Tag Archives: Georgia

New York’s Population Challenge

Last week at City Journal, Aaron Renn explored the New York region’s loss of domestic residents since 2000. He demonstrates that one of the world’s economic powerhouses is falling victim to the trend of domestic outmigration that New York state is seeing. Between 2000 and 2010, the New YOrk region lost 2 million domestic residents and they took with them billions of dollars of income. In Freedom in the 50 States, Will Ruger and Jason Sorens rank New York as the country’s least-free state based on its regulatory and tax regimes. They point to its tax burden — the highest in the nation —  and indebtedness as a factors contributing to the state losing 9-percent of its domestic population on net since 2000. Renn also posits that high tax rates are a leading cause for residents leaving New York City, many of them moving to Sun Belt states.

While the New York City region is only maintaining a positive population growth rate through births and international immigration, it’s far from the case that no one is willing to suffer its high tax rates in exchange for the city’s economic dynamism and cultural amenities. Rather the city’s exorbitant rental rates demonstrate that millions of people are willing to pay a premium to live in the region in spite of city and state policies that hamper economic development.  The vacancy rate for apartments is below 2-percent, well under many estimates for the natural vacancy rate. While lower taxes at the state and municipal levels in the New York region would reduce the flow of domestic outmigration at the margin, they would also increase competition for the city’s coveted apartments.

Are New York City’s amenities so desirable that its policymakers don’t need to worry about losing more residents to other states than they’re gaining? Its own not-so-distant history indicates that even the Big Apple is susceptible to the ravages of population loss. From 1950 to 1980, the city’s population fell from 7.9 million to 7 million, with most of that loss occurring in the 1970s. This time period corresponded with sharp increases in crime and the city’s famous default. These are predictable consequences of urban population decline, particularly in indebted cities where a decrease in tax base equates with inability to meet obligations to creditors .

While pursuing policy reforms designed to boost the state’s competitive standing to attract businesses and residents is a key piece of ensuring the city does not fall prey to population exodus, perhaps most importantly, city policymakers should examine their land use restrictions that limit would-be residents from moving to the city. Over the past decade, New York’s housing stock has grown only 5.3% in the face of the highest rental rates in the country for much of this time period. Historic preservation, density restrictions, and an onerous review process prevent the city’s housing stock from growing to meet demand.

Renn points out that most of New York’s domestic inmigration comes from midwestern cities and college towns across the country. Presumably many of these new residents are early in their careers and are on the margin of being able to afford New York rents. If New York housing were more attainable, more American young people would select the city as the starting place for their careers and it would attract more of the foreign immigrants essential to maintaining the city’s diversity and innovation. Ed Glaeser explains that those states that are successfully attracting more residents, like Texas and Georgia, are also those in which developers are able to build more housing with fewer restrictions. By allowing more housing in New York City and the surrounding areas, policymakers would both protect their tax base and help to maintain the city as a center of innovation and economic growth. In their effort to retain citizens — and particularly high-income retirees — New York City and New York state policymakers will need to revisit their punishing tax schemes. But at least as importantly they should focus on allowing those residents who would like to move to the city for economic and cultural opportunities to be able to afford to do so.

 

 

 

 

New Edition of Rich States, Poor States out this Week

The fifth edition of Rich States, Poor States  from the American Legislative Exchange Council is now available. Utah took the top spot in the ranking of states’ economic competitiveness, as it has every year the study has been produced. Utah excels in the ranking system because it is a right-to-work state, it has a flat personal income tax, and no estate tax, among other factors considered in the study.

The other states that round out the top ten for Economic Outlook include South Dakota, Virginia, Wyoming, North Dakota, Idaho, Missouri, Colorado, Arizona, and Georgia. On the bottom end of the ranking, the states with the worst Economic Outlook are Hawaii, Maine, Illinois, Vermont, and New York at number 50 for the fourth year in a row.

Several measures of economic competitiveness offer supporting evidence that these states have some of the worst policies for business including Mercatus’ Freedom in the 50 States and the Tax Foundation’s State Business Tax Climate Index.

The authors of Rich States, Poor States, Arthur Laffer, Stephen Moore, and Jonathan Williams demonstrate Tiebout Competition in action. They find a strong correlation between the states that have high Economic Outlook rankings with the states that are experiencing the highest population growth through domestic migration. Likewise, the states that experienced the largest losses due to out-migration include Ohio and New York, ranking 37th and 50th respectively.

The study draws attention to the role that unfunded pension liabilities play for states’ future competitiveness, as this debt will require difficult and unpopular policy decisions as current tax dollars have to be used to fund past promises. Laffer, Moore, and Williams draw a comparison between Wisconsin’s recent reforms that put it on a more sustainable path compared to its neighbor Illinois:

In stark contrast to Wisconsin’s successes, the story in Illinois is not so uplifting. Over the last 10 years, Illinois legislators have continuously ignored the pension burden in their state—so much so that Illinois has one of the worst pension systems in the nation, with an estimated unfunded liability ranging from $54 billion to $192 billion, depending on your actuarial assumptions. Furthermore, the official state estimates do not include the $17.8 billion in pension obligation bond payments that are owed. In addition, Illinois policymakers have spent beyond their means, borrowed money they don’t have, and made promises to public employee unions that they cannot fulfill. Not only did Illinois face significant unfunded pension liabilities, but also lawmakers had to confront large deficits and potential cuts to state programs.

While the policies that improve state economic competitiveness are clear, the path to achieving them is difficult after voters grow accustomed to programs that their states cannot afford. However the bitter medicine of reform is worthwhile, as we know that economic freedom is not only better for business, but evidence shows it also improves individuals’ well-being.

Reforming State and Local Pension Plans

The Government Accountability Office recently issued a report that provides a nice analysis on the changes that have been taking place in state and local pension plans over the past few years. According to the GAO’s tabulations, the following reforms have been implemented since 2008:

 • Reducing benefits: 35 states have reduced pension benefits, mostly for future employees due to legal provisions protecting benefits for current employees and retirees. A few states, like Colorado, have reduced post-retirement benefit increases for all members and beneficiaries of their pension plans.

• Increasing member contributions: Half of the states have increased member contributions, thereby shifting a larger share of pension costs to employees.

• Switching to a hybrid approach: Georgia, Michigan, and Utah recently implemented hybrid approaches, which incorporate a defined contribution plan component, shifting some investment risk to employees.

The reforms listed in this report seem to indicate that some states and localities are taking a step in the right direction in regards to pension reform. There is, however, a lot more work that needs to be done. One reform, for example, that we need to see more of is shifting public sector pensions from defined benefit to defined contribution plans (see Scott Beaulier’s recent paper for more on this topic). As the GAO report points out, roughly 78 percent of state and local employees participated in defined benefit plans in 2011 – compared to 18 percent of private sector employees.

Another important topic that this report touches on is the discount rate debate. That is, whether or not states should base the discount rate on the expected return of plan assets or on relevant interest rates in the bond market (Eileen Norcross has done some valuable research on this topic here and here).

 

Requiring Volunteer Work for Unemployment Benefits

Georgia’s historically high unemployment rate coupled with the fact that its unemployment trust fund has recently reached insolvency, has led law makers to reconsider the structure of their state’s unemployment system. One solution posed by John Albers, a Republican Senator in Georgia, is to require unemployed individuals to volunteer for at least 24 hours a week with a nonprofit organization in order to receive their unemployment benefits.

The problem that Albers is seemingly trying to address is the idea that generous unemployment benefits can increase the attractiveness of unemployment. As Eileen Norcross and Emily Washington argue in their paper The Cost and Consequence of Unemployment Benefits on the States:

The perverse incentives of unemployment benefits are well documented. Subsidizing unemployment draws out a job search. Generous benefits that subsidize “temporary idleness” may result in “chronic idleness.” As the state makes chronic idleness more attractive, more and more people will choose that option over productive employment. As people remain unemployed, their decreased spending will slow production throughout the economy, and the system will become less and less sustainable.

I think Albers’s solution is an interesting idea in the strict sense that it is a creative approach to making unemployment benefits less desirable. Essentially, requiring volunteer work increases the costs of collecting unemployment benefits and thus, in theory, creates a greater incentive for individuals to decrease the duration of their unemployment.

I do not, however, think that this legislation will fix Georgia’s unemployment fund. There are two big problems with the solution posed by Albers: (1) there are legal barriers that will likely prevent this legislation from becoming law and (2) the problem isn’t volunteer work, its unemployment.

A better way to address the solvency of Georgia’s unemployment trust fund is the creation of private Unemployment Insurance Savings Accounts (UISA). Instead of making compulsory contributions to public trust funds, UISAs require employees and employers to contribute to individual savings accounts that the employees can access during unemployment. If an individual is never unemployed, the money accrued in their UISA rolls over into their retirement account. As Norcross and Washington make clear, the virtue of UISAs is that they turn unemployment insurance into savings.

It is important to point out that the idea of UISA is somewhat controversial because it requires individuals to save. In other words, it moves the system from forced unemployment contributions to forced savings. Although both systems are coercive, UISAs would certainly be a step in the right direction for Georgia and will likely be a better solution than forcing people to volunteer (which, after all, is oxymoronic).

Two States Are Cutting Back on Alcohol Regulations

Earlier this week, voters in the state of Washington passed Initiative 1183 which will close state-run liquor stores and allow for privately owned retail stores to sell liquor. This move effectively ends the state’s 78 year-old monopoly on the sale of alcohol. In a similar move this week, voters in Georgia showed an overwhelming support for repealing the state’s “blue laws” which prohibited the sale of liquor on Sunday.

With regards to Washington, the move to privatize the sale of liquor is certainly not a new idea. In fact, just last November, citizens in the state of Washington voted on two ballot initiatives, each attempting to end the state’s reign over the sale of alcohol.  However, neither ballot received enough votes to become law.

It is of no surprise that heated debates often arise when the state control of alcohol is questioned. Naturally, various questions arise in regard to liquor privatization. For instance, what will happen to the people currently employed in Washington’s state-run liquor stores? More importantly, though, what effects, if any, will privatization have on social outcome measures such as alcohol consumption and/or alcohol-related traffic fatalities?

These are precisely the questions that Mercatus scholars Antony Davies and John Pulito seek to address in their paper titled “Binge Thinking.”

In regards to job loss, the authors argue that although privatization may initially cause some job loss among individuals working in state-run liquor stores, it’s important to recognize that

many of the jobs will not disappear, but will merely shift from the public to private sector.

As Davies and Pulito further point out, one of the common arguments against the liberalization of alcohol control laws is the idea that

because state stores are not profit driven like private firms, privatization would result in increased alcohol consumption and problems associated with alcohol consumption, such as impaired driving.

However, the authors find evidence suggesting that

 States that recently privatized their liquor industries experienced a significant decline in per-capita alcohol consumption.

And

 States that have liquor controls experience significantly higher DUI-related fatality rates than states without controls.

Therefore, by liberalizing their alcohol control laws, Washington and Georgia may have created safer and more efficiently run alcohol industries. The other 17 “control states” should consider making similar moves.

Governor Christie’s pared down budget

The Star Ledger reports that Governor Christie, “took an axe” to the state’s budget and “slashed $900 million in a budget he blasted as ‘unconstitutional.'” Cuts were made to state aid to municipalities, college tuition aid, Medicaid and aid to suburban schools leaving $640 million in surplus. He also vetoed bills to tax millionaires for more school funding aid.

In an analysis of New Jersey‘s fiscal problems we found that these areas are some of the primary weaknesses in New Jersey’s budget. The school aid formula, guarded by the court since 1976, effectively prevents the legislature and Governor from making appropriations decisions. This result of the court’s involvement in school funding has been a fiscal and educational disaster for the state. Since the 1970s many changes in tax rates have been to the income tax in order to fund schools and provide aid to municipalities. Over thirty years later and there are few to no improvements in urban school districts. The price for New Jerseyans is one of the most progressive income taxes in the nation and a property tax crisis.

As for Aid to Distressed Cities this program highlights another long-running problem in New Jersey’s fiscal landscape. Several of its cities rely on state aid in lieu of property tax revenues because they have not recovered from long-running economic problems. The problem with state aid is that it masks the cost of spending to local residents,  subsidizing local inefficiencies and the continuance of failed approaches to local economic development.

Inefficiencies and poor performance are rampant in areas that have relied heavily on aid, notably the education system. What is needed is the kind of reform being discussed by some leaders in the state – both Republican and Democrat. Cities like Camden need to be able to try new approaches to schools. A new pragmatism among Democratic city leaders in other parts of the country shows a willingness to confront fiscal reality and ask: how much of our budget is being consumed by unsustainable benefits packages and how much is left over to  run the city? Atlanta, Georgia, Montgomery County, Maryland are two such recent examples.

Reforming disability retirement in Montgomery County, MD

On the heels of Atlanta, Georgia’s sweeping pension reforms, and the cooperation of New Jersey Republicans and Democrats to reform pension and health care benefits, comes the news that City Council President (and former private sector labor leader) Valerie Ervin lead the Montgomory County Council to vote to reform disability retirement for public workers. Unions opposed the measure saying it was an issue for collective bargaining. Ervin’s reply: the council has stayed out of disability retirement for 21 and half years waiting for the unions to budge to no avail.

The political shakeup resulting from public union intransigence is noteworthy as  Robert McCartney writes in The Washington Post. Public unions wield political power. Last year a city council member was voted off the board due to union opposition for backing pension reform. In Montgomery County, “unions have played an out-sized role in politics…partly because they’re open-handed with campaign contributions and campaign workers.” Ironically perhaps union support and “boots on the street” were instrumental to Ervin’s election in 2006.

What has changed in a year? State and local budgets haven’t improved. Revenues are tight and the costs associated with benefits, often negotiated with unrealistic and erroneous accounting assumptions, are beginning to eat up larger portions of the funds used to operate services. Unions’ strategy of refusing to face numerical reality has led to budgetary gridlock and the emergence of a newly pragmatic tenor in labor-government negotiations.

 

Assorted Links

Amity Shlaes summarizes a report by Scott Moody (of the Public Choice Analytics) that compares the relatively free state of New Hampshire with less-free Maine.

FSU’s Bruce Benson makes the case for private security officers.

The Wall Street Journal takes note of a privatization trend across U.S. cities. This may be gated, so here is the punch-line:

California is looking to shed state office buildings. Milwaukee has proposed selling its water supply; in Chicago and New Haven, Conn., it’s parking meters. In Louisiana and Georgia, airports are up for grabs….About 35 deals now are in the pipeline in the U.S., according to research by Royal Bank of Scotland’s RBS Global Banking & Markets. 

 

Legal Plunder

How does law enforcement finance operations? Increasingly, police departments across the country pay for their activities, equipment and supplies by seizing the assets of people who have never committed a crime. It’s a process called civil forfeiture, and it’s at best, controversial. At worst, it provides direct monetary incentive for states and the federal government to steal property from innocent citizens. Gives a whole new meaning to Bastiat’s “legal plunder.”

Radley Balko explains how civil forfeiture perverts the “protect and serve” motto by introducing a profit motive: Continue reading

Public Transit 2010: Higher Fares and Less Service

The Wall Street Journal reports higher fares and less frequent service will hit public transit systems nationwide this year. About $8.4 billion of the $787 billion stimulus  meant to boost state and local budgets and prevent transit cuts has only pushed forward tough decisions by 11 months. Chicago will furlough some transit workers. San Francisco is raising fares to close a $129 million budget gap. And New York is cutting service. Transit riders may well be frustrated in 2010, but ultimately that’s because riders aren’t customers, they are beneficiaries of a subsidized service. As Sam Staley writes at Planetizen, only one-third of transit’s revenues come from fares, the bulk comes from tax revenues and federal grants. Urban transit systems have evolved as a product of political lobbying not in response to rider needs.

The crisis in budgets has a silver lining. More cities and states may be forced to pursue fundamental reform. Leonard Gilroy writes in the Reason Foundation’s  23rd Annual Privatization Report, Chicago leased its parking meters and Dunwoody, Georgia is contracting out non-safety-related services. Given the revenue outlook for local and state governments 2010 may be the year that cities finally try and fix what ails public transit.