Affordable housing efforts hampered by fragmented approach

The housing bubble burst and subsequent foreclosure crisis have brought the need for affordable rental housing into sharp and immediate focus for many affected families locally. However, even before home prices crashed, the rental housing market in Milwaukee did not meet the needs of many households at low income levels.


In the Public Policy Forum’s latest report, commissioned by the Local Initiatives Support Corporation, we explore the affordable rental housing landscape in Milwaukee County; what it will take to create a sound and sustainable infrastructure to support the development of affordable housing in the county; and how existing publicly funded affordable housing programs might be coordinated more effectively. Our report, entitled Give Me Shelter: Responding to Milwaukee County’s Affordable Housing Challenges, can be downloaded here. Among our key findings:

• Milwaukee’s affordability crisis is driven by low household incomes, not high rents. When compared to other large counties in the United States, Milwaukee is not an expensive rental market. Its average household income, however, was 103rd lowest out of the country’s 112 most populous counties at the time of the last Census.


• Milwaukee’s housing affordability crisis is most severe among extremely low income households—those households making less than 30% of the Area Median Income.


• The vast majority of Milwaukee County’s low-income renters do not receive public rental subsidies. In fact, public subsidy programs help less than one out of every three extremely low income and very low income renter households in Milwaukee County.


• The health of Milwaukee’s current private rental stock is failing. More than 40% of renters in Milwaukee County are living in housing that is inadequate either because it is too expensive, too crowded, or, in fewer instances, does not have adequate plumbing and kitchen facilities.


• Public efforts to address the housing needs of low-income residents in Milwaukee County are fragmented, and the multiplicity of public programs is confusing for both housing developers and investors, as well as for low-income renters. This suggests the need for more unified governance in select programmatic areas to help increase service quality and impact.

Addressing Milwaukee’s affordable rental housing needs will require greater public sector coordination, greater private sector participation, and recognition of the need for an integrated strategy that addresses both the supply side of the equation (i.e. building or rehabilitating low-income units) and the demand side (providing additional rental assistance). Hopefully, the data collected and analyzed in this report, and its conclusions and policy options, will encourage policymakers to tackle affordable housing needs with increased urgency and a greater sense of collaboration and innovation.

Crime, punishment, and state budgets

Governor Doyle's proposal to reduce the state corrections budget by allowing for early release of some inmates has been controversial, with some law enforcement officials concerned about the message early release sends to would-be criminals, while others note the potential cost savings that can accrue from having fewer inmates.

The debate to date has mostly focused on public safety and the extent to which the governor's budgetary savings estimates are accurate, yet has missed some crucial elements. While the governor and his corrections secretary emphasize that only low risk offenders would be eligible, there has not been much debate about who is truly "low risk." The assumption seems to be non-violent offenders, but research suggests that disqualifying all violent offenders, while politically prudent, may not be logical.

A 2002 report from the U.S. Bureau of Justice Statistics found that recidivism is somewhat lower among violent offenders compared to non-violent offenders. The study looked at 272,111 convicts released in 1994 in 15 states and whether they were arrested again within the next three years. The three-year re-arrest rate for violent criminals was 61.7%, while the overall re-arrest rate was 67.5%.

According to the study:

Released prisoners with the highest rearrest rates were robbers (70.2%),
burglars (74.0%), larcenists (74.6%), motor vehicle thieves (78.8%), those in
prison for possessing or selling stolen property (77.4%), and those in prison
for possessing, using, or selling illegal weapons (70.2%). Released
prisoners with the lowest rearrest rates were those in prison for homicide
(40.7%), rape (46.0%), other sexual assault (41.4%), and driving under the
influence (51.5%).

One explanatory factor in this difference may be age. The BJS found that while 75% of released prisoners between ages 18 and 24 were arrested again, only 45% of those older than 45 were rearrested. Since violent offenders tend to be given longer sentences, if they also tend to be older at the time of release, that could explain the results.

Another explanatory factor is the number of previous arrests. Those offenders for whom there was no arrest record other than the crime for which they were convicted had a three-year recidivism rate of 40.6%. For each additional prior arrest, the recidivism rate grows, up to 82% for those with 16 or more arrests. The drug dealer or burglar with several arrests under his or her belt may be more likely to re-enter the criminal justice system than someone convicted of assault with no other criminal history.

A debate focused on both public safety and costs should weigh these findings and their implications for Wisconsin. But the debate must also consider the other purposes of incarceration: as punishment and as a deterrent. Is serving anything less than a full sentence acceptable? If so, is there a threshold that must be met before release can be considered?

If some kind of early release is acceptable, do we wish to maximize the cost savings that could accrue or is any level of savings sufficient? We must also weigh the desired level of savings against a potential risk to public safety. But with which aspects of public safety are we most concerned...personal safety? highway safety? keeping our children safe from drugs? keeping our homes safe? These are the types of questions with which we must grapple.

Entrepreneurship Drives Job Growth

The health of America’s big corporations dominates daily business and economic news. But as market watchers contemplate whether the latest corporate earnings statements signal that the current economic crisis has hit bottom, policymakers can ill-afford to overlook the role new and small companies can play in reviving the economy.

A series of papers from the Kauffman Foundation helps to refocus attention on entrepreneurs and start-up companies. The research uses Business Dynamics Statistics (BDS), a new data tool developed by the U.S. Census Bureau that tracks the life-cycle of businesses with data on openings, closings, start-ups, job creation, and destruction by firm size, age, industrial sector and state. The Kauffman analysis reveals some striking findings about young firms.

• Economic churning, defined as the number of jobs created versus the jobs destroyed through business contraction or closure, is a by-product of a dynamic marketplace, notes one report. While job loss and business closures are disconcerting for many, the churning of young businesses positively contributes to economic productivity as inefficient firms leave the marketplace and more efficient firms enter or expand their capacity.
  
• As expected, young firms experience a high rate of failure, but those companies that make it create jobs at higher rates than more established firms. “Very young firms (1 year) have a net employment growth rate of about 15%.” In comparison more established firms (29+ years) grow jobs at a rate of about 4%.
  
• Young companies are an important source for job growth. Private sector start-ups accounted for 3% of employment between 1980 and 2005, surpassing the average annual net employment growth rate for all firms of 1.8%.
  
• The Midwest and East lag the West and Southwest in new business development as measured by the percent of employment created by firms younger than 3 years old. Wisconsin ranks near the bottom at just over 6% of employment attributable to young firms. Nevada topped the list with almost more than 11% of jobs created by new companies.

The Kauffman analysis just scratches the surface in explaining early stage companies’ contributions to overall productivity and job growth. Policymakers, though, can benefit from this research and future research using BDS, which helps shed light on business dynamics. It will be particularly useful as policymakers develop strategies to spur economic recovery, especially ones that seek to advance entrepreneurship.


Locally, there seems to be recognition that entrepreneurial activity presents an opportunity - one that must be strategically fostered. Biz Starts Milwaukee, which was launched in 2008, is encouraging new business development, specifically promoting development in high growth industries. Its most recent initiative is Venture Track, which combines Fast Track business planning classes with a mentor program to increase a start-up’s success. Measuring Biz Starts' effect on increasing Milwaukee’s culture of entrepreneurship and the subsequent creation of successful businesses will take time, requiring local entrepreneurs and their supporters to persevere through many economic ups and downs, including the most recent retrenchment. Ultimately, though, active cultivation and support of business innovation and entrepreneurship could show results, translating into much needed jobs for the Milwaukee region.

Budget woes demand collective response

Former UW-Madison political science professor Donald F. Kettl, leader of the "Kettl Commission" (which worked on reforming government structure in Wisconsin nearly a decade ago), pens a foreboding piece in this month's Governing magazine.

Entitled "After the Stimulus Ends", the article warns of the "long-term fiscal crisis" facing most state and local governments. Kettl says the crisis may be alleviated somewhat by stimulus funding but is not going away. He cites growing pension and retiree health care obligations and an increasing state Medicaid burden as the primary drivers of the worsening state and local fiscal mess and predicts the likely need for more federal support two years from now:

"Barring major reform, looming deficits will force state and local governments to come back again (and again) for more federal cash. They won't be able to cover their share of the rising health care costs without increasing taxes to unacceptable levels or slashing their spending even further, which would mean less money for their other serious crisis in the construction and maintenance of infrastructure."

Of course, that warning comes as no surprise to observers of government budgets in Greater Milwaukee, who recently have become painfully aware of the precise magnitude of budget woes facing Milwaukee County, the City of Milwaukee and Milwaukee Public Schools, not to mention the State of Wisconsin's $5 billion-plus budget hole, which appears to be worsening.

So amidst all of this bad news, is there any hope? If hope means silver bullets, then the answer is "no." Undoubtedly, the financial problems facing all levels of government will require considering a mix of painful cuts in programs and services; additional cost sharing by public sector employees for their pensions and health care; privatization of some public sector assets; and increases in fees and taxes to support programs and services that are too critical to diminish or eliminate.

But if hope means using the financial crisis to produce innovative and creative ways to improve government services with fewer resources, then the answer has to be "yes." It is somewhat surprising that Professor Kettl, in his Governing article, did not evoke the words of the commission he led, which argued for "innovative partnerships among Wisconsin’s state and local governments that will...deliver better value for taxpayers' dollars...reduce tension in the political system and make Wisconsin’s state and local governments genuine partners instead of adversaries."

If ever the time were ripe for radical change in the way our various layers of government relate to one another and generate and distribute revenue, wouldn't that time be now, when the four largest government entities in the State of Wisconsin are in such dire fiscal shape? Could this fiscal crisis create the ingredients necessary to reasonably discuss a collective solution in an atmosphere devoid of turf battles, partisan politics and undue influence from special interests?

Unfortunately, this morning's Journal Sentinel article regarding renewed hostilities between Milwaukee County and the state over public assistance funding indicates the notion of genuine partisanship remains an elusive dream. It's time, however, for our various levels of government to recognize that by fighting with each other during times of crisis, they are only making matters worse.

Why the MPS audit wasn't a "how to" manual

Many hoped that the long-awaited audit of MPS finances and operations, which was released last week, would provide step-by-step instructions for fixing the looming MPS budget imbalance, not to mention improving student achievement. Instead, the audit demonstrated just how difficult solving MPS's problems will be.

The audit does focus on opportunities for savings, but even those that might be considered relatively simple are likely to be controversial among MPS staff and parents. For example, even saving money by serving reheated pre-packaged lunches, rather than cooking lunches at school, will likely have parents and kitchen staff upset.

Other opportunities for savings can only be realized if the district backs away from certain policies that have been touted, in the past, as educational reform efforts. Reducing busing costs, for example, would require less citywide busing, which is a needed element for parental choice. Centralized purchasing would take certain budgetary decisions out of principals' hands and would entail a retreat from the budget decentralization that occurred about a decade ago in response to the charter school movement.

These political and personal realities aren't thoroughly discussed in the audit report, but need to be understood if we expect to actually see the cited cost savings. If one of the chief complaints about the current district board and administration is a lack of leadership, are we to now expect these entities to be willing to combat parents, staff, and outside education reform advocates to get these changes implemented? Whether the advisory council to be appointed by Governor Doyle and Mayor Barrett will be willing is probably dependent on who is tapped to serve.

And what of the most significant source of potential cost-savings, reductions in employee health care benefits? That is sure to be a battle royale. While only two of the nine current board members had union support in their most recent campaigns, picking a fight with the unions would virtually ensure more contested seats and union-backed candidates in the next election. Union leaders are likely to be included on the appointed council, which would potentially set up a divide within the council on this issue unless those leaders can convince their memberships that certain concessions are necessary to ensure the future viability of the district.

It also is important to note that the $103 million in potential annual savings cited in the audit will represent less than 10% of the total MPS budget. Ironically, the audit does such a good job of describing how MPS got into this mess in the first place, it essentially convinces you that the 8% in identified potential savings won't go nearly far enough.

MPS's per-pupil spending isn't out of line and its expenses have not outpaced its revenues. The real problem is that MPS operates too large a system for too few children under a state aid formula based on pupil counts. The audit report, while not saying so specifically, makes it clear that getting the district back on sound financial footing requires the following:

1. Enrollment losses stemmed, if not reversed;
2. The legislature addresses certain specific problems with the funding formula, including the Milwaukee Parental Choice Program's impact;
3. The district "right-sizes" itself by operating fewer schools;
4. The tax base in Milwaukee grows.

Exactly how to achieve each of these objectives? That's what no audit can tell us.

A school choice paradox (or two)

The latest results of the longitudinal evaluation of Milwaukee's school choice program were released by the School Choice Demonstration Project (SCDP) at a Forum Eye-Opener Breakfast last week. (You can listen to the podcast here.)

Dr. Patrick Wolf, the lead evaluator, does a nice job summarizing the findings of the eight different research reports in his executive summary. These are nuanced findings, with a few contradictions in them, yet understanding them is vitally important for policymakers. Wolf's summary, if not all the reports, should be required reading for local and state officials.

What struck me as I waded through the findings (and I have had several weeks to ruminate on them as I was given a preview of the results last month due to my membership on the SCDP's advisory board) was that Wisconsin has created an education reform policy so paradoxical that mixed results are nearly assured.

First, by encouraging dissatisfied parents to "vote with their feet" and exercise their choice, have we exacerbated schools' mobility problems and negatively impacted student performance?

Educators have known for ages that children who switch schools experience a set-back in achievement, at least initially, and maintaining stability goes a long way toward being able to improve learning and understanding. School choice presumes that a child's switch to a school selected by a parent as being a better fit for the child would outweigh the initial negative impacts of the switch. While that may, in fact, be true, the researchers found that in Milwaukee parents don't stop after making that first choice. They just keep choosing, and choosing, and choosing. (Some portion of this choice is likely due to the high mobility rates of low income families.) This occurs in both the public and private schools, although it appears to be a bigger problem in the public schools. The resulting instability in classrooms and in children's lives could be negatively impacting test scores in both MPS and the private voucher schools.

Thus, we need to ask ourselves, "Could there be such a thing as too much choice?" Or, at least, "Are we doing enough to educate parents about the consequences of choosing too often?"

The second paradox involves an expectation of improved test scores resulting from greater competition among schools, despite that fact that most competition occurs in grade levels that are too young for standardized tests. Third grade is when standardized testing starts, yet over the past 10 years, most of the vouchers have been used by students in grades younger than 3rd. The threat of losing students to another school was supposed to result in better outcomes and parents were supposed to choose the most successful schools, causing poorly performing schools to lose market share. In reality, what we find is that demand for vouchers is greatest in younger, untested grades, which doesn't really send much of a message to schools about the need for measurable performance improvement in order to succeed in the marketplace.

One way to get the message to the schools would be to start testing younger students. A more realistic option is to acknowledge the research that shows parents aren't considering test scores as a major factor in their decision to choose a school. If the choice isn't based on testing results, then perhaps we shouldn't be expecting the reform to improve test scores. If that's the case, then we need to agree on a different policy goal for the school choice program: parental satisfaction, sustainability of religious schools, weakening the political power of the teachers union, stemming population decline in the city, or saving taxpayer money. These have all been suggested as policy goals over the years and are worthy of debate.

Maybe it is time to stop discussing school choice in the context of "competition" altogether. I once talked with a parent who had narrowed down her choices to either the large public Montessori school a 45-minute bus ride away or the smaller private Catholic school in a nearby neighborhood. I tried to talk her though the few comparable facts I had collected about each school...enrollment size, afterschool programs, etc. Her biggest concern was not academic achievement, but discipline, and I had no information for her about that. I don't know how she made her decision, in the end, and I don't know how her decision could have sent an actionable message to the "losing" school. Was it too big? Too secular? Too far? Too traditional?

Most of the reaction to the SCDP research results has ignored the inherent conflict between the results and the rhetoric: How can it be competition that has improved MPS (ever so slightly), when the performance of the competing schools actually differs so little from MPS? How can both good and bad schools be thriving in the educational marketplace?

The answer is that parents are willing to overlook academic deficiencies when they are satisfied with other aspects of the chosen school. Schools, public and private, good and bad, are able to attract students each year despite also losing students each year. Milwaukee must face facts: Our parents like having choices and yet our schools are mostly underperforming. So now we must debate: Do we give up on school choice or adapt it to a new goal? Do we shut down failing schools or invest more resources in them?

The ABCs of PPPs

The notion that government should even consider leasing public assets to the private sector evokes passionate debate. But whether or not one is disposed ideologically to support that strategy, it is clear that the number of public-private partnership (PPP) proposals will be increasing significantly in the near future - both locally and nationally - in light of the deteriorating condition of most government budgets.

That being the case, those on both sides of this issue would do well to consider a study released last week by the Pew Center for the States, succinctly described here on Pew's nonpartisan online news site.

The Pew study conducts a post-mortem on the largest PPP proposal in U.S. history - Governor Ed Rendell's plan to lease approximately 500 miles of the Pennsylvania Turnpike to a private company that would collect the tolls and manage the turnpike in return for an upfront payment of $12.8 billion. That plan died last fall when the winning bidders withdrew their proposal after continued inaction by the Pennsylvania Legislature.

The Pew researchers conclude the deal may have made sense for Pennsylvania, but it failed because of a series of strategic mistakes by Rendell and his administration. It offers several lessons for other governments contemplating PPPs - lessons that may be relevant for the City of Milwaukee and Milwaukee County, both of which have floated ideas for significant PPPs (the city for a potential lease of its water utility and the county for a potential lease of General Mitchell International Airport). Those lessons include the following:

1. Don't oversell it. The Rendell administration planned to use $1 billion per year in investment earnings from the upfront lease payment to fund other infrastructure projects. While sound on the surface, the Pew study points out the governor's strategy assumed a highly unrealistic 12% rate of investment return. That cast doubt on the credibility of the entire deal, other aspects of which were accurately projected. Lesson for Milwaukee: don't try to sell a major PPP as the grand solution to the city or county's budget problems unless there are accurate numbers to back up such a claim.


2. Properly assess and explain the specific need for and use of lease revenues. The Pennsylvania plan generally proposed spending investment proceeds on highway needs, but it did not delineate specific projects nor compare projected annual revenues to projected annual highway expenditure needs. This contrasts with the approach utilized for the Chicago Skyway and Indiana Toll Road PPPs, which carefully laid out plans for spending lease proceeds. Lesson for Milwaukee: be specific about why the lease revenues are needed and how much of a dent they will make in the fiscal problems they are purported to address.


3. Establish and maintain a spirit of partnership and transparency among different branches of government. The Pew study notes that Pennsylvania legislators did not feel they were equal partners in the deal, the timing and precise details of which were dictated by the governor's office. Lesson for Milwaukee: in order to advance a major PPP proposal, leaders from both branches should be involved from the beginning and proposal details should be formulated and shared by staff and/or outside financial advisors who are trusted by both. Of course, that may be easier said than done in Milwaukee County, where extreme conflict exists between the two branches, but the recent cooperative effort to develop a pension obligation bond proposal provides an excellent model.


4. Do not couch the debate solely in terms of the impact on the existing financial crisis. Pew researchers explain that in Pennsylvania and most other states where significant PPPs have been debated, the focus has almost exclusively been on the generation and use of large upfront payments to address short-term fiscal needs, while long-term economic and environmental risks and benefits have been downplayed. Lesson for Milwaukee: leasing major public assets to the private sector generates legitimate concerns with regard to future costs for users and future control of decision-making. Rather than being trivialized by proponents of the deal, these concerns must be properly anticipated, laid out and explained to the public and accompanied by analysis detailing how they may be outweighed by perceived benefits.

The lease or sale of public assets may not end up as a viable and appropriate part of the solution to pressing budget problems facing Milwaukee County and the City of Milwaukee. Still, as the Forum argued in a report issued last week as well as earlier commentary, the magnitude of those problems demands that this concept at least be debated. Leaders in both governments would benefit from examining the experiences of other states and municipalities where PPP proposals both have succeeded and failed.