State-Federal Relations: A Clever Deal

In an article for The New Republic, Greg Easterbrook places the blame for deficits in state governments on ... state governments, and not, as state-level politicians are fond of doing, on Washington DC. This isn't a new story here; I've often criticized state governments for their outrageous spending habits. But Easterbrook uncovers a political game so beautiful (from the point of view of state officials) that I'm ashamed to have not thought of it before

Ever since World War II, the nation's governors, Republican and Democrat alike, have relied on a bookkeeping switcheroo in which Congress taxes Americans (that is, residents of states) at a higher rate than the federal budget actually requires and then sends some of the revenue back to states. This arrangement allows governors to denounce the big spenders in Washington while simultaneously relying on the big spenders in Washington to keep state budgets in the black. It also allows state income taxes and other local levies to be artificially lower than if they reflected the true cost of state spending, while focusing voter rage on a federal tax line that is artificially high.

In fiscal year 2002, Washington DC sent more money to states than it spent on military defense. Rather than blaming the current federal deficit on the Bush tax cuts, in other words, critics ought to point to money sent to the states.

Easterbrook isn't entirely on the mark--he suggests that states raise taxes, for example--but his thesis that the shell game should come to an end makes for compelling reading. Well, at least as compelling as reading about state budgets can be.
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Lighting the Way
Here's a light topic for the day. As a lifelong resident of the Great Lakes region, I enjoy looking at lighthouses (there's a large framed print of one in my office), and sometimes wonder what living at one of those places would be. So that's the 'up-close-and-personal' for the month.

But there's a public policy angle to lighthouses as well. They were, by and large, government-operated means of helping provide safe navigation. In today's terms, we'd call that a public-private partnership, and true-blue market-oriented folks would be calling for a way to privatize the operation of lighthouses. (I believe that someone has even argued that lighthouses are not, in fact, "public goods" of economic theory.) Their commercial functions were made obsolete by the advent of electronic devices on ships, such as radar and now, of course, GPS.

But lighthouses have value as tourist and historical sites. The U.S. Coast Guard, not being in the business of operating tourist attractions or historical sites, has 300 lighthouses to dispose of.

One of those is in Currituck, North Carolina. For two years, a private group, Outer Banks Conservationists, has been fighting Currituck County for right to take over the local lighthouse. Earlier this week, the Department of Interior sided with the private group, saying they were better able to maintain the lighthouse. The Department already awarded the lighthouse to the group--back in March--but the county objected. On Wednesday, the Department reaffirmed its decision.
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Profligate Spending is Bipartisan
Stateline.org provides a quick run-down of the recent meeting of ALEC, the American Legislative Exchange Council. Part of the "vast right-wing conspiracy," ALEC is a membership organization of state legislators.

The hook of the story are a few choice quotes from Richard Veddar, an economist at Ohio University.

"Some of the most outrageous and perverted acts of fiscal irresponsibility are occurring in such GOP strongholds as Alabama, Nevada and Ohio. By contrast, some relatively liberal governors, such as Bill Richardson in New Mexico, have shown some spending restraint and actually have cut some taxes. In recent years Republicans in many states are acting like Democrats without the charisma or the heart.

A quick review:

• In Nevada, the Republican governor sued the state legislator after it refused to raise taxes.
  
• In Ohio, the Republican governor lead the Republican legislature in an effort (successful) to raise the sales tax 20 percent, and hike over 150 fees.
  
• In Alabama, the governor wants to reconfigure the tax system, and end up with a net tax increase, in the name of Jesus. (The measure is so radical it requires voter approval in the fall.)

But the picture is not completely dismal:

• In Wisconsin, a Democratic governor and Republican legislature have completed a budget that eliminates a deficit without a broad-based tax increase.
  
• So has a Republican governor and a split legislature in Minnesota. (Minnesota! Home of Scandinavian-style socialism!)
  
• In Michigan, a Democratic governor and Republican legislature are almost done doing the same.

As the stateline article points out, fiscal conservatives do not call for the dumb approach--cutting spending across the board. (It's better than nothing, but still ...) Rather, they wants "lawmakers to take a more business-like approach to state government that involves using technology to make government more efficient, privatizing some government functions and consolidating state agencies where duplication is a problem."

Texas is set to eliminate 2,000 state government jobs, for example, by collapsing 12 departments into 4. As William Eggers says, it beats laying off teachers.
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Word of the Day
Actually, it's more of a phrase from the study of logic--or perhaps, illogical thinking.
Reductio ad Hitlerum, which can roughly be defined as "Hitler thought or did thus and so; therefore, it's bad." Thanks John Derbyshire over at National Review Online Conservatives ("Gun control is bad; remember, Hitler used it") and liberals ("Better endorse gay marriage; remember, Hitler hated gays") are both guilty, though from what I remember, it's the liberal/statist camp that uses this logic more often.
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Why Raising Tax Rates is Costly
Writing in the Cornfield Commentary, David Hogberg summarizes why cutting taxes does more to stimulate the economy than increasing government spending. One reason is that cutting taxes provides all sorts of incentives for the private sector to act--in ways that better respond to consumer needs. Another reason, though, is the hidden cost of taxes: businesses and individuals incur costs--money they could have spent elsewhere--complying with the tax code; governments must hire people to enforce the tax laws; sales forgone because people choose to not buy something when a tax increases its price from $1.00 to $1.10. According to a study cited by Hogberg, "the cost of raising an additional $1 of revenue is close to $1.40" for the economy.
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Excuse Me Teacher, I've got to Take This Call
Also from Michigan, a new law there will allow government-owned schools more flexibility in whether or not they ban cell phones on campus. I suppose it's a good thing if local officials make the decisions rather than those farther away--after all, they are more familiar with the needs of the people involved.

One high-school student ridicules the rationale some schools have used to ban phone: ""If you're going to sell drugs, I highly doubt you're going to take out your cell phone in class to make drug deals."

In the days when dinasaurs roamed the earth, my junior high and senior high school buildings had a few pay phones. Still, parents ought to do what they can--how about not giving the princess a phone?--to eliminate the distraction that phones can be.
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Will Michigan Chase Transit Follies?
An official state panel will soon be floating the idea that Michigan spend up to $1 billion to buy land on urban fringes to preserve "open space" and counteract "suburban sprawl." The panel, headed up by two leaders of the more-government-is-better school of thought (former governor William Milliken, a Republican, and former attorney general Frank Kelly, a Democrat), will probably also offer the been-there-failed-at-that approach of transit-oriented development. A far better approach, one favored by the Senate Majority Leader, would address crime and lousy schools, two factors that encourage people to move out of cities.

For a market-oriented view of a way to deal with sprawl, read this report from the Michigan-based Mackinac Center for Public Policy.
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This Will be a Light Week for the PolicyGuy Blog
Later this week, I will be heading off to the family shack to hang out with three dozen member's of my wife's extended family at the shack on a hill near the lake. When claustrophobia strikes, there will be fishing (northern, blue gills, perch) and golf (bogeys, double-bogeys, and more) expeditions. Oh, I have a laptop, but once you've had broadband, it's hard to go back to a pokey dialup service, especially for blogging.
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What Else are Legislators For?
There's been a looming problem facing residents of Illinois.. It has not been addressed for years. Centuries, even. But now, thanks to the determined efforts of the legislature and the governor, residents of the Land of Lincoln can sleep easy at night, knowing they have a bright future.

So did officialdom find a way to bring all children up to grade level in reading? Enact a measure to restrain the growth of state spending? Reform health insurance laws to promote health while weakening the grip of trial lawyers?

Nope. Here's the latest accomplishment out of Springfield: popcorn is now the official snack food of the state. Pass the salt.
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Auto Insurance: Who's Responsible?
The Detroit News has an extended article about a problem that afflicts Michigan, and probably other states as well: inadequate auto insurance coverage.

As many as 1.1 million Michiganders are driving without insurance; half of the drivers in some Detroit neighborhoods are thought to be without insurance. The result is cost-shifting to other other auto insurance premiums, taxpayer funds, hospitals, and even health insurance premiums. The News reports that "the state's insured drivers paid $65 million in surcharges just to cover the medical bills of passengers in uninsured cars in 2001."

Insurance coverage is a requirement to get an auto registration (which is required, of course, for a car to be legal on the road), but enforcement is spotty; police have no way to know if someone presenting a proof of insurance certificate cancelled it five months before.

Michigan is a no-fault state, so in theory, the burden is on each driver to have his own insurance. That could solve the problem--everyone takes care of himself by buying a policy. But the culture of extensive cross-subsidization going on through Medicaid, cost-shifting in hospitals, and other areas is not going to disappear. A broader, though less satisfying approach is to take steps to boost the economic power of low-income families. Making the famously-generous benefit packages of insurance policies in the state may help too.

Roughly 30 states have enforcement programs, but Michigan has none. Perhaps it should start there.
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Tolls that Bridge Trolls and Yoopers
The Mackinac Bridge connecting Michigan's two peninsulas is a fine piece of engineering, and beauty. (It was the subject of my first "real" term paper; a project for a junior high class in Michigan history.) Unfortunately, it's also due for some major maintenance, including sandblasting off multiple layers of lead paint; completely replacing the railing and the road deck.

The question is how to pay for this upkeep, which amount to about $275 million. The fare, which has been $1.50 per passenger vehicle since 1969, was recently raised to $2.50. Some members of the state legislature are calling for the costs of fixing the bridge--which has been largely self-funded (though the bridge authority still owes the state $65 million from its original financing)--to be rolled into the state transportation budget.

That would be the wrong move. Not only would it rob state roads of badly needed repairs, but it would be a step away from the user-pay principle, which is a better way to build a road system than the sausage-making political process of allocating funds out of a state budget.

(A note to non-Michiganders: "Yooper" is the term for people who live in the Upper Peninsula, or "U.P.", while "Trolls" are those who, naturally enough, live "under the bridge.")
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The Unintended Consequences of Safety Mandates
If you're over 30 or so, you probably remember riding in the back of the family station wagon sometime--and not just sitting in the backward-facing seat, but on the hard surface of the flat bed. Maybe you actually used that area as a bed.

Today, of course, you would (if you could find a station wagon) be severely scolded by everyone you know for endangering your kids--if you weren't first ticketed by the police. (On the other hand, too many people let their kids roam the Internet unsupervised; another story for another day.)

With seat belt laws growing ever more restrictive (first, passive enforcement; now active), and mandated air bags, and standards for tire separation and blowouts just down the bend, you'd think that auto injuries and fatalities will become a thing of the past. Probably not. Aside from the simple problems of physics, government mandates of safety equipment can breed a false sense of security and lead to what some people call "compensating behavior." In other words, if you have an air bag, you may drive faster, thus negating, at least in part, the benefits of the air bag.

All this comes to mind as I am searching out information for a web site that I am building, devoted to snowboarding for adults, or as they are called, Grays on Trays. Here's an excerpt from a popular web site about ski and snowboard helmets:

Q: Why should wearing a helmet be a matter of personal choice?
A: While helmets may help reduce the incidences and severity of head injuries in the event of a blow to the head, they shouldn’t be perceived as a panacea for slope safety. What’s most important is for you to follow the “Your Responsibility Code,” the safety rules of the slopes. Slope safety education and personal responsibility are key to long-term slope safety.

The National Ski Areas Association encourages guests to consider wearing helmets because they are often helpful in reducing injury. However, they should be viewed as a second line of defense. Skiing safely and in control is the first line of defense. Some data suggest that increases in helmet usage can actually increase overall injury rates, as users develop a false sense of security and take more risks. For example, the U.S. Consumer Product Safety Commission released a study in July 2001 finding that while bicycle helmet usage is up and ridership is declining, head injuries among bicyclists are increasing. The latest data on ski helmets shows that while usage is up, head injuries have not decreased, and the severity of head injuries is significantly greater among the helmeted population than the non-helmeted population.

A few points from this FAQ are worth applying to the world of driving, and indeed, anything else that may be the subject of public policy:
- All behavior carries risk.
- It's your responsibility to know what those risks are, and how to minimize them.
- No safety device is going to replace good judgment and self-control.
- The law of unintended consequences still applies.
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Alternatives to Jail Tap Criminal's Pockets
A a U.S. District Judge set a limit on the number of inmates that Marion County (Indianapolis, Indiana) can hold in its jails. So the county has come up with three new alternative sentencing programs, which use either tethering (GPS for criminals, allowing parole officers and others to monitor a person's movements to make sure they remain in a specified area) or halfway houses. The programs, which are alternatives to jail for nonviolent offenders, are a big cost savings for taxpayers: $6.35 a day per inmate, versus $50 a day to keep someone in jail. One reason why the cost is so low: the offenders must pay their own way, about $12 a day.
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Property Tax Revolt in Wisconsin
Something other than beer may be brewing in Wisconsin: a property tax revolt. This Milwaukee Journal-Sentinel account notes that property taxes now account for 68 percent of all taxes collected in that state, having risen farther (553 percent) than inflation (374 percent) since 1970.

Now, high property taxes may not in themselves be much of a problem, if it wasn't for the sales tax, the income tax, and a host of other taxes. And some qualities of the tax are even desirable. The fact that it has to be paid twice a year (in most states), means that it (unlike income taxes, which are usually funded through withholding on monthly or even biweekly basis) is highly visible. Taxes should be highly visible--people ought to know that they are paying taxes, and know painfully. I'm not for pain per se, but the more that people know that government services are not free, the less likely they are to demand more of them, which is usually the path towards a better economy and society.

"I don't understand how government spending can increase more than our income does," said an angry Heather LaBonte, reacting to a report released last week that shows the family's December property tax bill could go up 5.9%.

She wishes their family income was going up 5.9% this year.

Yeah, me too.
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Land of the Free? Not in Your Car
Illinois becomes another state with a primary enforcement seatbelt law. Yes, it's foolish to not wear a seat belt. But no, it's not the state's business if anyone does or not.
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Security Problems with Government Schools
One allegation lodged against private schools (and by extention, voucher plans) is that they are not accountable, in contrast (allegedly) to government schools. But a story in the suburban Chicago Daily Herald makes you wonder just how tightly government schools are run.

According to this account, when it comes to checking out the background of teachers and school staff, "most school districts hope for the best and opt for the cheaper screen." The story mentions school officials or teachers who have served time behind bars, for fraud, drug dealing, and theft.

Now, a criminal background can, but shouldn't always mean the end to a teaching career. Obviously, a sex offense should be a disqualifying offense. And a conviction for fraud shouldn't necessarily disqualify someone from a teaching job (though perhaps for an administrative one.) And yes, privately owned schools can have their own bad apples as well. The simple point, though, is this: criminal activity, past or present, is a matter of concern to any organization. But when it is used as a reason to oppose increased educational choice; it's simply a red herring.
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