Tag Archives: Fairfax County

Abusing disability pensions in Montgomery County?

The Washington Examiner takes a look at  disability pensions in two counties: Montgomery County, Maryland and Fairfax County, Virginia. Each county has a similar-sized police force. Between 2000 and 2008, no Fairfax County police offers received a disability pension. Between 2004 and 2009, a total of 91 police officers and 49 firefighters and sheriffs deputies received disability pensions. A further 34 Montgomery County firefighters either received disability payments or have an application pending in 2010.

Councilman Phil Andrews (D-Gaithersberg) is investigating the practice, “What is suggests is that disability retirement here is used as an alternate retirement system.”

Why? It’s a good deal, a retiree receives two-thirds of their annual salary in a tax-free pension. Secondly, according to one anonymous police officer, “Do you have any idea how easy it is to claim disability?”

State and Local Economic Development Programs

Fairfax County’s Economic Development Authority has opened a new office in Los Angeles. Their aim is to lure Californians who are fed up with the Golden State’s web of taxes and regulations. 

It is true, of course, that California’s business climate is abysmal. According to Sorens and Ruger, California is number 44 in terms of fiscal freedom (with 50 being the least-free), and 46 in terms of regulatory freedom. Other indices come to the same conclusion. Kail Padgitt of the Tax Foundation, for example, evaluated states based on their business tax climate and California came in at #49.

Virginia, by contrast, does decently well in both reports. By Sorens and Ruger’s measure, the state is the 13th most-economically-free in the nation and by Padgitt’s, its business tax climate is the 12th-best.

Given the important link between taxes and economic prosperity—see studies by Agostini and Tulayasathien (2003); Mark, McGuire, and Papke (2000); Harden and Hoyt (2003); and Gupta and Hofmann (2003) or reviews by Helen Ladd (1998) or Padgitt (2010)—it might seem only natural for Virginia to highlight its relatively low-tax environment. 

The irony, however, is that taxpayer-funded projects like an economic development office located 2,285 miles away from the county make it more-difficult for Fairfax to maintain its competitive tax rates. More expensive than the office itself are the handful of subsidies and tax expenditures that the state and the county offer to businesses that relocate or that meet special criteria (these subsidies include the option for the state to dole out “discretionary, deal-closing” benefits).

Proponents of economic development programs will no doubt contend that these expenses pay for themselves. But the economic literature is far from conclusive on that score.

Some studies find that targeted incentives lead to employment growth in the industries they target.

But others find evidence to suggest that these results are exaggerated. Examining 366 Ohio firms, for example, Gabe and Kraybill (2002) found that incentives have large effects on announced employment growth but modest or even negative effects on actual employment growth.

According to a recent Wall Street Journal article, some states and localities have begun to notice this discrepancy. John Garcia, the economic development director in my hometown of Albuquerque recently announced that the city was trying to collect nearly half a million dollars in property tax abatements that were given to a call center that relocated and then closed shortly thereafter.

But the real question is not whether these types of incentives are a good deal for the firms that receive them (one would think they would be!), but rather are they a good deal for the state at-large?

In a case study examining Virginia giveaways, Alwang, Peterson, and Mills (2001) draw attention to the fact that “most economic development events involve winners and losers.” For example, other firms may have to pay higher costs for purchased inputs. They found that the benefits doled out to one firm cost others more than $1 million, annually.  

Sweet deals can also crowd-out legitimate government expenditures on true public goods. Burstein and Rolnick (1996), write:

[W]hen competition takes the form of preferential treatment for specific businesses, it misallocates private resources and causes state and local governments to provide too few public goods.

Furthermore, cost-benefit analyses of economic development deals rarely account for the so-called rent-seeking losses that such deals inevitably invite: firms will sink millions of dollars into societally useless activities—lobbying and ingratiating themselves to the politicians—in an effort to win these privileges. The money they spend on smart and expensive lobbyists, lawyers, and accountants would be better spent developing new products and services that actually provide value to customers. These losses are hard to measure but that does not mean that they don’t exist.

In my view, states and localities should aggressively compete with one another over businesses. And part of that competition should involve figuring out ways to provide public goods at the lowest possible tax and regulatory cost. But this cost should be low for everyone, not just for the politically-connect firms.

HT to my colleague, Dan Rothschild, for directing me to the news about Fairfax County.

Fairfax County Considers Move to 401(k)s

Via the Washington Examiner, yesterday two Fairfax County Supervisors suggested moving employees from a defined benefit pension to a 401(k) retirement plan.

“A dip in the stock market can cause an immediate and unexpected need for an employer — in our case the government — to increase their contribution to the retirement fund,” [Supervisor Pat] Herrity said. “We all know there are only two ways to pay for [retirement funding shortages]: cut something else in the budget or raise taxes.”

Allowing easier forecasting for retirement payments, defined-contribution plans such as 401(k)s have become more popular with employers and governments in recent years. Montgomery County employs such a system.

Dan, Eileen and I have written before on the problems with defined benefit systems, but it looks like some of our neighbors haven’t been paying attention.

“We’re not making the salaries we would be making in comparable private positions,” [Fairfax County Government Employees Union President Karen Conchar] said. “You’d end up with a less motivated staff if you went to a defined-contribution-type plan. It would not be good.”

Ms. Conchar is flatly wrong on all three points. First, nationwide, public employees make significantly more than the private workers who provide for their retirement.

The only possible explanation for Mrs. Conchar’s claim would be specific to Fairfax County, which is one of the largest and wealthiest places in the country, and likely an outlier to national data. Even given that, it’s strange to complain about living in an uber-prosperous area.

Second, can anyone explicate the perverse incentives that would explain her “less motivated” remark? 401(k)s force employees to take a responsible and accountable role in providing for their own retirement, without the risk that unions or legislatures will use pension plan trust funds as political slush funds. When are people more motivated: when they have incentives to act responsibly and care about something, or when they’re given unconditional promises?

Lastly, it would be a good move, saving Fairfax taxpayers money, and providing a more secure retirement for public servants. Everybody wins.

Can Tysons be Fixed?

Last week, Tyler Cowen wrote about planning issues in Northern Virginia on Marginal Revolution.  He compares Tysons Corner to Clarendon, demonstrating the importance of street layout in urban development. While the two areas are geographically close DC suburbs, they have very different atmospheres because Clarendon has successfully fostered pedestrian-friendly mixed use development, while Tysons has a lower residential density, fewer public transportation options, and roads that are much more difficult to traverse on foot.

Fairfax County planners are in the process of creating a redevelopment plan, promoted as a way to make the area more urban and less car-dependent. Cowen points out that simply providing incentives for higher residential density will not necessarily give Tyson’s the vibrant street life experienced in Clarendon:

The whole area is carved up by major roads, including three significant highways, one of which could be called massive.  Try crossing Rt. 123 at Tysons Corner or try crossing Rt.7. Even some of the “small” roads on this map are harder to cross than is the main Clarendon/Wilson thruway in Arlington.  It’s not just the roads and the overpasses; crossing or circumventing either major shopping center is a daunting experience.  Furthermore very little is laid out in a line and thus the presence of Metro stops (right now there aren’t any) would not cover the area nearly as well as they do in central Arlington.

Even for those not familiar with these Northern Virginia suburbs, Cowen’s description of Tysons probably conjures images of urban sprawl problems across the country. On his blog The Bellows, Ryan Avent responded to Cowen:

At any rate, it does seem odd that once again, we have a libertarian-ish figure cheering on the planners’ decision to artificially reduce density.

It has been widely asserted by writers such as Will Wilkinson that libertarians tend to support government incentives that favor roads and driving as opposed to public transit, even though both require taxing, spending, and distortions of the free market.  This larger issue may be a relevant point for debate in future developments. In existing suburbs, it remains true that existing traffic patterns that are not navigable on foot are difficult, or at any rate very costly, to redesign into bustling city neighborhoods.

For creating blocks that support high residential density and mixed use, Jane Jacobs recommends short blocks and small streets, similar to those witnessed in Clarendon, although it is easy to imagine that she would like to see much wider sidewalks even there. However, it is worth considering whether her policy recommendations would be feasible in a place like Tysons where land value is very high and the urban geography is already completely designed for transit by car.

Cowen recommends focusing on new, more urbanist developments in other parts of Northern Virginia that are currently less built up than Tysons, which may make more sense. Working within the municipal government confines that currently rule streets and zoning, cost benefit analysis must be relied upon instead of market signals.