Paying More for Less

About a month ago, the Metropolitan Transportation Authority (MTA) increased the fare to ride a New York City subway or bus, from $2.50 to $2.75.  While a quarter may not seem like a substantial increase for some, it certainly adds up, and is especially vexing for riders that claim the transit system is performing more poorly than ever.  To afford the recent hike, some riders are giving up small luxuries, such as morning coffee, or “Taco Tuesdays.”  No matter what riders are giving up, they are in effect being asked to pay more for worse service. 

The 110-year old subway system carries approximately 6 million riders daily, yet without major infrastructure improvements the system will continue to eek along, infuriating riders that will continue to experience overcrowded trains, long delays, and limited service.  One study found that weekday trains arrived late at their final stop 36% more in the 12 months ending January 2015 than in the same period the year before.  Even MTA officials have admitted that service is not where it should be, with the President of NYC Transit saying that passenger experience is “miserable.”

The MTA’s capital plan to improve the system calls for $32 billion over 5 years, but only $17 billion has been budgeted, leaving a gap of $15 billion.  And while the increasing fares help stem the fiscal drain, the fact remains that riding the subway is heavily subsidized, with fares making up only 40% of operating revenue. 

New York is not alone in the increasing need to address its public transit system – DC, San Francisco, and Chicago must find the political will to allocate money for capital improvement projects for their systems, all of which are facing more riders and worse service.

The Education Balancing Act

Education spending in Minnesota is caught in a quagmire. Many tough decisions will have to be made before session takes a hiatus for the summer and one of the toughest balances to find for legislators will be supporting current infrastructure spending and/or the rollout of new programs.

The Governor’s spending plan for education lays out a variety of different areas for investment infusion: school breakfast, U of MN Medical School, teacher workforce development, per pupil formula rate adjustment, support for American Indian students, and universal pre-k to name a few. Legislators have taken action on some of these proposed topics-there have been about 50 K-12 education bills proposed in the House this session and almost 200 in the Senate.

Metro area school districts are facing hard times and although the state appears to have money to spare, many schools are making cuts. Districts are dealing with teacher layoffs, increasing class sizes, spending their reserves, and going to their constituency for local levy increases because the funding allotments from the state don’t look high enough to sustain even current expenditure levels for the next school year.

A recent Minnpost article identifies 3 main problems contributing to the fiscal maladies plaguing schools: lack of inflation adjusted state aid, budgets not reflecting true cost of service provision, and allocation for new universal pre-k programming. Universal preschool has been introduced many times previously in the Minnesota legislature and is the source of much disagreement. Several other states have adopted similar programs or are on the verge of implementation. The general fund is money that can be spent in any way the school or district chooses, but is not annually adjusted to reflect inflation. Legislative budgets can be complex, difficult to ascertain pertinent information, and potentially misleading. Minnesota operates on a biennium planning cycle, and all day kindergarten, for example, rolled out during the back half of a biennium. The cost per the budget for this fiscal year portray all day kindergarten programming as half of what it will cost in total for the next biennium. Some do not necessarily take issue with universal pre-k on its own premises, but rather that it will defer money schools need now to prevent cuts to current operations. It is the opinion of some that adding dozens of classrooms for early childhood programming is illogical if that means increasing K-12 class sizes to 35 students or more.

The tough decisions about education programming facing Minnesota legislators are common in many other fields of public service too. This nation was founded on the ideal of striving for a more perfect union and every level of government has endeavored to provide that for its constituency. Every decision comes at the cost of sacrificing other competing interests and two primary competitors in Minnesota education discourse are sustaining current district operations or installation of universal pre-k.

Robbing the rich to fund public education?

Growing up, I attended public schools in Dallas, Texas. Dallas is a huge city, and within it lies Highland Park , a wealthy enclave that had much higher property taxes than the surrounding Dallas area. We liked to joke about how “Robin Hood” took money from Highland Park schools and gave it to Dallas schools, but it has only been recently that I’ve really understood what that meant.

Back in the 1970s, a group of parents from the Edgewood Independent School District sued the state of Texas, claiming that education was a fundamental right and that the state was violating the equal protection clause by discriminating against districts that were “poor” (because they had less property wealth). Because the major source of school funding was local property taxes, communities with high property values didn’t have to tax their citizens at as high a rate to get the same amount of revenue as communities with low property values. This severely limited the amount of money per-pupil that some districts could raise.

This case, known as Rodriguez , made it all the way to the Supreme Court, where the Court decided that education was not a fundamental right (it isn’t mentioned anywhere in the federal constitution), so the financing system was not subject to strict scrutiny.

In 1984, Edgewood brought a suit against the state Commissioner of Education, William Kirby, this time alleging that the funding system for public education violated the state constitution because it was not efficient. The Texas Supreme Court ruled that the funding scheme was unconstitutional and told the legislature to fix it. It took the legislature until 1993 to find a formula that the court approved. That solution was to “recapture” money from property wealthy areas of the state and give it to those that were property poor. The public called it the “Robin Hood” law.

You may have guessed that this plan wasn’t very popular with wealthy districts. It actually wasn’t very popular with the property poor districts, either. Wealthy districts didn’t like losing revenue, and poor districts claimed the plan still wasn’t efficient or adequate. Houston has claimed that if recapture continues, they'll have to give the state $101 million in 2018, despite having high levels of poverty in some areas of the city where that money could be used. 

Several lawsuits have been brought against the plan over the years. A lawsuit filed in 2011 by both rich districts, poor districts, and a charter school has been appealed to the Texas Supreme Court. Meanwhile, the Chair of the House Public Education committee is attempting to get a bill passed that could help make funding more equitable, while others would like to wait-and-see on what happens with the state supreme court.

Why is Water so Cheap?

Water is one of the most vital resources required to sustain life and it is a resources we often do not think about and take for granted. Water news has been in the headlines recently, most notably in California where they are in the midst of a four year drought and their water supply is dwindling. Recently, Governor Jerry Brown ordered a 25% mandatory reduction in water use and agencies that do not comply could be fined up to $10,000 per day.  California has a state control board that issues monthly statements on water conversation rates using year-over-year comparisons. 

In a recent blog post in the Washington Post by Megan Mullin, an Associate Professor of Environmental Politics at Duke University, outlined five challenges traditional faced by local water utilities and one of the more surprising ones to me was the fact the traditional water management measured success by the ability to meet not demand, not conservation.

There may need to be a change in approach as to how we view water as a public good. It is easy to see water as an infinite resource that costs very little. We seem to be using water faster than we can replenish our aquifers. In Minnesota, White Bear Lake has been suffering for low lake levels in recent years for multiple years. One of the main reasons, is the pressure on Prairie du Chien Aquifer that provides water the White Bear Lake and six surrounding communities, that aquifer is depleting and in the last ten years the lake has lost one quarter of its volume. In December, a new plan was unveiled to divert water from the Mississippi River to provide water for White Bear Lake and surrounding communities to relieve pressure from the aquifer for a cost of $623 million.

This all leads me to this question, why is water so cheap? In the city of Minneapolis it costs $3.37 to use 748 gallons of water. I live in an apartment in Saint Louis Park and my utilities are included in the rent so I do not see a water bill, consequently I have no price incentive to conserve water. So if I want to take an absurdly long shower I can and it will not cost me any more money. In the country there is an overall trend that the price of water is increasing but it may not be enough secure safe water in the future.

Cities and States are only forced to deal with this issue in times of severe drought or exceptional circumstances.  However, this is an issue may become more commonplace as more pressure is put on out aquifers and the impacts of climate change are realized. National Public Radio’s Marketplace is currently doing a series called The High Price of Cheap I would encourage everyone to explore that series it is very interesting. The first part of series examined Waukesha, Wisconsin and how they went from abundant pristine drinking water to fighting over the right to divert water from Lake Michigan. 

Links:

http://www.latimes.com/local/lanow/la-me-ln-some-california-cities-must-cut-water-use-35-amid-drought-20150407-story.html

http://www.waterboards.ca.gov/waterrights/water_issues/programs/drought/conservation_reporting_info.shtml

http://www.washingtonpost.com/blogs/monkey-cage/wp/2015/04/13/why-californias-local-governments-cant-manage-their-water-and-why-jerry-browns-proposal-could-help/

https://water.usgs.gov/edu/gwdepletion.html

http://www.startribune.com/local/east/284350031.html

http://www.ci.minneapolis.mn.us/utilitybilling/faq/utility-billing_about-your-bill

http://www.circleofblue.org/waternews/2014/world/price-water-2014-6-percent-30-major-u-s-cities-33-percent-rise-since-2010/

http://www.marketplace.org/topics/sustainability/water-high-price-cheap

http://www.marketplace.org/topics/sustainability/water-high-price-cheap/waukesha-spa-town-took-its-water-granted

The state and local actions for increasing public investment in transportation

The lack of investment in transportation in U.S. has been a problem. The funding in transportation does not match with the maintenance, and also not for the residents’ needs. In this investment crisis, federal governments lose their role to solve this problem.  Instead, states and local governments take actions to solve this investment crisis. Two major actions they have are:

1)    Increase gas tax: to better maintain highway system, state governments either increased gas tax or in the process of debating increase gas tax for lack of money. Even for the states controlled by Republican, increasing gas tax is also possible.

2)    Ballot measure to increase transportation funding. Local government tried to pass the ballot measures to increase the transportation funding. Some cities raise sales tax for public transit. The ballot measures were passed in some cities, but also failed in some cities. For a long list about the ballot measures to visit: http://www.cfte.org/elections/past

These facts also reflect that state/local governments react quicker for local needs on infrastructure. This is one of the features of fiscal federalism. At the same time, these actions also reflect what happened in the situation that public investment is not sufficient for demands. When the price for the public service (here is the transportation system), citizens will think about how to change this situation to make the service satisfied.

(picture from Brooking Institute)

Links:

Transportation investment is a matter of (local) perspective. Brooking Institutes

http://www.brookings.edu/blogs/the-avenue/posts/2015/04/08-transportation-investment-local-tomer

States Raise Gas Taxes to Pay for Infrastructure: As Congress Only Takes Short-Term Steps, Governors Seek More Funds for Roads. The Wall Street Journal http://www.wsj.com/articles/SB10001424052702304886904579473631543152814

How Red States Learned to Love the Gas Tax. The Atlantic

http://www.theatlantic.com/politics/archive/2015/03/how-red-states-learned-to-love-the-gas-tax/389084/

Intergovernmental Challenges in Surface Transportation Funding: First report in the Fiscal Federalism in Action series. The Pew Charitable Trusts.

http://www.pewtrusts.org/en/research-and-analysis/reports/2014/09/intergovernmental-challenges-in-surface-transportation-funding

States Raising Gas Taxes for Road Revenues. The Bond Buyer.

http://www.bondbuyer.com/news/washington-infrastructure/states-raising-gas-taxes-for-road-revenues-1071179-1.html

"Fines and Public Safety" in Ferguson: Red Flags in Local Government Revenue Structure

Last summer, violence in Ferguson, MO sparked a national conversation about the relationship between our communities and our police. However, the tension and explosion we witnessed in Ferguson aren't solely the fault of poor policing practices and overt racism - the roles bad planning, bad governance, and an untenable local revenue structure had in contributing to the nightmare should not be ignored.

The St. Louis suburb exploded in the 1950's as a haven for whites escaping the central cities. The explosion of population resulted in massive housing construction in a short period, and Ferguson's decline coincided with the decline of its housing stock. As the housing aged, the city lost its luster and in the 1980s, residents began to leave the city in droves. With a decreasing tax base, the quality of services - especially schools - began to decline as real incomes fell.

Faced with ever-smaller revenues from traditional sources like property and sales tax, the city turned to another source to make up the shortfall - fines. The budget below, taken from the City of Ferguson's financial records, shows that "fines and public safety" in 2013 made up nearly 20% of revenues generated by the city.

A report from the US Justice Department found a 50% increase in citations from 2010 to 2014. Attorney General Eric Holder called the police force "a system primed for maximizing revenue" and "a collection agency." Even more sickening, the DOJ uncovered an email in which the police chief bragged about his department's most profitable month in four years - to which the city manager responded, "Wonderful!"

The massive increase in fines contributed to a heightened level of distrust between Ferguson's citizens and police force, which ultimately boiled over in the worst possible way. The city's choice to actively pursue fines as a source of revenue is outrageous and indefensible, but it serves as the emblem of America's failed cities left with nowhere to turn.

Intergovernmental Grants and Transfers

The design and implementation of intergovernmental grants in North Carolina have made their way to the forefront of state news this week. Senate Bill 369, or the Sales Tax Fairness Act, introduced by Republican Senate Majority Leader Henry Brown, would alter the manner used to distribute sales tax revenues that are returned from the state to local governments. The formula proposed by the bill would replace the existing formula for redistribution of the sales tax, which currently doles out funds via a scale weighted 75% based on the point of sale and 25% based on population. The new formula would be based wholly on per-capita redistributions; location of sale would not be considered.

This means that 75 cents from every one dollar generated from the 2% local portion of the sales tax remains in the county in which the sale was conducted. The remaining 25 cents is distributed across the state on a per-capita basis.  As a result, larger counties, and those with more retail options and tourist attractions are able to keep larger pots of money, whereas rural counties are not. The snag is that because these rural counties don’t have sufficient retail or commercial centers, they have to go to the urban centers or other more-populated areas and end up spending their money there and having less allocated back to them through the current distribution system.

Under Senate Bill 369, the legislature would control the estimated $2.2 billion generated in local sales tax and convert it to a state sales tax. The revenue would then be distributed on the per-capita basis. With the proposed system, over ninety counties would see an increase in the amount of funds they would receive, while only eight would see a decrease. The total amount of overall winners and losers is not the only point to consider - how large a change in funding is critically important, especially to those expecting a decrease. Of those counties expecting a decrease, Dare County would take the largest loss – seeing a nearly 60% reduction in sales tax revenues. The potential lost sales tax revenues for the county and the towns within it could total $16.7 million. Many of the other counties that would lose money are those home to the state’s many beach and resort towns and are seen as the economic engines of the state.

The potential for such a change has ignited strong opposition from some state lawmakers. Cries of “socialism” have emerged. Even the Governor, Pat McCrory, is opposed. But other lawmakers equally as strongly contend that the current system is unfair, and Brown is leading the pack. “North Carolina’s antiquated system of redistributing sales taxes is unfair… it provides a huge advantage to a few rich areas that are booming while hurting the overwhelming majority of our state’s counties.”

So what do you think? The map below shoes the percent changes in revenue by county across North Carolina. A far greater number stand to benefit from the proposed change. Do you think that this reason alone is enough justification to alter the tax structure?

Motor Vehicle Sales Tax in Minnesota

The motor vehicle sales tax (MVST) is a 6.5% sales tax largely used for transportation funding in the state of Minnesota. It is exclusively for motor vehicles and is applied to the sale of a motor vehicle in lieu of a general sales tax. The tax base is determined by the sale price of the car less any rebate or trade-in vehicle value.  Certain users, uses, and vehicles are exempt from paying the MVST (for example, off-road vehicles are taxed with the general sales tax instead). Passenger vehicles that are 10 years or older or are valued at less than $3,000 are not subject to the MVST but instead pay a $10 tax.

Initially, MVST funds were directed to the general fund and used for various transportation purposes.  In 2002, legislative changes introduced a cap on the amount of revenue collected from the motor vehicle registration tax or “tab fees” and eliminated local property taxes as a major source of transit funding. In response, a greater share (~31%) of the MVST was directed to the Highway User Tax Distribution Fund from the general fund. In 2006, voters approved a constitutional amendment dedicating all MVST funds to transportation purposes. The amendment included a ceiling for funding directed toward state and local highway spending (60%) and a floor for establishing the minimum percent to be allocated to public transit assistance (40%).

Generally, the necessity of automobile purchases and the near impossibility of evading the tax precludes behavior change. Therefore, MVST is a highly efficient tax.

Equity is a bit more complicated. If we frame equity as connecting the poor or underprivileged to opportunities, then using revenues to subsidize an accessible transit system is equitable. However, some could argue whether the transit system is equitable or not by looking at the focus of major transportation investments. Still, there are obvious shared social, environmental, and mobility benefits that benefit riders and non-riders (least of which is the reduced congestion on roads to the growing prevalence of “riders of choice”).

Perhaps the weakest criteria for MVST is revenue adequacy.  The amount of revenue generated from MVST fluctuates largely from year to year as it is tied directly to the number and value of vehicles sold each year.  Factors such as gasoline price or the health of the economy have an impact on the number of miles driven and the number and value of cars sold in a given year.  

MVST is easy to collect and administer.  In Minnesota, the various taxes, fees, and penalties are listed line by line with a subtotal on the Vehicle Registration document. An average consumer may or may not differentiate the different components of their motor vehicle sales tax and fee subtotal. Since the consumer typically spends the bulk of their mental energy negotiating the price at the time of purchase (which determines their monthly payments), the final tax rate may seem less onerous and more of an afterthought (although neither of us has purchased a car ourselves, so we can’t speak personally).

Further Reading:

Forbes’ interesting comparison of most and least expensive states to purchase a car:

http://www.forbes.com/sites/jimhenry/2014/06/29/car-buyers-beware-cheapest-and-most-expensive-states-for-unexpected-fees/

Carsdirect – inadvertently humorous recommendations to “avoid” the tax (hint: relocate to a state that doesn’t collect it):

http://www.carsdirect.com/car-pricing/5-ways-to-pay-no-car-tax

Minnesota Department of Public Safety: breakdown of MVST:

https://dps.mn.gov/divisions/dvs/Pages/motor-vehicle-sales-tax.aspx

“Short Subjects: Motor Vehicle Sales Tax.” – a 2-page history of the MVST:

http://www.house.leg.state.mn.us/hrd/pubs/ss/ssmvst.pdf

Governor Dayton’s budget proposal synopsis:

http://mn.gov/governor/newsroom/pressreleasedetail.jsp?id=102-153582

Metro Transit budget Facts: http://www.metrotransit.org/facts