Posts in public finance
Alaska's University Cuts are Even More Short-Sighted Than You Think

Alaska Governor Mike Dunleavy shocked the state legislature last month when he vetoed over $400 million in state spending—a far steeper number than anticipated. Included in the veto was over $130 million in cuts to the University of Alaska. This comes as Alaska struggles to deal with a prolonged economic slump caused by low oil prices, forcing state lawmakers to make some tough decisions as tax revenue falls.

Lawmakers have since failed to override the governor’s veto. As a result, the university system may soon see an astonishing 41 percent cut to aid from the state, which will lead to layoffs and possibly outright closures of smaller campuses. The financial fallout from these cuts could be even larger as federal money and research grants fall through in response to staff and faculty cuts. The Anchorage campus, for example, could see 40 of its 105 degree programs eliminated. Moody’s dramatically downgraded the university system’s credit rating in response, which could further hamper the university’s finances down the road. 

Alaska’s case is extreme. Yet state universities nearly everywhere have seen substantial cuts to state aid in the aftermath of the Great Recession, putting further pressure on school budgets already strained by rising healthcare and pension costs. Some states have chosen to reduce their systems’ emphasis on research, and instead focus on teaching and career readiness, particularly at second and third-tier universities. 

As tempting as this may be, research-oriented universities produce long-run value for regional economic development. Research universities make regional economies more dynamic and resilient in the face of globalization, and create islands of economic activity in otherwise distressed parts of the country. For a struggling state like Alaska, this makes university cuts even more short-sighted than one might think.

Read the rest at the Niskanen Center.

Press Release: Bring the Small Business Administration into the Twenty-First Century

WASHINGTON, D.C., June 10, 2019 — As Congress considers the first reauthorization of the Small Business Act since 2000, the Niskanen Center and the Information Technology and Innovation Foundation (ITIF) have organized a coalition letter in support of reforms that will bring the Small Business Administration (SBA) into the twenty-first century.

“The last two decades have seen a disturbing decline in the formation of young, high-growth firms,” notes Samuel Hammond, Director of Poverty Welfare Policy for the Niskanen Center. “The disappearance of small businesses that scale quickly does not bode well for the health and dynamism of the American economy. Fortunately, the bipartisan reauthorization before the Senate Committee on Small Business & Entrepreneurship contains a number of important reforms designed to reverse this trend, in addition to a suite of long-over modernizations.”

Recent work from the Niskanen Center’s Struggling Regions Initiative, headed by Mr. Hammond, and by Dr. Robert Atkinson, President of ITIF, have both highlighted the need for SBA reform. They are joined on their letter by:

Dani Rodrik
Ford Foundation Professor of International Political Economy
John F. Kennedy School of Government 
Harvard University

John W. Lettieri
Co-founder and President
Economic Innovation Group

John Dearie
Founder and President 
Center for American Entrepreneurship

Carrie Hines
President & CEO
American Small Manufacturers Coalition

Sridhar Kota
Executive Director
MForesight: Alliance for Manufacturing Foresight

Oren Cass
Senior Fellow
Manhattan Institute

Mark Muro
Senior Fellow and Policy Director
Metropolitan Policy Program
Brookings Institution

Andrew Stettner
Senior Fellow
The Century Foundation

David Adler
Co-editor of “The Prosperity Puzzle: Restoring Economic Dynamism”
XA Investments

Originally posted at the Niskanen Center.

How Opportunity Zones Can Help the South Reach Its Full Potential

Economic divergence between urban and rural economies is as much a story about the South as the struggling Rust Belt. As the Wall Street Journal highlighted in a recent feature, the South’s decades-long convergence to the rest of the country has halted since the Great Recession:

In the 1940s, per capita income in the states historians and economists generally refer to as the South — Louisiana, Mississippi, Alabama, Georgia, the Carolinas, Virginia, West Virginia, Oklahoma, Arkansas, Tennessee and Kentucky — equaled 66.3% of the national average, according to historical data reconstructed by University of Kent economist Alex Klein and The Wall Street Journal. By 2009, that had climbed to 88.9%. That was the high-water mark. By 2017 it fell back to 85.9%.

It is true that incomes in the South have stopped gaining ground on the rest of the country, but the story is more complicated. The South is also home to some of the fastest-growing cities in the country, among them Atlanta, Charlotte, Raleigh, and Charleston. While their West Coast and Northeastern counterparts have enacted restrictive zoning laws that drive up the cost of living and deter in-migration, these fast-growing metros have so far avoided that temptation and remain magnets of economic opportunity. At the same time, places outside these cities have been struck by high poverty, job loss, and other forms of social hardship, driving overall regional economic outcomes away from the rest of the country.

The self-sorting of workers from struggling towns to places offering higher wages and living standards is an important driver of national growth. Policymakers in the South should continue to facilitate the migration of workers to the booming cities of the Sun Belt, but they must also pursue smart place-based policy to assist the communities that migrants leave behind. It is not a fact of life that vast swaths of the region are destined to succumb to stagnation and lag the rest of the country, and with a careful reconsideration of longstanding economic development practices, the South can reverse their divergence and spur more broad-based growth.

Read the rest at the Niskanen Center.

Top 10 reform options from the CBO

The independent Congressional Budget Office recently released a report offering 121 options for reducing spending or increasing revenues. It’s a cornucopia of fiscal responsibility. Whether your goal is reducing unsustainable deficits, strengthening existing social programs, or saving the planet, there’s something for everyone. Here’s my top 10 list (in no particular order):

1). ELIMINATE ITEMIZED DEDUCTIONS

Estimated revenue change: $1.312 trillion over 10 years

Itemized deductions are one of the main reasons the federal tax code looks like Swiss cheese. Eliminating deductions such the state and local tax deduction and mortgage interest deduction, which are regressive and distortionary, would be the more efficient way to reduce the deficit without raising marginal tax rates.

2). INCREASE INDIVIDUAL TAX RATES ACROSS THE BOARD

Estimated revenue change: $905.4 billion over 10 years

Nobody likes to see their taxes go up but a broad-based increase of 1 percentage point across the board would be one of the more sustainable deficit reduction strategies. It would have minimal impact on most taxpayers and leave the overall tax-burden distribution unchanged. …

Read the rest at NiskanenCenter.org

How the Medicaid Expansion fuels the politics of austerity

The Government Accountability Office recently released a report looking at Medicaid’s effects on access to medical care in expansion and non-expansion states. They found that low-income adults in expansion states were less likely to report having unmet medical needs than those in non-expansion states. Like the Oregon experiment study finding Medicaid expansion reduced financial strain on beneficiaries, expansion advocates interpreted this study as clear evidence of the benefits of expanding Medicaid as widely as possible. Because of this, these same advocates are often at a loss to explain why 17 states have chosen not expand to Medicaid or why 21 states have applied for section 1115 Medicaid waivers to enact work requirements, eligibility restrictions, or benefit restrictions.

One common explanation is what could be called the “mean Republican” theory of Medicaid. The only conceivable reason why states might not expand Medicaid or might restrict access in light of its obvious benefits is because callous Republican policymakers in these states hate Obama, poor people, or both. Does this theory fit the evidence? After all, many of the most restrictive states are deep red southern states with histories of limiting social programs for the poor.

Yet looking non-expansion states through the lens of partisan control misses a crucial confounding factor: Non-expansion states are also deeply poor. Mississippi’s per capita GDP, for example, is less than half that of Massachusetts, while its poverty rate is double. …

Read the rest at NiskanenCenter.org

The Real Source of Teachers’ Struggles

Striking teachers in West Virginia recently made headlines in their efforts to increase their pay and benefits, which are among the lowest in the country. Teachers in Oklahoma, Arizona, and Kentucky have followed suit with similar protests. The dominant narrative, pushed by Democrats and their allies in the labor movement, presents these protests as part of a larger struggle between underpaid educators and miserly state Republicans more concerned with cutting taxes than with investing in children. While politically convenient, this story is largely a red herring distracting us from the real reason teachers in West Virginia and elsewhere are currently underpaid and unlikely to see substantial pay increases any time soon.

The problem is fiscal capacity. This is the ability of governments to raise enough revenues for the provision of basic public goods. Some states have greater total taxable resources (income, wealth, natural resources, etc.) than others. Typically, social scientists discuss fiscal capacity in regard to the inequality that results from the ability of rich suburbs to spend more on education than poor urban areas. While reformers have made great strides in reducing the disparities between urban and suburban school spending, they have paid almost no attention to disparities among states. It is impossible to address the teachers’ grievances without addressing limited fiscal capacity among poor states.

Comparing West Virginia and New Jersey helps us understand the underlying problem. Each state dedicates the same proportion of its resources to spending on education salaries and benefits — about 3.5 percent of its GDP. In other words, they are putting in the same effort. …

Read the rest at NationalReview.com