Rhode Island Policy Reporter

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A look at the lousy situation Rhode Island is in, how we got here, and how we might be able to get out.

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Fiscal Derring-Do!
Economic Jiggery-Pokery!

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RIPR is a (paper) newsletter and a weekly column appearing in ten of Rhode Island's finer newspapers. The goal is to look at local, state and federal policy issues that affect life here in the Ocean State, concentrating on action, not intentions or talk.

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whole site RIPR back issues

Available Back Issues:

  • Aug 09 (38) - How your government's economic policies have worked against you. What a fake nineteenth century nun can teach us about the tea party protests.
  • Jun 09 (37) - Statistics of optimism, the real cost of your government. Judith Reilly on renewable tax credits. Review of Akerlof and Shiller on behavioral economics.
  • Apr 09 (36) - Cap and trade, the truth behind the card check controversy, review of Governor's tax policy workgroup final report.
  • Feb 09 (35) - The many varieties of market failures, and what classic economics has to say about them, review of Nixonland by Rick Perlstein.
  • Dec 08 (34) - Can "Housing First" end homelessness? The perils of TIF. Review of You Can't Be President by John MacArthur.
  • Oct 08 (33) - Wage stagnation, financial innovation and deregulation: creating the financial crisis, the political rhetoric of the Medicaid waiver.
  • Jul 08 (32) - Where has the money gone? Could suburban sprawl be part of our fiscal problem? Review of Bad Money by Kevin Phillips, news trivia or trivial news.
  • Apr 08 (31) - Understanding homelessness in RI, by Eric Hirsch, market segmentation and the housing market, the economics of irrationality.
  • Feb 08 (30) - IRS migration data, and what it says about RI, a close look at "entitlements", historic credit taxonomy, an investment banking sub-primer.
  • Dec 07 (29) - A look at the state's underinsured, economic geography with IRS data.
  • Oct 07 (28) - Choosing the most expensive ways to fight crime, bait and switch tax cuts, review of Against Prediction, about the perils of using statistics to fight crime.
  • Aug 07 (27) - Sub-prime mortgages fall heaviest on some neighborhoods, biotech patents in decline, no photo IDs for voting, review of Al Gore's Against Reason
  • Jun 07 (26) - Education funding, budget secrecy, book review of Boomsday and the Social Security Trustees' Report
  • May 07 (25) - Municipal finance: could citizen mobility cause high property taxes? What some Depression-era economists had to say on investment, and why it's relevant today, again.
  • Mar 07 (24) - The state budget disaster and how we got here. Structural deficit, health care, borrowing, unfunded liabilities, the works.
  • Jan 07 (23) - The impact of real estate speculation on housing prices, reshaping the electoral college. Book review of Blocking the Courthouse Door on tort "reform."
  • Dec 06 (22) - State deficit: What's so responsible about this? DOT bonding madness, Quonset, again, Massachusetts budget comparison.
  • Oct 06 (21) - Book review: Out of Iraq by Geo. McGovern and William Polk, New rules about supervisors undercut unions, New Hampshire comparisons, and November referenda guide.
  • Aug 06 (20) - Measuring teacher quality, anti-planning referenda and the conspiracy to promote them, affordable housing in the suburbs, union elections v. card checks.
  • Jun 06 (19) - Education report, Do tax cut really shrink government?, Casinos and constitutions, State historic tax credit: who uses it.
  • May 06 (18) - Distribution analysis of property taxes by town, critique of RIEDC statistics, how to reform health care, and how not to.
  • Mar 06 (17) - Critique of commonly used statistics: RI/MA rich people disparity, median income, etc. Our economic dependence on high health care spending. Review of Crashing the Gate
  • Feb 06 (16) - Unnecessary accounting changes mean disaster ahead for state and towns, reforming property tax assessment, random state budget notes.
  • Jan 06 (15) - Educational equity, estimating the amount of real estate speculation in Rhode Island, interview with Thom Deller, Providence's chief planner.
  • Nov 05 (14) - The distribution of affordable houses and people who need them, a look at RI's affordable housing laws.
  • Sep 05 (13) - A solution to pension strife, review of J.K. Galbraith biography and why we should care.
  • Jul 05 (12) - Kelo v. New London: Eminent Domain, and what's between the lines in New London.
  • Jun 05 (11) - Teacher salaries, Veterinarian salaries and the minimum wage. Book review: Confessions of an Economic Hit Man
  • Apr 05 (10) - Choosing a crisis: Tax fairness and school funding, suggestions for reform. Book review: business location and tax incentives.
  • Feb 05 (9) - State and teacher pension costs kept artificially high. Miscellaneous tax suggestions for balancing the state budget.
  • Dec 04 (8) - Welfare applications and the iconography of welfare department logos. The reality of the Social Security trust fund.
  • Oct 04 (7) - RIPTA and DOT, who's really in crisis?
  • Aug 04 (6) - MTBE and well pollution, Mathematical problems with property taxes
  • May 04 (5) - A look at food-safety issues: mad cows, genetic engineering, disappearing farmland.
  • Mar 04 (4) - FY05 RI State Budget Critique.
  • Feb 04 (3) - A close look at the Blue Cross of RI annual statement.
  • Oct 03 (2) - Taxing matters, a historical overview of tax burdens in Rhode Island
  • Oct 03 Appendix - Methodology notes and sources for October issue
  • Apr 03 (1) - FY04 RI State Budget critique
Issues are issued in paper. They are archived irregularly here.

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The Rhode Island Policy Reporter is an independent news source that specializes in the technical issues of public policy that matter so much to all our lives, but that also tend not to be reported very well or even at all. The publication is owned and operated by Tom Sgouros, who has written all the text you'll find on this site, except for the articles with actual bylines.


Creative Commons License Tom Sgouros

Tue, 31 Aug 2010

What do you want in a Mayor?

We're coming down to the home stretch in the primary election season. As you consider the options in the race for Mayor of Providence, ask yourself not what you want the next mayor to be, but what you want the next mayor to do. Do you want a mayor who pretends that the budget is balanced through "tough choices", while the real condition of the city continues to deteriorate? Do you want someone who thinks that the only way to grow jobs is through lavish tax cuts to rich people? If so, you're in luck; Steve Costantino is your guy. He's done all of that -- and more.

For the past six years, Representative Steve Costantino has been the chair of the House Finance Committee. In that role, he has impressed many observers with his detailed knowledge of the state budget and his mastery of government finance [0]. He's an intelligent man, and a good negotiator. But intelligence and aptitude are only part of the game. Judgment plays a big part, too, and here it's hard for me to be as kind.

People who follow the state budget each year disagree about a lot of things: some groups lobby for still more tax cuts, and others decry the decay of the services our state is supposed to provide. But wherever we stand on those issues, all of us agree that our state's fiscal disaster was foreseen years ago. The Governor's budget office, the Rhode Island Public Expenditure Council, the Poverty Institute, and anyone else with fingers to count on could see -- and did see -- the impending fiscal disaster. In the face of these warnings of crisis, the Governor, with the able assistance of Rep. Costantino, simply made things worse [1]. They cut programs meant to *save* money [2], cut taxes on rich people without any idea how to pay for the cuts [3], and doubled the state's debt [4].

They have tried to hide the problems by selling state property [5], by pretending that tax collections would be higher than any reasonable estimate [6], by looting programs that actually support themselves [7], and with all kinds of one-time money [8]. But arithmetic will out; you can hide the results from the public, but eventually there must be money to keep the checks from bouncing. Where did it come from?

Mostly it came from your city or town. The state's contribution to the cost of education has gone from $647 million in the 2005 fiscal year (Costantino's first budget) to just under $646 million for the current year [9]. Inflation hasn't been much these past few years, so this is still essentially a 13% cut.

The state's contribution to the rest of municipal government suffered, too. At the beginning of the last fiscal year, cities and towns were told they'd get $173 million in general state aid. During that year, the state reneged on $18 million of it, and for the current year, they cut the number from $173 million to $48 million [10]. General revenue sharing, another local aid program, had already been cut from $64 million in 2007 to zero in 2010. The pressure on municipal budgets has been intense. Since 2004, average municipal expenses have gone up 20.1% over all the cities and towns in the state. This was a bit faster than inflation, which has raised prices 15.4% over the same period. But property tax collections had to go up 28.9% to make up for the increasingly anemic state support [11]. Worse, the cuts of the past 12 months have left 39 municipal budgets in disarray, and has residents facing tax hikes on their car in 27 cities and towns [12].

The state tax cuts of the past few years were only to the benefit of a few thousand very wealthy people. All the rest of us pay those increased property taxes. Is that how you want our capital city run?

To be fair, there is some question about how much autonomy the House Finance committee has had over the past several years. The rumors I hear say that a lot of this terrible policy was made in the Speaker's office and then imposed on the Finance committee members, but I have no personal knowledge of this, and so far as I can know, these terrible policies have been enthusiastically endorsed by Costantino.

What is the result? The state spent and borrowed so heavily during the fat times that we are deep in deficit and have no pad with which to weather the economic storm [13]. The tax revenue lost because of the recession has taken a bad situation and made it much worse.

Our schools have suffered, our roads, our buildings, and this is just the beginning. Central Falls can't pay its bills. Other municipalities, and even the state, have cash flow teetering on the brink of disaster. Environmental enforcement barely exists, the buses are raising fares and cutting services, people complain about lines at the DMV, but they can't afford to get their computer systems working in time for the opening of their new office. And the galling part is that all of us, except for a few thousand of the very wealthiest of our citizens, are paying *higher* overall taxes to support this wreckage. Is *that* what you want from your government?

During his time on House Finance, you could count on Costantino to say the right things about controlling costs and preserving services. I'm charitable enough to be certain he meant it. But the fact remains that though he may not have been the captain, he was at the wheel of this ship on a clear day as it barreled onto the rocks -- whatever his intentions.

Election years often see dramatic conversions of people seeking high office. So in the face of all this, what was Costantino's signature accomplishment during the legislative season this spring? Submitting a balanced budget? Facing down people who benefit from our government but think taxes are for the little people? Showing us some of those tough choices we're always hearing about? Nope; it was cutting taxes on rich people even more [14]. At least you can admire his consistency.

If that's the kind of fiscal leadership you want from your mayor, then your choice is clear.

[0] For the record, I don't really know him. I've only ever spoken to him as a witness at House Finance hearings. What follows is an analysis of the record of the House budget writers. Also, for the record, I had nothing to do with the whatcheerprov attack on Costantino. I didn't see anything wrong with it, but it wasn't mine; anonymity isn't my style.

[1] This is documented in the Rhode Island Policy Reporter issue 24 (March 2007), and in my book, "Ten Things You Don't Know About Rhode Island", Chapter 1. I know it's not considered the done thing to cite your own stuff in a footnote, but it's a long story, and besides, I've got books to sell.

[2] RIte Care, the Medicaid program that provides health care to the poor, was designed as a way to provide health care at a far lower cost than emergency rooms. Maintenance on state buildings and roads is also a way to save money. Cuts in either of these areas will only save money in the very short term.

[3] This is why tax cuts are always phased in. The "flat" tax, for example, was phased in so that in its first year, the cost was nearly inconsequential. It was only in its third and fourth years that it became a real problem to the budget writers -- because it was passed without offsetting cuts to spending.

[4] State debt went from about $1.2 billion in 2002 to over $2.5 billion in 2010, counting the supposedly "off-books" GARVEE debt that paid for the new Providence River Bridge and other transportation projects.

[5] There have been several such sales over the past decade, but in this article, Rep. Costantino is quoted to say that he has no problem with selling conservation land in Charlestown for development in order to make the budget balance. http://www.projo.com/news/content/CHTWN_LAND15_06-15-07_F161A8A.343593b.html

[6] The FY07 projections of lottery collections were a standout in this regard. See RIPR issue 24 or my book, op. cit. But see also http://www.projo.com/news/content/tax_break_08-25-10_J2JLQKT_v9.237e0c5.html

[7] The Governor's budget appropriated $26 million from RI Housing in 2008. This money was intended to pay for low-income housing. The number was negotiated down during hearings in House Finance, but the result was that millions of dollars that had been intended for low-income housing went to pay for tax cuts instead. See http://www.pawtuckettimes.com/content/view/15177/1/

[8] For example, we sold the money due us from the tobacco settlement (twice, but it's a long story), but only some of the proceeds went to pay down our state's debt. Much of the money, in 2002 and 2007, went to fill holes in the annual budget (and approximately none of it went to health-related expenses). This article is informative: http://www.tobaccofreekids.org/reports/settlements/state.php?StateID=RI

[9] See page 655ff in the House Finance 2011 edition of the budget as enacted. Over the same period, aid for charter schools has gone up from $16 million to $38 million in 2011, with an 18% increase in 2011 alone.

[10] ibid, pages 636ff

[11] Data from the municipal budget survey conducted by the Department of Revenue's Municipal Finance division.

[12] Count from the Municipal Finance division of the Department of Revenue.

[13] The state budget hole also makes the budget situation of all the cities and towns worse by absorbing federal aid meant for municipalities. This happened with Obama's stimulus funds, and even happened this past week with money intended for our state's schools being sucked into the state's hole. http://newsblog.projo.com/2010/08/carcieri-to-use-school-jobs-mo.html

[14] See: http://newsblog.projo.com/2010/06/house-panel-okays-plan-to-chan.html The estimates of the cost of these cuts turned out to be wrong: http://www.projo.com/news/content/tax_break_08-25-10_J2JLQKT_v9.237e0c5.html

23:53 - 31 Aug 2010 [/y10/au]

Wed, 18 Aug 2010

Is Protectionism so bad?

Banks have been nationalized, manager bonuses limited and huge public debts accumulated. Indeed, about the only element of recent economic thought that remains taboo is blind faith in free trade. That might be a mistake.

Read more.

00:05 - 18 Aug 2010 [/y10/au]

Fri, 06 Aug 2010

The end of the filibuster

It is beyond question at this point that the US Senate will vote to decrease the number of votes required to pass a cloture motion from 60 to 55 or 50. The only real question is whether it will happen when Republicans next achieve a majority in the Senate or before.

10:49 - 06 Aug 2010 [/y10/au]

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