Tag Archives: Reason Foundation

Opportunity for States to Protect Land Use

This post originally appeared at Market Urbanism, a blog about free market solutions to urban development challenges.

If this season’s political campaign rhetoric has demonstrated anything, it’s that governors love to take credit for job creation. What I haven’t seen any governor mention, though, is that there is huge opportunity for economic growth in relaxing zoning codes. Most obviously, allowing new opportunities for infill development will create construction jobs. More significantly though, in the long run, cities allow for faster economic growth (and job growth) than other locations.

The regulations that prevent cities from growing keep economic progress below what it otherwise would be. While researchers disagree over whether population density or total population is the variable that is most significantly correlated with economic growth, either way zoning plays an important role in holding back job growth, providing policymakers who are willing to deregulate with opportunities to improve their competitive standings next to other cities.

Political incentives stand in the way of this growth opportunity, however. Most zoning restrictions benefit a city’s current residents at the expense of potential residents. For example, minimum lot size requirements serve to raise the price of homes, preventing low-income people from moving into neighborhoods that current residents wish to keep exclusive. By changing this current order, policymakers risk losing the support of their homeowning constituents, and interest likely to be better organized than renters and potential city residents. Limitations on housing supply raise the value of existing homes, artificially raising the value of residents’ assets, which homeowners strongly fight to protect.

At the local level, policymakers are therefore incentivized to privilege homeowners’ interests at the expense of broad economic growth. At the state level however, the incentives may be different, such that economic growth may benefit state policymakers more than protecting home values. State policymakers have constituents who live in a wide variety of municipalities, some where land use restrictions are less binding in some than others. Additionally, homeowners will face greater challenges in organizing to support artificially propping up home values at the state level compared to the municipal level. State policymakers could therefore benefit themselves by setting limits on the how much municipalities are permitted to restrict development. Importantly, limiting the degree to which municipalities can restrict development does not force density; rather, it allows developers to provide more density if residents demand it.

California legislators considered a bill of this model earlier this year which would have limited cities’ abilities to set parking requirements in neighborhoods where transit is widely available. As Stephen explained, this bill came under criticism from both the American Planning Association and the Reason Foundation, both citing the need for local control of land use. However, this misses the key role of higher level governments within a federalism model.

After the Supreme Court decided in Kelo v. City of New London that municipalities have the power to use eminent domain for economic development, 44 states adopted amendments to protect their citizens from eminent domain for non-public use to various degrees. States did not have this type of reaction to Euclid v. Ambler, which set the precedent allowing cities to create zoning codes, but there is nothing stopping them from setting limits on cities’ zoning power now.  Federal and state governments have a role to set a floor of freedom for all of their residents, which gives states an opportunity to set limits on how much their municipalities can restrict land use.

Florida Senate Votes against Privatizing Prisons

Yesterday, the Florida state senate voted down a bill that would have privatized 27 of the state’s prisons. The shift was projected to save $16.5 million in a state with a $2 billion budget deficit. Theoretically, private prisons are projected to save money because they operate under a profit motive, putting them in a better place to find operating efficiencies compared to state run prisons.

While from a budgetary perspective prison privatization may make sense, the issue is not straightforward. Privatizing prisons creates an interest group that stands to profit from higher incarceration rates. The case of two Pennsylvania judges who accepted bribes from private prison interests in exchange for incarcerating 5,000 juvenile offenders, many of whom appeared in court for minor offenses without attorneys, brought light to this issue. Of course this illegal corruption does not represent the typical interaction between the justice system and private prisons, but does demonstrate the danger of crony capitalism in the industry.

In a paper for the Reason Foundation, Adrian Moore points out that prison interest groups are by no means exclusive to private prisons. Public sector employee unions also have incentives to grow their bureaucracy and protect their jobs by seeking harsher prison sentences. In Florida, the International Brotherhood of Teamsters, a union representing public sector prison workers, played an important role in the defeat of the privatization bill. The California Correctional Peace Officers Association is perhaps the most studied public prison lobby. The CCPOA has made extensive contributions to both political campaigns and to groups that fight for harsher sentencing laws.

Aside from the complicated issues that special interests bring to the US prison system, it’s important to take a critical look at the alleged budget savings that private prisons provide. While these prisons are privately run, they of course are not really private businesses, but rather government contractors. This means a layer of bureaucracy separates them from their consumers (taxpayers) and the market process is not in play as it is in a competitive industry. Rather than having an incentive to provide the best service at the least cost, private prisons face incentives to fulfill the most lucrative government contracts at least cost.

Some studies, including Moore’s, have attributed substantial cost savings to prison privatization, but other studies have found the opposite. In Arizona, private prisons actually cost more per inmate than public prisons, according to state data, even though they do not typically house the highest security, most expensive inmates that state-run prisons do.

Florida Governor Rick Scott still has the opportunity to use his executive power to increase the role of private prisons in Florida but said he had wanted legislative support for the measure. While the budgetary and policy impacts of privatizing prisons are ambiguous, one policy change would bring certain cost savings to Florida taxpayers. By some measures, Florida currently has the strictest laws against marijuana possession in the country, including potential jail time for possession of misdemeanor quantities of the drug. By reducing sentencing for victimless crimes including possession and distribution of marijuana, the state could certainly save money and potentially improve outcomes for the states youth who face drug charges.

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.

Birmingham, Alabama: National Guard Needed After Budget Cuts?

National Guard in New OrleansThe sheriff of Birmingham, Alabama warns he may need to call the National Guard to maintain order after this week’s Circuit Court ruling that Jefferson County leaders can proceed with plans to slash $4.1 million from the sheriff’s budget.

Sheriff Hale, who unsuccessfully sued the County Commission to stop the cuts, warns the decision mean the loss of 188 deputies and 300 civilian employees — more than a dent in local law enforcement.

How did Jefferson County end up close to earning the title of “biggest municipal bankruptcy in U.S. history?”

To finance a $3.2 billion sewer cleanup, six years ago, after consluting with J.P. Morgan,  the county issued floating interest rate debt instead of the typical fixed interest rate debt. It was meant to save taxpayers money. But the collapse of the subprime mortgage market drove up variable rates and has left Jefferson County hemorrhaging red ink, with unexpected debt payments of $7 million a month.

Sadly, none of this was really necessary.

sewer001.JPGAs William Selway and Martin Braun writing at Bloomberg.com note, rather than use competitive bidding (or traditional fixed interest rate bonds) to build the sewers, Jeffco took J.P. Morgan’s advice, turning to pricey (banks collected $120 million in fees on the deal) and costly (the county is $277 million debt as a result) financial wizardry.

Now residents will being paying for their sewer system many times over, and in many ways. The sewer bonds are junk. Taxes will be hiked, sewer fees are rising, and now the city needs the National Guard?

There are other ways to build,  maintain, and pay for sewers. For more, see this 2000 report from the Reason Foundation.

Sacramento to Cities: “Give us your revenues, AND we’ll tear down your buildings!”

The headline reads, “State budget deal depends on borrowing, accounting tricks, and gimmickry.”

Which state is it?

In this case, California; the headline is from the Contra Costa Times. On Monday night the state made a deal to close its $26.3 billion deficit; the package includes $15 billion in spending cuts, and $11 million in accounting gimmicks, borrowing, and overly optimistic assumptions. These include:

  • $2 billion borrowed from local governments’ property tax revenues (to be repaid with interest in 3 years),
  • $2 billion in cuts to local transportation and redevelopment funds,
  • $9 billion in payment deferrals to education, and
  • Deferring state employee’s paychecks by one day – essentially putting $1 billion in salaries on next year’s ledger.

Here’s a rundown. Continue reading

VMT fee – user pays solution or government intrusion?

I’m attending the Preserving the American Dream Conference in Bellevue, Washington. This morning I presented on a panel with Sam Staley of the Reason Foundation, and Greg Cohen of the American Highway Users Alliance. One issue discussed was Vehicle Miles Traveled fee as a revenue source for roads. As Dr. Staley, noted, it’s a subject of live debate.

The virtues: VMT fees are based on the principle of user pays, and is  now technologically possible  with Satellite tracking and GPS systems. The fear is that VMT systems will allow government to monitor driving habits, speeds, and pinpoint your whereabouts.

But as Alan Pisarski raised during the discussion – it’s who owns the data (and what they do with it)  that really matters.  If the provider is private, and not public, then the VMT poses the same level of privacy invasion as using a credit card.

The Rubber Meets the Road

Detroit can learn from Indianapolis, claims a new article in the Next American City:

Although you might not guess it today, Detroit and Indianapolis once had much in common. Thirty years ago, both cities suffered from decreased economic activity, severe unemployment, violence, white flight and racial tensions. But Indianapolis, the nation’s 13th most populous city, has since recovered from those challenges, which were spawned by deindustrialization and suburban job growth…

What accounts for the drastic disparity in these two cities’ fortunes? Many politicians and members of the business community suggest that public-private partnerships — deals in which the government partners with the private sector to deliver a necessary service that it cannot afford, or which it wishes to provide more efficiently — have allowed Indianapolis to prosper. City governments can form PPPs to support small-scale projects, and may also lease the operation of their own assets, but if they want to forge a PPP to back a larger initiative, like a massive infrastructure project, they need legislative support from the state. Indiana law permits the formation of PPPs for infrastructure projects; Michigan law does not…

The timing is critical: in addition to money from Obama’s stimulus package, Michigan stands to receive a meaningful cash injection from the transportation reauthorization act, which is up for renewal this year and which provides funding to states for transportation and infrastructure-related projects. Yet, even with public funds, the state won’t have the money necessary to develop the many modes of transport it needs, says Carnrike, who points out that Michigan has the capacity to develop air, roads, and water-related infrastructure. By collaborating with private companies, Michigan stands a chance at creating the infrastructure crucial to its economic recovery.

More about PPPs from the Reason Foundation here and here.

HT to Planetizen.