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James Cournoyer: Please Allow Municipalities to Have the Flexibility of a Three Platoon Firefighting System

[James Cournoyer sent the following e-mail to members of the General Assembly. It is published here with permission. Additional background on this subject is available here.]

Dear members of the General Assembly,

Please reject House Bill H-5473 and Senate Bill S-0533, which seeks to make fire-fighter Platoon Structures / Shift Schedules subject to Collective Bargaining, and therefore potentially subject to the decisions of unelected and unaccountable arbitrators.

These bills serve only to further erode essential Management Rights and the ability of municipalities to exercise home rule.

Employees are already afforded an abundance of work-place and employment protections via the myriad of state and federal labor laws and regulations that currently exist.

When the Students’ and the Teachers’ Interests Differ

This paragraph out of a 2010 Julia Steiny column has come to mind periodically ever since, but I somehow never got around to posting about it.  It makes an important point that is too easily forgotten as the state argues over standardized testing, teacher evaluations, charter schools, school choice, and even property taxes:

When Marcia [Reback, President of the RI Federation of Teachers] had had enough, she outted the elephant in the room. The interests of the teachers and kids are not the same, but were sometimes in direct conflict with one another. And when their interests diverge, she said, “I represent the teachers.” And shrugged. Who could argue with that?

Think about that.  Here we have a wealthy and powerful union organization, funded with money forcibly taken from taxpayers and frequently used to help elect politicians and modify laws in order to tilt negotiations and the entire educational landscape in its favor, whose mission is, at least in part, to advocate in opposition to the needs of school children.

Reback’s statement has come to mind for two reasons, this week.  The first is that the school choice legislation on which I’ve been working is being heard by the RI Senate Education Committee, today.  The second is that the 0.9% budget that I put in for Tiverton won, and the local school department has been threatening not to go forward with all-day kindergarten in the upcoming school year if it didn’t get its full budget request (even though doing so is a no-brainer).

In both cases, we’ll get some indication whose interests elected officials put first.

That’s a critical question at the local level.  Sure, most cities and towns probably have it written down, somewhere, that school committees are supposed to put the children first, but the incentives undermine that mandate.  Many school committees are stacked with teachers, whether retired or active in other communities, and many others were elected with the help of teachers unions and their activist allies.  Even if they weren’t, the nature of their position creates incentive to balance the demands of the teachers with the needs of the students and their families, not to advocate for the latter.

It’s an imbalanced system that can’t do otherwise than harm children.

 

First Hearing for Bright Today, Tomorrow

The legislation on which the RI Center for Freedom & Prosperity has been working that would implement the education savings account (ESA) variety of school choice in Rhode Island is scheduled for a hearing tomorrow.  It’s the second bill on the agenda of the Senate Education Committee, scheduled for room 313 at the rise of the chamber — somewhere around 4:30 p.m., give or take.

The bill in question is S0607.  Here is information about the idea.  And here is the membership list for the committee.

Legislation to grant freedom from government monopolies on this scale are a challenge in Rhode Island under any circumstances, but the public is going to have to show growing interest in the possibility for it to have any chance.

Robbing productive class Peter to pay college graduates Paul

Is the departure of recent college graduates keeping Rhode Island at the back of the pack economically? Progressives in the state’s legislature apparently think it would be beneficial to have taxpayers subsidize student loans. A look at student debt data suggests that would be a major burden on a population that’s already heavily taxed–and that the idea may, in fact, backfire.

The debate has been raging almost since the turn of the millennium: With Rhode Island’s population waning, who’s leaving?  The first assumption was that the rich were fleeing the high taxes, which inspired policies meant to keep them — like an alternative flat tax and a phase-out of the capital gains tax.

Progressives objected that the evidence did not show flight of the rich, and as it turned out, they were right.  The departing demographic was the “productive class” — families in that highly motivated period of their lives when they’re exchanging their time, sweat, and talents for a trip up the rungs to the middle class.

To make that group stay, though, politicians can’t cut taxes in exchange for the campaign support like do for the wealthy.  And the productive class doesn’t use direct government handouts, so the government can’t make them stay by handing out entitlements.  They need less regulations so they can work and innovate, and they need to be able to keep the money that they’ve earned, rather than having it taxed away.

If we look at who is sponsoring two relevant pieces of legislation on the subject, it becomes clear that Rhode Island progressives have decided to try and bribe recent college graduates into staying in the state. Based on the rationale described in the bills, they hope a younger crowd will be like their older brothers and sisters in helping the economy to grow.

Continue reading on WatchDog.org.

On HealthSource RI on State of the State

4-9-2015 HealthSource-RI: Cost, Performance, Future Funding from John Carlevale on Vimeo.

The key points come at the end, when I suggest that Rhode Islanders should see if their representatives and senators are on some of these bills for socialized medicine and never, ever vote for them again.  It’s frightening that people who want to do these things to us could get into office.

Getting Economic Development Wrong

Readers may get the impression of a broken record with this post.  Before I go on, perhaps I should explain to the younger folks that records were large black vinyl discs, of about 10 or 12 inches, that would spin on a table called a “record player,” with a needle following grooves in the plastic and thereby transmitted prerecorded audio.  If the record were scratched, the needle would skip across grooves and the listener would often hear the same phrase repeated over and over again.

Anyway, repetition is obligatory in Rhode Island, these days, because the people we’ve elected to public office have the completely incorrect view of economic development.  Here’s Governor Gina Raimondo’s Commerce Czar Stefan Pryor responding to the House Finance Committee’s concern that the governor intends to give him a great deal of money and discretion:

… Pryor bluntly told the committee that the corporation cannot grow the state’s economy without the programs proposed in the governor’s budget. He described a conversation he had with the corporation’s executive staff before he formally assumed his new role earlier this year. Pryor said he asked the staff how Rhode Island would attempt to compete with a company that arrived in the state with a list of project terms provided by another nearby state, such as New York.

“This is not a fictionalization. This is the actual answer I got back: We cannot — on any point,” Pryor said. 

“That’s a problem. We must ensure the appropriate level of accountability and the necessary level of flexibility to carry out this work. But the primary problem that we have is we can’t even counter. We can’t help our businesses in Rhode Island grow.”

Simply put, it should not be the role of government to take money away from the people who live in the state in order to outbid other states’ bribes to lure the economic actors whom government prefers to the state.  Rather, the government’s role should be to ensure that Rhode Islanders have the space — in stability, security, and infrastructure — to make their state a place that attracts the sorts of economic actors whom they prefer.

Politicians sometimes say that Rhode Islanders are Rhode Island’s greatest asset, but they don’t really mean it.  If they did, they’d let Rhode Islanders maximize their own efforts toward building their lives and shaping their state.

The technocratic, Raimondian method of economic development is akin to confiscating money from the music industry in order to subsidize companies that make enhanced record players when they should be leaving the money in the economy and trimming regulations in order to allow Rhode Islanders to develop cassettes, compact discs, and mp3 players.

Following Up on EITC

While looking into Rhode Island’s earned income tax credit (EITC) benefit for lower-income workers, I asked Director of Revenue Analysis Paul Dion to clarify something in the revenue expenditure report that his office maintains.  The answer might put Governor Raimondo’s proposal to increase the EITC in a new light.

Under current law, recipients of the EITC can receive 10% of the federal version of the benefit, and 100% of it is refundable, meaning that even if the credit is greater than their actual tax liability, they get the money back as a refund.  (I have confirmed, by the way, that beneficiaries do actually have to have some taxable income.)

The estimates for the cost of the program that I cited from the report were based on the law as it was before the General Assembly changed it last year.  Before, beneficiaries could get 25% of the federal EITC, but they would only receive 15% of a resulting refund.

That change slipped through without much notice, though, because budget documents paired it with a reduction of property tax relief for elderly and disabled residents.  The two changes together actually had a taxpayer savings of $3.9 million.  I, for one, had thought that meant the EITC change turned out to be a reduction, so both parts of the package were cuts.

According to Dion, that was not the case.  The EITC change actually increased the cost of the program by $4,293,291.  Roughly speaking, then, the cost of the program, in 2015, is more like $16 million, rather than $12.2 million, with an average benefit of $167 per year.

For the next budget year, Raimondo’s benefit increase would bring the total program up to $19.1 million, about a 70% increase over two years, bringing the total average benefit to around $192 per year.  The following year would bring the program’s cost up to $22 million or so, because the budget increases it by the same increment in the second year, essentially doubling the cost from its 2014 base.

Can Rhode Island really afford to continue ratcheting up its degree of income redistribution?  Add in other burdens on the economy, like the continually growing minimum wage, and it’s little wonder that our labor force is shrinking and employment struggling.

Regulatory Humility as an Illustration for Civic Principles in RI and IN

Federal Trade Commissioner Maureen Ohlhausen believes in “regulatory humility,” and policy makers on the state level would be wise to hear her out. The concept is one that seems like common sense, but examples in government and politics more generally suggest that humility is less attractive in practice.

With reference to economic theories by the likes of Friedrich Hayek that are, she says, not exactly in dispute these days, Ohlhausen explained at a recent American Enterprise Institute event that regulators should be aware of their limits.  Especially in an era of technological lunges, regulators can’t know everything about the industries that they regulate–let alone other industries that innovation might bring into competition–while facing an unknowable future.

A skim of the legislation proposed in any state will likely show a less-than-humble approach to regulating (although some will be worse than others).

Continue reading on WatchDog.org.

Governor Wants to Remove “Privilege” from Tax

Behold the power of a parody song.  Governor Raimondo’s office sent a request to the House and Senate finance committees yesterday:

The Governor requests that several amendments be made to Article 11 entitled “Relating to Revenues”, including changes to sections 3, 8 and 15. The changes requested are listed and explained below.

The bulk of the changes (irrespective of the actual impact of each one) are geared toward removing the language that, as I first pointed out last month, makes the “Taylor Swift Tax” on valuable second homes a tax on the privilege of owning the property, rather than on the property itself.  As a matter of legal and political philosophy that’s a massive affront to property rights, because it implies that owning property is not a right, but a privilege granted by the state.

Of course, this only adjusts the outrage from being an assault on rights to being a first step toward imposing a new tax on Rhode Islanders, and a duplicate one, at that — even a triplicate or quadruplicate one.  Rhode Island cities and towns already have property taxes.  Indeed, fire and water districts also levy taxes on real estate holdings, as do (or will) waste-water districts, like the one that the General Assembly just imposed on the people of Tiverton.

Apparently, reading all of the reports that the General Assembly has commissioned to study our tax and business environment, government officials took the fact that we have high property taxes as an indication that it was a good place to stick a syringe.  Here’s the new language from Governor Raimondo:

Imposition of Tax. (a) The tax administrator of the state of Rhode Island is empowered to impose a tax on non-owner occupied residential property within the state during any tax year commencing with the tax year beginning July 1, 2015 and every tax year thereafter.

In other words, the only thing making this a tax on high-end properties is the “definition” section of the legislation.  This could easily be adjusted downward as budget shortfalls require.

Worse, now that the tax is on the property, not the “privilege” of owning it, rental properties with “five or less units” will definitely be caught up in it.  A landlord renting out five units valued at $200,000 each (not exactly luxury living, necessarily) will be caught.  And as property values climb (assuming they do, in Rhode Island) more and more properties will be captured, even without the General Assembly lifting a finger to tighten the screws.

In the not-too-distant future, a family owning a relatively modest vacation home or renting out property will face up to four different taxes on it.  As the song goes: “Ask any economist, he’ll tell you we’re insane/But you know we love taxpayers, like hungers love game.”

Acknowledging RI’s Religious Freedom Law, Surreptitiously

Except on this Web site, hardly a word has been said or written about the fact that Rhode Island has a religious freedom law on the books very much like the one in Indiana that has proven so (quote-unquote) controversial.  That’s actually pretty surprising, inasmuch as the General Assembly promoted a press release with the title, “Sen. Nesselbush blasts Indiana over discrimination, urges businesses to relocate to Rhode Island.”  You’d think journalists would pick up on the fact that Nesselbush’s proclamation requires some caveats, if it isn’t simply an expression of ignorance.

Ian Donnis, of Rhode Island Public Radio was one exception, with his Friday blog-style post, but it’s a peculiar exercise in contrasts:

In contrast to the proposed religious freedom law that generated national headlines from Indiana this week, Rhode Island’s Religious Freedom Restoration Act has been a non-issue since it became law in 1993.

I had a few uncomfortable exchanges with Donnis on Twitter, because this item on his post goes on to present the substantive contrast of the laws as one of intent.  As I put it on Twitter, “What’s the point? If you want to protect religious freedom, you have to do it when it serves the progressive cause?”

In Donnis’s post, Steve Brown, of the far-left RI-ACLU, explains that “the purpose” of Rhode Island’s law was to protect religious minorities, typically those with dark skin.  (I interpreted some cynicism in that paraphrase.)  Given the probable points of view of Brown and like-minded activists, it’s difficult not to conclude, as I suggested this morning, that the Left considers laws to be conditional to its own purposes.

Rhode Island’s religious freedom act was meant to protect certified minorities in the name of popular causes.  That is “in contrast” to Indiana’s law, which activists attack because it protects white Christians against a popular cause.  (Otherwise, the story would be that Rhode Island’s “non-issue” suggests that left-wing activists are being deceptive and unreasonable about Indiana’s version.)

If you want an interesting contrast, by the way, look to Andrew McCarthy, who takes the view of a prosecutor worried that religious freedom can become a cover for terrorist organization.  McCarthy also worries that such laws as Rhode Island’s and Indiana’s err in giving unaccountable judges the power to determine what a “compelling public purpose” is and whether a particular policy is the “least burdensome” possibility for achieving it.

McCarthy’s procedural objection would be difficult to address, unless the idea would be for legislators to lay out very specific boundaries for freedom of religion, rather than allowing judges to consider actual circumstances for the individual cases that come before them.  Whatever the case, we should consider backing off a bit in allowing government to step into the interpersonal balances of our lives.

From my point of view in Rhode Island, where the rule of law seems more like a legal fiction than a reality, the branch that interprets the language is irrelevant if the only thing that matters, ultimately, is what the current progressive talking point might be.

Freedom of Religion in Indiana and Rhode Island

At the national level, Americans are being led to ignore any number of critical and pressing issues through a media-and-activist-driven condemnation of a religious freedom statute just passed into law in Indiana.  The hysteria has reached the point that companies that freely do business in communist China are boycotting Indiana, and Governor Dannel Malloy of Connecticut has implemented a travel ban to Indiana, despite the fact that his own state is on the list of those with such laws.

Rhode Island is also on the list, on the strength of Rhode Island law 42-80.1, the Religious Freedom Restoration Act, passed in 1993.  Arguably, Rhode Island’s law is stronger than Indiana’s.  Here’s the operative language in Indiana’s statute:

(a) Except as provided in subsection (b), a governmental entity may not substantially burden a person’s exercise of religion, even if the burden results from a rule of general applicability.

(b) A governmental entity may substantially burden a person’s exercise of religion only if the governmental entity demonstrates that application of the burden to the person:

(1) is in furtherance of a compelling governmental interest; and

(2) is the least restrictive means of furthering that compelling governmental interest.

Here’s Rhode Island’s language, for comparison:

(a) Except as provided for in subsection (b), a governmental authority may not restrict a person’s free exercise of religion.

(b) A governmental authority may restrict a person’s free exercise of religion only if:

(1) The restriction is in the form of a rule of general applicability, and does not intentionally discriminate against religion, or among religions; and

(2) The governmental authority proves that application of the restriction to the person is essential to further a compelling governmental interest, and is the least restrictive means of furthering that compelling governmental interest.

In Indiana, religious people only have protection if the government’s restriction is “substantial,” and the government can impose even “substantial” burdens if it can “demonstrate” that it will “further[] a compelling governmental interest.”  In Rhode Island, the government is not allowed to restrict the “free exercise of religion” at all, substantially or otherwise, unless it can “prove” that the restriction is “essential to further[ing] a compelling governmental interest.”

These may be shades of nuance, but given that the language is similar, with slightly more edge in Rhode Island:  Is anybody aware of any Rhode Island cases in the last 22 years in which (A) this law has been cited and (B) in which it has won a case in a way that could reasonably be seen as permitting discrimination?

UPDATED: Governor’ Raimondo’s $13.6 Million Refinance

Give this to our super smaht, financially savvy new governor: She knows how to pack a budget with things that require detailed review and analysis if the public is going to have any real sense of whether it’s a good or bad package, on the whole.

Jennifer Bogdan does the good work of digging into the big refinance part of Governor Raimondo’s proposal in today’s Providence Journal:

Roughly $64.5 million in Raimondo’s 2016 fiscal year budget would come from a refinancing effort. Another $20 million would flow in fiscal year 2017. The bonds in question have an average interest rate of 4.9 percent, but if refinanced the interest rate is expected to be lower than 2.34 percent. She calls the refinancing conservative and says it would be irresponsible not to consider a money-saving measure for the state.

By “money-saving,” what the governor means is that she’s using the restructuring to borrow around $84 million in the first two years.  In the third year, the state will actually have to pay about $10 million more in debt service, and the years will change between costing more and costing less over the refinancing period.  As shown in a table included with Bogdan’s article, when the state reaches the end, in 2032, it will have actually paid $13.6 million more in debt service.

That’s where the governor deploys an accounting trick to make the analysis a bit murkier.  In the words of Budget Officer Thomas Mullaney, “The key here is that we would not enter into this transaction if the state would not ultimately come out ahead.”

He’s referring to the fact that if you look at the present value of the changes in payments up and down over the sixteen years — in other words, adjust them for inflation to what they would be in today’s dollars — the real value of the changes is actually $225,238 less in debt service.

Like so many of the “bold and innovative” moves in the governor’s budget, that’s misleading.  For one thing, the assumed inflation rate is critical.  A rough spreadsheet suggests it’s 2.97%.  In that case, it would erase these so-called savings if inflation turns out to be 2.91%.  Below that, we’ll be well into negative territory.*

For another thing, the state isn’t going to treat the refinance like a restricted fund.  The state will spend the savings in the years that there are savings and will have to come up with the money in years that there are costs.  The money is going to have to come from somewhere to pay the extra debt service, and that somewhere will very probably have been worth more to the economy than simply inflation.  (Hey, maybe the governor should invest the savings along with the state pension fund, which the state assumes makes 7.5% profit every year.)

Simply refinancing from 4.9% to 2.34% interest for the same number of years would have saved a great deal of money that could have been left in the hands of Rhode Islanders.  Whatever the governor’s room full of smaht people do for economic development, they have to do better not only than the cost of the refinance, but also the economic activity of people acting without the government’s meddling.

UPDATE (03/27/15 8:37 p.m.): According to the governor’s office, the estimated rate of inflation is 2.44%, which my math leads me to believe would produce a $2 million cost to the refinancing, in current dollars.  I’ve asked for more insight into the governor’s math, but if anybody has an idea, I’d be interested to hear it.  There also must be something incorrect in the information out of the governor’s office.  They’re saying the refinancing is of $160 million of debt, but the Projo’s numbers have the state paying nearly that amount every year.

* Posting this of a Friday afternoon, I got my signs reversed.  I’ve fixed the relevant text.

Governor’s Office: Apartment Tax Not Intended

Ever since Governor Gina Raimondo announced a proposal to impose a statewide property tax on residential properties over $1 million, if their owners do not live in them for a majority of the year, debate has raged as to what would be included.  Much of the discussion has been behind the scenes, among people who follow Rhode Island policy closely and representatives of groups that might be affected.

Initially, anonymous blogger CoffeeBlackRI suggested that the tax would apply to rental apartment properties worth more than the threshold.  I replied with an interpretation of the law suggesting that it would not.

The director of Office of Revenue Analysis, Paul Dion, told Katherine Gregg of the Providence Journal that his estimate of revenue that would be produced by the tax included “two-to-five-family residences,” along with other properties.  Some observers took that as conclusive evidence that the tax would apply to small apartment complexes.

A budget summary from Ted Nesi, posted today on WPRI’s Web site, seemed to confirm the interpretation.  Nesi quoted from a report by the House Fiscal office, “It appears that the intent of the legislation and the revenue estimate excludes apartment buildings from the tax; however, as written, the tax would apply to these properties.”

In a statement to the Ocean State Current, Raimondo spokeswoman Marie Aberger echoed House Fiscal’s report, affirming that “the intent is to exclude apartment buildings.”

Specifically, the intent is to apply it to the following categories, if they are worth $1 million or more: non-owner occupied single family residences, two-to-five family residences (only if they are non-owner occupied and not available for long-term tenants), and non-owner occupied estates, seasonal and beach property, residential condos, time shared condos, dockominiums, mobile homes, and vacant residential land.

The “two-to-five family residences” category was included in the estimate from Revenue Analysis because available data does not allow finer differentiation.  For example, wealthy seasonal residents often employ groundskeepers who reside on the property year round.

According to Aberger, the administration’s plan had been to draft more-specific guidance while writing regulations to enact the law, if passed.  “However,” she continued, “we are happy to work during the legislative process to modify the language, if necessary, to ensure that the intent of the legislation is carried out.”

The “Twice on the Pipe” Tax

There appears to be unanimity that I was reading the legal language of the “Taylor Swift Tax” on second homes too closely when I wrote that it should not apply to apartment buildings.  Lawyers for landlord groups, analysts in the executive branch, and analysts in the legislative branch all agree that the net will snag smallish multifamily units, if they’re worth $1 million or more.

If we’re looking for a new nickname for the proposal, I’d suggest the “Tony Orlando Tax.”

But frankly, I’m still suspicious.  As a long-running concern, I think it’s a grave problem that all of us in the policy and law game fall to the legalistic practice of pretending that profound shifts in legal language (like taxing a “privilege” rather than a “property”) are just immaterial “terms of art.”  At the end of the day, the law isn’t what’s written on paper; it’s what lawyers and bureaucrats agree that it means, as a sort of legal clerisy.

Well, these things are “terms of art” until they aren’t… when we discover on some massive, crucial question that (quoting some future judge) “the principle that the ability to have and hold property is a privilege granted by the state is firmly established in the law.”  When that day comes, we’ll learn that the words as written actually did mean something, even though legal experts on both sides of the issue advised us to focus on more immediate traps and loopholes.

As a practical political matter, I have a hard time believing that Governor Raimondo and her staff thought they’d try selling this as a tax on rich vacation-home owners only to turn around once it had been passed and declare, “Ah-ha!  We fooled you landlords!”  At the same time, it’s difficult to believe that they didn’t pick up on the fact that even the guy estimating the revenue for them included such properties.

I suggest the new nickname of the “Tony Orlando Tax” not just because his most famous song was about a guy in an apartment, and not just because the video was filmed in front of a mansion-looking building, but because I think there’s political significance to the lyric:  “knock three times on the ceiling, if you want tax; twice on the pipe, if the answer is ‘no.'”

In order to sneak in the leading edge of a statewide tax on property — on the very privilege of owning property in the first place — the governor knocks on the ceiling asking to tax vacation property, vacant land, and year-round properties.  Then the landlords bang on the pipe to signal, “no, just the other two” and the mistake of including the most organized target for the tax is fixed.  Everybody’s happy, right?

The state’s Director of Revenue Analysis, Paul Dion, tells me that 111 of the 2,359 properties over $1 million that he included in his estimate are “two-to-five family residences,” accounting for 4.7% of the total take.*  That’s about $550,000 total — an easy concession to make in the course of negotiating a budget through the legislature.

* Note: An earlier version of this post characterized the 111 properties as “multifamily rentals,” which was how I asked the question. I should have used “two-to-five family residences,” which is how he responded.