Tuesday, May 31, 2011

Washington Post- Sorting Out the Budget Proposals


Wednesday, May 4, 2011

Chicago Commuter Rail: Performance Doesn’t Promise Funding

“The way to really fly” is the marketing slogan used by Metra, Chicago’s public commuter rail provider, to attract riders. Aside from simply implying that Metra is a fast and efficient mode of public transportation, the motto also reflects its soaring success as a service provider. “Some call Metra the best regional railroad in the U.S.[1] Metra has shown that the public sector is capable of providing cost efficient service that provides excellent consumer outcomes. Unfortunately, the budget debates now taking place in Congress threaten to compromise the continued success of the Metra and other mass transit services throughout the country that need federal aid for their capital budgets. It is a perfect example of how a slash and burn approach to the budget can unnecessarily jeopardize well performing and essential public services.

As gas prices begin to soar, the consensus is that fuel prices will remain high for the long-term. If transportation alternatives aren’t made available, fuel related cost pressures will have adverse affects on consumers and the economy. Therefore, the need for maintaining and expanding public transit should be a national priority… but it’s not! Metra has proposed addressing the transportation needs and congestion concerns of suburban commuters by proposing a “first-of-its-kind” suburban commuter rail line. Unfortunately, state and federal funding for this project has completely dried up.

Metra has historically performed better than its peers on virtually every significant measure of cost effectiveness and efficiency, as confirmed in an Illinois Auditor General analysis.[2] When compared with other commuter rail services, expenditures for Metra are quite low. Metra’s relatively low expenditures per passenger mile are maintained while also having comparatively low fares (comparable systems in other US cities charge 80% or more for fares) and a relatively high farebox recovery ratio of 55%.[3] The average commuter rail farebox recovery ratio is 43% for all North American commuter rail systems (including Canada). Farebox recovery ratios are an important measure of financial performance because they indicate how much of a government subsidy is needed. A high farebox recovery ratio indicates less of a need for government subsidies.

Metra’s high level of performance should translate into state and federal support in the form of increased funding, but it has not. In fact, the Illinois Legislature is considering a bill that would exempt businesses from paying a local sales tax that supports Metra and other Chicago area public transit services, depriving it of critical funding it needs for operations. Metra and other Chicago area public transit services have already cut their budgets and reduced services to account for lost sales tax revenue during the recession. Now that the economy appears to be recovering and gas prices are climbing, riders are sure to increase their use of public transit. But instead of providing increased funding, governments aren’t providing support and, in the case of the Illinois Legislature, are effectively seeking to reduce the remaining revenue sources.

[1] Railway Age Feb2010, Vol. 211 Issue 2, p23-24

[2] Regional Transportation Agency, Metra. (2011). 2011 proposed program and budget book Retrieved from http://metrarail.com/content/dam/metra/documents/MetraBB2011_s11.pdf1, p1-63

[3] Regional Transportation Agency, Metra. (2011). 2011 proposed program and budget book Retrieved from http://metrarail.com/content/dam/metra/documents/MetraBB2011_s11.pdf1, p1-63

Tuesday, May 3, 2011

Standardizing State Agency Accounting through SWIFT Implementation

Different state funded E-12 institutions in Minnesota have varied levels of required budget transparency. For example, E-12 public school districts are regulated differently than two state agencies who also provide education to E-12 students (on a smaller scale). Charter Schools have long been criticized for the multiple layered governance and lack of fiscal transparency. Charters have also been criticized for the lack of efficiency and high level of spending on administration compared with school districts.

Changes are happening in state agency transparency. In 2009, the legislature approved funding to implement a new, comprehensive accounting system for all state agencies. The Minnesota Accounting and Procurement System (MAPS) had a lack of software update availability that was putting it at risk for failure. The state did a comparison study that showed cost savings with a new system, put out a bid request, and chose the Statewide Integrated Financial Tools (SWIFT), which is on target to be implemented by July 1, 2011.

State Agency versus School Board Governance
School Boards are required by state law to abide by open meeting laws, and provide transparent budget information in order to qualify for state funding. See the Robbinsdale Area School Board for an example of the kinds of budget disclosure available at the district level.

Openly available documents from the three E-12 Education-based state agencies include the agency profile and Governor’s budget recommendations for FY 2012-13. A more detailed budget outline was available by request from the Minnesota Management and Budget staff person, Kristy Swanson.

Both of the smaller state agencies, the MN Academies for the Blind and Deaf and the Perpich Center for Arts Education, are governed by a board appointed by the governor, who’s responsibility is primarily to run as a state agency board, without the requirements of a school board, but still governed by public open meeting laws. Board documents have not been readily available, and a more detailed line-item budget request was refused by both finance directors, due to the pressing needs of the legislative session and SWIFT implementation. This left some open questions of accountability and transparency within both institutions.

Key comparative elements that were unclear from the MMB documents were the true per pupil cost, the cost of the residential facilities, and the cost of administration and how that administration directly translated to students served at the facility. The justification for cost and number of Full-Time Equivalents (FTE), 80.4 at PCAE and 179 (FTE) at MN Academies, has been that they serve the center’s statewide outreach needs as well. It is unclear how that metric is evaluated. This difference in transparency made it more difficult to compare statistics than it is for charter schools because the governance and reporting structures are more similar to state agencies.

Statewide money is needed to improve graduation rates and address achievement gap issues in specific communities at risk, as in those served by MN Academies and PCAE, as well as to improve economic growth and increase international competitiveness. My recommendation is that state agencies that also function as schools should have additional measures of reporting and transparency. This reporting should be directly connected to their governance functions, similar to the reporting required of traditional schools. These measures would include per pupil costs, administrator to student ratios, and clear residence hall costs. This is one way to ensure that tax dollars are being spent wisely. SWIFT will hopefully fulfill its intent, and improve accounting and accountability for state agencies, but more attention and accountability is needed at the board governance level.

Sunday, May 1, 2011

Great Faces, Great Places: Tourism Promotion in South Dakota

South Dakota’s tourism industry is a vital economic engine for the state. The signature attraction—Mount Rushmore—is a national icon that attracts thousands of visitors each year from around the world. Other tourist offerings include the annual Sturgis Motorcycle Rally, Wall Drug, Badlands National Park, historic Deadwood, pheasant hunting, and other attractions that highlight the state’s rich western heritage and sweeping prairie vistas. According to state estimates, tourism in 2010 had a $2.42 billion impact on the state’s economy. Visitors to South Dakota spend upwards of $950 million annually and the industry employs more than 33 thousand people. Additionally, tourism generated 20 percent of all state and local tax revenue in 2010. Without question, tourism is plays a major role in the state’s economic and fiscal condition.

To maximize the economic and fiscal benefits of tourism, South Dakota actively promotes visitor travel through its Department of Tourism. The department’s budget for 2010 was approximately $11.3 million dollars, funded exclusively through earmarked own-source tax revenue. The lion’s share of that revenue ($7.5 million) was derived from the state’s 1.5 percent ad valorem sales tax, and almost all of the rest came from a statewide gambling tax ($3.2 million).

The gambling tax is a straightforward levy on gambling revenue, but the tourism tax is more complicated. It is an excise sales tax with two layers: the first layer applies during the summer months to "visitor-intensive businesses" such as gift shops, festival vendors, and other businesses that earn half of their revenue between the months of June and September, and the second layer applies year-round to visitor businesses, including hotels, campgrounds, spectator events and car rentals.

Recently, the state legislature voted to extend the tourism tax which was set to expire in June of 2011. The governor and several lawmakers believed that the tax should be made permanent, but vocal opposition within the senate—many of whom believed that making a temporary tax permanent amounted to a tax increase—forced an amendment to the bill that would sunset the tax in 2012. Sen. Bruce Rampelberg, a Republican from Rapid City, was one senator who believed the tax should be made permanent. "Why would you want to kill the goose that lays the golden egg?” Rampelberg told the Rapid City Journal. “Is it a tax increase? Maybe. But it's working. We pay a lot of taxes for things that aren't working."

Recent academic research indicates that Rampelberg is right. Public tourism expenditures do have a positive impact on visitor spending. Accordingly, the majority of the state’s tourism expenditures finance advertising, marketing, and promotional activities.

Tourism expenditures are also directed toward the state’s historical preservation society, arts council, and other state heritage organizations. In my opinion, this is a wise use of tax revenue because it supports institutions that do not garner as much visitor spending, yet play a fundamental role in preserving South Dakota’s cultural heritage—a main visitor attraction. Overall, the state of South Dakota receives high marks for developing an appropriate and highly effective system to capitalize on its tourism industry.

Minnesota's Parks and Trails

Minnesota has a vast system of parks and trails that include 73 parks and 1137.9 miles of trails. These parks and trails are highly popular among Minnesota residents, with overall attendance rising from 8.3 million in 2008 to 9.5 million in 2010.

The Parks System has an interesting funding system; the three main sources of expenditures at the state level are the Natural Resources Fund (at $89.3 million), the Parks and Trails Fund (at $36.6 million), and the general fund (at $21.1 million). The parks collect user fees, which go into the Natural Resources Fund, and some of those funds are then returned to the parks system. The Parks and Trails Fund is generated by the Legacy Amendment, which placed a .375% sales tax on goods in Minnesota. General Fund revenue comes mainly from general income and sales taxes.

Due to the fact that only a small portion of the budget for Parks and Trails comes from business-like user fees and charges, what results is a large subsidy for Parks and Trails. This means that the expenditures on Parks and Trails cause a large distortion to the market. Specifically, total quantity demanded is increased greatly.

This distortion is justified in that parks represent a market failure insofar as their use increases public health through recreation and exercise. Additionally, parks and trails represent a natural monopoly that could not exist without public subsidy, as the costs associated with a park cannot typically be justified business-wise. Additionally, Minnesota has been historically known as a generous state when it comes to expenditures related to quality of life issues, such as parks and trails, and though they may be somewhat of a luxury, Minnesotans are typically willing to pay the costs through taxation.

The current model of funding creates a major disconnect between those who pay for the parks and those who use them. Whereas the bulk of the funding comes from regressive sources, such as lottery tickets and sales taxes, the users of state parks disproportionately are those with higher incomes. This is the one area of Parks and Trails expenditures that should be changed: instead of the system receiving expenditures from the Natural Resources Fund and the Parks and Trails Fund, the weight of the expenditures should come from the General Fund, as to reduce the level of regressivitity currently present in the way Parks and Trails are funded.








Food Stamps & Farmers Markets

You would have to be living under a rock to not be aware of the growing popularity of the “buy local” phenomenon when it comes to healthy foods. Farmers markets are becoming increasingly trendy because they provide incredibly fresh and affordable food while also supporting local growers. While the opportunity to support local agriculture should be available to all, access for low-income populations became restricted following the government’s transition in 2004 from paper food stamps to EBT (electronic benefits transfer) debit cards.[1] At $1,000 each, EBT terminals are expensive and often not practical for farmers markets to operate.1 The lack of terminals effectively requires EBT users to buy their produce at traditional grocers.

This problem not only restricts access to healthy food by buyers, but also significantly limits potential sales for local growers. Food stamp usage is at an all time high with more than 478,000 Minnesotans using the program in January of 2011.[2] The program is also seeing rapid increases in use; the “percent change in monthly food stamp participation in January 2010-2011” in Minnesota was 18.7%, ranking the 9th highest percent change among states.[3]

Fortunately, the issue of lack of EBT access at farmers markets seems to be gaining recognition. With the help of grants, state and local government, and non-profit organizations, EBT terminals have made it into the hands of market vendors in Montana, Iowa, Massachusetts, New Jersey, Maine, and Minnesota, among others. In fact, the 2012 budget proposed by President Obama “includes $4 million for the purchase of card readers for farmers markets.”4

Minnesota will see a boost in farmers market food stamp acceptance this year to a total of 13 of the 130 markets in the state.[4] An interesting concept being implemented in Bloomington is the use of tokens. The market can be set up with one card reader (which can accept both EBT and traditional credit cards) and users will be issued tokens worth $1 and $5. These tokens can then be used at the individual vendor booths as payment, with vendors trading their tokens for cash with the city.4

The new West Broadway Farmers Market will begin operation on June 5, 2011 on Saturdays from 8am – 1pm and Wednesdays from 3pm – 7pm. The market, located at 2101 West Broadway Ave N in Minneapolis between the new 5-Points building on Penn and the Capri Theater, is centered in a traditionally lower-income neighborhood where use of the food stamp program is high. According to Market Manager Alicia Uzarek, EBT will be incorporated into this new market. This feature will serve to increasing access to fresh and affordable produce to a large population of deserving people.