealth Care was $472 million, but officials have asked for an add-on that will bring it to $625 million. For 2009, Governor Deval Patrick requested $869 million but has already conceded that even that huge figure is too low.
Mr. Romney’s fundamental mistake was focusing on making health insurance “universal” without first reforming the private insurance market. The “connector” that was supposed to link individuals to private insurance options has barely been used, as lower-income workers flood to the public option. Meanwhile, low-cost private insurers continue to avoid the state because it imposes multiple and costly mandates on all policies.
The real problem in health care is the way the tax code and third-party payment system distort incentives. That’s where John McCain has been focusing his reform efforts - because that really does have the potential to reduce costs while covering more of the uninsured - and Republicans ought to follow his lead.
Pioneer is releasing this summer a framework for a full evaluation of the Health Care Reform Act, including other measures such as who has been switching from private to public insurance, or vice-versa. Clearly, we have focused on the cost containment issue and will continue to do so.
May 28th, 2008
It is not easy being a teacher, especially in an inner city school. We all know that. But we can’t use the difficulty of the task to lower our goals for the children in those schools. Too often we use demographics and socio-economic status as socially acceptable ways to express bigotry as to what kids can achieve. Today’s quote from Michelle Rhee, probably the most focused and most energetic leader of an urban school district, is right on this point.
You can address the needs of the souls of these kids in the classroom, through the power that we have as educators. You cannot teach in a vacuum. You have to meet them where you are. You got to take that into account. But you can never, ever, ever let that be an excuse for kids not achieving at the highest levels.
Her point is that if you don’t think you can bring the kids in the district up to the place where they excel, then you should get another job. At least a job in another district.
May 28th, 2008
They’re back!!
The Globe’s been strongly on the film tax incentive beat over the past few days. They took notice of DOR’s dynamic analysis of the film tax credit from last week (original document here). Its key findings:
…[B]ased on information from tax credit and sales tax exemption applications, which indicates that wages and salaries for employees paid more than $1 million account for approximately 45% of total payroll projected to be eligible for tax credits.
and
the film industry tax incentives….in this analysis are estimated to generate offsetting tax revenue of $17.9 million to $23.0 million for each $100 million tax expenditure
In other words, a huge chunk of the tax credits go to out-of-state movie stars, and the return to the state (from all potential multiplier effects) is a fraction of the tax expenditure.
Oh, and its also subsidizing the filming of advertisements as well.
May 27th, 2008
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