A recent Milwaukee Talkie blog post asked, “Can’t we all get along when it comes to spending stimulus funds?” That post tackled state-vs.-local issues with regard to infrastructure spending, but not everyone is even at the point of agreeing that President-Elect Obama’s forthcoming New Deal-like plan to stimulate the economy by funding infrastructure has the right target.
In articles like “First, Repair the Human Infrastructure,” the head of a community health initiative claims that stimulus funding used to prevent chronic illness would save billions down the line in medical care and disability costs. Similarly, another blog makes a bid for human capital: “Lots of infrastructure is decaying in this country, and that includes the people and systems that comprise our social, educational, health and other kinds of human infrastructure. It isn’t just a matter of bricks and bridges.”
In the article “Don’t Forget the Human Infrastructure,” the Brookings Institute’s Isabel Sawhill presents some pragmatic arguments for making strategic investments in the nonprofit sector, which employs 10 percent of the workforce while providing a safety net for many, but is suffering in the bad economy. She notes that if such "human infrastructure" investments were made, the nonprofit sector would:
· Spend the money quickly and fully
· Employ people with a broad range of skills
· Be able to rely on a network of preexisting institutions
· Have the capacity to spread the dollars widely
· Avoid shrinkage, thus not adding to the ranks of the unemployed.
In Milwaukee, nonprofits are feeling the crunch. A Journal Sentinel article advised the sector: "Now is a time to be wary." The Nonprofit Portal of Milwaukee's most recent online newsletter links to five articles on weathering the economic crisis.
A commenter on a Seattle blog disagrees with Sawhill and others' human infrastructure arguments, cautioning against investing too heavily in recurring costs, “When you finance a building [or a road, bridge or rail line], you’re expecting to be able to use that building for maybe 50 years. You don’t need to build it again next year. . . . When we hire a teacher, however, the cost of their salary will recur each year.”
Others agree that we should be building things, but stress that short-term projects should be emphasized to stimulate the economy more quickly. An L.A. Times article describes how complex infrastructure projects like subways have a long lead time devoted to preparing engineering studies and environmental surveys, which can delay their stimulative effect. Lawrence E. Harris, a USC professor of finance counters, “But lots of tradesmen who know how to build houses can build community buildings, senior citizen centers and early childhood centers, which don’t take a long time.” Despite its emphasis on large infrastructure projects, Obama’s stimulus package is likely to highlight modernizing schools.
At least one women’s group is also concerned about Obama’s plan. Feminist Majority Foundation President Eleanor Smeal expressed alarm that the recovery package will emphasize construction jobs “which notoriously under-represent women workers.” She cautioned, “Although we support a physical infrastructure stimulus package, we believe it must be accompanied with a human infrastructure component that will employ a majority of women workers.”
Evidence abounds that many aspects of physical infrastructure have been neglected for too long in this country, as well as locally in Milwaukee. The number of voices pointing out that other aspects of the country’s “infrastructure” – from education to the nonprofit sector to hurricane protection – also are in disrepair speaks to the myriad challenges facing the new Obama administration. But perhaps no challenge is greater than this: while consensus seems to have emerged that we must stimulate the economy somehow, and while the battle therefore will continue over what sector or project gets the money, in the end we are still spending money we don't really have.
Tuesday, December 30, 2008
A recent Milwaukee Talkie blog post asked, “Can’t we all get along when it comes to spending stimulus funds?” That post tackled state-vs.-local issues with regard to infrastructure spending, but not everyone is even at the point of agreeing that President-Elect Obama’s forthcoming New Deal-like plan to stimulate the economy by funding infrastructure has the right target.
Tuesday, December 23, 2008
For years, state and local officials in Wisconsin and across the nation have pleaded with federal officials for more help in addressing their crumbling infrastructure. Now that it appears those pleas may be answered as part of a huge federal stimulus package, disagreement has arisen over who gets to control and spend the money.
State governments received welcome news earlier this month when President-elect Obama told the National Governors Association that the stimulus package he was planning would include substantial allocations to the states for roads, bridges, mass transit and other public works projects. That news, however, was not as well-received by local government officials.
Stateline.org reports the National League of Cities and National Association of Counties have sent a report to the Obama transition team arguing that local governments should receive the bulk of the funds, as they're better equipped than states to spend infrastructure dollars quickly and effectively. Local officials also argue they need more help than state governments because states already are hitting them with recession-induced cuts in state aids.
State officials counter that they're the appropriate recipients given the mechanisms already in place to receive and distribute federal infrastructure allocations. They also contend that states have a bigger picture view of infrastructure needs and can properly allocate stimulus dollars in a manner that will best serve the greatest number of residents.
This national dispute is being replicated in Milwaukee. After Governor Jim Doyle sent a $3.7 billion wish list of infrastructure projects to federal officials, Milwaukee Alderman Bob Bauman criticized the governor for failing to consult with local officials and sacrificing local road and bridge needs for state highway expansion projects. More recently, Milwaukee Mayor Tom Barrett sent his own list of $599 million in infrastructure projects to the president-elect.
So how should this dispute be settled? One interesting idea comes from a University of Maryland professor who suggests a national commission modeled after the federal base closing commission. The commission would review potential stimulus-funded infrastructure projects and provide a list for Congress that would receive an up or down vote in its entirety. That approach certainly has potential to eliminate the intrusion of pork-barrel spending, but could a national commission be fair to localized infrastructure projects, which tend to be far less glamorous than larger state projects?
This is a very difficult issue to referee because both sides have a point. Federal transportation dollars typically are distributed to states precisely because the feds have little interest or capacity to get involved in divvying up dollars to local projects. Also, state government does have an appropriate role to play in funding and coordinating a statewide transportation network that serves residents and businesses beyond local boundaries.
It is this very dynamic, however, that often prevents local transportation needs and wants from being addressed. Projects like the Marquette Interchange always receive priority from state officials because of their statewide importance and the number of people they serve. Such prioritization arguably would be fully justified and acceptable if there were some remaining fiscal capacity to also fund high priority local road and transit projects.
Too often, however, there is not. Furthermore, in Wisconsin, the requirement that the non-federal share of transit projects must be funded at least in part with local dollars is an additional huge impediment. Consequently, localized transportation projects either fall to the local property taxpayer or simply don't get done. The City of Milwaukee's huge local street repair backlog and continued inaction on commuter rail and light rail/bus rapid transit exemplify this dynamic.
Alderman Bauman is right about the need for better consultation between state and local officials, albeit without the hyperbole that typically accompanies transportation discussions in southeast Wisconsin. In light of the certain strife that will occur between the state and local governments when it comes time to cut the state budget, it certainly would be refreshing to see consultation and cooperation regarding how to spend that rare influx of federal transportation dollars.
Tuesday, December 16, 2008
'Tis the season for school shopping, as certain programs and schools have deadlines for fall enrollment quickly approaching. An article last week in the New York Times covered this subject by following one mother's struggle to find the right high school for her daughter. The irony was that this mother was an expert on the city's schools. Says the article:
"...Ms. Hemphill literally wrote the book on the subject — her series of “New York City’s Best Schools” books are regarded as the bible for navigating school choices — yet she has found herself befuddled and overwhelmed trying to help her 13-year-old daughter, Allison Snyder, find a spot."
Choosing from among the best and most selective public high schools in New York City is the kind of problem many parents in Milwaukee would like to have. But choosing a school here in Milwaukee can be similarly daunting. City residents can choose:
- a neighborhood MPS school;
- a specialty MPS school, with options including Montessori, Waldorf, fine arts, or technical careers, among many others;
- a charter school, chartered by either the city, UWM, or MPS;
- a suburban public school, either through open enrollment or the city-suburb integration program;
- or a private school, with those who can afford it paying tuition and those who can't using a tax-payer funded voucher.
I learned the secret when I was choosing a school in Milwaukee for my own son. I found myself, one of the "experts," basing my choice on location, a full-day pre-Kindergarten program, and an award-winning afterschool program. It made sense for us, becasue my husband and I both work downtown full-time and having eight hours of convenient child care a day was important. But academics didn't really enter the picture and we could have chosen based on any number of quirky reasons. In fact, we briefly considered a private school, but rejected it based on the junk-food-laden lunch menu.
The New York family narrowed their choices using arbitrary criteria of their own. Reports The Times: "She focused on smaller schools that were no more than 45 minutes from home and would offer her a chance to take advanced classes but also give her enough time to focus on dance and theater after school."
There may be facets of a school that are a greater priority than academic performance for the parents choosing that school--religious instruction, teaching methodology, and student discipline, for example. Certain schools can thus attract parents despite low scores. But, as a result, competition among schools may not result in better school performance and there is little evidence that it has, in Milwaukee.
So, if even school performance "experts" find choosing schools difficult and overwhelming, due to all the factors that could be considered, can anything be done to help regular parents exercise their choice more efficiently and with better results?
The answer is simple: mitigate the risk of making the choice. Parents who are wealthy enough to exercise their school choice by choosing to buy a home in a good school district don't have much risk attached to that decision-making process. They are able to choose from among a host of academically good options.
School choice in its various guises in Milwaukee was supposed to result in similar empowerment for Milwaukee's low-income parents, but it has not, mainly because their choices carry risks: quite a few of the schools available to them are not performing adequately, according to data from a state-sanctioned evaluation of voucher schools and charter school test scores. If parents were making choices based on school performance, this would not be a concern, as we could assume they would not choose bad schools. But they aren't (which we know from the number of voucher schools that have failed despite having rather large enrollments) and so, despite the availability of choice, many children in Milwaukee are continuing to suffer educationally.
The state has recently taken steps aimed at mitigating the risk of choice, by requiring voucher schools to be accredited, for example. But there are few other regulations regarding academic offerings and accountability.
Having a choice among mostly poorly performing schools is no better than not having a choice at all. Without accountability for academic performance, we put the burden on parents to be experts on schooling, instead of expecting schools to excel.
Friday, December 12, 2008
High on the list of "fiddling while Rome burns" situations is the plight of Milwaukee County's mental health complex.
For years, the county's Behavioral Health Division (BHD) has been trying to provide emergency, acute inpatient, and long-term mental health care services to indigent county residents in a sprawling complex that is falling apart and no longer meets its needs. In the meantime, it's hemorrhaging dollars it doesn't have (a $3.9 million projected deficit for 2008 after several previous years of budget holes), and its efforts to pursue a new home that might produce overhead savings and better quality of care have been bogged down by infighting between the county executive and county board.
For insight into what types of options might get tossed around if things get really bad, county policymakers and special interests who have been brawling over this issue may wish to consider what's going on in Georgia. There, the state is seeking to embark on what the Atlanta Journal Constitution calls an "uncharted course": full privatization of the state's psychiatric hospitals.
Understandably, this proposal has attracted considerable concern, primarily based on fears that the only way the private sector could profit from providing mental health inpatient services for largely uninsured individuals would be to significantly cut staffing and services. Given Georgia's already poor history of service delivery, that is a troublesome possibility. State officials, however, are touting this as the only option for attempting to provide better care within existing budget constraints due to the private sector's alleged ability to provide higher levels of service at lower cost.
Could such an approach be attempted in Milwaukee County? Interestingly, some county mental health officials looked long and hard at "getting out of the inpatient business" several years ago, as it became clear to them that the dollars needed for community-based care and supports would not be available as long as they were forced to pour increasing amounts of property tax dollars into inpatient and long-term care operations. The biggest obstacle at that time, however, was the perceived impossibility of securing a private sector entity to step in given the large uninsured population served at the mental health complex.
Might those circumstances be different today, in light of new Badger Care coverage for childless adults and a push for mental health "parity" at the federal level, both of which could lead to broader coverage for mental health services? That's hard to say, but it's not hard to imagine a scenario in which the county again would have to contemplate the privatization option - at least for some of its inpatient or long-term care operations - despite concerns about impacts on service capacity and quality.
The sad reality is that the county has few options left. While it has not moved forward on the proposed move to a renovated St. Michael hospital, and is now entertaining the thought of building a new mental health complex, the fiscal situation at BHD - as demonstrated by the size of the 2009 deficit - has grown worse. The structural problems that have created budget deficits for several years are no secret to policymakers, yet they have not been addressed (with the exception of an initiative to outsource dietary services) and are likely to cause another sizeable budget hole in 2009. In the meantime, it is now logical to ask whether either a move to a renovated St. Mike's or building a new complex is practical in light of the county's deteriorating fiscal condition, which is worsening by the moment as its pension fund assets shrink and its infrastructure and service needs grow.
None of this is to suggest that privatization of inpatient mental health services should be viewed as anything but a last resort or is even viable. However, unless county policymakers do something soon to reduce overhead costs at BHD to make the cost of care more affordable, last resorts may be the only resorts left on the table. That should be reason enough for them to start working together to identify and implement a realistic solution to their mental health complex problem.
Friday, December 5, 2008
Do regional economic development initiatives have plenty of gloss but little substance? That’s a question some are asking after a recent Journal Sentinel report that our own regional initiative, the M7, is shifting its strategic focus. The M7 commissioned a study to outline a strategy for recruiting some businesses that might like to relocate to the region. The study suggests that the M7 focus on recruiting from two industrial sectors: control and instruments technology and food processing.
While the report is a useful planning tool, it brings attention to the fact that M7 has yet to draw a major corporation to the area. We should commend the 5-year-old M7 for acknowledging that reality and announcing a new tactic. But, there’s a broader question here about regional cooperation as a strategy to attract new businesses. From a public policy perspective, are these sweeping regional cooperative efforts the best option?
Informal regional cooperation and governance initiatives similar to M7 became popular in the 1990s after a cycle of more formal regional governing institutions that sprang up during the 1960s and 70s, such as Unigov in Indianapolis and the federated tier system in Miami-Dade.
Unfortunately, there has been little empirical evidence linking regional cooperation initiatives or regional governing bodies with clear economic benefits. Local competition among municipalities appears to work just as well. In fact, there is much economic research, based on the “public choice” theory of Charles Tiebout, that argues that local competition is more efficient than regional cooperation.
More recent research shows that strong, tangible incentives from individual municipalities (along with state tax breaks) draw the first-class corporations, like Boeing moving to Chicago.
Regional efforts have more success in building regional infrastructure projects, which arguably have the largest economic benefits of all kinds of public spending. Regional cooperation in building specific infrastructure projects, such as public transit or intermodal freight stations, has been found consistently to raise local property values.
All this calls into question the appropriate goal for M7: should they continue to focus on business recruitment or should our regional efforts also concentrate on funneling local investments into larger regional projects?
Thursday, November 20, 2008
following fundamental components of an integrated strategic planning and budget process:
- Creation of a 5-year financial forecast that defines the County's budgetary structural deficit and resulting fiscal challenges,
- Identification of County financial policies and practices that need to be strengthened or modified,
- Development of a new process for estimating County revenues that ensures that revenue estimates made during all phases of the budget process are realistic and based on solid analysis, and
- Development of a space plan that identifies County facilities that are currently underutilized, estimates the potential market value of County facilities and plans for the potential relocation of County functions to maximize the utilization of County facilities while vacating and making surplus underutilized facilities.
Thursday, November 13, 2008
A report released just two weeks ago highlights the marked lack of banking options in northwest Milwaukee. The Federal Reserve and Brookings Institution report, “The Enduring Challenge of Concentrated Poverty in America,” includes case studies from 16 high-poverty communities across the country, each chosen to illustrate different facets of the poverty story.
The boundaries of the Milwaukee area they studied were based on Census data tracts. With a poverty rate nearly five times that of the rest of Milwaukee’s Metropolitan Statistical Area (MSA), the area includes all or part of the Sherman Park, Metcalfe Park, Uptown, Washington Park, Walnut Hill, Midtown, Martin Drive, and Cold Spring Park neighborhoods, covering parts of the zip codes 53205, 53206, 53208, 53210, and 53233.
This northwest area of Milwaukee, with over 23,000 residents, has just two bank branches (three banks lie just over borders of the study area). The area, however, is heavily populated with nontraditional financial service providers such as currency exchanges, check cashing, pawnshops, and payday lenders.
The report explains that an absence of basic banking services is linked to higher costs for financial transactions for working class and minority communities. While traditional financial institutions provide residents with access to cash, savings and capital, conducting financial transactions through nontraditional providers not only costs more, the report claims, but offers fewer ways to save money and plan for long-term financial management.
Residents in northwest Milwaukee are also likely to pay more for credit: In 2005, 65% of the area’s mortgages originated as sub-prime or other high-cost loans, compared to 26% in Milwaukee’s MSA.
The report identifies the myriad challenges related to concentrated poverty facing northwest Milwaukee, including high rates of returning ex-offenders, unemployment, and jobs that disappeared or moved to the suburbs. Local nonprofit programs working to improve the area are also highlighted along with some noteworthy successes.
While the newspaper quotes a Franklin resident exclaiming “Not another bank!,” the article’s juxtaposition with the recent Brookings Institution report underscores one of the many differences between inner city Milwaukee and other areas of southeastern Wisconsin.
Friday, November 7, 2008
This week none other than The New York Times and National Public Radio are making national stories from news about local school districts in our state. It's a reminder that Wisconsin is, in fact, on the globe.
The story, covered locally by the Journal Sentinel, can be simplified as follows: Several school districts around Wisconsin participated in high-risk investments using borrowed funds and are now in danger of losing millions. The Irish bank to which these loans are owed is now on the hook, threatening the viability of that bank and the larger German bank that owns it. The German government has stepped in to save the banks, which now find themselves unable to conduct business as usual, affecting the many local governments around the world that have been their loan customers.
The details are not actually that important. The lesson to be learned is that local decisions can have a global impact. As hard as it may be to believe, your neighbor on your local school board is now a player in the German economy.
Couple this new paradigm with the observation from yesterday's Milwaukee Talkie post that deficient local decision-making could result in less local control should the state be required to step in, and you have a recipe for uncompetitive local elections and poor turnout. Who would want to serve on a school board, pension board, or village board when the decisions are this complicated, this tough, and this far-reaching? And even if there are enough people willing to run for these positions, do voters understand the true nature of the job and the types of decisions the elected officials will be required to make?
Unfortunately, the end result may be a vicious cycle in which low voter turnout and unchallenged candidates lead to ineffective leadership and justify loss of local control. Once that happens there is even less incentive for future voters to be informed or for qualified candidates to step forward. The market and the economy are indisputably global. Is it inevitable that governance shall be, too?
Thursday, November 6, 2008
How did the Detroit school district get into this predicament? To start, there is the district's perennial budget deficit (at least $10 million per year since 2000), which at one point earlier this year was estimated at $400 million in a $1.1 billion annual budget. Then there was the district's inability to meet payroll obligations during two separate months last summer, necessitating a $103 million advance in state aid payments, and its continued heavy reliance on borrowing to address cash flow needs.
DPS also faces steep declining enrollment, with a reduction of 67,000 students since 2000 to the current estimate of 98,000 students. In a recent article in Education Week, an official with the Council of the Great City Schools attributed this decline both to the flight of Detroit residents with school-age children out of the city and to competition from charter schools.
These problems led Michigan Governor Jennifer Granholm to appoint an outside review team early last month to examine DPS' books. It is this review team that developed the consent decree.
Is this the direction in which MPS may be headed? Some of the parallels are strong - huge budget difficulties, declining enrollment, a governor- and mayor-directed audit, talk of dissolution or a city takeover. However, it appears that DPS' fiscal issues are even more longstanding and severe than those facing MPS, and that they are not as closely tied to the state's school funding formula.
While MPS may not yet be in the same straits as DPS, an important lesson here is that local elected officials cannot act with impunity when it comes to managing - or failing to manage - government finances. There can come a time when a local school district or government's failure to address its fiscal problems will lead to loss of local control.
The threshhold for such action is impossible to define, and may come down to whether the new controlling authority perceives it to be in its best interest to take over or significantly intervene in the school district or local government that is experiencing the fiscal crisis. Another factor - both here and elsewhere - is whether state government is the correct entity to be "rescuing" a local school district or government. As one Detroit parent put it, "I don't think the state can take care of its own mess."
Monday, November 3, 2008
A recent working paper by professors James Snyder of MIT and David Stromberg of the University of Stockholm, published by the National Bureau of Economic Research, finds that local media coverage of politics affects not only citizens' knowledge of their elected U.S. representatives, but also how hard those officials work and how much federal money they bring back to their districts.
From the paper's abstract:
Voters living in areas with less coverage of their U.S. House representative are less likely to recall their representative's name, and less able to describe and rate them. Congressmen who are less covered by the local press work less for their constituencies: they are less likely to stand witness before congressional hearings, to serve on constituency-oriented committees (perhaps), and to vote against the party line. Finally, this congressional behavior affects policy. Federal spending is lower in areas where there is less press coverage of the local members of congressWhat the authors found, specifically, was that in print media markets in which most readers lived in one particular congressional district, newspapers printed more stories mentioning the elected representative of that district, while newspapers with markets covering several districts covered Congressional representatives less often. Survey work found that citizens who live in the "highly congruent" media markets covering fewer districts were more likely to know the name of at least one candidate in the last Congressional campaign in their district. The authors argue that greater knowledge among citizens leads to greater accountability for elected officials.
This argument underpins their next finding, that representatives of districts with congruent newspaper markets worked harder for their constituents than those of districts that either overlapped with many media markets or "fell through the cracks" of surrounding markets. Indeed, they found Congressmen from highly congruent districts to be "more disciplined by their constituencies." Significantly, they voted along party lines less often, they testified before congressional hearings more often, and they were more likely to serve on committees having more relevancy to their constituency than on committees with broad policy orientation.
With that finding, the authors hypothesized that these representatives would have greater ability to have policy impacts at home, as measured by the federal spending per capita in the counties in their district. They in fact found this to be the case.
Interestingly, however, they found only a weakly significant positive relationship between media market congruence and voter turnout. The elected representatives' behavior was predicable from the amount of newspaper coverage despite the fact that the media coverage did not affect voter turnout.
These findings have relevance for metro Milwaukee, where there is one large newspaper with a large market area that covers more than one Congressional district. Thus, we live in an incongruent market, where the print media's readers live in several districts. According to the findings of this research, we should each therefore expect less coverage of our own U.S. Representative. Southeast Wisconsin's Congressmen and Congresswomen, for their part, should expect less media scrutiny and less knowledgeable constituents, which may lead them to do less to ensure the region's citizens get a healthy return on their federal tax dollars. Indeed, the Forum's analysis of 2003 federal spending in the nation's 50 largest metro areas found Milwaukee ranked 40th, at $5,321 per capita.
The authors compare their findings to similar research on media competition and find that congruence may be a bigger factor than the number of newspapers covering a district. When Milwaukee's two newspapers merged in the early 1990's, readers openly and loudly worried about the quality of news coverage. When, in the early 2000's, the paper decided to focus more on the suburban readership, thereby expanding its market, readers worried about the effects on coverage of urban issues. What we should also have been worried about, perhaps, was how it would affect the quality of our political clout in Washington.
Friday, October 31, 2008
One way of looking at MillerCoors' announcement of its new headquarters location is that the company decided to stay in the Milwaukee region after all. Their new headquarters in the West Loop area of downtown Chicago would place them exactly 1 hour and 4 minutes by high-speed rail from downtown Milwaukee. This is currently less time than it takes to drive from downtown Milwaukee to the M7 region's border.
It seems that MillerCoors executives were cognizant of the potential for a high-speed link when they considered possible Chicago locations. It was reported that one of the key reasons for MillerCoors' choice of 250 S. Wacker was that it is was close to public transportation. No doubt, the public transportation they speak of is the proximity to Union Station which is exactly one block west of the new MillerCoors headquarters. Amtrak and Metra both stop at Union Station.
MillerCoors executives might have also become aware of the Amtrak re-authorization bill that President Bush signed into law on Oct. 15th, 2008, which raises the specter of more federal funding for high-speed rail in the Midwest. Assuming the authorization is fully funded in upcoming appropriations bills, Milwaukee could have a high-speed rail connection into downtown Chicago within five years, placing the two city centers 1 hour and 4 minutes apart. This improvement would shave 25 minutes off current Amtrak service and is considerably faster than the average drive-time of 1 hour and 30 minutes between the two cities.
The reduction in Miller's corporate presence will leave a void in Milwaukee. Though not entirely gone, their philanthropic support and the tertiary economic activity that Miller brought to the community will be missed. We should not, however, write off all secondary economic activity from the MillerCoors relocation. Milwaukee, with its cheap housing, amenity-rich downtown and a pending high-speed rail link, would be positioned to gain more than its fair share of investment over the next few years. The Wisconsin Department of Transportation estimates the development potential that occurs as a result of high-speed rail at between $152-$227 million in increased downtown development. In tough budget times, such an increase in tax base would be welcomed by Milwaukee governments.
A high-speed rail link could also foster housing and employment market equilibrium in the Chicago-Milwaukee mega-region. That's a fancy way of saying that Chicagoans would find it easier to migrate north to take advantage of Milwaukee's cheaper housing and Milwaukeeans would find it easier to migrate south to find more lucrative and more plentiful job opportunities. Recent Public Policy Forum research finds that this migration is already taking place with nearly $400 million in net personal income being claimed by new M7 residents who had lived in the Chicago region the previous year. Conceivably, rail improvements linking the two regions would only serve to encourage more Chicago households to make the move north.
In the end, high-speed rail is far from a panacea. The start-up costs are steep and the operation of such service will likely require ongoing public investments. In fact, an M7 economic renaissance may not even require a high-speed train, but it surely will require the recognition that Chicago is our partner in growing a livable mega-region with a diversity of housing, transportation and employment options.
Rail or no rail, Chicago and Milwaukee are cities that are increasingly seen as two parts of one whole. MillerCoors executives understand this. Do we?
Postscript: If the topic of regional transportation improvements piques your interest, sign up to attend the Public Policy Forum's Luncheon on December 4th as we explore the prospect for regional transit. Click here for more details.
Tuesday, October 28, 2008
The county executive’s 2009 budget proposes merging the Sheriff’s Office and the House of Correction (HOC) under the leadership of Sheriff David Clarke, a proposal recently endorsed by the county board’s Finance Committee. This decision would transfer $49 million in additional funds to the sheriff’s jurisdiction for operation of HOC custodial facilities, the Huber/work-release program, the home detention program, the Community Justice Resource Center, and several other rehabilitative programs. This would result in the sheriff having control over a $141 million budget, of which $121 million is supported by property tax levy – 48% of the total levy allocated countywide. While this is a substantial increase from the sheriff’s 2008 property tax levy allocation of $73.4, the department would gain the burden and responsibility of managing a correctional facility with significant budgetary deficits and in severe need of efficiency and safety reforms.
Autonomy of the Sheriff – Benefit or Drawback?
The House of Correction is currently managed by a superintendent appointed by the county executive. With this setup, the county executive is ultimately responsible. If the merger is included in the 2009 adopted budget, that accountability would transfer to the sheriff. Not only is the sheriff a separately elected constitutional officer whose ultimate accountability is to the voters, but state statutes add significant legal authority to administer his responsibilities without interference from the county executive or county board.
On the one hand, the sheriff’s autonomy allows him to act quickly, explore innovations, ensure safety, and manage his budget without board input. Proponents of the merger argue this autonomy is needed to properly respond to the rapidly changing needs of custodial institutions. However, the decision to merge the two departments places significant authority in the hands of one individual to decide custodial and corrections policy. The county’s legal counsel informed the Finance Committee that the board’s only recourse, if the merger fails to meet expectations, is to reverse the merger and revert to a distinct correctional facility as is currently in place.
Given the probability of a merger and the liberty of the sheriff, what changes can we expect? Where the sheriff previously dealt mainly with inmates awaiting trial, he would now also manage sentenced inmates. To be successful, the sheriff must determine how best to house/monitor all inmates with the resources allocated to him, while also ensuring that sentences are served as intended by the presiding judges. The following are some of the key policy questions surrounding the merger. Many of these questions, incidentally, apply not only to the current sheriff, but to his successors as well.
- In the sheriff’s view, what purpose does the House of Correction serve? Will the “correction” of inmate behavior still be a high priority under the sheriff as currently seen at the House of Correction with the various treatment and rehabilitation programs offered? Or will the sheriff’s philosophy focus more on the punitive aspects of incarceration?
- How will the sheriff manage the work-release center and the home detention program? What steps must be taken to close the Community Correctional Center on January 1st? What process will the sheriff employ to determine eligibility for home detention? Which technologies will be utilized to monitor these inmates? A June 2008 Public Policy Forum report indicated that the work-release population consists mostly of drunken driving offenders. Given that reality and the recent focus on the problem of drunken driving by the Journal Sentinel, what consideration will be given to the risks posed by these offenders when they are on release time or home detention?
- Could judges change their sentencing decisions based on the decisions of the sheriff? For example, if work release inmates are routinely placed on home detention, judges wanting offenders to be housed in a secure facility may stop giving work-release sentences. Sentencing changes like this could have an economic impact on Milwaukee County.
- What efficiencies could this merger provide Milwaukee County? For example, could the merger produce flexibility in staff deployment between the jail and the HOC, reducing the pressure to hire more correctional positions?
As a National Institute of Correction audit shows, the House of Correction needs a drastic operational change. There is no question that the sheriff takeover meets the definition of such change, but whether it is ultimately successful will depend on the answers to this challenging set of questions and how well the sheriff manages his enhanced resources.
Tuesday, October 21, 2008
The Public Policy Forum recently released its analyses of the 2009 Milwaukee County and City of Milwaukee budgets, and a common theme is the devastating impact of stagnant state aids on the structural condition of each. Other points of commonality are the growing employee compensation costs faced by both governments, which the city budget document deems “unsustainable”; and growing debt service costs, which are forcing both to limit new debt issuance despite huge backlogs in infrastructure maintenance and repair.
Our analyses also found several differences between the two, both in overall fiscal condition and approach. For example, the city began its 2009 budget season with a $45 million tax stabilization fund and an over-funded pension fund. The county, in contrast, possessed only a $3 million debt service reserve and a $400 million unfunded pension liability.
Also, while the city has quantified and openly discussed its structural imbalance and articulated some strategies for addressing it, county leaders remain locked in ideological disputes over privatization and taxes and seem unable to agree on even the nature and depth of their fiscal problems.
A note of warning: our analyses make for some pretty depressing reading. Even more depressing, however, would be inattention by policymakers to their findings.
Tuesday, October 7, 2008
1. Start early, stay invested
After Minneapolis/St. Paul's Destination 2010 program's disappointing evaluation results, St. Paul’s then-superintendant commented, “You can’t ever start too early. Third grade – what if we had started even earlier?” (2/19/07 Pioneer Press article via LexisNexis).
Starting interventions early makes sense if the goal is to close or prevent the achievement gap; however, maintaining such an investment over the long-term is costly and can be difficult given changing politics and funding. For instance, in 1988 the New York Scholarship and Partnership Program experienced severe cuts and the program's students who had enrolled with promises of tuition help were suddenly out of luck (Coons and Petrick, 1992).
2. Emphasize the right incentive for success
The Twin Cities’ Destination 2010 program shows that it takes much more than some afterschool tutoring and a promise of tuition assistance to bolster struggling students. Five years into the program, tests scores showed that long-term monetary incentives were doing little to change students’ lives in the short-term, with program students performing worse in some testing areas than the comparison group.
The I Have a Dream model to be used by Milwaukee’s Clarke Street School program emphasizes relationships over tuition funding. The program will place a family outreach coordinator in the school to address poverty-related problems and family stability issues, ensuring that students and families receive extensive support. The intent is to make the program more than just a promise of eventual funding at the finish line.
3. Understand student barriers to success
The Twin Cities’ Destination 2010 program’s administrators thought they had a handle on the roots of the achievement gap, until their program enrollment was decimated by high student mobility.
Of the original 450 students who could have joined Destination 2010, 368 signed up. Five years later, only 215 students remained – fewer than half of the initial group. According to the program manager, 80% of those who left the program went "off the radar" (6/3/06 Pioneer Press article via LexisNexis). In addition, students who were initially from seven schools in 2000-01 had fanned out to 71 schools by 2002-03. It was common for many students to attend up to three schools in a single year, an obvious problem when trying to keep up with homework and learning. The program concluded, “We believe that lack of safe and affordable housing is at the heart of the mobility issue.”
The I Have a Dream Foundation model considers the impacts of mobility. The foundation’s website explains that often, students who are sponsored together at the same elementary school will attend different middle and high schools but will gather together for I Have a Dream programming at a local organization. This is important, as Milwaukee is no different from any other low-income, urban district with regard to mobility.
In 2006-07, Clarke Street School had a 13% mobility rate within the school year, with a 61% stability rate. This predicts that, of the 80 first- and second-graders in the new I Have a Dream program, 13% will be at a different school before the year’s end, and 39% will switch schools at the year’s end.
4. Protect program sustainability
As much as possible, it is important to insulate early intervention tuition assistance programs from the ebb and flow of budget politics. The worst case scenario would be to promise tuition to young students who later find no money available. A more common danger is that tight budgets serve to undercut program effectiveness. For instance, in the Twin Cities, school budget cuts resulted in higher teacher turnover, effecting continuity of teachers fluent in the program philosophy. State budgets cuts then reduced the availability of area after-school and tutoring programs – programs that were a key Destination 2010 intervention element to help kids stay on track (9/27/04 Pioneer Press article via LexisNexis). For long-term intervention programs, it is especially important to design a program that can make accomodations when faced with inevitable cuts in other areas.
Among early intervention tuition assistance programs, the I Had a Dream Foundation model has significant merit. However, when examining all types of interventions that target the achievement gap, many studies have suggested that investments in high-quality early childhood education interventions for children under age 5 have the highest long-term payoffs.
For the 80 first and second-grade children at Clarke Street School, this privately-funded program may have a huge impact if the lessons above are heeded. For the rest of the children in the district, and the infants and toddlers who will eventually be MPS students, large scale early intervention will need to take other forms.
Wednesday, September 24, 2008
In a report released last week that did not get press other than a post on the education blog of the Journal Sentinel, the Legislative Audit Bureau rehashed the first-year findings of the School Choice Demonstration Project's study of the Milwaukee Parental Choice Program (MPCP). Interestingly, the Bureau found the study's data cannot provide information about performance in individual schools. In response, a prominent school choice lobbying group has called for test scores to be reported annually on a school-by-school basis.
The overall findings, released last February, were not as positive as education reform supporters had anticipated. The Audit Bureau re-analyzed the data and confirmed these findings. For example, the sample of choice students in the private schools had lower reading scores on state standardized tests than a matched sample of MPS students at three of six grade levels. At all six grade levels tested, the private school students scored lower than a random sample of MPS students. In nearly all cases, however, the differences were not statistically significant.
As the Demonstration Project's researchers emphasized, these results are to serve as a baseline. The real test will be whether scores improve in coming years and how those improvements compare across school types. The Audit Bureau also agrees that tracking score improvements over the years will be most important. But, the Bureau is worried that due to attrition within the samples, there may not be enough students in future years of the study for long-term comparisons to be reliable.
That is just one of many caveats in the Audit Bureau's report, most of which were methodological. The main concern of the auditors is the lack of usefulness of the study overall. Says the report:
While the project is designed to answer several academic research questions, there are limitations to its usefulness for policymakers... [W]e had initially believed that the project would provide us with data that identified the school attended by each Choice pupil who took the tests... [H]owever, citing confidentiality concerns, the project chose not to provide information on these pupils' scores... Because the project's data do not identify the Choice pupils and schools, we are limited in what we can report and confirm.The auditors go on to say that this limitation means they cannot report information about academic performance specific to each choice school, despite there being such information available about every public school in Milwaukee and the rest of the state. The study, therefore, provides no accountability for individual private schools accepting taxpayer-funded vouchers in lieu of tuition.
While perhaps the Audit Bureau shouldn't be surprised that a longitudinal study is not a great vehicle for providing accountability, their words and tone indicate that they were expecting to be able to report out performance data for individual schools. Indeed, in early 2006 when the longitudinal study was passed as part of a compromise bill to lift the enrollment cap on the voucher program, it was cast as an accountability measure by many, including the editors of the Journal Sentinel (also here) and proponents of lifting the cap. In fact, it is still discussed under the heading of accountability on the School Choice Wisconsin website.
Yet, School Choice Wisconsin's official response to the audit report included the following language:
Raw test data released on a school-by-school basis are not meaningful and even can be misleading. Such data will not provide legislators or parents with useful information about the academic quality of individual private schools in the Milwaukee Parental Choice Program (MPCP). The statement goes on to say:
School Choice Wisconsin favors an independent annual report available to Milwaukee parents that includes school-by-school testing data based on individual student progress. This report would use a common basis for reporting test scores at schools in the MPCP, the Milwaukee Public Schools, and at independent charter schools. We also favor an aggressive information campaign to inform parents about their options.This second quote is the first call from School Choice Wisconsin for any kind of comparable reporting of test scores that could be used for accountability purposes. (Why they feel the Demonstration Project is not sufficiently independent to report school-by-school data is not clear from the press release; but that concern could be discussed and worked out.)
The important thing is in response to the Audit Bureau's concern that the longitudinal study has not released its findings on a school level, the most prominent school choice advocacy group is calling for comparable test score results to be reported. If legislators, educators, and advocates can come together around real accountability, then perhaps soon parents and taxpayers will be able to make informed decisions about school quality.
Monday, September 22, 2008
With employers increasingly using company-designed standardized tests to measure applicants’ potential job skills, Autor and Scarborough wanted to find out what effect this testing had on rates of minority hires. Perhaps testing would reduce racial discrimination (and increase minority employment) by introducing objective data to rely on in hiring. Due to multiple societal and demographic factors, overall, minorities as a group tend to score lower on standardized tests than non-minorities. So, would the testing lead employers to hire fewer minorities based on differential scores? Additionally, would the employees hired based on test scores perform better than those hired before the firms introduced testing?
The researchers used data from over 1,300 retail stores of a national chain, and determined the test in use to be non-racially-biased. After examining hiring and job tenure both before and after testing was instituted, the study found that employees hired using testing had higher job tenures by 10%. Though minorities did score lower than others on the standardized test, minority hiring was unaffected by the introduction of testing to the application process. Furthermore, the aspects of testing that enhanced employee productivity accrued to both minority and non-minority job applicants.
The testing not affecting minority employment is good news, but the increase in job tenure accruing to both minorities and non-minorities is even more encouraging. It implies that the job testing allowed employers to make more informed decisions of whom to hire in both the minority and non-minority pools of applicants.
The study’s findings, as some have noted -- especially the fact that minority hiring was stable despite lower test scores – suggest that testing applicants is not incompatible with affirmative action goals.
Monday, September 15, 2008
The realism of HBO's gritty series set in various Baltimore institutions is often debated. One nuance that didn't miss the producers of The Wire: the intense biweekly CitiStat meetings in which a city department head is in the hotseat as the mayor and his staff comb through reams of departmental performance data. (See episodes three and ten of season three for scenes set in internal police department stats meetings.)
CitiStat is a city management system consisting of biweekly meetings of the mayor and his stats team with agency and department heads. These meetings focus on a department's weekly performance on a set of metrics aimed at measuring timeliness and quality of service to citizens. Performance is tracked over time and drives policy and budgetary decisions.
To illustrate: Suppose Baltimore had a horrible winter that wreaked havoc on local roads and resulted in numerous potholes. (Sound familiar?) The CitiStat team would be on top of it. Each week the department head reports to the team how many complaints about potholes were received (the city has a non-emergency service request 3-1-1 phone number), how many of those particular holes were fixed within 48 hours, how many total potholes were filled, how many crew members worked, and how many crew-days were worked. The information is reported by sector of the city, so that if particular neighborhoods get better service than others, it can be fixed before becoming a scandal.
Since the city has been tracking this data since 2002, they also know whether these figures are above or below average for that week of the year, allowing them to adjust their budgeted figures for pothole filling as the year goes on. (Personnel data is also tracked...how many employees were absent, how many worked overtime, etc.)
Now imagine this type of data being available and used to drive decisionmaking for every city service, including public safety. In Baltimore it has resulted in cost savings varying from energy savings due to more efficient lighting patterns to more stray animal adoptions to more miles of street sweeping and graffiti removal per year.
The tenets of the CitiStat process are four-fold:
-Accurate and timely intelligence shared by all,
-Rapid deployment of resources,
-Effective tactics and strategies, and
-Relentless follow-up and assessment.
Other cities that have adopted the data-based management system include Providence, RI; Buffalo, NY; Atlanta, GA; and Somerville, MA. Not all have found as much success as Baltimore. The system has been around long enough now that there is research to tell us how and why some cities have succeeded and others have not. The seven most important factors include:
1. Having a clear purpose--It's not enough just to collect data; there must be a specific result in mind. Eliminating potholes, for example. A general "safer streets" goal might not be enough. In addition, it's tempting to measure things just because you can and its fun to go data mining in pursuit of interesting nuggets. But the goals should drive the data collection, not vice versa, and all measurement should be done with the purpose in mind.
2. Ensuring someone takes responsibility for achieving the purpose--Is there just one person in charge of safer streets? Probably not. It's much more likely that someone's neck is on the line when it comes to potholes.
3. Meeting regularly and frequently with the stat team--If data are collected on a daily basis, then progress should be reviewed frequently enough (biweekly, for example) that problems can be headed-off or progress can be praised.
4. Running meetings with authority--Since it's unlikely a mayor can devote the time to running every meeting, authority must rest with whomever does run the meetings, so that deficiencies, if found, can be followed up on. Consistency is also important so that over time, the leader of the meeting has a feel for the depth of the problems, the growth of the progress, or the appropriateness of the goals.
5. Having a dedicated analytical staff--Every local government is capable of producing data in spades...making meaning of that data is what's most time- and resource- consuming. For a CitiStat program to work, there must be a stat team to analyze data full-time.
6. Relentlessly following-up--Department heads must ensure that their staff is prepared for each meeting, understands the purpose, has a game plan for getting results, and has made improvements since the last meeting.
7. Understanding constant conflict is not productive, nor is coddling--Baltimore's CitiStat meetings have a reputation of being brutal and combative games of "gotcha." Somerville takes a different tactic by providing department heads with an agenda the day before, so they can come prepared with explanations or solutions. Meetings should not be punitive, but should not be mere show-and-tell exercises, either.
It must be noted, however, that there is a real risk when using a data-driven management system such as CitiStat to make policy decisions: forgetting that numbers don't always tell the real story. In fact, one episode of The Wire illustrates this risk beautifully: When one police commander allows unhampered drug trading on one street, the number of felony incidents in the neighborhood drops dramatically. The resulting "mini Amsterdam" is seen as illegal, insane, and yet brilliant--a 14% reduction in major crime almost overnight. To a commander under intense pressure to improve the stats, the ends justify the means.
For policy wonks or civil servants, a CitiStat season of The Wire, showing heads rolling while hot asphalt is steaming, would have been must-see TV.
Wednesday, September 10, 2008
- While we continue to argue with each other on the local level, other mega-regions have formed powerful coalitions to advocate in Washington for their collective transportation needs. Who is more likely to get their fair share of an insufficient federal transportation funding pie, huge regions of the country who band together to fight for their parochial interests, or mid-sized metropolitan areas whose elected officials can't even agree on priorities among themselves?
- Not only Pennsylvania, but countless other states are acknowledging that their transportation infrastructure needs and those of the nation as a whole are so staggering that non-public funding and/or operation of parts of that infrastructure, as well as congestion pricing or other tolling mechanisms, must be contemplated as at least part of the solution. Ironically, the decrease in driving and popularity of smaller vehicles is making the problem even more acute, as gasoline tax revenue is no longer an elastic source of revenue. Is Wisconsin behind the eight ball in awakening to these realities?
- The Journal article notes that "momentum is building in Congress" to increase funding for public transportation, signaling good news for those counting on greater federal support to build and operate light rail, bus rapid transit and/or commuter rail in southeast Wisconsin. At the same time, however, both that article and the AP story describe the monumental challenges facing transit systems in paying for existing bus and rail service. That reality - combined with a depleted Federal Highway Fund that has some in Washington talking about diverting transit dollars for highway needs - reflects the challenges Milwaukee will face in attempting to obtain federal money for new transit services.
Of course, the fundamental lesson here is that transportation needs not only here in southeast Wisconsin, but across the country, are immense, and that other states and metro areas are objectively assessing those needs and developing strategic, diversified and cohesive approaches to meeting them. If indeed Washington is poised to provide more money, then it's a pretty safe bet that those with the best plans and the most unity will be first in line to get it.
Thursday, August 28, 2008
What happens when a large pot of one-time federal funding becomes available to local governments? In the case of Milwaukee County and emergency flood aid, it was the unfortunate incident outside the Coggs Human Services Center. In the case of New Orleans and federal disaster assistance, it was a slow rebuilding effort which is only now beginning to improve.
Now, the City of Milwaukee enters the fray. In the coming weeks, the City will find out just how much of the $3.97 billion allocation it stands to receive from the recent passage of H.R. 3221 - The Housing and Economic Recovery Act of 2008. The funds are to be used for the redevelopment of abandoned and foreclosed homes.
Although the allocation formula has not yet been set by the U.S. Department of Housing and Urban Development (HUD), the Enterprise Community Partners estimates that Wisconsin stands to gain $57.2 million under this provision. The City of Milwaukee can expect to receive a significant portion of that allocation.
One key stipulation on the expenditure of these funds is that "Community Development Block Grant (CDBG) regulations will govern the administration of the funds." Of course, CDBG regulations are notoriously flexible. In an ideal situation, this would be just fine because localities would be given the flexibility to craft an appropriate response to local housing conditions. However, this one-time allocation brings up a host of questions as the City of Milwaukee decides how it is going to spend its allocation:
- Capacity - The legislation stipulates that state and local governments must use the funds within 18 months after receipt of the allocation from HUD. This begs the question: can the city come up with an effective and accountable housing program in just a few months time? If not, there is a risk of the funds not being spent or being susceptible to misuse.
- Parochialism - Will the planning process for these funds resemble the "battle" that surrounds annual CDBG appropriations in municipalities and counties throughout the state? Or, will community-based organizations join forces with the city to jointly craft a policy that is both focused and accountable? Will outside technical assistance be needed to craft an effective policy?
- Equity - How will this money get to the right people? How can one tell who is suffering from the crisis and who is just suffering - is there a difference? Should the program focus on rehabilitation or demolition? Should the program focus on the renovation of abandoned properties for rental or homeownership? Can policy be crafted that will not be perceived as a bailout for the banks which own many of the foreclosed properties?
- Accountability - What will be the metrics for success? This may have to be a local requirement because CDBG regulations require minimal accountability.
- Leveraging - Can these one-time program funds be leveraged with other public and private dollars to maximize impact? Can the funds be used to capitalize a revolving loan pool to fund the redevelopment of foreclosed homes? Can the funds be matched with dollars from area banks (after all, banks will partially benefit from this infusion of resources)?
Friday, August 22, 2008
The home foreclosure crisis obviously affects individual homeowners and the entire credit market, but it is also a crisis for local governments.
The Pew Center on the States estimates that the nation’s lost property tax base due to foreclosures amounts to $356 billion so far; and projects Wisconsin’s lost tax base will total $1.9 billion by 2009. These figures do not include the amount of property tax revenue lost due to the lower tax base.
While a municipal or county government cannot change the momentum of the crashing housing market, it is in a local government’s best interest to prevent foreclosures from accumulating and further decimating the tax base. In addition, vacant homes can result in cost increases for a local government, due to the greater need for policing empty neighborhoods, fighting fires, and reinforcing the safety net for the newly displaced and homeless.
Some local governments have become pro-active. Chicago, for example, just passed a new vacant properties ordinance strengthening the requirements for owners of vacant properties to maintain the dwelling. To enforce the ordinance, building inspectors will conduct interior and exterior examinations every six months.
The City of Boston has a three-pronged attack:
1. Prevention—The city has long run a Home Center to provide counseling and education for first-time home buyers.
2. Intervention—A foreclosure prevention hotline gives advice to homeowners in default. In addition, the city has begun to reach out directly to anyone receiving a foreclosure petition to offer intervention counseling. In 2007, 192 foreclosures were prevented (which was three times more than the number of actual foreclosures in 2005).
3. Reclamation—The city has an intensive program aimed at stabilizing neighborhoods experiencing a rash of foreclosures with more intensive policing and street repairs and maintenance. The city also sponsors a trolley tour of potential home buyers, showing them all the foreclosed homes that are now listed with brokers, and offers classes and technical assistance to buyers of foreclosed properties.
But the most important thing Boston is doing is surveying all bank-owned homes on a monthly basis to document their condition, putting the most deteriorated vacant homes into receivership, and streamlining the process for turning these homes over to developers for rehab and resale. The city is also doing “bulk” purchasing of the entire portfolio of a lender, as they have found this to be an easier way of dealing with banks and other loan servicers, who are often not motivated or equipped to sell individual properties promptly.
Protecting property values is of vital importance for local governments during this time of tight budgets and reluctance to raise tax rates. Mayor Barrett recognizes this and his administration is working with the Metropolitan Milwaukee Fair Housing Council and the Legal Aid Society to counsel homeowners. In addition, Milwaukee's Common Council president, Willie Hines, has recently proposed a housing and foreclosure policy advisor position be created in the upcoming budget. But even more action may be needed. It is imperative for Milwaukee to remain vigilant and be ready to move similarly to Chicago or Boston to keep vacant properties from causing wholesale value decline.
(Read part I of this post here.)
Thursday, August 21, 2008
What do Ed McMahon and Eric Rosengren, president of the Federal Reserve Bank of Boston, have in common? They've both faced foreclosure on their homes. It’s an interesting tale as told by Paul Willen, senior economist at the Boston Fed, who presumably had his boss’ permission when he recounted his story during the Governmental Research Association’s annual conference.
Mr. Willen’s story illustrates the results of his research into the causes of the mortgage crisis. A dataset of all mortgage loans in Massachusetts revealed some interesting findings.
Finding 1: Most of the defaulted subprime loans are not the purchase loan, but a refinance or a piggyback loan. The crisis isn’t solely the result of new homebuyers going after a house they can’t afford with an unwise purchase loan, as is often contended.
Finding 2: The rate adjustments after the initial lower-interest period, called resets, aren’t the sole problem either. The definition of a subprime loan is one in which the initial interest rate is already above the market rate; the reset didn’t push the rate too much higher. Resets on subprime loans are not like the interest rate resets on those cheap credit cards you can sign up for at Summerfest.
Finding 3: Housing prices are a contributing problem. In Massachusetts less than 0.1% of all homebuyers in 2002 went into default on their mortgage within 24 months; but 0.4% of all 2005 buyers went into default during that timeframe. Mr. Willen applied the home price appreciation experienced by the homebuyers of 2002 to those of 2005 and found the 24-month default rate would have gone down to 0.1% had 2005 buyers seen their home values go up as the 2002 buyers did.
It may be that the Federal Reserve Bank’s monetary policies, particularly the low interest rates of the early 00’s and the decision not to cut rates in 2007, had an impact on housing demand and thus housing prices. Even so, the bank's finding that declining home values are a source of the crisis is significant. It means the crisis is not acute—it will not be a sharp spike of defaults that will soon pass through the system, but a continuing problem until home values eventually start to recover.
For Southeastern Wisconsin, this may mean we’ll be insulated from the worst of the crisis, as the housing bubble here was never as expansive as in other metro areas. By never reaching the peak of the bubble, we may have been saved from experiencing the depths of the crisis.
And Mr. McMahon's and Mr. Rosengren's story? While they’ve both faced foreclosure on their homes, the outcomes were very different. When Mr. Rosengren became “upside down” on his home loan in the 90’s, he did not default, but tightened his belt and stayed in the home, waiting for home prices to increase.
Mr. McMahon, in default in 2008, entered foreclosure—for him, and thousands of others, the market turnaround is too far off. Luckily for Mr. McMahon, Donald Trump came to the rescue, buying the house and leasing it back to him. That’s a rather unlikely scenario for any other homeowner facing foreclosure.
(Part II, tomorrow: How can state and local policies blunt the impact of the crisis?)
Tuesday, August 19, 2008
The long-debated issue of election reform resurfaced in Milwaukee recently, when two groups conducting major voter registration drives – the Association of Community Organizations for Reform Now and the Community Voters Project - reported that several of their employees were submitting voter registration cards under the identities of “dead, imprisoned, or imaginary people.” In both cases, the workers involved were fired, and the organizations voluntarily notified the Milwaukee Election Commission of the inaccuracies. Nonetheless, the incident raised worries that Wisconsin’s election system could be vulnerable to widespread fraud.
Such worries are hardly new in Wisconsin: the November 2004 presidential election was marred by a number of discrepancies. In Milwaukee, the number of ballots cast outnumbered the list of registered voters by 4,609 votes. Revelations of suspect voting practices triggered a firestorm of criticism and attracted national attention. Then, as now, some commentators, like Chris Lato and Brian Fraley, reacted by calling for the state to require registered voters to show photo identification at the polls.
The argument over voter ID laws in Wisconsin has unfolded along the same lines as similar debates in other states and at the national level. Advocates of more stringent ID requirements claim that they will safeguard against the fraudulent impersonation of registered voters. Opponents counter that requiring IDs effectively disenfranchises poor, elderly, and minority voters, who are less likely to have photo identification. A political current runs just beneath the surface of the discussion: minorities and working-class people, the groups voter ID opponents claim will suffer from voter ID requirements, tend to hold more liberal political views.
But a look at the evidence suggests that the hype on both sides of the voter-ID debate is largely unmerited. On one side of the debate, there is little empirical proof that requiring ID would suppress turnout in a discriminatory fashion. A paper by Timothy Vercellotti and David Anderson concludes that voters in states that require photo ID at the polls are 2.9% less likely to vote, but that photo ID laws had no statistically significant effect on African-American and Hispanic turnout. Other analysts argue that Vercellotti and Anderson’s methodology led them to overstate the negative effect of voter-ID laws.
On the other hand, there is little evidence to substantiate fears that election fraud will become widespread enough to tip the balance of an election. In 2004, even if each of the 4,609 questionable ballots in Milwaukee had been cast for John Kerry, they would not have decided the contest, which Kerry won by a margin of 11,384 votes. Moreover, the vast majority of the ineligible votes did not constitute criminal election fraud, which Wisconsin law defines as an intentional act. Many of the inappropriate votes appeared to be the result of errors by Election Commission staff. A lengthy investigation by the Milwaukee County District Attorney and the U.S. Attorney for Milwaukee found sufficient evidence to prosecute fourteen cases of fraud; five of those cases resulted in convictions. The U.S. Attorney, Steve Biskupic, concluded there was no “massive conspiracy” to change the results of the election in Milwaukee. That the ineligible votes cast in 2004 were mostly the result of unintentional error is problematic, but not necessarily an indicator of the potential for widespread criminal election fraud.
The voter ID debate is moot in Wisconsin for the time being, since Democratic control of the state Senate will prevent the proposal from passing until at least 2011. In the meantime, though, a much less controversial reform may well eliminate many of the errors that have led to calls for tighter regulations on voting. The state recently unveiled a long-overdue voter registration database, which local election clerks will use to check newly registered voters against lists of felons, deceased people, and licensed drivers. Many of the problems that emerged in 2004, and again in this month’s registration-drive flaps, could have been prevented if the statewide database had been fully functional. If the new system performs as well as promised, it could help curb the potential for election fraud and allow policymakers to more fully debate the need for a voter identification law.
Monday, August 18, 2008
Today's Journal Sentinel runs the second of a three-part story investigating the outcomes of the Milwaukee Public School district's Neighborhood Schools Initiative (NSI), which increased capacity in neighborhood schools. The reporters, Dave Umhoefer and Alan Borsuk, find that despite over $100 million invested in school additions and upgrades, fewer children attend their neighborhood schools today than ten years ago and the amount spent on busing has stayed roughly the same.
Much of the reporting on this story utilizes Forum research: for three years during the planning and implementation of the NSI, the Forum closely monitored the district and conducted case studies in four MPS schools. Our reports from that time can be found on our website. The first report, from January 2000, entitled The Implications of Eliminating "Forced" Busing, concludes: "...the transition to neighborhood schools will require a greater effort by the district than perhaps was originally contemplated by the legislature. Most of today’s busing is voluntary, and in the current atmosphere of school choice, demand is not likely to decrease.”
Our last report on the topic, in June 2003, declared “the jury’s still out on neighborhood schools,” and concluded that “the innovative MPS Neighborhood Schools Initiative appears to be making incremental progress towards its twin goals of increasing neighborhood capacity and reducing busing. Not every measure shows results, but there are encouraging trends in neighborhood attendance. However, not until after the plan has been fully phased in can we truly judge its effectiveness.”
Now, in 2008, the jury is in: NSI has failed to reduce busing costs or increase neighborhood enrollment. As the Journal Sentinel story points out now and the Forum cautioned at the time, the data did not necessarily portend a slam-dunk success for this initiative--parents were not clammoring for fewer buses while enrollments were on the decline. Questions will likely be raised as a result of this week's reporting, and rightly so. Perhaps the result will be that the next time a large-scale reform is proposed, the questions will surface before the money is spent.
Wednesday, August 13, 2008
Last week's annual Governmental Research Association (GRA) conference in Boston brought together dozens of government researchers from across the country to toss around ideas and hear about national public policy trends and innovations. Perhaps the most relevant panel discussion to southeast Wisconsin was one entitled "For Sale: Government Assets".
That relevance, of course, is most related to Milwaukee County's ongoing fiscal challenges. County Executive Walker has pledged that privatization proposals will be a key part of his 2009 recommended budget. Furthermore, he has already proposed selling the property that houses the county's mental health complex and leasing a new complex from a private developer, and he has talked openly of wanting to sell or lease Mitchell International Airport.
As these and other proposals are subjected to emotional rhetoric from both sides during the next several weeks, it may be helpful to keep in mind an unemotional litmus test for considering public asset sales developed by John Foote, senior fellow at the Kennedy School of Government, and presented at the GRA conference. Foote's litmus test consists of four key questions:
- Are there real efficiency gains? In other words, by transferring an asset to the private sector, will the services associated with the asset be delivered better and more cost effectively?
- Is there a balance between who pays and who benefits? The test here is whether those who may be asked to pay new or higher user fees associated with a privatized asset (e.g. those parking at the airport) benefit from those fees (e.g. airport improvements), or whether instead the proceeds are siphoned off for profit or unrelated functions.
- Is there a match between the length of the deal and the use of the proceeds? This speaks to the essential and often ignored budgeting tenet that one-time proceeds should not be used to fill short-term budget holes, but should instead be stretched out over the length of a lease deal.
- Is the public compromised in any way? This question asks whether the sale or lease of a major public asset will impact consideration of other worthwhile public policies. The specific reference made by Foote is to the privatization of the Chicago tollway, which has disrupted efforts to consider system-wide congestion pricing for all of Chicago's major highways.
While this set of criteria may be most applicable to the potential sale or lease of Mitchell International, another panelist, Joseph Aiello of Meridiam Infrastructure, made comments that could be relevant to Milwaukee County's decision on how and whether to build a new mental health complex. He cited three advantages to government's use of private development/ownership for public buildings:
- When things go wrong with the building - as they inevitably will - the private sector owner is responsible for fixing them.
- Public construction contracts are awarded based on the lowest construction bid without regard to life-cycle costs (which are heavily impacted by the quality of construction materials and techniques), while private developers/owners must take both initial construction and long-term life cycle costs into account.
- Private building owners don't skimp on ongoing maintenance, while public sector owners are notorious for doing so in light of pressing programmatic needs.
Finally, the third panelist, Hudson institute vice chairman Joseph Giglio, raised a provocative point about a potential third partner in public-private partnerships for transportation projects: the local business community. Giglio argued that local businesses who benefit from highway, transit or airport construction projects should also be viewed as logical investors in such projects who can help make the financing work and create another level of oversight to ensure proper return on investment.
In all, food for thought as Milwaukee County struggles with some major decisions on its financial future.