Transparency is Key to Reform

Posted on May 24, 2012 by admin

The Buckeye Institute has been a leader in offering transparency to Ohio’s taxpayers when it comes to disclosing state employee, teacher, higher education, and some local government salaries.  While we are sometimes criticized for this, we feel strongly that it is only by showing taxpayers where their money is going that they can begin to understand where certain changes in public policy need to be made.

Unfortunately, as a small office, the Buckeye Institute can’t do it all.  While we are constantly looking to update this information, the public records requests we have to go through, especially with local governments, is very time consuming.  It is also not really possible that a small staff can wade through nearly 4,000 different taxing authorities.

However, an expansion of transparency remains one of the most important changes to public policy Ohio can enact because it will empower taxpayers by giving them knowledge they simply do not have right now.

Not only will salary information be important, but being able to benchmark various expenses by local governments will guarantee that taxpayers are getting value for their hard earned dollars.  That’s why this recent Dispatch editorial is right on target as it hits on themes we have long been discussing.

“As it stands, when local-government officials proclaim they are weeding out waste and spending wisely, the public has a tough time evaluating those claims. Armed with comparative data, taxpayers could determine how much a government takes in and how much it spends. And how it compares to its peers.

The benchmarking would produce immediate change: It would push office-holders — and their political challengers — to address higher-than-average expenses. “If we’re going to have the citizens of Ohio manage local government, they need to be able to measure local government,” Krebs said.

And the data would be helpful for tracking progress.

Recent employment numbers suggest that bloated local governments have barely cut back — shedding about 1 percent of workers, despite a 25 percent cut in state local-government funds, a loss of $173.6 million, since Gov. John Kasich took office and pushed through the leaner budget.”

Given that Ohio has a high local tax burden for taxpayers, 5.1 percent as a percentage of personal income and making Ohio the sixth worst state from this perspective, the need to reform is obvious.  Our local taxes are simply TOO HIGH.

The Buckeye Institute has talked about many reforms that could be initiated at the local level in our Joining Forces report.  However, taxpayers need to have data at their fingertips so they know which tools they should consider pulling out of the toolkit in order to keep the services they value but at a cost they can afford without dragging down the prospects of business growth.

There have been several efforts over the last year to move this along in the General Assembly.  Unfortunately, thus far, they have been unsuccessful, but the Buckeye Institute and many others will continue making this case.

The bottom line- more transparency, however done and wherever housed, is an essential piece of the puzzle for taxpayers so they can embrace the right reforms at the right time.

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Job growth focus should be on basics not preferential treatment

Posted on May 23, 2012 by Kevin Holtsberry

One of my favorite economic writers, Veronica de Rugy, has a good article on what type of businesses really create jobs.  She makes the important point that it is not the size of the company that matters:

A 2010 National Bureau of Economic Research paper by University of Maryland economist John Haltiwanger and researchers at the U.S. Census Bureau found there was no consistent link between net job growth rates and the size of a business. Instead, the researchers found that firms younger than 10 years, particularly startups, are the real sources of job growth.

Another study, published the same year by economist Tim Kane of the Kauffman Foundation, came to the same conclusion after examining more than 30 years of data from the Census Bureau’s Business Dynamics Statistics. Both large and small firms continuously create jobs, Kane found, but also continuously destroy them. The Kauffman report found that without startups—defined as firms younger than one year old—there would be no net job creation in the United States. As Kane writes in the study, “Startups aren’t everything when it comes to job growth. They are the only thing.”

Former Obama administration economic adviser Jared Bernstein explained this concept concisely in an October 2011 New York Times op-ed. “It’s not small businesses that matter, but new businesses, which by definition create new jobs,” Bernstein wrote. “Real job creation, though, doesn’t kick in until those small businesses survive and grow into larger operations.”

Today, according to Haltiwanger and his co-authors, businesses younger than a year account for 3 percent of U.S. employment but almost 20 percent of new gross jobs. Furthermore, 60 percent of small businesses that have been around more than five years act as a slight drag on the number of jobs available. These older small businesses cut about 0.5 percent more staff than they add in a typical year, according to Haltiwanger.

Real job growth comes not from people dreaming of being small but from entrepreneurs committed to building large and sustainable companies. This shouldn’t be news. A seminal 1987 study by David L. Birch, a former MIT researcher, explained that small-firm job creation occurs within a relatively few firms, the ones he calls “gazelles.” Gazelles are high-growth entrepreneurial companies that start small and quickly grow larger. This subset of small firms, not small firms in general, is the powerful job creator of every central planner’s dreams.

She then goes on to note how government not only can’t really predict which of these type of firms is going to make the leap and thus add jobs but how a focus on size can distort the market and insert perverse incentives into the economy.

Her conclusion is something that policy makers need to understand and focus on:

Instead of preferential policies, the government should establish an environment that encourages businesses with strong growth potential to evolve into successful large enterprises. This means low tax rates, low levels of regulation, and a stable legal structure that protects property rights.

This should be the focus for Ohio.  Far too often policy makers try to carve out special exemptions, target tax credits and regulatory policies & respond to unique circumstances rather than focus on keeping taxes and regulatory burdens low across all sectors and business.

Markets and consumers should decide which businesses are meeting needs and providing the goods and services Ohioans want not politicians.  The reward is a thriving economy – and more jobs.

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April Ohio by the Numbers Shows We Still Have a Long Way to Go

Posted on May 23, 2012 by Greg R. Lawson

The April 2012 Ohio by the Numbers report is now available and it continues to reflect the serious challenges Ohio faces in recovering from decades of growth deficits.

  • Ohio lost 6,300 private sector jobs in April;
  • Ohio currently ranks 20th nationally in terms of private sector job growth since January 2010, growing at a 3.4 percent rate (top ranked North Dakota grew 16.9 percent over the same time span);
  • Ohio currently ranks 47th for private sector job growth since January of 1990, growing at 5.9 percent (top ranked Nevada grew 83.3 percent over the same time span).

Assuming the “Best Case Recovery” scenario of a private sector growth rate similar to the 1990s boom, Ohio will not recover to peak employment of 4.85 million, which was reached in March 2000, until at least April 2017.  It is more likely that peak employment will not return until the early 2020s. In other words, 17 years between peaks in private sector employment.

Within individual industry sectors, only Professional and Business Services and Education and Health Services have more people employed in them today than in either 1990 or 2000.

The report shows that Forced Union states (which includes Ohio and most of its neighbors with the recent exception of Indiana which became a worker freedom state in February) had a private sector growth rate far below Worker Freedom states.  Since 1990, Worker Freedom states’ private sector jobs grew at a 36 percent rate vs. only 13 percent for Forced Union states.

Even during the decade from 2000-2010, which included the tech bubble burst of 2000 and the “Great Recession” of 2008-2009, Worker Freedom states gained jobs for a minimal growth of around 0.1 percent while Forced Union states lost 5 percent.  Since 2010, Worker Freedom states also outperformed Forced Union states, growing at a 4.1 percent rate vs. only 3.5 percent.

To view the full report, please Click Here.

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Collective Bargaining Reform Can Save Jobs

Posted on May 22, 2012 by Greg R. Lawson

Remember all the talk that the passage of Senate Bill 5 would lead to an apocalypse for public sector workers?  Well, what has happened in the absence of collective bargaining reform?  Large scale layoffs in school districts and local communities throughout the state.

A look at other midwestern states, however, reveals that it didn’t have to be this way.  Jobs could have been preserved and real savings achieved.  A report from the Manhattan Institute outlines how major changes made in Indiana years ago and Wisconsin last year have yielded real savings.

In Indiana’s case the savings were achieved without taking a meat cleaver to the budget, but through targeted and structural reforms.  This meant that Indiana was relatively well positioned to withstand the storm of the “Great Recession” that began in the wake of the Housing Bubble burst.

In Wisconsin’s case, some communities that were able to take advantage of Gov. Walker’s reforms were able to do so with less draconian layoffs and cuts, while those that were locked into multi-year collective bargaining agreements , unsurprisingly, had to take more drastic action.

What’s the bottom line here?  Dealing with an outdated system of government and collective bargaining was always going to be painful, but putting off reform is not only unsustainable in the long run, it only leads to deeper cuts.

Posted in Local Government, Public Sector Reform | Tagged , , , , | 1 Comment

The Spectrum All-Star Roundtable on “Fracking” and Drug Testing for Welfare Recipients

Posted on May 21, 2012 by admin

Buckeye Institute presdient Kevin Holtsberry was on the The Spectrum with Colleen Marshall this weekend.  The all-star roundtable discussed the environmental and tax issues surrounding oil and gas being debated at the Statehouse as well as drug testing welfare recipients.  You can watch below (roundtable starts at 8:12)

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Focus on fiscal discipline and reform, not a return to spending 

Posted on May 21, 2012 by Greg R. Lawson

The Ohio Senate made a good move last week.  It removed a provision from one of Gov. Kasich’s “Mid-Biennium Review” bills, House Bill 487, that had been inserted by the Ohio House.

That provision would have forced the General Assembly to take a vote on what to do with any surpluses in the state General Revenue Fund (GRF).

Under current law, those surpluses would be transferred to the Budget Stabilization Fund (BSF), popularly known as the “Rainy Day Fund.”   Once the BSF reaches 5 percent of the previous year’s GRF appropriations, which currently should be over $1.2 billion, any remaining surplus at the end of fiscal year automatically goes into a special fund that yields across the board income tax cuts for all Ohioans.

It should pointed out that the BSF is a key tool for state policymakers as it acts as a cushion to buy time for the state in tough economic times.  That way when a recession occurs, the state has the time to be deliberate in its responses rather than being forced into precipitate cuts or, even worse, job killing tax increases.

Ohio’s BSF has only recently begun to be replenished from under $1, yes $1, to a bit over $200 million now.  Clearly, the BSF is way under the 5 percent threshold and many would actually argue the 5 percent number in present law for the Ohio BSF is actually too low and fails to provide enough cushioning.

At any rate, the House provision would have stopped this process cold and given any number of special interests an opportunity to inject themselves into the debate, trying to get their hands on additional money.  This would have been deeply problematic.

First, any surplus revenue at the end of the current fiscal year could easily evaporate for a variety of reasons.  Already, there are questions surrounding $100 million meant to go to JobsOhio, the Governor’s new job creation agency.  There are issues regarding ObamaCare and Medicaid expansion.  There are real worries that Europe’s massive fiscal problems could yield a recession there that could cross the Atlantic and hit the US too.  Any or all of these things could directly impact Ohio’s fiscal situation is rapid order so it makes little sense to spend something we have no idea will really exist.

Times of such uncertainty are exactly why one wants a “Rainy Day” Fund.

Another big reason is that one of the prime groups lobbying for new revenue are local governments.

As the Buckeye Institute has long argued (especially in our Joining Forces report and recent testimony before the Senate Finance Committee), local governments need fundamental reform not simply more taxpayer dollars.  However, the pressure to reform would be relieved if more money were simply funneled in their direction.  This could actually counteract many of the positive reforms that have been made in the last year, such as the creation of the Local Government Innovation Fund, which is offering seed funding to local governments to seek ways to better share services and collaborate.

Gov. Kasich and State Auditor Yost were outspoken in their opposition to this provision for many of the reasons just articulated.

While HB 487 will be in a conference committee this week and things can change, we can all hope the General Assembly will keep their eyes on the ball, and let reform take its course.

Posted in Government, Local Government | Tagged , , | 1 Comment

Digital Learning: the Future of Education?

Posted on May 18, 2012 by Greg R. Lawson

Yesterday I attended a tremendous event, hosted by several major organizations involved in education reform including the Thomas Fordham Foundation, KnowledgeWorks and the Nord Family Foundation, on “Digital Learning”: The Future of Schooling.

Among the speakers were the head of the Ohio Department of Education, Stan Heffner, State Senator Peggy Lehner and a group of experts.  The focus of the entire event was to highlight how access to broadband and various communications platforms, from iPads to laptops to online materials, are likely to transform the education landscape in the years ahead.

While no one knows exactly how it is all going to play out given the rapidity of change in the technology sphere, one thing that all of the speakers agreed on was the need to remove legislative and regulatory roadblocks that impede the deployment of new technology.

Something as simple as how a school curriculum is defined can greatly impact the amount of material that can be disseminated through technology.  Allowing a school to operate as a “blended school” is one key change that should happen so there is seamlessness to the use of old and new pedagogical methods.  Currently, there is a provision in Senate Bill 316, a major reform bill now pending in the General Assembly that would open that particular door.

The bottom line is this, technology has already changed how people interact with each other in their personal and business lives, it is high time it more fully be integrated into our education system.

You can watch the conference highlights Here.

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Ohio’s Pension Choice: Status Quo or Real Reform?

Posted on May 17, 2012 by Kevin Holtsberry

Some of you may be wondering why we seem so focused, some might say obsessed, with pension reform.  Well, this week as a pension bill has been moving in the Ohio Senate it was obviously a good time to highlight our report and focus on the issue.

But the larger issue can get lost in the politics, details and complicated nature of the subject.  And Diehl Fellow Adam Schwiebert highlighted this important point in an Op-Ed in the Columbus Dispatch today:

The question Ohio faces on pension reform is simple: Do we want to continue to avoid difficult issues in the hope that a devastating crisis never comes, or do we want to act now to reform the system before a crisis can develop?

Yes, the $72 billion in unfunded liabilities is a serious concern.  But what is in many ways equally important is Ohio has a chance to address a problem BEFORE if becomes a crisis.

We are committed to an unsustainable and inequitable system that refuses to acknowledge the structural changes to the economy and budgets both personal and government.  The longer we deny this reality the harder it is to address the problem.

So we keep talking about the issue because we think it is the right public policy but also because it is an opportunity to choose differently and actually lead on an issue rather than be forced to change because of a crisis.

Adam reminds us of the question we face:

In the upcoming debate on pension reform, Ohio has a choice. It can continue on the path of the status quo and allow a crisis to develop. Or it can commit to real reform and choose to tackle a critical issue before a crisis.

We have all too often seen the result of the first option. Isn’t it time Ohio tried the second?

 

 

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Cincinnati Coming to Grips with Pension Costs

Posted on May 16, 2012 by Adam Schwiebert

With the public pension reform debate heating up in the Statehouse, it’s fitting timing for another pension crisis to arise—this time, in Cincinnati.

Cincinnati’s situation is unique. Unlike Ohio’s other municipalities, Cincinnati city employees do not participate in one of Ohio’s five statewide retirement systems; rather, they are members of the Cincinnati Retirement System.

Like so many other defined-benefit plans across the country, the Cincinnati Retirement System is in financial distress.

As reported by the Cincinnati Enquirer, Cincinnati’s pension fund for city employees is underfunded by roughly $728 million. Only 67 cents of assets exist for every dollar in liabilities. And the projections for the future are grim. Even if the fund hits its average investment return of 7.5 percent, the system with only be 10 percent funded by 2044.

Obviously there are many similarities between Cincinnati’s pension struggles and those of Ohio’s statewide plans: overly generous benefits, poor investment returns, and demographic changes. But there is one key difference. Unlike Ohio’s pension funds, Cincinnati has frequently failed to make the annual required contributions to the system. Underfunding a defined-benefit pension plan (while politically popular) is a near guarantee for future shortfalls—and closing the gap only grows harder by deferring the costs.

For instance, in 2013, the required contribution from the city will be $67 million–$30 million more than the city contributed this year. There appears to be little political appetite (and even fewer dollars) to find the extra money to fully fund the system in 2013.

These shortfalls will undoubtedly have an impact on both public employees and taxpayers. Cuts to benefits, while politically unpopular, are necessary. Past promises made to public employees cannot be fully kept. For taxpayers, either taxes must be raised or more funding will need to be diverted away from other public services to shore up the fund.

Choosing to do nothing is not an option. As a growing number of communities across the country have witnessed, unfunded pension obligations can bring a city to its knees.

Cincinnati knows the depth of the hole and where the current trajectory leads; the only question that remains is which path is the best way forward.

It must be understood that the defined-benefit system contributed to the current situation. Defined-benefit plans are complex and under them it’s easy to promise benefits today and hide the costs for years—as was the case in Cincinnati.

Defined-contribution plans are far more transparent. Either the city makes its contribution today or it doesn’t. Costs cannot be hidden behind accounting gimmicks or false promises. Unfunded liabilities do not exist.

As we’ve long argued, shifting toward defined-contribution plans can, if properly structured, save taxpayer dollars, reduce risk, and provide greater portability.

Cincinnatians have seen where the status quo has brought their city: huge unfunded liabilities and few good choices going forward. Perhaps it’s time to try something new.

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Discussing the need for pension reform on 610 WTVN

Posted on May 15, 2012 by admin

Buckeye President Kevin Holtsberry was on 610 WTVN this morning discussing the need for pension reform and its impact on Ohioans. You can listen below.

For more information on this important topic see Diehl Fellow Adam Schwiebert’s, testimony in the Ohio Senate on this issue last week and our report Hanging by a Thread: Big Payouts and Promises Leave Ohio Pension Plans on the Brink of Collapse–or a Massive Bailout

Posted in Media, Pensions | Tagged , | 2 Comments