Wednesday, March 17, 2010

Benchmarking the region's pursuit of innovation

As elected officials, business leaders and economic development officials across the country work to position their regions to compete successfully in the 21st century global economy, "innovation" has become a key theme.

While not easily definable, "innovation" when applied to economic development generally is thought of as applying knowledge and new ideas to the workplace to generate jobs and productivity. Or, as famous management consultant Peter Drucker puts it, "Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth."

In southeast Wisconsin, transitioning our economy to one that is based on knowledge and innovation has become a critical goal for groups like the Milwaukee 7 and a growing number of non-profit and academic entities that are working diligently to encourage and fund technology-based start-ups, talent development and capital formation. It also has become a buzzword for elected officials and leaders in academia, who are pushing for new investment in water technology, engineering and similar fields of academics and research that are seen as pivotal in positioning Greater Milwaukee to compete for jobs and talent.

In light of this emphasis, it is pertinent to ask how our region is faring in its pursuit of innovation as a key component of economic success. Hence, the Public Policy Forum's new Innovation Index.

The Index provides baseline data for sets of indicators that are closely linked to the 21st century economy: areas like idea development and commercialization, entrepreneurship and availability of knowledge and skilled workers. We use this data not only to track the region's progress during the past several years, but also to compare it to six peer regions, including three that are commonly seen as leaders in innovation and that can set the bar for southeast Wisconsin's efforts.

The initial Innovation Index finds that the southeast Wisconsin region (defined as Milwaukee, Waukesha, Washington and Ozaukee counties) is trending positively in several areas, including growing university research and development spending, increased educational attainment and more jobs created by small firms. Other trends are less promising, however, including patent activity and knowledge workers per capita.

When compared to the six peer regions, southeast Wisconsin's performance also is mixed. We're doing quite well, for example, in terms of availability of skilled and technical workers (an attribute cited recently as a major contributor to the successful effort to lure Spain's Ingeteam to the Menomonee Valley), but not so well in areas like business dynamics and capital formation.

Our plan is to update the Index annually in order to continue to track the region's progress and provide insights for policymakers and business leaders regarding where we are succeeding and where enhanced efforts or new approaches may be needed.

The full report can be accessed here, and a snapshot of the Index here.

Monday, March 15, 2010

Water utility deal moves forward in Indy

Interesting news out of Indianapolis, where Mayor Greg Ballard has announced plans to move forward with a sale of the city's water and sewer utilities. The deal reportedly would net the city an upfront payment of $425 million, which it would use to address significant infrastructure needs. The new owner - a public charitable trust called the Citizens Energy Group - also would assume about $1.5 billion of debt from the two utilities.

Here in Milwaukee, the prospect of leasing the city's water utility was first raised by the city comptroller in 2008 as a potential strategy to help offset dwindling state aids and maintain existing services (see the Forum's August 2009 report for more information on the city's long-term fiscal predicament). A proposal to explore the idea was shot down by the common council, however, after significant opposition arose from environmentalists, city labor unions and others.

Indianapolis' proposed deal differs from the concept discussed in Milwaukee in several key aspects. Perhaps most important, the potential buyer is a non-profit entity that was created by civic leaders to provide gas, steam and chilled water to citizens without a profit motive. Citizens Energy Group's assets are owned by Marion County residents - suggesting important public oversight capability - though it is administered by a board of directors that is not accountable to voters.

The concept floated in Milwaukee, on the other hand, likely would have involved a private, for-profit entity. That entity would have entered into a long-term lease agreement to operate the water utility, as opposed to assuming ownership.

In addition, one of the key benefits cited by proponents of the deal in Indianapolis is the opportunity to consolidate water and sewer operations, which they say will reduce operating costs and save money on large-scale construction projects. Here in Milwaukee, sewer operations are governed by the Metropolitan Milwaukee Sewerage District, which privatized the bulk of its operations in the 1990's.

Whether the proposed deal in Indianapolis encourages Milwaukee officials to take another look at a potential lease of its water utility certainly is dubious given the strong reaction evoked by the comptroller's recent trial balloon.

Providing more food for thought, however, is the most recent The People Speak poll, conducted by the Forum in partnership with UWM's Center for Urban Initiatives and Research and The Business Journal Serving Greater Milwaukee. The poll found that 40% of respondents in the four-county metro area agreed with the notion of leasing the water utility as a means of helping address the city's budget problems, while 51% disagreed. In a much smaller sample size of City of Milwaukee residents, the margins were 39% for and 56% against.

Certainly, there's no groundswell of support for the concept at this time, but it's also not attracting the type of overwhelming opposition that might justify refusal even to explore the idea, particularly when other potential revenue enhancements or service cuts are put on the table for comparison.

Friday, March 12, 2010

The People Speak: Citizens' views on water issues

The winter 2010 People Speak Poll, conducted in conjunction with the Center for Urban Initiatives and Research at UWM and The Business Journal Serving Greater Milwaukee, focuses on water issues including quality, quantity, governance, and economic development.

The People Speak is a tracking poll conducted at regular intervals throughout the year. Its purpose is to gather information from local citizens about their interests in, preferences for, and concerns about public policy. By gathering and reporting these citizens' perspectives, the partners hope to expand the public voice in policy matters affecting greater Milwaukee.

Highlights from the February 2010 poll of 429 residents in Milwaukee, Waukesha, Washington and Ozaukee counties include:
  • Solid support for efforts to use the region's fresh water resources as an economic development tool.

  • Concern for water quality in Lake Michigan, but confidence in the quality of local drinking water.

  • Consensus on the need for and importance of water conservation in general, but not a tendency to conserve water on a household level.

  • Moderate to strong support for allowing the City of Waukesha to access water from Lake Michigan, as long as the water is returned to the Great Lakes basin.

  • Preference for regional water governance, rather than leaving it up to municipalities or the state.
In addition, the February findings on a more general set of public policy issues mirrored the September poll results in these ways:
  • Evenly split opinions on whether to pursue high speed rail and commuter rail and whether to implement toll roads.

  • Weak support for increased user fees or sales taxes to provide property tax relief.

  • Weak support for a mayoral takeover of Milwaukee Public Schools.

The February poll also revealed growing sentiment that jobs are the most important issue facing the region, growing pessimism regarding the direction of the United States government, and virtually no support for using sales tax dollars to pay for a new arena for the Milwaukee Bucks.

For full results, go to the poll website.

Tuesday, March 9, 2010

Should more local governments be re-examining their health care options?

In an intriguing piece in Sunday's Milwaukee Journal Sentinel, Alan Borsuk suggests a simple solution to curb runaway health care costs for the Milwaukee Public Schools (MPS): eliminate the district's preferred provider health care option, and require all employees and retirees to enroll in the district's less expensive health maintenance organization (HMO) option.

Citing MPS budget officials and the $7,400 annual cost differential per family between the two plans, Borsuk suggests the annual cost savings could be significant. As expected, Borsuk's piece already has drawn dozens of comments from readers, as well as a call from Mayor Tom Barrett to pursue the idea.

Should additional analysis of this concept verify substantial savings, and should it gain any traction with MPS, it will be interesting to see whether such an approach is pursued at other levels of government that also offer workers multiple health care options. In particular, as the Forum's recent report on the potential restructuring of Milwaukee County government indicates, this strategy could hold significant logic for that government.

Section I of our report contains a lengthy discussion of the county's health care offerings. Like MPS, the county provides a Preferred Provider Option (PPO) that offers access to a wide network of providers with co-pays and deductibles, as well as a traditional HMO option. Unlike MPS, however, the county charges much higher monthly premiums to subscribe to the PPO plan. For example, union employees pay $35 per month for an individual and $70 for a family for the HMO, and $75/$150 for the PPO.

Largely because of this cost differential (as well as, perhaps, the robust nature of the HMO plan), we found that 81% of the 4,322 active county health care subscribers selected the HMO plan in 2009. Conversely, of the 5,996 retired health care subscribers, who pay no monthly premium and, therefore, are not incentivized by lower premium co-payments to select the HMO, 71% selected the PPO plan. That plan costs about $2,000 more annually for families and $5,000 more for individuals.

The discrepancy in active and retiree enrollments in the two plans is striking in light of the magnitude of the county's retiree health care costs, which comprise about half of its annual $140 million health care bill, and for which it has an unfunded long-term liability of about $1.5 billion. Given that the more expensive option is used predominantly by retirees, and that the county has little opportunity to incentivize use of the HMO among the retiree population, it would appear logical for county leaders to ask the same question Borsuk asks of MPS officials: why even offer a PPO option?

Of course, as with MPS, that issue would need to be collectively bargained. One would imagine, however, that this would be a far more attractive bargaining chip for county labor unions than for teachers, as relatively few active union workers at the county even use the PPO. In fact, logic would dictate that of the 19% of active county workers who do subscribe to the PPO, most are likely management employees who can better afford the much higher monthly premiums.

As we have blogged previously, retirement benefits for public sector employees will continue to come under close scrutiny in light of the financial problems facing virtually all levels of government. The fact that health care benefits will not escape this microscope is demonstrated not only by the Borsuk article and reaction to it, but by a prominent article in Sunday's Green Bay Press-Gazette. If the similarly strong reaction from readers to that article is any indication, public sector health care benefits may even exceed pension benefits as a lightning rod for emotional public debate.

Thursday, March 4, 2010

The implications of redefining poverty

How to define and measure poverty in the U.S. has long been an issue of debate. This is not an esoteric argument--most federal and state entitlement and benefit programs tie eligibility to need using the official measure of poverty. Any move to change the definition will have an effect on these programs and the families participating in them.

This week the Commerce Department announced the development of a new measure of poverty designed to be more nuanced than the existing measure. By including factors such as housing, child care, and health care costs, it is argued to be more representative of the actual pressures faced by today's families. However, this new measure has been rolled out as a "supplemental" measure and will not replace the existing poverty definition, which is based solely on food costs. Thus, the new measure will not have an impact on the eligibility rules for the thousands of federal and state programs aimed at low-income families.

What it might do, though, is illuminate just how well those programs are doing at meeting the goal of eradicating poverty. While the Commerce Department does not offer an opinion on whether the new measure will result in more or fewer families being defined as impoverished, a similar supplemental measure used in New York has resulted in higher poverty estimates in that city. Therefore, the new federal measure may well show that despite the passage of nearly 50 years since an American President first declared war on poverty, our poverty-alleviation policies have a larger target than we had assumed.

Increasing the visibility of the gap between who the state and federal governments will serve and who is truly in need might affect local governments in different ways. It might increase the pressure on local governments to fill that gap with locally-funded programs and services, which few local governments are in a position to do in the current budget climate. On the other hand, it might make it easier for the private and non-profit sectors to coordinate efforts with local government. Having a uniform definition of those in need, yet ineligible for certain government benefits, could allow charities and philanthropies to be more confident about stepping in where the need is greatest, without risk of supplanting public funds. A better picture of the gap may also allow for more efficient grant-making.

The first use of the new, supplemental poverty measure will be with the 2010 Census. Wisconsin's local governments would be wise to plan now for the potential impact to their budgets.

Tuesday, March 2, 2010

Conference casts Wisconsin as uniquely engaged with water issues

Last week’s “Water and People” conference presented by the Marquette University Law School underscored the importance of water to Wisconsin in terms of a natural resource, an economic development driver, and a commodity to be regulated and potentially traded. Numerous speakers described Wisconsin residents as being far ahead of other areas in understanding water’s importance and influence on quality of life.

Where water issues intersect with policy issues, Wisconsin’s abundance of water was identified as both a positive and a negative. Having so much water, which is priced relatively cheaply, may discourage some from realizing the need for conservation, taxes, regulatory policies, and relative equity in water distribution. This contrasts with public debates about oil and other energy sources, where scarcity and high prices generate concerned consumers, interest in conservation, and a multitude of regulations. Dr. Jame Schaefer, a professor of theology at Marquette University, did caution against viewing water as a commodity or resource, however, stressing that it has intrinsic worth beyond its usefulness.

As Wisconsin positions itself to emerge as a leader in freshwater technologies, the division between environmental concerns and economic development was identified by some conference panelists as a false dichotomy. Art Harrington, a partner at the Godfrey and Kahn law firm, said that a main challenge is not necessarily having regulations, but uncertainty about what regulations will be. He called for clear guidance from government on what water policy will be 15 years in the future, since certainty contributes to economic opportunity and investment.

Despite the codification of many water use policies in the Great Lakes Compact, some water issues are still up for debate. Maureen Taylor, Executive Director of the Michigan Welfare Rights Organization, cast water as a human rights issue, noting that 42,000 Detroit households had their water shut off in one year. The conference also explored questions such as: Who should have access to water and to whom does water belong? Who should pay for water and how should it be priced? As southeast Wisconsin moves forward in conservation, regulation, and entrepreneurship, we have the potential to break new ground in answering these questions within the context of their environmental, economic and ethical implications.

Stay tuned for the results of the Forum's latest People Speak Poll, conducted in conjunction with the Center for Urban Initiatives and Research at UW-Milwaukee and The Business Journal, which probes public opinion on various water issues in the region. The poll results will be released in The Business Journal on March 12.