Friday, February 29, 2008

The fat tax made possible

As state and local governments try to diversify their revenue sources, sin taxes and user fees become more politically palatable. Now the UK has developed a tool that could make possible the ultimate sin tax for cheese-loving Wisconsin: the "fat tax."

The tool arose in order to enforce a new ban on advertisements for junk food during children's TV programing. Britain's Office of Communications (like our FCC) asked scientists to develop a food rating scale that defines what is or isn't junk food. The scale seems simple enough--add points for each beneficial nutrient in a food and subtract points for things like sodium, saturated fat, and sugar. The scale goes from -9 (dried lentils) to 28 (cheesecake); anything above 4 is in the junk food category and cannot be promoted on TV during certain programs or times.

With this simple, objective definition of junk food now available, some of the scientists who developed the rating scale argue that utilizing it to merely ban certain advertising isn't ambitious enough. They join some in the US advocating a fat tax that would make junk food more costly.

Any sin tax is regressive, affecting low income purchasers more than higher income buyers. The proponents' answer to that concern is to advocate using the fat tax revenue to increase the purchasing power of those low income consumers, making healthy foods easier to afford. But what is the justification for such a tax in the first place? It is similar to the argument for a tobacco tax: the high cost of health care.

Obesity accounts for 6 percent to 10 percent of U.S. health care spending, compared with 2 percent to 3.5 percent in other Western countries. The burden of obesity-related medical costs falls disproportionately on public health care in the U.S., draining resources from public programs like Medicare and Medicaid. Obesity accounted for 27 percent of the growth in real U.S. health care spending between 1987 and 2001.
The Trust for America's Health estimates that obesity costs each Wisconsin resident an average of $272 per year in health care fees. In addition, in our state 24.8% of all adults qualify as obese, ranking Wisconsin 22nd in fat among the states. Meanwhile, the same group ranks Wisconsin last for state spending on public health, with only $9.23 spent per capita in 05-06, compared to the national average of $31.00 per capita.

While a fat tax isn't on the radar screen in Wisconsin at this time, our declining revenue in the face of increasing costs, especially health care costs, may lead to desperate and drastic attempts to find new revenue sources. Until then, stock up on chips and candy.

Thursday, February 28, 2008

Early Childhood Education as an Anti-Poverty Priority

When it comes to antipoverty strategies, efforts related to early childhood education and child care rise to the top for many researchers.

In the inaugural issue of Pathways magazine, poverty researcher Rebecca Blank features her priority list of top anti-poverty strategies. Out of her six recommendations, two relate directly to early childhood education and child care; two others address children in some way. According to Blank, many potential solutions for eliminating poverty should be implemented early in life when the chances for making a difference are greatest.

To combat poverty, Blank recommends two hallmarks of early childhood education success: a guaranteed pre-kindergarten program for all four-year-olds from low-income families, and expanded child care subsidies for low-income families.

Blank stresses broadening the EITC (Earned Income Tax Credit) subsidy for individuals not living with children, particularly for fathers of poor children. She writes, “[I]f their lives are more economically stable they will be better able to help raise their children and this will help stabilize the communities in which they live.”

In her most unconventional antipoverty recommendation, Blank encourages the government to work to provide every low-income family with low-cost Internet access so that “children are ready to live and work in an interconnected world.”

Two additional recommendations are encouraging candidates to be spokespeople for the poor, and using demonstration projects instead of new program models.

Blank’s priority list underscores how early childhood education is not just a schooling or a parenting issue; rather, it could be key to antipoverty efforts. The Public Policy Forum is continuing its multi-year research project focusing on early childhood education policy in the southeast Wisconsin region.

Tuesday, February 26, 2008

Redirecting Congressional Earmarks

There's a subtle yet important connection between two seemingly unrelated items in Sunday’s Journal Sentinel. A news story by Audrey Hoffer details the annual congressional earmark report from Taxpayers for Common Sense, including an analysis of Wisconsin delegation earmarks. Meanwhile, an opinion piece by Bruce Katz of the Brookings Institution urges the presidential candidates to discuss how they would help states like Wisconsin re-tool to meet the global economic challenges of the 21st century.

So what’s the connection? Well, it has to do with one’s assessment of the appropriate federal role in solving economic development problems on the state and local level.

As the Hoffer story notes, “earmark” is a dirty word to many, including the group that authored the report. As a former congressional aide who staffed a member of the House Appropriations Committee, you won’t get an argument from me. My contention, however, is not that providing federal dollars for local projects always is wasteful; rather, it’s that appropriations for such projects should be determined by the project’s ability to meet an objective set of criteria determined by the relevant federal agency, and not by the clout of an individual member of Congress or the lobbying skills of project supporters.

Which brings me back to Katz’s piece. He and Brookings have been at the forefront of a movement that is calling for federal reinvestment in struggling metropolitan areas in recognition of the critical role they will play in enhancing the nation’s economic competitiveness in the global economy. This argument was summarized in a recent op-ed he co-authored in the Chicago Sun Times:
Chicagoland simply does not have the power or resources to achieve meaningful reforms to metro-scale problems such as crushing traffic gridlock and inadequate work force housing on its own. Whether we appreciate it or not, the federal government has a powerful role to play in helping metros address these and other issues -- through smart investments, market-shaping information and environment-strengthening regulation. This potential is not being realized since for too long the federal government has been strangely adrift and unresponsive to the dynamic forces at play in our country.
A key to reinvigorating struggling metro areas could be to establish a federal agenda for metropolitan renewal that would formally prioritize investments in those areas as part of the annual appropriations process. This agenda could be funded, at least in part, by reducing the use of earmarks in individual spending bills and allowing metro areas to compete for the same dollars under a set of criteria that recognize the gravity and magnitude of their problems.

Wouldn’t it be nice to see federal resources steered toward transportation improvements, affordable housing and other solutions in metropolitan areas whose health directly impacts the national economy, and whose problems cause the biggest drain on federal, state and local social services budgets, as opposed to projects that benefit those legislators who have best mastered the game of congressional earmarks?

Friday, February 22, 2008

Wedding Bells are Tolling Less in Milwaukee: Considering the Implications and Misconceptions Related to Poverty

Milwaukee has marriage on the mind – or, the lack thereof, that is. Two February articles in the Journal Sentinel – a column by Patrick McIlheran and, most recently, a news story, have highlighted declining rates of marriage. The news story describes how, in 1980, there were 8.7 marriages for every 1,000 people state-wide. Today Milwaukee County shows 5.2 marriages per 1,000 people, and Waukesha County is only slightly higher at 5.5 marriages per 1,000 people. McIlheran notes that 58% of Milwaukee’s children live in single parent homes.

Since marriage is associated with a variety of positive outcomes, proponents believe that policy makers should promote marriage as a solution to problems facing low-income children. Programs funded by Bush administration marriage promotion grants aim to increase and support marriage in a way that builds relationship skills, at times with added strategies to increase income. While proponents see a clear link between marriage and poverty, others find little research-based evidence that an absence of marriage is the factor causing child poverty. When it comes to marriage as a policy issue, the “association is not causation” chant from your statistics 101 class has never been more relevant. In considering marriage’s potential association with poverty, it is helpful to consider the following:

  • Is it about lack of a ring, or family disruption? Do we want our public policies to encourage children to grow up in households with married people, which may mean step-parents, or do we prefer policies geared toward encouraging situations in which children grow up in households with both of their birth parents, which may mean unmarried cohabitation? Neither scenario necessarily spells success or disaster, but research by Sara McLanahan in The American Prospect in 2002 identified growing up with birth parents as more vital to positive child outcomes. Her research suggests that it is more prudent to consider family disruption rather than the low rates of marriage, and concludes, “What matters for children is not whether their parents are married when they are born, but whether their parents live together while the children are growing up.”

  • What about quality? If we are to promote marriage, can we do that in a way that also dissuades people from staying in abusive marriages, and offers strategies to guard against making a bad match in the first place (i.e., programs that might end up advising “Don’t marry this one”)? Researchers Karen Edin and Joanna Reed published a study in The Future of Children in 2005 that found the quality of many (but obviously not all) romantic relationships of low-income people to be of low quality. In their study, low-income people cited domestic abuse, infidelity, and substance abuse as common reasons for break-ups. (The federal Healthy Marriage Initiative stresses that it only promotes healthy, nonabusive marriages.)

  • Where’s the economic payoff? Are we fully facing the economic and social barriers to marriage for low-income people that make it more complicated than wanting to get married or valuing the institution of marriage? Edin and Reed agree that it’s not about needing to value marriage. Their research concludes that “disadvantaged men and women highly value marriage but believe they are currently unable to meet the high standards of relationship quality and financial stability they believe are necessary to sustain a marriage and avoid divorce.” Some couples must overcome unemployment or underemployment, criminal records, and complicated blended family structures.

  • Association is not causation . . . but it could drain a budget. It may be a good idea to keep marriage promotion programs as one component in a multi-front assault on poverty that also contains more traditional efforts. However, we must do so with our eyes open to the limitations: there is a lack of convincing evidence that growing up in a single-parent home or with unmarried parents causes poverty. On the other hand, there is much evidence proving that other things do cause poverty. Dialogue on this issue should include the question: should our tax money go to promoting something that, when absent, is only associated with, but not necessarily causing, the poverty problem?

While marriage deserves to be on the radar screen when discussing poverty in Milwaukee and surrounding areas, the complex task of marriage promotion is easier said than done. The recent news stories on low marriage rates and the high numbers of single parent homes in Milwaukee underscore the continuing need for a host of community efforts to support healthy and stable families for children.

Thursday, February 21, 2008

Dreaming of Milwaukee's next big thing

My move back to Wisconsin from California in 2001 was largely fueled by my desire to live in Milwaukee - a community that simultaneously embraced the construction of the daring Calatrava addition to the Milwaukee Art Museum and the destruction of the divisive Park East freeway spur. It seemed to me that such forward thinking, risk-taking endeavors surely revealed a city on the brink of an urban renaissance. I moved to a city on its way up.

Now, in 2008, I'm left wondering what will be Milwaukee's next big thing. Of course, I'm under no illusion that it will be a quick fix to our deeply entrenched economic and social woes. But, I do harbor a hopefulness that bold new ideas can fuel a resurgence of civic pride and national attention that can only help our great city.

Bold ideas. We need more of them to sustainably grow the economies of the upper Midwest. In an age where the Midwest's cities have been left to address the gaps left by decades of federal indifference, urban economic development will require bold ideas from visionary public sector leaders at the local level.

What ideas qualify as such? One example is the idea hatched by the City of Atlanta to use tax increment financing (TIF) to fund its ambitious BeltLine project. From the Forum's recent Research Brief:

The City of Atlanta has long been known for its dynamic business environment and explosive growth. Unfortunately, it is also known for sprawl, air pollution, lack of greenspace and traffic congestion. In an effort to address these “quality of life” issues and reassert the region’s competitive position, the City of Atlanta recently approved the creation of a TIF for its “BeltLine” project. The BeltLine is currently the largest redevelopment project in the United States and will encompass 8% of the city’s total land area and generate $1.7 billion dollars in revenue. The project will transform a ring of blighted and underutilized land encircling the city to multi-use trails, parks, transit improvements, affordable workforce housing and Atlanta Public Schools projects. In what promises to be the most ambitious use of TIF in the country, after 25 years the BeltLine TIF will contain over $20 billion of increment value—larger than the sum total of all TIF districts in the state of Wisconsin. Atlanta’s Beltline TIF is not only big, it’s also innovative and is continually cited as a model for transparency and accountability.
Let's be clear, a developer didn't walk up to Atlanta's city hall one afternoon and request a $1.7 billion TIF. The BeltLine is a public sector led project at its core.

In Milwaukee, TIF has been used to fund bold public-sector driven initiatives like the construction of the downtown riverwalk, the demolition of the Park East freeway, the clean-up of the Menomonee Valley, and the revitalized 30th St. Industrial Corridor. What other opportunities might there be?

I can think of two:
  • A modern transit system—Use TIF to finance station and land development costs associated with transit upgrades (express buses, KRM, high-speed rail)
  • Slow employment and income growth—Use TIF to finance growth in emerging regional industry clusters (financial services, water technology, advanced manufacturing) as identified in the M7 Strategic Framework.
The partnership between TIF and bold new ideas may be the currency of 21st century Milwaukee. What are your ideas?

Wednesday, February 20, 2008

Crisis Management Isn't Working for Transit

Those who follow local government, and those who ride the bus, have a keen sense that the Milwaukee County Transit System is in or nearing fiscal crisis. We hear about it every summer, when cuts in service or increases in fares are discussed as part of the County budget. We hear about it whenever new transit improvements are considered, as many, including those who might ordinarily be predisposed to support such improvements, argue that we can't build new systems until we properly fund the one we have. And, we are increasingly hearing about it from business and civic organizations, such as the MMAC and GMC, which have placed finding a solution to this problem at the top of their 2008 "to do" lists.

If there is any truth to the old saying that "misery loves company", then perhaps Milwaukeeans will take comfort in the fact that we're not alone. In Boston, the head of the Massachusetts Bay Transportation Authority recently asserted that their system is "broke" despite a $70 million fare hike enacted last year. And closer to home, Illinois officials approved a quarter-cent sales tax increase and $3.00 hike in the real estate transfer fee to address a severe funding crisis facing the Chicago Transit Authority.

In both Boston and Chicago, the funding crises were predictable. Both emanated from unhealthy issuance of debt, exhaustion of reserves and deferral of maintenance - strategies that are typically used when the growth in operating costs exceeds the growth in revenue sources and the political will does not exist to address the situation head-on, such as by developing a new business model, cutting service or raising taxes. So, the problem gets pushed off from year to year until the inevitable crisis emerges.

Here in Milwaukee, our budding crisis can be attributed to a number of similar factors. One is the depletion of reserves, in this case a pool of Federal capital funding that has been plugged into the operating budget and will soon be exhausted. Another is deferral of needed bus purchases, which can no longer occur. Other factors include a governmental accounting change that now forces the Transit System to budget annually for its retiree health care liabilities, and the growing cost of paratransit services. The combination of these factors has led the Southeastern Wisconsin Regional Planning Commission to project that a 35% cut in service will be required as early as 2010 if a replacement for the depleted federal revenue is not secured.

The Public Policy Forum is about to place research and analysis of this issue at the top of its "to do" list, as well. While it is possible that the full-blown crisis can be delayed past 2010, there is grave danger in waiting. For one thing, many of the solutions that have been put on the table so far -- such as a dedicated sales tax or capturing the annual growth in motor vehicle sales tax revenue for transit -- could take years to enact and implement, particularly if referenda are involved.

For another, crisis management seldom yields sound and long-term public policy solutions, but more typically yields band-aid approaches that address the immediate problem but don't really solve it. As Chicago and Boston have learned, when all of the reserves have been depleted, when debt has mounted to an unsafe level, and when bus purchases cannot be delayed any longer is not the time to search for creative solutions.

Friday, February 15, 2008

Just released: Tax Increment Financing in Southeastern Wisconsin

The following is from the Public Policy Forum’s new report, "Tax Increment Financing in Southeastern Wisconsin." Research was funded by Briggs & Stratton, Ehlers and Associates, Irgens Development Partners, and Reinhart Boerner Van Deuren S.C.

Tax Increment Financing (TIF) is southeastern Wisconsin’s largest economic development tool. With 176 TIF districts and $8.4 billion in property value, the collective tax base devoted to TIF districts in our region ranks behind only the city of Milwaukee among our region’s largest tax bases.

Despite the impressive scale of TIF in the seven-county area, the tool is used less here than in the rest of the state. Whether that’s due to reluctance or lack of need is unclear. What is clear is that if the region decides that it can become more aggressive with TIF, it has ample capacity to do that. It’s critical that we know where this capacity exists and how best TIF can be deployed to shape the region’s future growth. After all, economic development needs finance.

The use of TIF is growing in our region. There were 56 municipalities using it in southeastern Wisconsin in 2007 - up from 51 in 2000. Today, a quarter of the 56 municipalities are “TIF’d out” - communities that can no longer approve new TIF districts because the value in their existing districts exceeds the state limit.

TIF use in the city of Milwaukee has increased in tandem with the rest of the state and region despite the successful retirement of three large TIF districts in 2006. While the city’s use of the tool continues to trail regional and state averages, Milwaukee has increased TIF expenditures under Mayor Tom Barrett’s administration.

As TIF use increases in Wisconsin, so too will the public’s scrutiny of this popular development tool. Municipalities in our region could benefit from implementing the following “best practices” aimed at ensuring the strategic, accountable, and efficient use of TIF:

  • Use TIF to build community partnerships - More can be done to educate and engage the public during the TIF approval process.

  • Establish developer need, not want - Strong due diligence of incoming TIF proposals is needed to ensure their efficient use.

  • Align TIF use with community goals - Municipalities should use TIF to fulfill goals within an economic development plan.

  • Monitor and report TIF performance - The accomplishments (and failures) of the region’s 174 TIF districts should be readily available to the public.

  • Use TIF to compete globally - TIF could play a central role in strengthening the region’s competitive position.
To succeed in the new global economy, our region must utilize every tool at its disposal. In Wisconsin, TIF emerges as one of the most important instruments that can grow our economy and improve our quality of life.

Much work is needed to ensure the strategic, accountable, and efficient use of TIF in our region, but if we can learn to better use TIF can we also learn to use it more often?

Wednesday, February 13, 2008

Wonky web watching

For those of you who can't get enough talking heads, there's a new policy-devoted TV network, but it's not actually on TV. is YouTube for policy wonks. (the plural of forum, get it?) includes content from a wide variety of national think tanks across the political spectrum. You can find video clips based on subject matter, including both domestic and foreign policy; by content provider; or by region of the world. There is also a cool tool that highlights current headlines from policy-oriented media outlets like Salon and the Wall Street Journal and links to topically related video content.

According to the site:
We deliver discourse, discussions and debates on the world's most interesting political, social and cultural issues and enable our viewers to join the conversation. We provide deep unfiltered content, tools for self expression and the place for the interactive community to gather. There are brilliant ideas, expressed everyday, in public discussions and events, all over the world.
Started by a former C-SPAN executive, the new network has a similar feel, in that the "programs" are unedited. However, they are "chaptered," meaning if you are interested in only one portion of the video, you can find it without watching the entire video. Like YouTube, viewers can rate and comment on the video content, and there are viewer forums for discussion. Perhaps the best feature is that the video clips can be downloaded, so the truly wonky can listen via iPod while hitting the treadmill.

Tuesday, February 12, 2008

The middle class ticket to...nowhere?

The Forum does not advocate on behalf of anyone and generally uses a taxpayer's perspective in our analyses. However, some policies are focused on particular demographics, which require us to analyze their effectiveness from the perspective of both the intended beneficiary and the average tax-paying citizen. School choice is an example: How does the program impact the educational achievement of low-income students using vouchers and how does it effect the state's taxpayers?

Early childhood education could be another example. Most research on the effects of high quality early childhood education have found greater benefits for low-income children than for middle class children. Many states have focused their early childhood policies on low income families for that reason: to get the most bang for their buck. For a taxpayer's group like the Forum, maximizing the return on a public investment is a worthy goal.

The problem with such narrowly focused policies is that they may provide a perverse incentive for families to languish in poverty, or at minimum they may introduce unanticipated barriers to transitioning out of poverty and into self-sufficiency.

A past Forum research project called Making Work Pay found that government benefit programs with steep drop-offs of benefits at certain income levels prevented many families from moving out of poverty. In 1999 we found:
Wisconsin’s working poor face “disincentives” at certain income levels due to the tax structure and the phase-out of federal and state benefits. A single parent of two moving from an income of $17,000 to $18,000 experiences a marginal tax rate of 190% due to loss of food stamps and reduced tax credits.
New research from the Brookings Institution shows that not only can these poorly-designed policies prevent this parent from moving up in economic status, they can effect her children's eventual status as well.

Julia Isaacs asked the question: "To what extent do American families improve their incomes over a generation?" Her findings are worth noting. First, she found that 42% of children born to parents in the bottom fifth of the income distribution remain in the bottom after reaching adulthood. Also troubling, she found children of middle-income parents have a near-equal likelihood of ending up in any other quintile, "presenting equal promise and peril for those born to middle-class parents."

(Side note: The most provocative finding is the link with race:
Almost half (45 percent) of black children whose parents were solidly middle class end up falling to the bottom of the income distribution, compared to only 16 percent of white children. Achieving middle-income status does not appear to protect black children from future economic adversity the same way it protects white children.
Thus, this new research indicates the most effective policies have to not only avoid disincentives to increased income to truly raise a family's economic status, but must help families maintain the gains over future generations, as well. The hurdles to achieving this long-term effectiveness are two-fold: elected officials do not often plan beyond the next election cycle, and longitudinal studies on social policy effects are rare.

When it comes to early childhood education, there are several studies tracking children well into adulthood (see our matrix of research on early childhood outcomes). Whether the long-term benefits found in these studies outweigh the immediate political and economic costs is the focus of the Forum's current research.

Friday, February 8, 2008

A Different Angle on POBs

The momentum behind Milwaukee County's push to issue Pension Obligation Bonds is growing. The Legislature is poised to act on bipartisan legislation that will allow the County to issue 30-year POB's, while also requiring an annual five-year fiscal plan to demonstrate its ability to pay the debt service and any remaining pension liabilities.

A lot has been made of the potential risk to the County, which would essentially be betting that the investment return generated by the Pension Fund would exceed the interest it would pay on the bonds. As an op-ed in yesterday's Journal Sentinel by Sheldon Lubar and Chris Abele correctly notes, the recent precipitous drop in interest rates makes this an opportune time to place that bet.

But one of the untold stories behind the County's potential use of this financing mechanism is the added stability it would bring and what that means. By issuing debt to pay off unfunded pension liabilities, the County would lock itself into a fixed level of debt service payments for the next 25 to 30 years. Depending on your point of view, that could be a good thing or a bad thing.

From a fiscal watchdog perspective, there is perhaps no bigger selling point associated with POBs. For years, County policymakers in both the Executive's office and the Board have been able to generate short-term budget relief by challenging, changing or ignoring the actuarial recommendation that is supposed to determine how much property tax levy the County dedicates to its unfunded pension liability in a given year. In fact, one former County Executive generated a $10 million budget savings several years ago simply by convincing his appointees to the Pension Board to change some of the actuarial assumptions.

Such maneuvering would be impossible for the liability covered by the bonds, as debt service and interest payments are fixed. Not only would this discourage gimmickry, but it would also ensure predictability, which is essential for long-term fiscal planning.

It should be noted, however, that one man's fiscal responsibility can be another man's unrealistic and harmful rigidity. Locking a fixed POB payment into the County's long-term budget increases the pressure on areas of the budget that are not locked in, such as parks, culture and transit. Indeed, a group of union and social services advocates argued during County budget deliberations two years ago that the County should not slash services simply to meet an actuarial projection that may or may not pan out over the next 30 years.

It may be that the County will end up with both accountability and a small degree of flexibility by issuing bonds to cover only part of its currently projected unfunded liability. That was the plan presented by the County Executive in his 2008 budget, and that may end up happening by default if the POB amount is based on last year's actuarial calculations, which would fail to account for a market downturn that appears likely to increase the liability this year. The final POB issuance amount will be determined later this year by County fiscal officials and policymakers as they consider the actual financing structure, assuming legislative approval is forthcoming.

Tuesday, February 5, 2008

Voucher schools compromised by legislature

The Forum's tenth annual census of private schools participating in the school choice program is released today. Our analysis finds that the results of the 2006 legislation lifting the enrollment cap in exchange for greater accountability are not as expected. Lifting the cap allowed enrollment to grow 16% in the first year, but that growth moderated to only 7% the following year. Meanwhile, the effect of the requirement that schools become accredited is moderated by the inclusion of several atypical organizations on the list of allowable accrediting agencies. Fifty-six schools, enrolling 42% of all voucher students, get their accreditation from agencies that were not in the accrediting business before the statute was passed and were affiliated with private schools prior to becoming accrediting bodies.

Other key findings include:

*Turnover among schools--10 schools joined the program and 11 schools left the program.

*Demand for private options by public school students--Of the 1,282 new voucher users, at least 44% appear to already be enrolled in private school.

*Teaching staff diversity compared to diversity of students--Of the 38 schools with 100% minority students, 28 have teaching staffs comprised of more than 75% minority teachers.

*Demand by grade level--In Kindergarten, there is one voucher user for every three MPS students, in high school there is less than one voucher user for every five MPS students.

*High school dropouts--On the aggregate, voucher users appear to stay enrolled in high school at a higher rate than MPS students.

Click here for a poster-sized directory of all private schools participating in the voucher program.