Out of Control

Okay, back when I was in college studying econ, I learned that a recession is defind as two consecutive quarters of negative economic growth.

It seems the folks over at the National Conference of State Legislatures (NCSL) were glancing through a different textbook. According to this recent release, NCSL says many states are in a recession because their budgets are a wreck. As their Executive Director explains:

"The fiscal situations have declined so much in some states that they appear to be in a recession.”

Come again? The always interesting Real Clear Markets has a rollicking smackdown of the NCSL report by Steven Malenga.

And then, what's this? Today we learn that governments have been on something of a hiring binge. Hmm...hiring lots of new workers. Tight budgets. I wonder if there's a connection??

A couple years ago, the Smithsonian Institute launched an exhibit to raise awareness about global warming.

This year, they are marketing an 'around-the-world trip on a private jet

When people who profess to be concerned about global warming start to change their behavior-by, you know, not offering private jet flights on around the world tours--then I might pay attention. Until then, shut up. Really.

The Senate held hearings on network neutrality yesterday, gathering testimony from FCC Chairman Kevin Martin as well as a few minor Hollywood celebrities.

Martin, who with the FCC has hosted two of its own hearings on Web-based network and applications management so far this year, prudently argued against regulation of the Internet.

Hollywood-types showed up to call for federal prohibitions on the use of network management techniques. Simply put, they don’t want to pay extra for the management services that would be required to make their commercial entertainment services work properly while alleviating the congestion their applications place on more pedestrian Web users.

Patric Verrone, the president of the Writers Guild of America-West, which recently ended a 100-day strike, was among those calling for more Internet regulation. “When your employers are the same companies that control the media, it’s hard to get your message out,” Verrone said. Lost on him, apparently, was the simple fact that the Internet, in all its non-neutral glory, did allow him to get the message out. He testified mostly to the success the guild had with blog postings, e-mail and videos.

Also lost on him was the irony that the writers strike centered on compensation for the added value their work gives studios when it’s used on the Web. Verrone, on the other hand, seeks rules that would coerce service providers to offer Web-based management services--that themselves would add measurable value to the work of his fellow guild members as well as the studios--for free.

If you live in Brunswick County, North Carolina, you just might get fiber-to-the-home courtesy of the U.S. government, as long as that home is in a pricey development adjacent to a golf course.

Like many rural telephone cooperatives, ATMC Inc., Shallotte, N.C., (formerly Atlantic Telephone Management Systems), receives a low-interest loans from the U.S. Department of Agriculture’s Rural Utilities Services agency, which was set up to fund universal broadband service. ATMC’s work, however, illustrates the inherent problems with current federal broadband programs—the company is applying the funding to high-density residential developments where there is already competition from at least two other broadband providers.

Kris Ward, business development manager, was frank about the cost-vs.-revenue issues of deploying FTTH during a session at the e-NC Authority’s Southeast Information and Communications Technology (ICT) Conference last week. e-NC serves North Carolina by identifying and facilitating opportunities for local and regional telecom development.

“We’re building fiber to high-density areas. We can’t afford to drop fiber just for voice,” Ward said. Of course, this is the criticism leveled at build-out process of larger incumbents, and precisely the reason programs like RUS were created.

But extending FTTH to areas unserved by broadband is not on ATMC’s agenda. Currently, ATMC has built FTTH systems in 22 new developments, some attached to golf courses, and all in areas served by cable TV companies who offer broadband service via cable modem. Although parts of North Carolina are struggling economically, it hard to make the case that Brunswick County, located in the extreme southeast corner of the state is among them, Ward cited U.S. census data that county is the 17th fastest growing in the U.S., fueled by retirees who are moving to the Carolina coast. “Growth is expected for years to come,” Ward said.

Despite that other providers are building broadband networks without government help, Ward said ATMC is using its FTTH network as a competitive differentiator. “FTTH is our selling point.” At the same time, Ward admits “We couldn’t do it without [the RUS loans].

My most recent blog post at Planetizen.com explores how architecture and planning intermix with human relationships in the Oscar winning comedy "Juno."

The movie uses the urban landscape in clever ways to highlight the emotional journies of its key characters and relationships:

Many viewers may not fully appreciate movies as a visual story-telling medium, but that fact came home to me dramatically the other night while watching “Juno,” the off beat, smart and funny film that just snagged a best screenplay Oscar. The deliberate use of architecture and public spaces, in particular, was quite effective although you probably won’t find these references in plot summaries or synopses.

An enduring question in urban planning is the degree "place" influences our human interactions. While not social science, I believe "Juno" comes our firmly in favor of people over place.

At the end of the day, what is the relationship between people and place? The message, I think, is simple and relevant: People make places; places do not make people.

Two great new additions to the education blogosphere.

First, education scholar and economist Jay P. Greene from the University of Arkansas Department of Education Reform and Manhattan Institute fame has an appropriately self-titled education blog. Today, he looks at the "more money myth," riffing off of a Sunday LA Times story that bemoans the lack of state funding and the need of private funders to fill the gap in California.

Greene writes:

But the LA Times article suggests that private giving can (and must) make a big difference. It cites the example of the Irvine Public Schools, which receives $3 million annually from a community foundation. it also quotes the head of that foundation saying, “The only way to take good districts and make them great is to do private fund-raising. But it’s even more urgent now with the terrible budget cuts.” Nowhere does the article mention that this $3 million represents less than 1% of the total spending by the district. Numerators always feel bigger without denominators.

The only way the money myth will fade is if reporters and newspapers are held accountable for repeating it.

The second new blog, Flypaper, is a group blog by the Fordham istitute's multiple education scholars, including Chester E. Finn and Mike Petrilli. Petrilli looks at how collective bargaining ideas are flowing backwards in a reverse commute from K-12 to higher ed.

But now one of public education’s worst features—its hyper-unionized workforce—is finding its way into higher ed. At least that’s the intent of a bill introduced yesterday by Senator Edward Kennedy and Representative George Miller (respective chairmen of their chambers’ education committees) that would allow graduate students who serve as teaching or research assistants to bargain collectively. This is only likely to drive up tuition and drive down quality.

Colleges and universities: we feel your pain. But maybe this is some sort of Karmic payback for all the damage you’ve done to our elementary and secondary schools.

Meanwhile, Chester E. Finn takes Cato Institute to task for being too libertarian on education reform:

You gotta give it to purebred libertarians, they never let their vision of how the world ought to work be distorted by any realities about how it actually works. Nowhwere is this clearer than in K-12 education, where the CATO crowd, indistinguishable nowadays from the “separation of school and state crowd,” basically doesn’t believe in any form of public education. They believe in private education, purchased in the marketplace by parents who want and can afford it for their kids from schools that are not accountable to anybody for anything except keeping those tuition payments rolling in the door. The heck with everybody else’s kids.

The horror of it all.

Much, much more at both blogs. As the saying goes, "read the whole blog!!!!"

It is ironic that with the market doing a crackerjack job of punishing the excesses of the mortgage markets, cries for bailouts, handouts, and major new regulations. A recent USA Today article did a great job pointing out many of the ironies that abound.

* In Vermont lender tend to be more cautious and mortgage delinquency rates are below 3%, in contrast to Nevada, where 30% of Las Vegas homebuyers used subprime loans, and now the state has a mortgage delinquency rate above 7%.
* Home prices have only fallen in 77 of 150 cities tracked by the National Association of Realtors, but prices were up in 73 markets.
* California and Florida alone accounted for 30% of recent U.S. foreclosure starts, according to the Mortgage Bankers Association.

Think about what those stats mean. First, Nevada’s 7% delinquency rate is the poster child for the problem, but that means 93% of mortgages are OK. A 7% problem is not the crisis that is portrayed. Moreover, even a small percentage of sub-prime borrowers are in trouble. This is a fairly small scale, geographically concentrated phenomenon, not a sweeping nationwide problem. Does it makes sense for the people in Vermont, who avoided trouble, to bail out all the housing gamblers in Las Vegas?

Yet, there seems little chance of calm at the national policy level. Election year politics will pander—hell they don’t really need an election as an excuse. My favorite quote from the USA Today article—a woman who bought a house a few years ago with no money down and an adjustable-rate mortgage that started at 5.9% and now faces an 11% interest rate she can't afford says “I think (a bailout) is a good thing for working Americans who are trying to pay their bills and do the right thing. I'm not asking for a handout.” Excuse me? I think you just did as for a handout.

I know some people are in pain, but it hurts us all if we don’t allow people to bear the consequences of the choices they make. You buy a too expensive home with a high-risk mortgage in order to squeeze down the payments, and things go wrong, it really is your fault, not America’s.

The Long Island Business News talks about the Drew Carey Project videos at Reason.tv. As it says, "When it comes to Drew Carey, the price, and message, is right."

Today's New York Times has an interesting article on airline deregulation. It's a hodgepodge of disconnected ideas, but the tone and approach probably reflects today's confused thinking about markets and regulation.

Thirty years ago, airline deregulation was supposed to fulfill two main goals: spurring competition and bringing down airfares.

Now the number of airlines may be shrinking, as the planned merger between Delta and Northwest is likely to encourage other big airlines to pair off. Reduced competition will probably mean higher fares, particularly as the airlines shrink their fleets and cut flights to reduce costs.

All of which raises anew the question: Has deregulation really worked out?

By some measures, it has. By others, not so much.

The principal idea behind deregulation is to create a more competitive market to provide better services to consumers. By virtually every measure, deregulation has worked--fliers have many more destinations than during regulation when only 10 carriers dominated 90 percent of the market, hundreds of cities have regular air service, and fares are lower after adjusting for inflation.

So, what are the measures showing that it hasn't worked? Airline profits have been squeezed and there's more "churn" in the market as new airlines enter, some leave, and others go bankrupt. In other words, the very fact a dynamic market exists is evidence that deregulation hasn't worked.

In a true market, airlines will come and go, profits will be squeezed, and services to consumers will improve. That happened, and the NYT article provides the evidence.

The confusion comes in when some believe its the government's job to protect the profits of business. The ironic twist in all this is that it's the Democrats now in charge that are willing to use the levers of government to protect business, not the Republicans. Note the comments of Congressman James Oberstar.

Beyond that, the next phase of deregulation will take place when airlines are truly globalized, flying freely inside other countries’ borders as well as their own, Mr. Garfinkle said. The merger between Delta and Northwest would be a major step toward that end, given their broad American network and extensive list of cities in Asia, Europe and elsewhere, he said.

However, the prospect of American carriers trying to compete against healthier foreign airlines, some of them still government-owned, is daunting to James L. Oberstar, Democrat of Minnesota, who heads the House Committee on Transportation and Infrastructure.

“It’s a very bad idea,” said Mr. Oberstar, whose state is home to Northwest’s headquarters. He said he expected “a cascade of carriers finding partners” if the Delta-Northwest combination is allowed to go forward, leading to fewer choices and higher prices for consumers.

Governor Rendell's office released the terms of a Pennsylvania Turnpike concession yesterday. Highlights include:

• a 75-year concession term;
• a single upfront payment from the winning bidder;
• no non-compete clause, nor any provision for the concessionaire to seek compensation for reduced toll revenues resulting from the currently-unplanned construction or upgrade of nearby competing transportation facilities;
• concessionaire would be allowed to increase toll rates by 25% initially and thereafter by an annual inflation adjustment (either 2.5% or the rise in Consumer Price Index, whichever is greater);
• concessionaire will be held to some 500 pages of operating and safety specifications; and
• no restrictions on foreign bidders.

For more details, see Peter Samuel's excellent overview at TollRoadsNews.com, as well as the Philadelphia Inquirer's article yesterday.

And be sure to check out this blog post on Reason's recent policy brief (finding that the Turnpike is one of the least cost-efficient toll roads in the country), as well as Bob Poole's astute response to criticism of the report by the PA Turnpike Commission.

Lastly, over the last few months, the Inquirer ran two op-eds co-authored by yours truly and Commonwealth Foundation President Matt Brouillette on the subject of a Turnpike concession--see here and here.

Here are some of the stories on the new Reason Foundation policy brief (.pdf) examining municipal broadband's multi-million dollar failure in Provo, Utah:

Deseret News
Unload iProvo, critic urges
By Jens Dana
Better to privatize iProvo now and end the bleeding than lose another estimated $2 million over the next year, a longtime critic of the city-owned fiber optic network said Wednesday. Steven Titch of the Reason Foundation — a Los Angeles-based think tank that promotes libertarian principles — issued a eight-page policy brief that highlighted what he terms "iProvo's poor performance." Titch, a policy analyst specializing in telecommunications for the Reason Foundation, blasted the city's telecommunication network, saying municipal governments have no place in the high-tech infrastructure business. "They don't do it well," he said. "And iProvo is an example of this." Provo issued $39.5 million in bonds to finance the construction of iProvo. Since its inception, the network has experienced high churn rates among subscribers and relied heavily on subsidies to keep afloat. To date, the project has cost the city $8.4 million, Titch said, and there are projections iProvo will cost another $2 million. He sees only two options. "Provo now faces the dilemma of continuing to fund iProvo with no break-even point in sight," Titch wrote. "Or sell the property and recoup as much of its investment as it can."

The Salt Lake Tribune
Reason Foundation report: Time to sell iProvo
City spokeswoman counters that the document is flawed by misstatements of the network's red ink
By Donald W. Meyers
A libertarian-leaning California think tank has renewed its declaration that iProvo is a financial failure and that it's time for the city to consider selling it to a private telecommunications provider. The Reason Foundation's report says the fiber-optic network has lost approximately $8.4 million in the four years of its operation, and will continue to bleed red ink unless the wholesale provider model is scrapped. "They're still having the same problems they had a few years ago," said Steven Titch, Reason's telecom analyst and author of the report. "They're just getting more expensive."

Daily Herald
Foundation calls for iProvo sell-off
By Joe Pyrah
It's not news that the high-speed network iProvo is losing money at, well, a high speed. But $10 million in the hole is as good a time as any to take a jab at the publicly financed system that provides television, phone and Internet access. "No matter how many times the city tries to move the goalposts for what success means or how many subscribers iProvo needs, it can't get away from the fact that iProvo is a dismal financial failure by any standard," said Steven Titch, a policy analyst with the Reason Foundation. The Los Angeles-based foundation isn't new to the iProvo scene, having released a blistering report in 2006 that the city largely discounted. Reason, which advocates corporate solutions over government efforts, released an updated report on Wednesday. The report stated that iProvo is $10 million in the hole.

We're now living with higher (real) gasoline prices than at any time in living memory. The media love to provide anecdotes about how specific people are coping, with the implication that surely these sky-high prices will reduce Americans' "love affair with their cars." Don't be too sure. For one thing, Europeans have been living with much higher gas prices (due to much higher taxes) than ours for decades, yet as those countries have become more affluent, their use of automobiles has become more and more like ours.

But more seriously, what do we know about the relationship between higher gas prices and Americans' driving behavior? And also about their choice of vehicle? The Congressional Budget Office released a pretty good study (.pdf) on these questions in January. Their findings are worth pondering.

The study used data from 2003 to 2006, during which time real U.S. gasoline prices doubled. And because Caltrans has detailed data on trips and speeds on Southern California freeways, CBO used their data to measure changes in driving behavior. What they found was a surprisingly small impact on that behavior. Over the period in which gas prices doubled, motorists on some freeways made slightly fewer trips and drove slightly less fast (at times when the freeway was uncongested). Specifically, on those freeways where there was a parallel commuter rail line (as is the case with several in the database), for every 50-cent increase in the price of gas, the number of freeway trips decreased by 0.7%. No such decrease was seen on the rest of the freeways. And for every 50-cent increase, the median speed on uncongested freeways dropped by 0.75 mph. This latter result is pr edictably small, since there is little change in gallons used per mile within the speed range of 30 mph to 60 mph, and the value of fuel savings is very small compared with the value of most people's time.

How generalizable are these results? First, most freeways in most metro areas don't have parallel rail lines, so the likely trip-reduction effect (based on these findings) is zero. And the speed reduction of less than 1 mph applies only on uncongested freeways, a declining portion of the total freeway system most places. So it's pretty unlikely that gasoline price increases in the range we've seen recently will have much impact on driving behavior.

However, the second part of the CBO research looks at what is likely to be a longer-term impact: choice of vehicle. And even though we have only three years of data, there are signs that price changes of the magnitude we've seen are affecting what people buy. First, the market share of cars relative to light trucks (pickups, SUVs, and minivans)-which had been declining steadily since the early 1980s-turned upward in 2005 and has remained above its 2004 low-point since then. The biggest single change is from vans and minivans to large passenger cars. Second, overall new-vehicle fuel economy is finally starting to rise again, after having been in a shallow decline since 1987. Third, the prices of used cars reflect the increased importance of fuel economy, with large SUVs and luxury cars declining in price, while full-size and mid-size cars show slight increases - presumably reflecting changes in demand.

These results reinforce the idea that automobility is highly valued in America, and hence that people will adjust to higher fuel costs primarily by seeking out more fuel-efficient vehicles rather than curtailing their driving.

Reason's Transportation Research and Commentary

Reason Foundation's Skaidra Smith-Heisters asks paper or plastic? And the environmentally-friendly answer may surprise you:

"One hundred million new plastic grocery bags require the total energy equivalent of approximately 8300 barrels of oil for extraction of the raw materials, through manufacturing, transport, use and curbside collection of the bags. Of that, 30 percent is oil and 23 percent is natural gas actually used in the bag-the rest is fuel used along the way. That sounds like a lot until you consider that the same number of paper grocery bags use five times that much total energy. A paper grocery bag isn't just made out of trees. Manufacturing 100 million paper bags with one-third post-consumer recycled content requires petroleum energy inputs equivalent to approximately 15,100 barrels of oil plus additional inputs from other energy sources including hydroelectric power, nuclear energy and wood waste.

Making sound environmental choices is hard, especially when the product is 'free,' like bags at most grocery stores. When the cashier rings up a purchase and bags it in a paper bag, the consumer doesn't see that it took at least a gallon of water to produce that bag (more than 20 times the amount used to make a plastic bag), that it weighed 10 times more on the delivery truck and took up seven times as much space as a plastic bag in transit to the store, and will ultimately result in between tens and hundreds of times more greenhouse gas emissions than a plastic bag."

Reason's Environment Research and Commentary

As if filing my taxes weren't depressing enough, now comes this story about a renewed push to force e-tailers to collect sales taxes for on-line purchases. Ugh.

The whole issue of why most on-line sales are technically tax-free is one of the more interesting areas in the arcane backwater of tax policy. Currently, states can only force companies to collect sales taxes if they have a physical presence or "nexus" with the state or locality. (employees, warehouse, etc) The threshold was established by the 1992 Supreme Court case, Quill v. North Dakota, one of the "most awesomest" decisions ever. (More importantly, the case reaffirmed National Bellas Hess, the previous holder of the most awesomest title.)

Now, technically the transaction is still taxable, through a constitutionally dubious (my view) device called a "use tax". But, the state or locality would have to collect it directly from individuals, an administratively nightmarish scenario.

Predictably, state and local officials have raised a considerable ruckus about this. They have long predicted that it would bring about the "end-times' and seriously erode their budgets. I first started working on this issue in 1997, when total state and local government spending was around $1.5 trillion, roughly 18% of GDP. In 2005, (the last year full figures are available, state and local spending was $2.3 trillion, or around 19% of GDP. (Figures here) So much for erosion.

Michelle Rhee moves forward on her plan to use outside providers and charter schools to restructure DC's low-performing schools. Rhee seems to be taking an approach that includes parents in the discussion.

Via today's Washington Post.

D.C. Schools Chancellor Michelle A. Rhee plans to hire up to six nonprofit educational companies to help run the city's 10 comprehensive high schools and has invited parents to meet with her tonight to discuss the details.

For months, Rhee has discussed hiring firms as one of five options she could use under the federal No Child Left Behind law to fix 10 high schools and 17 elementary and middle schools. Students there missed academic benchmarks on the system's standardized test for five consecutive years. Rhee's plan applies only to the high schools.

Rhee's plan names six nonprofit organizations: Bedford Academy High School in New York; Friendship Public Charter School in the District; Institute for Student Achievement in Lake Success, N.Y.; Mastery Charter Schools in Philadelphia; St. HOPE Public Schools in Sacramento; and Talent Development High Schools in Baltimore.

How much power will the next president try to grab? Reason magazine's Jacob Sullumn takes a look.

Sen. John McCain, writes Sullum, "declined to identify areas where the Bush administration has overstepped its constitutional authority. [Sen. Barack] Obama, by contrast, gave half a dozen detailed examples. In general, the Illinois senator's answers to the Globe's questions were direct, thoughtful, and complete, apparently reflecting a sincere determination to limit his own power if elected. After the election, of course, such promises may not be worth much. But on that score I worry more about Hillary Clinton. The New York senator's answers to the Globe survey, though less detailed than Obama's, were similar in substance. I just find it hard to believe them. Clinton agreed, for example, that the president has to seek congressional authorization before attacking another country, except in response to an 'imminent threat.' Yet she has bragged about urging her husband to bomb Serbia as part of an unauthorized war that had nothing to do with national defense. Although Clinton now claims to have a modest view of presidential power, she was singing a different tune a few years ago. 'I'm a strong believer in executive authority,' she told George Stephanopoulos of ABC News in 2003. 'I wish that, when my husband was president, people in Congress had been more willing to recognize presidential authority.' With the War on Terror as a rationale, her wish could be her command."

Sol Stern's feature article that claims that an instructionist approach to education works better than incentives and competition continues to flow through the news cycle--this weekend it was in my local paper the Riverside Press Enterprise. Stern claims that Massachusetts is a good model to follow for school reform. I take on Stern's arguments in this Reason feature.

Here is more evidence that Mass. may not represent an instructional miracle.

From today's Boston Globe:

Thousands of Massachusetts public high school graduates arrive at college unprepared for even the most basic math and English classes, forcing them to take remedial courses that discourage many from staying in school, according to a statewide study released yesterday.

The study raises concern that the state's public schools are not doing enough to prepare all of their students for college, despite years of overhauls and large infusions of money.

I was flabbergasted by John McCain’s proposal to suspend collection of the federal gas tax for this summer. Suspending this user tax would deprive the Highway Trust Fund of $8-10 billion in much-needed revenue to patch potholes, rebuild failing bridges, and keep the Interstates and other key arteries from further declines in their already pathetic levels of performance. And this comes at a time when the Trust Fund is already facing a 2009 shortfall of $2-3 billion (thanks to Congress legislating more highway spending than existing gas-tax revenues can support). Plus, since the gas tax is only about 5% of the cost of a gallon of gas, the savings to motorists would be trivial.

McCain’s advisors have rushed forward with damage control, promising a legislative proposal that would hold the Trust Fund harmless by replacing the lost gas-tax revenue with general fund money, thereby adding another $8-10 billion to this year’s ballooning deficit. That would at least make the proposal less irresponsible from a transportation policy standpoint.

If politicians want to offer goodies of this kind, they should make everybody pay for them, rather than short-changing highway users.

But this episode illustrates once again why motorists are losing trust in the Highway Trust Fund. Every time Congress acts on this subject, they further politicize transportation funding, turning what was once a nearly pure user fee (to build the Interstate system) into a New Deal-style public works boondoggle. The longer-term solution is to scrap the 20th-century tax-and-grant system in favor of universal tolling, managed by each state’s Department of Transportation and private toll companies.

Reason's Transportation Research and Commentary

Competition works and fast. I love JetBlue.

Via today's Los Angeles Times:

Even as rising fuel costs are grounding weaker airlines -- including three this month -- airline competition is heating up for travelers flying the Pacific coast.

"You've got a lot of competition out there unlike the East Coast where subpar service allowed JetBlue to make inroads by treating customers well," said Michael Boyd, an aviation consultant in Evergreen, Colo. "Alaska and Southwest are also known for treating customers well."

If only schools had a real orientation towards customers.

iProvo has already posted over $8 million in losses according to a new Reason Foundation policy brief that concludes that Provo is destined to join a list of cities like Ashland, Oregon, and Marietta, Georgia, that have “thrown away millions of dollars on broadband projects that, in the end, failed to deliver any of the promised benefits.”

iProvo’s total losses are likely to exceed $10 million by the end of this fiscal year – and that figure doesn’t include the $39.5 million borrowed to launch the project, most of which still needs to be paid back. The Reason Foundation report says Provo “faces the dilemma of continuing to fund iProvo with no break-even point in sight, or it can sell and recoup as much of its investment as it can.”

“Provo’s taxpayers are being fleeced,” said Steven Titch, policy analyst at Reason Foundation and author of two reports on iProvo. “The only question is how much of this fiscal recklessness they are willing to take before saying ‘enough.’”

In 2003, iProvo lost $1.3 million in taxpayer money. It posted a $1.4 million loss in 2004, a $1.6 million loss in 2005, another $1.9 million loss in 2006, and in 2007 iProvo was over $2 million in the red. That’s over $8 million in losses, and things don’t look much better for 2008. In January, iProvo posted a net-gain of just 29 subscribers and could be headed for over $2 million in losses again this year.

Full Policy Brief (.pdf)
Reason Foundation’s Municipal Broadband Research and Commentary

From the archives:
Jerry Ellig, former deputy director of the Federal Trade Commission’s Office of Policy Planning, wrote a 2006 Reason Foundation study that concludes cities shouldn’t fool themselves into believing that their experience running water, gas and electricity systems has prepared them for the fast moving Internet world. The full study, A Dynamic Perspective on Government Broadband Initiatives, is here (.pdf).

The Pennsylvania Turnpike Commission tried to distract people from the findings our recent study that demonstrated that the Turnpike is one of the least efficient toll roads in the country by claiming the big credit rating agencies disagree with us. Whoops. As the Pittsburgh Post-Gazette reports, “ One of the nation's ‘big three’ credit rating agencies has raised a caution flag about the Pennsylvania Turnpike's financial future because of the transportation funding bill that the state Legislature passed last summer. New York-based Fitch Ratings Ltd. announced it has downgraded the turnpike's $2.1 billion in outstanding revenue bonds by one step, from AA- to A+, thereby crossing the line from ‘high grade, high quality’ to ‘upper median grade.’ The move means the turnpike will likely have to pay a higher interest rate on future borrowing for such capital improvements as the new bridge over the Allegheny River and widening the east-west mainline to six lanes between Irwin and New Stanton.”

The Fitch downgrade notes the “mission change of the PTC from a self-supporting entity into one subsidizing state-wide functions,” giving it less financial flexibility. It also notes “the potential that capital projects can be deferred to meet Act 44 obligations, resulting in delayed and more expensive capital projects.” It also says that “Fitch believes that there are reasonable scenarios under which planned toll increases may be insufficient to meet the annual obligations under Act 44,” reinforcing the Reason report’s suggestion that toll rate increases may actually be higher under the status quo (where toll rates are not capped) than under a lease of the Turnpike (where rate increases will be capped).

In a column for the Los Angeles Business Journal, Reason’s Sam Staley writes, “Limited supply was the biggest factor driving up home prices in California, but many investors were also playing the L.A. real estate game in the same way they'd play the stock market or blackjack tables in Las Vegas. They bet that they could take an interest-only loan, flip the house, and win big. Well, some lost that bet. The government shouldn't be in the business of bailing these gamblers out. After years of skyrocketing housing prices, many first-time homebuyers and middle-class families could actually benefit from this market correction if it brings L.A.'s housing prices back in line with the region's incomes. Then the working families long priced out of the Los Angeles housing market may finally get a shot at owning a home.”

Last week's Los Angeles Times "Dust-up" on California water issues concluded with an underwhelming undebate in which Lester Snow (Department of Water Resources) and Mindy McIntyre (Planning and Conservation League) agreed to agree that Gov. Schwarzenegger's new water conservation mandate is a great plan for the state. The governor is calling for a 20 percent reduction in per-capita urban water use by 2020. This new goal is being promoted in part by Assemblyman Paul Krekorian's (D-Burbank) AB 2153, the so-called " Water Efficiency and Security Act."

Snow and McIntyre fail to mention two of the biggest gorillas in California water politics, agricultural water rights and water subsidies. Snow notes, "Urban water users consume 8.7 million acre-feet per year, and under this plan, Californians would save enough water to serve more than 2 million families a year"--but he leaves out the fact that irrigated agriculture uses three times that amount, or roughly 80 percent of the state's developed water supply each year. McIntyre, for her part, promotes the idea that the governor's administration should make sure the water conservation mandates are " the AB 32 of water." What's misleading about comparing water use reduction targets to the bold greenhouse gas reduction targets in AB 32, the Global Warming Solutions Act of 2006, is that water is a resource with assigned (if occasionally precarious) appropriations rights. We don't need to create new markets to promote water use efficiency in California, we just need to improve the markets we already have. To do that, agricultural water use has to be part of the discussion.

A recent poll commissioned by the Bay Area Council found that citizens are keenly aware of the critical infrastructure needs facing the Bay Area and that they're very open to the idea of private sector infrastructure financing to help solve the problem. According to the San Francisco Chronicle:

Potholes, traffic jams, eroding levees and overcrowded schools have apparently convinced Bay Area residents it's time for major infrastructure improvements, according to a regional poll released Thursday.

The poll, by the Bay Area Council, found that 87 percent of residents surveyed thought that Bay Area governments had a serious problem maintaining schools, bridges, roads, parks, levees and hospitals and building new infrastructure.

Perhaps even more striking is the finding that a strong majority support the increased use of public-private partnerships (PPPs) to improve infrastructure:

While the poll did not ask voters whether they would be willing to raise taxes to pay for infrastructure improvements, it did ask if they would support public-private partnerships to help pay for specific types of improvements.

The partnerships, used in other states and countries, would allow such things as a private developer building a school and leasing it back to the school district, or building and operating a toll road or bridge in exchange for a portion of the revenues.

A strong majority of those surveyed said they would favor such an arrangement to fund infrastructure projects in the Bay Area, and the support varied only slightly by type of project. Hospitals and recreational facilities won the strongest backing for use of private-public partnerships with 71 percent each, followed by public transit at 70 percent, schools at 68 percent, and roads and highways at 65 percent.

One take-away from this is that Bay Area residents clearly see a problem and are open to new and innovative approaches to addressing it. Another is that even in an area regarded as a bastion of progressive thought, citizens are quite open to proven private-sector infrastructure delivery solutions.

At the political level, we know that PPPs are not a partisan issue, as evidenced by the fact that officials of all stripes are embracing them (including prominent Democrats like Chicago Mayor Richard Daley, Pennsylvania Governor Ed Rendell, and Virginia Governor Tim Kaine). But it's great to see that the message is getting out to the electorate as well, with pragmatism and problem-solving clearly trumping ideology in the minds of Bay Area residents.

If the political leaders in Sacramento would hurry to catch up, then we'd really have something, as my colleague Adam Summers wrote earlier this year in the Orange County Register. And to be fair, the Legislature has started to take some steps in that direction and has a number of different PPP bills in the pipeline this session. And Governor Schwarzenegger has been quite active, criss-crossing the state touting the virtues of PPPs as part of his Performance-Based Infrastructure initiative.

Let's hope that leaders are able to come together and get something done this session, because clearly the electorate is looking for solutions.

For some recent studies exploring the potential for transportation PPPs in California, see here, here, and here. And see Bob Poole's August 2007 OC Register op-ed here. For a more comprehensive overview of the role for tolling and PPPs in transportation, see here. Lastly, Lisa Snell examines the potential for innovative school facility PPPs here.

Washington Post editorial page editor Fred Hiatt has a good article in today's Post pointing our that road pricing is "inevitable", is technically possible, and is politically more acceptable now than ever before. He also points out that support (and opposition) crosses political lines.

Some of the opposition is simply muddled thinking. For example:

"Many of us believe it's a regressive tax on the working class," Michael Benjamin, a Democratic legislator from the Bronx, told The Post's Keith B. Richburg. And when asked about a similar plan that has worked well in London, reducing congestion and throwing off funds to improve buses, he said, "Britain has been rationing things since 1945. In America, we don't ration things."

Economists would disagree, saying that Americans pay for space on the road -- just not in money. They waste more than 4 billion hours in traffic delays each year. They pay in lost time, bad air, stress, lowered health and skewed development patterns. A system that charged drivers to use the roads, with fares rising at peak times as high as necessary to keep traffic moving, would be more rational and efficient. As Chris Zimmerman, a Democrat on the Arlington County Board and an economist, says, "If the price of bread were zero, you wouldn't find bread on the shelves."

The complete article can be found here.

I missed the story when it came out a couple weeks ago, but the utter ridiculousness of it warrants comment. According to this story, the Michigan Attorney General (Michael Cox, for those keeping score at home) issued a 5-page ruling finding that it was illegal for barbershops to give their adult customers a free beer while they got their haircut.

If they want to continue the practice--which where I grew up was simply a common courtesy--the barbershop will have to get a liquor license. Of course, these are subject to numerical limitations and require a few hundred dollars in fees, so most will probably just end the old practice.

Yeah, it is a small thing. And true, there are bigger threats to our freedom, i.e. universal health care, expanded surveillance powers, etc. But sometimes, I think it is these small incursions that do the most to upend our freedoms.

This just in:

"Supporting marijuana use is an example of domestic terrorism – it puts the public at great risk and threatens the very fabric of our society."
--Ron Brooks, president of the National Narcotics Officers’ Association

In labeling the vast majority of Californians "terrorists," it seems that Brooks, a Californian himself, must have graduated from the same school of hyperbole as Drug Czar John Walters. If so, they couldn't have been chummy classmates, however. In an interview a year ago Brooks called for a troop surge in the War on Drugs, saying "The drug war has really faltered. It has taken a back seat to other issues under Drug Czar John Walters."

Watch Reason Foundation’s Director of Government Affairs Mike Flynn explain why a mortgage bailout is a terrible idea on CNBC.

Sen. John McCain has now joined calls for a housing bailout that his aides say will cost taxpayers between $3 billion and $10 billion.

From the NY Times: “There is nothing more important than keeping alive the American dream to own your home, and priority No. 1 is to keep well-meaning, deserving homeowners who are facing foreclosure in their homes,” Mr. McCain said.

National Review reports “even a borrower who fully understood the terms of his adjustable-rate mortgage (i.e. not someone who was ‘preyed upon’ by an unscrupulous lender) would qualify for a bailout” in McCain's plan.

Michelle Malkin on the “subprime boondoggle” bill that passed the Senate 84-12 today.

The Pennsylvania Turnpike is one of the country's least cost-efficient toll roads, spending a whopping 62.4 percent of its toll revenues on operating and maintenance costs. Of 35 toll roads studied, only the Massachusetts and West Virginia turnpikes spend a higher percentage of their toll revenues on operating costs, according to a new Reason Foundation policy brief by Robert Poole and Peter Samuel.

By comparison, the New York State Thruway has 51 percent more lane miles and handles 83 percent more vehicle miles traveled than the Pennsylvania Turnpike, but its annual costs are $39 million lower.

Over the last seven years the Pennsylvania Turnpike's operating costs have more than doubled from $181 million in fiscal 2000 to $370 million in fiscal 2007. During that same time, the U.S. inflation rate was 23.4 percent, so the Turnpike's costs grew at 4.5 times the rate of inflation.

Press Release
Full Policy Brief: Pennsylvania Turnpike Alternatives: A Review and Critique of the Democratic Caucus Study (.pdf)
Reason's Transportation Research

A new paper from Cambridge University looks at what happens when national oil companies are privatized. Privatising National Oil Companies: Assessing the Impact on Firm Performance, the abstract says it well:

This study empirically investigates the impact of privatisation on firm performance in the global oil and gas industry, where questions of resource control have regained widespread attention. Using a dataset of 60 public share offerings by 28 National Oil Companies it is shown that privatisation is associated with comprehensive and sustained improvements in performance and efficiency. Over the seven-year period around the initial privatisation offering, return on sales increases by 3.6 percentage points, total output by 40%, capital expenditure by 47%, and employment intensity drops by 35%. Many of our observed performance improvements are already realised in anticipation of the initial privatisation date, accrue over time, and level off after the initial ownership change rather than accelerate. Details of residual government ownership, control transfer, and size and timing of follow-on offerings provide limited incremental explanatory power for firm performance, except for employment intensity. Based on these results partial privatisations in the oil sector might be seen to capture a significant part of the performance improvement associated with private capital markets without the selling government having to cede majority control.

Reason’s Lisa Snell examines concerns that thousands of California teachers will soon be laid off and says, “Education officials at the state, county and local levels need to seriously look at reducing the number of professional educators who are not in classrooms. When revenues are tight, spending reductions need to be made outside of the classroom first.”

Reason’s Skaidra Smith-Heisters reviews Blue Covenant: The Global Water Crisis and the Coming Battle for the Right to Water, by Maude Barlow, and concludes: “In Blue Covenant, Barlow fails to explore the key dimensions of water scarcity at the heart of her first two premises for alarm: dwindling fresh water supplies and inequitable access to water.”

Over at RealClearMarkets (a business-news brand extension of the always awesome RealClearPolitics), economist John Tamny pens an interesting hypothetical: Suppose you've been on a deserted island since 2000. Returning today and hearing a summary of the current administrations actions over the years, which party would you guess won the 2000 elections?

Oh, sure there were the tax cuts. But, after that the list of "accomplishments" is pretty sobering stuff. (Remember the steel tariffs?) You may not want to start your day reading the article--its fairly depressing stuff--but it is an important reminder as we stand poised to adopt sweeping new regulations and a possible nationalization of banks.

Oh, and let's not forget that after this 7+ years "break from economic history." either Sens. McCain, Clinton or Obama will--like for real people--actually be the next president. Ugh. Me? I'm thinking about shining up those expat shoes and making sure my passport is up-to-date.

"I think we should welcome all peaceful people to our country," says Drew Carey in a new Reason.tv video examining the contentious immigration debate. "They get to pursue the 'American Dream' and we get to benefit from all the wonderful things that immigrants bring to our country - like good old fashioned soccer. Sounds like a pretty good deal to me."

While workers from Mexico draw the ire and fiery rhetoric of anti-immigration forces, Carey points out that there was no outrage or concern when English-speaking soccer star David Beckham brought his family and curling free kicks to America.

"Americans, especially, LA Galaxy fans were very excited and greeted David Beckham with open arms when he came here to play in Los Angeles, even though he took the roster spot away from some poor, hard-working American kid," Carey says in the Reason.tv video. "So I guess we're very welcoming when it comes to rich famous Brits. And we love our Beatles. But are we as welcoming when it comes to people from other countries?"

Archive of Reason.tv Drew Carey Videos

In an op-ed for the Detroit News, Reason Foundation’s Shikha Dalmia examines the latest immigration bill, the SAVE Act and writes, "if this bill becomes law, within four years every employer nationwide would be required to verify the work credentials of its entire work force, including 160 million existing workers plus 60 million new hires. Since the program prior to the huge proposed expansion has a 5 percent error rate, this would mean that more than 12 million legal workers could potentially be thrown out of work by no fault of their own. Nor will improved technology eliminate these errors, as its authors claim, because most of them are the result of data entry mistakes. What's more, workers -- not their employers -- would have to clear things with Uncle Sam when their credentials are thrown into question. To do so, they'll have to deal with the same agencies that issued visas to 9/11 terrorists after they flew planes into buildings. But even if one assumes that the program has 100 percent success in catching every one of the 12 million illegal immigrants in the country, that would still translate into one American worker being hurt for every illegal snagged. That is a lousy deal. But the fundamental problem with the program is that it would require workers to prove that they are eligible to work rather the government to prove they are not. We're all guilty until proven innocent."