PPF's top research findings of 2010

The Forum recently received a communication from a national research group detailing its top five findings this year. That got us to thinking about our top five research findings of 2010. The competition was stiff, but here they are, in chronological order (drum roll please):

1. Southeast Wisconsin's skilled workforce may be its greatest economic strength. Our March Innovation Index report benchmarked our region with three Midwestern peers and three innovation leaders using several indicators linked to success in building a knowledge-based economy. While the overall assessment was mixed, we found southeast Wisconsin was number one among the group in its percentage of residents working in middle-skill jobs, i.e. those that require specialized training or education beyond a high school diploma, but less than a four-year degree. The finding suggests that while our region may be lacking in college graduates, we still possess the type of workforce that should be very attractive to certain industries.


2. Milwaukee County's structural deficit is really, really daunting. In our July preview of the county's 2011 budget, we used the county's fiscal forecasting tool to determine how its five-year fiscal outlook would change under two relatively dramatic scenarios: 1) the property tax increased at double the projected growth rate, or 6.6% per year, for each of the next five years; or 2) projected growth in salaries and fringe benefits was reduced by 50% and 25% respectively in each of the next five years. We found that in both cases, the projected structural deficit in 2016 still would be in the range of $65 to $70 million. Quite a challenge, indeed, for the next county executive.


3. MATC clearly spends more than its peers. Our September fiscal assessment of the Milwaukee Area Technical College found an institution struggling to accommodate shrinking revenue streams at the very time that demand for its services had reached historic highs. While plummeting property tax capacity and shrinking state revenues certainly hurt, however, it appears there is capacity to make adjustments to the expenditure side of MATC's ledger. Our research compared MATC with 84 other large two-year technical and community colleges nationally with regard to total operating expenses, salary expenditures and fringe benefit expenditures. We found that MATC ranks number one in expenditures per full-time-equivalent student on each of those measures.


4. Milwaukee County's mental health system is out of balance. Our October report on mental health care for adults in Milwaukee County - released jointly with the Human Services Research Institute - found a system that is out of sync with national trends and best practices in light of its emphasis on inpatient care and its lack of comprehensive community-based services. Particularly telling was a finding that the county's 472 public and private acute inpatient beds are nearly triple the number that would be expected in a mature mental health system that contains the appropriate balance of inpatient, crisis and community-based services.


5. The state's expensive child care subsidy program has grown as household incomes have shrunk. When the state created the Wisconsin Shares child care subsidy program in 1996, all low-income families became eligible, not just former welfare recipients. Participation has grown nearly 350% since then, in part because of a decline in household incomes. Whereas the program's eligibility limit of 185% of federal poverty line represented 57% of the state median income in 1999, today it equals 68%. As we point out in a December report, this trend does not bode well for the state’s new child care quality ratings system initiative, as a continued decline in household incomes may mean continued growth in program enrollment. That, in turn, could translate into less money available to offer incentives to providers for quality improvements.

Narrowing the list to five wasn't easy. We were forced to leave out additional key findings from reports on the Milwaukee Parental Choice Program, the region's public schools, regional property values and taxes, the City of Milwaukee's Main Street Milwaukee program, and three People Speak surveys, among others. Each of the 20 reports the Forum has published so far this year can be accessed here.

The People Speak: Citizens' Views on Energy Policy

Most area residents are at least somewhat concerned about increases in energy costs and, accordingly, most say they have taken steps to conserve energy. That’s according to the latest People Speak poll of 395 residents of Southeast Wisconsin, which also shows that most citizens in the region are willing to pay more for fuel efficient cars, appliances, and homes, and that most support certain tax incentives to conserve energy or lessen reliance on non-renewable energy sources.

The latest People Speak is the fourth edition of this regional tracking poll, which is a partnership between the Public Policy Forum, UWM's Center for Urban Initiatives and Research, and The Business Journal Serving Greater Milwaukee. Over the past six months there has been a sharp increase in the percentage of respondents who feel jobs and economic development are the most important issues facing the region. The environment ranks low as a concern for most citizens, as it has in each of the previous People Speak polls.

Despite the low priority placed on environmental issues, citizens are concerned about energy costs and climate change. These concerns are echoed in the actions most citizens report taking to conserve energy, including purchasing energy-efficient light bulbs, turning down the air or heat at home, and buying energy-efficient appliances. Fewer respondents report reducing their driving by walking or bicycling more often, and a very small percentage of respondents say they carpool or take public transit.

Overall, citizens' concerns about cost and climate change are also reflected in their support for energy conservation policies such as tax incentives or benefits to individuals and businesses for conservation, requirements that cars be more fuel efficient, and requiring utility companies and business to use more alternative, renewable energy sources. There is less support building a new nuclear energy plant in Wisconsin. Reducing the speed limit and establishing a utility surcharge for exceeding monthly household energy-use limits are not supported.

For the complete People Speak poll results, as well as analysis of the results, visit the poll's homepage.

Moving the goal posts on early childhood care and education

The Forum's latest report on early childhood education finds the original goals of welfare reform produced state child care policies that had detrimental impacts on child care quality and that may be difficult to reverse under YoungStar, the state’s new quality ratings system initiative.

The report finds that as the existing Wisconsin Shares child care subsidy system became operational, certain policy decisions produced results – many of which were unintended – that ended up boosting child care costs for the state while reducing child care quality. Those include:

1. Creating a new, less regulated category of care provider, which was intended to allow parents broader choices in providers, quickly create jobs, and keep child care costs low for parents and the state.


2. Sharing costs with parents by basing co-payments on the cost of care, as opposed to the parents’ income, which would have allowed parents to opt for more costly care only if they wished to pay more out of pocket but which, ultimately, could not be implemented.


3. Creating a more restrictive definition of “low-income,” in order to serve the working poor in general, and not just those obtaining or seeking jobs as part of the W-2 program.


4. Tying subsidy rates to prices in the private market, which was intended to provide low-income parents with access to the entire market while also relying on competition to keep the state’s costs in check.

Each of these four policies helped the state achieve its primary goal of providing a sufficient child care supply that would allow low-income parents to move from welfare to work, but at a high cost to the state and at the expense of quality within the child care market.

As policymakers look to reform the system under the new YoungStar initiative, can they successfully change the emphasis to quality within a system originally built to emphasize low cost and quantity? The policy challenges with which YoungStar’s designers and implementers must grapple include:

• Stepping up collections of co-payments from parents. Under YoungStar, child care providers will be contractually obligated to collect parent co-payments, which they have not been required to do previously. An enforced co-payment requirement might cause providers who serve mostly low-income families to leave the program if they are not able to collect the co-payments, even if they are providing quality care.


• Keeping income eligibility limits for working families at current levels. The pool of families eligible for Wisconsin Shares subsidies is growing because Wisconsin family incomes are not, which swells overall program costs. As more money is tied up in providing access to care, less will be available to improve the quality of care. Options for cutting costs would be to reset eligibility limits to exclude more families, or to appropriate a sum-certain amount and create a wait list for the subsidy. Both of those options, however, would retreat from the goal of serving all the state’s low-income families.


• Tying subsidy rates to quality so as to incentivize quality improvements. Higher subsidy rates for higher quality might price some private pay families out of the market. If that were to happen, such families may have to seek lower quality options than they are using today. In addition, because YoungStar has been designed to be revenue neutral (at least initially), most providers will continue to earn the same subsidy rate after the initial round of quality rankings as they do today. If providers are not certain their investments in quality will result in higher subsidies, they may not see YoungStar as an incentive to improve.

Several policy options are highlighted for consideration as YoungStar’s implementation moves forward, including having the state collect parent co-payments directly, reducing the subsidy for lower-quality providers, and eliminating one category of provider—the minimally regulated provisionally certified provider.

In the end, the success of YoungStar may well rest on the ability and willingness of administrators and legislators to monitor real-world impacts on families and the child care market in Milwaukee County and to be flexible enough to tweak policies throughout implementation, in order to avoid a new set of unintended consequences.

Metrics for boosting educational attainment in Southeast Wisconsin

Recognizing that a prosperous metro Milwaukee depends on an educated workforce, a new Talent Dividend Initiative has emerged in Milwaukee to boost regional educational attainment. The initiative - which is comprised of workforce development, economic development, and educational organizations across southeast Wisconsin - has set its sights on increasing the percentage of adults in the region with four-year college degrees by a full percentage point by 2013.

The initiative grew from a campaign launched by CEOs for Cities (a national network of urban leaders) based on their research suggesting that a one percentage point increase in the number of bachelors degree holders in a metro region can produce a $763 increase in annual per capita income. In southeast Wisconsin’s seven counties, CEOs for Cities estimates that increasing bachelors degree attainment from the current level of 28.7% of the population to 29.7% would produce 13,146 new degree holders and a resulting “talent dividend” of about $1.5 billion annually.

With that goal firmly established, the local initiative is considering two questions:

1. Where should resources be targeted to most effectively attack regional educational attainment?
2. How can the success of these strategies be measured?

The Public Policy Forum was commissioned by the Regional Workforce Alliance's WIRED Initiative to help answer those questions. A report we released today, entitled "Educational Attainment in Southeast Wisconsin," provides an overview of the region's educational pipeline from preschool to college, noting that the majority of new degree holders will come from the 525,000 students already engaged in the pipeline. It contains a series of metrics that provide insights into how the various points of the pipeline are performing and how progress can be assessed. The report also cites several opportunity points for boosting student success and attainment, including:

• Developing college-going behaviors among high school students. Our report finds that while 55% of high school graduates plan to attend a four-year college and 19% of graduates plan to attend a technical college, 17% are undecided about their post-high school plans. Programs to increase the number of college-bound students might set their sights on these undecided students.

• Re-engaging adults who have earned some college credit, but have not completed a degree. More than 20% of the region’s non-degreed adults have attended college at some point and may be interested in continuing their education. Identifying those who are just a few credits short of earning a degree would be the logical starting point.

• Increasing student transfers between two-year and four-year colleges and universities. Completing the degree requirements at a two-year college before transferring to a four-year college can help students reduce the cost of earning a degree. More data are needed, however, to understand and track college transfer trends in the region.

Finally, at all points in the pipeline, strategies to assist minority students offer a substantial opportunity to increase regional degree holders. Currently, just 12% of African-American and 10% of Hispanic residents in the region hold a bachelors degree or higher, compared to 31% of white residents. This is a logical focus for retention strategies, as minority student enrollment in higher education is on the rise, especially in the region’s 2-year institutions.

The Talent Dividend Initiative plans to regularly update the metrics presented in the report to measure the effectiveness of specific strategies toward the overall goal. The full report can be accessed here.

Evaluating the Neighborhood Stabilization Program in Milwaukee

The Public Policy Forum’s recently released 2011 City of Milwaukee budget brief notes that Milwaukee’s budget includes significant allocations to curb the effects of foreclosures in city neighborhoods. Many of the city’s new and enhanced initiatives are funded with grant dollars from the federal Neighborhood Stabilization Program (NSP), which has helped foreclosure strategies throughout the state. The initial NSP allocation in Wisconsin totaled $38.8 million, of which Milwaukee received $9.2 million. In early 2010, the second round of NSP awarded Milwaukee $25 million to return approximately 1,000 foreclosed homes back to productive use.
These allocations are being used, primarily, to prevent homes from sitting vacant and deteriorating neighborhoods. In theory, higher vacancy rates lead to lower home values. Academic literature also identifies this strong inverse relationship between vacancy rates and home prices.

But how can we be sure that NSP allocations are effective? Should the proper test for evaluating NSP’s effectiveness be broad-based, observable increases in home values? On the one hand, yes. If vacancy rates decrease as NSP ultimately returns properties to productive uses, then home values increase. But on the other hand, perhaps not. Theoretically, the bottoming out of the housing market induces some investors, speculators, or unaffected consumers to purchase up properties at a low price. Eventually, demand for properties increases and causes an increase in prices. In other words, at some point property values are bound to increase even without policy action. The issue becomes the speed with which home values increase.

What policy analysts must determine, therefore, is whether the NSP, and similar programs, raise property values more quickly than they otherwise would have rebounded. To do so, analysts will have to account for the other contributing factors that help determine property values, such as unemployment rates, mortgage interest rates, and the availability of credit, among others.

Does our congestion warrant HOT lanes?

The recently initiated debate regarding pay-only express lanes (also known as high-occupancy toll, or HOT lanes) on Wisconsin highways mirrors the discussion in other jurisdictions that have pursued such lanes.

On the one hand, local opponents, like those in Arlington, Virginia, say "Lexus lanes" only will serve wealthy commuters and their construction creates the same pollution and sprawl impacts as regular highway expansion. On the other, local proponents, similar to those in California, point to the popularity of HOT lanes among both wealthy and low-income citizens, as well as their success in reducing congestion and financing highway improvements without resorting to broad-based taxes or fees.

While sorting out the pros and cons is difficult and subjective, there appears to be one overlooked question in the early discussion about using HOT lanes here: is our traffic congestion severe enough to merit use of such lanes, the success of which requires drivers to agree to pay considerably more to reduce their travel times?

The Federal Highway Administration, which generally has been supportive of HOT lanes, states that a "requisite" for their effective deployment is a "high density corridor typical of a larger metropolitan area with limited travel options and a lack of parallel highway routes." The Brookings Institution similarly states that "HOT lanes work best on roads where there is heavy traffic and long delays during peak hours. Without such congestion, drivers would have little incentive to pay significant tolls."

If HOT lanes are considered for southeast Wisconsin, the congested corridors that might logically be considered include I-94 between Downtown and the Illinois border; I-94 between Downtown and Waukesha County; and I-43 between Downtown and Ozaukee County. But is peak period traffic congestion in those corridors severe and prolonged enough to convince frugal Wisconsinites to pay several additional dollars per day to use new HOT lanes, assuming they could be financially, environmentally and physically accommodated?

It is impossible to know the answer to that question without rigorous analysis by highway planners and engineers. One clue, however, may come from the Texas Transportation Institute's (TTI) latest Urban Mobility Report.

According to that report (as discussed in this July 2009 blog post), congestion in Metro Milwaukee has not grown since the 1990s. Examination of the report also reveals that each of the large urban areas that has implemented HOT lanes - Orange County (CA), San Diego, Houston, Denver and Minneapolis - ranks among the top 25 in terms of highway traveler delays, while Milwaukee ranks 67th.

An updated TTI report on traffic congestion levels is scheduled to be released in the near future. It will be interesting to see whether the new report provides additional clues regarding the efficacy of HOT lanes in Milwaukee.

Is bankruptcy really an option?

The politicization of a recent disclosure that a leading civic organization has discussed potential bankruptcy for Milwaukee County is not surprising. But putting aside the politics, shouldn't we be asking whether, from a government finance perspective, bankruptcy is a realistic or viable option for the county?

A recent article on the Governing website examined the question of whether we're likely to see a surge in government bankruptcies nationally. It found the answer, generally speaking, to be "no." The article features excerpts from an interview with Robert A. Kurtter, a senior public finance official from Moody's credit rating agency. Among the points in the article that are relevant to Milwaukee County's situation:

• Local governments across the country clearly are being squeezed and facing agonizing decisions regarding whether to cut services, raise taxes, or both. Nevertheless, the specter of bankruptcy typically is tossed around as a rhetorical tool, as opposed to a legal one. As Kurtter puts it, "There may be talk about governments being bankrupt and insolvent when what is meant is 'We don't want to raise taxes and don't want to spend so we have to cut.'"


• Municipal bankruptcies typically occur when governments no longer can afford payments on their debt. Kurtter expects defaults at a higher rate than after previous recessions, but they should continue to be "rare and idiosyncratic," and likely will be linked to huge capital projects (like incinerators or steam plants) that "went bad."


• When the city of Vallejo, California, resorted to bankruptcy three years ago to seek relief from unaffordable union contracts, many thought it would set off a wave of similar filings. That hasn't happened, according to Kurtter, because "municipal bankruptcy is expensive, it's time consuming and the outcome is not at all clear...governments understand they need to figure out how to balance budgets and deliver essential public services now."

The Public Policy Forum has not minced words in our assessment of Milwaukee County's financial situation. In a July report, we cited the county's own projection of a $100 million structural deficit by 2014 and called its long-term budget prognosis "alarming." And, in a March 2009 report, we stated that "while the county enjoys cash solvency and a reasonable debt service level, annual reductions have not achieved financial equilibrium, and the county's fiscal condition remains highly unstable."

Still, we have suggested that despite its deep structural imbalance, the county's fiscal woes stem mostly from a lack of political consensus on how to plan for and manage its financial challenges. That reality - combined with the county's continued strong capital debt management, its huge inventory of physical assets, the fact that it is tens of millions of dollars below its state-imposed property tax levy cap, and the uncertainties regarding bankruptcy's legality and its impacts on critical county services - makes it difficult to imagine a bankruptcy declaration any time soon.