A New Way to Pay for Highways

How to pay for current and future road repairs is a challenge for nearly all states. The federal Highway Trust Fund is not the answer, at least not in its current form. Governing magazine asked a Tax Foundation expert for his perspective on some alternatives. Governing reports:

Commute to work is a bit on the bumpy side, then you know the answer is road repairs. The follow up question is: Given how long this downturn has afflicted state and local budgets, who’s going to pay to repair potholes and the like?

Well, it’s not going to be the feds. The Highway Trust Fund, which finances an average 45 percent of a state’s highway and transit capital costs, is shrinking. One reason for that shrinkage is that the federal gas tax has been stuck at its current rate (18.4 cents per gallon) since 1993, which means it is not keeping up with inflation, to say nothing of state needs. Congress is not likely to raise the federal gas tax rate this year or next, so that leaves the states. In theory, they have a little room to raise or tinker with their gas tax formula — something most states have not done in years.

Given the importance of a healthy road system to economic development, what approaches could states take to raise revenue for road repair and building? I put that question to Mark Robyn, an economist with the Tax Foundation. Here’s an edited version of our conversation:

Is this a good time for states to raise their motor fuel taxes?

It’s difficult to raise most taxes. The gas tax — an excise tax — is interesting because it’s one of the few that states levy that really looks like a user fee. You pay it when you use a specific service, and the rate is set at a level to pay for the service you consume. It’s like an entrance charge to a state park. You wouldn’t call that a tax as long as that revenue is used to pay for upkeep of the park and the charge reflects what the costs are.

The gas tax, though not perfect, is an approximation of that relationship. Revenue received from gas taxes usually is used for road and highway maintenance; the fee you pay approximates how much road you consume. But different cars get different gas mileages; electric cars don’t even use gas but they also don’t cause less damage to the road. So the gas tax is not perfect but it is similar to a user fee. If states want to structure the gas tax like a user fee and if the state is not getting the money it needs for roads and repair, the next logical step would be to increase the gas tax. But people have to believe the money is being spent wisely. Not all states do that, and people say, "Well, I see this waste of money. If you increase my taxes, you’ll waste a portion of it." When I say states are wasting money, I mean they are using it for road projects that people don’t see as valuable — the "bridge to nowhere." If there are no "bridges to nowhere" and people are driving over potholes, they’ll be more willing to accept gas taxes to avoid potholes.

Sales Tax Battles Growing Nastier

The call is growing louder (from the Indiana Chamber and others) for a federal solution to the online sales tax dilemma. But while that fight continues to be waged, Governing magazine looks at the individual state battles with Amazon. They only seem to add more fuel to the fire for a comprehensive national strategy.

States have been coming up with a variety of ploys — some conservative, others more radical — to get Internet retailers to collect the tax. Their efforts range from a handful of states claiming nexus via in-state affiliates that sell on the big-name websites to a 24-state compact to streamline sales tax systems. At the same time, states that levy sales taxes have come up with new allies in the fight to get the U.S. Congress to redress the collection issue and undo Quill. These allies include not just small mom-and-pop stores on Main Street but also giant retailers such as Target and Wal-Mart — retailers with robust Internet sites that do collect the sales tax because they have nexus in almost all states.

At every turn, Amazon has gone to great lengths to block state collection efforts. In states that claimed nexus because Amazon affiliates were located there, Amazon ended relationships with those businesses and, in turn, pursued litigation in the state. In states where it had facilities, it threatened to pull them out, thereby raising the specter of eliminating jobs. And where Amazon wanted to open facilities, it insisted on a free pass on tax collection. Amazon declined interview requests for this story.

Its pugnacious ways have paid off in some states, where the company was given the green light not to collect sales taxes for years — so long as it kept or built a facility in the state. But those ways have left bruised feelings, especially among legislators. In Tennessee, where legislators have been rethinking a deal Amazon struck last year to build distribution warehouses in return for not collecting the tax on goods shipped from those facilities, state Sen. Randy McNally likens Amazon lobbyists to take-your-lunch-money bullies. “They are making demands on the states that if a smaller business came in and tried to do, we’d laugh at ’em.”

This fall, however, there was what may be the biggest breakthrough on the Amazon tax front: California’s settlement with the company. After fighting legislation that would require out-of-state online retailers to collect sales taxes if they had affiliates, offices, workers or other ties to the state, the company ponied up millions of dollars to put the issue to taxpayers via a ballot referendum. It also cleansed its website of California-based affiliates. Then, the company suddenly backed down — in part because the damage to its reputation was growing. The online retailer struck a deal with the state that will require it to begin collecting sales taxes in California after a one-year grace period. In September, Gov. Jerry Brown signed the agreement into law.

The California deal suggests that Amazon may be changing its game plan. If that’s so, it would probably bring the rest of the Internet retailers into the fold as well. (Amazon recently made a similar deal with Tennessee.) Meanwhile, the states battle on, with legislators contending with the lobbying power of a giant — juggling the need for revenue versus promises to bring a few jobs to the state.

Columnist: It’s About More than Jobs

In the world of economic development, some say jobs are the measuring stick of success. While they are undoubtedly important, jobs cannot be the only measuring point when the ultimate goal is creating prosperous communities, according to Governing columnist William Fulton:

Here are the facts: The national radio show This American Life aired a segment in May on economic development, including a visit to a conference put on by the International Economic Development Council (IEDC). Because the show depicted the council and what it represents in such negative tones, long-time IEDC President Jeff Finkle wrote a lengthy letter of complaint, saying he felt like a guy who invited the show’s producers to a dinner party at his house, and then watched them insult the guests. Ira Glass, producer of This American Life, apologized for the segment’s snarkiness. In the end National Public Radio, which co-funds the show, apologized too.

All this was good copy, as we say in the newspaper business. In particular, Finkle deserves credit for successfully calling out the radio show for its highly negative story and eliciting an apology — something that almost never happens. But the whole controversy obscured one valid criticism of the profession: The way job creation is used as the first, last and only measure of success.

The problem, as the radio show correctly identified, is that there is enormous pressure on politicians and the economic development experts who work for them to take credit for jobs created — and, in some cases, jobs only supposedly created. Sometimes economic developers differentiate between good jobs and lousy jobs, mostly by looking at the hourly or annual wage scales of the jobs — but usually the headline simply telegraphs the number of jobs a state or locality has produced. As the radio show pointed out, at times politicians go to hilarious lengths to take credit, as when Missouri Gov. Jay Nixon held a press conference to celebrate the creation of eight jobs.

So in the same way that teachers are expected to deliver test scores rather than educated children, economic developers are expected to deliver jobs rather than prosperous communities. Hence the focus on poaching jobs from somebody else’s turf and the spotlight on poaching big companies rather than small ones.

As we all know, there’s far more to the economic development profession than jobs. Over the past 20 years, as smokestack-chasing has subsided, economic developers all across the country have done a great job of focusing on growing jobs locally rather than poaching them. But even this approach doesn’t really convey how economic development works. Ultimately, successful economic development can’t be measured only by the number of jobs or even the number of high-paying jobs that have been created.

Everybody needs a “job” in the sense that everybody needs a source of income capable of sustaining them. But prosperity today is so much more than providing everybody with a conventional job. Entrepreneurs need an entire ecosystem to support them — financiers, lawyers, strategists and a growing workforce. Communities need wealth retained in their hometown to endow their future needs.

Different types of people need different types of jobs — white collar, blue collar, professional, technical. As I wrote in this space in May, the next generation increasingly realizes that their future lies in the so-called “1099” economy, where temporary work is becoming the norm. They have no expectation of a traditional career path or even a traditional job.

These are the subtleties of economic development in the United States today that cannot be captured by measuring what we traditionally call “jobs.” They are measured by other things: venture capital available to local companies, skills in the workforce, the value of local philanthropic endowments, the number of startups (successful and unsuccessful) and overall household income.

The end result of all these activities is a prosperous community where people have money in their pocket and a commitment to spending it in a way that benefits both themselves and their hometown. Yes, sometimes this means smokestacks, and yes, most of the time it means jobs. But the underlying truth of that NPR segment is that there’s a difference between jobs and prosperity. If economic development is about nothing but jobs, then stealing jobs and taking credit for jobs that don’t exist will be the inevitable result.

Advocate Calls for Taxpayer Receipts

Do you know where your federal and state tax dollars go? Not too many Americans do. One man wants to change that by having the IRS (and state tax departments) send out a receipt with your tax return — letting you know just how your dollars were used. California, of all places, appears to be ahead of the curve. Governing has the story:

As Americans spend the next three weeks rushing to file their income taxes before the April 18 deadline, most will likely come to the realization that the amount they paid the federal government is greater than any other purchase they made that year. There’s a good chance their state income taxes will rank high on the list too.

Although each taxpayer transfers thousands of dollars to the federal and state government, they’ll get nothing to show for it. Sure — there’s roads, education programs, a standing military and things like that. But they don’t get a tangible piece of paper that comes with nearly every other purchase, large or small: an itemized receipt.

David Kendall, a fellow at the think tank Third Way, hopes to change that. He’s urged the IRS to send Americans an itemized receipt breaking down how much of their money funded various activities like defense, education and low-income assistance, and he says state tax departments should consider doing the same thing.

His organization already has already created a web-based tool that anyone can use to make the calculations, but he wants the IRS to automatically mail out individualized data…

So far, California appears to be the only state that’s doing anything like that. Residents can visit the state tax board’s website, enter the amount they paid in state income taxes and find out just what their money bought.

For example, a single person living in California earning $50,00 would pay $2,485 in taxes. Of that:

•$747.49 paid for health and human services for at-risk Californians
•$730.84 funded K through 12 education
•$250.49 went toward higher education

California’ receipt calculator — similar to the federal one posted on Third Way’s website — isn’t tremendously complicated. Each calculates a spending item’s percentage of the overall budget, and then multiplies that by an individual’s tax burden. It’s relatively simple stuff. But Kendall says it’s a powerful tool, and the IRS and states should consider automatically mailing those receipts to taxpayers every year.

For starters, it would help increase civic engagement and contribute to a meaningful debate about taxes spending. It could also help with tax compliance.

“Some people don’t feel like they’re getting good value for their money,” Kendall tells Governing. “It’s just one more reason not to comply.” Giving taxpayers a receipt would show them that their money, is in fact, funding specific activities and may make the payments matter more to citizens.

“700 Tons of Metal a Day; Now Sir, You’re Tellin’ Me the World’s Changed?”

Kind of a random headline for this blog, but when I can work a Springsteen lyric (from "Youngstown") into a headline, I’ll do it every time. Governing tells the story of how rust belt cities are rebounding, citing Youngstown, Ohio as a prime example. 

The "rust is chic" movement has been around for a while, but thanks to blogs and online magazines, such as RustWire.com, a certain fascination with places that have fallen on hard times like the Rust Belt — which stretches from the Midwest through the mid-Atlantic and up into the Northeast — has taken hold. Part of it is the scruffy, industrial look. It may also be a rejection of cities with gleaming condo towers, bistros and boutiques that were once so trendy yet now seem so frothy and fake in the wake of the economic meltdown.

But the other fascination is the defiance these Rust Belt cities have shown. Many of them, such as the gritty cities Bourdain visits, reflect a rebellious attitude. Youngstown, Ohio, has to be the poster child of this stance. Once part of America’s steel manufacturing hub, Youngstown went into a death spiral as the industry collapsed in the mid-1970s. Today, Youngstown’s population is 75,000, less than half of its original size, and is 43 percent vacant.

Yet nearly 10 years ago, the city made the bold decision to embrace its new shrunken state rather than put time and money into trying to grow back. Public officials created a master plan, called Youngstown 2010, that envisioned a smaller, but thriving city with a more diversified economy. Indeed by 2010, certain elements of what Youngstown could become were falling into place.

The downtown area has come back to life, and more importantly, economic development has begun to take hold, delivering an interesting range of jobs to the area. The Youngstown Business Incubator (YBI) has played a key role, providing free or reduced rent and equipment to startup software companies. Ohio provides a large chunk of the YBI’s funding, and the payoff so far is about 300 technology jobs.

Recently, software firm Reserve Data in Silicon Valley, Calif., pulled up stakes from pricey San Francisco and opened shop in inexpensive Youngstown, trading California’s Bay Area chic for Rust Belt grit. The number of jobs that follow may be modest — 50 to 100 — but the staff will be able to enjoy Youngstown’s unique social scene, which includes the Rust Belt Brewing Co., located in an old train station.

Meanwhile, Youngstown’s manufacturing tradition isn’t over yet. French company Vallourec announced plans to invest $650 million in a steel manufacturing facility that will put another 350 people back on the payroll. How chic — sorry, "gritty" — is that?

“Anyone Aboard?”

If you’re like me, you curse America’s lack of — or at least not so convenient — cross-country passenger train access whenever you head to New York City, or some such locale. Even before TSA gropes became the law of the land, my disdain for large commercial airports could hardly be quantified. Although, I must say Indy’s new airport is about as delightful as an airport can be; in fact, it made LaGuardia feel like I’d landed in a toilet. (And Indiana business travelers are also blessed to have wonderful facilities like the Indianapolis Executive Airport, operated by Montgomery Aviation.)

But the fact is rail development requires serious infrastructure dollars, and as Governing reports, don’t expect that money to be invested in rail anytime soon, as American passenger train commuting may be stuck in the station for some time:

The Obama administration is more sympathetic to rail transit than its predecessors. It proposed a historic expansion of the rail passenger system, including building a national high-speed network of bullet trains with an initial $8 billion down payment in stimulus money (with more promised) to a few states for some modest projects to get things going.

The problem is that the newly elected Republican governors of states where much of the money was supposed to go — like Ohio and Wisconsin, and maybe Florida — don’t want it, at least not for high-speed rail. They’ll gladly take it for auto infrastructure like roads, bridges and highways. But U.S. Transportation Secretary Ray LaHood, a former Republican congressman from Peoria, Ill., won’t agree to that: It’s accept rail or hit the trail, and the money will go to states that want it.

Recently the greater New York area was stunned by New Jersey Gov. Chris Christie’s decision to pull his state out of a long-planned project — described as the largest public transit program in the country — to build a second rail tunnel beneath the Hudson River to ease the commute by 45 minutes for Jersey residents who work in New York City. With substantial overruns, it was estimated to cost as much as $13 billion. Christie’s state was on the hook for $2.7 billion, plus the added costs for its share of the project, which already is under construction. Much is at stake, including 6,000 construction jobs.

Making significant improvements in rail service in this country seems like a no-brainer. Ridership is increasing. The highways and airways are overburdened. It’s far more energy efficient and cleaner, and compared to cars, it’s safer. If done right, it can be one of the most effective economic development tools available. But it’s also very expensive and requires a sustained commitment over many decades. And right now, governments are deep in debt.

Critics of Obama’s high-speed rail plan make several points. The project will cost far too much in initial outlays and subsidies to justify the benefits, siphoning off the funding of worthier programs, including commuter mass transit. The United States has become a suburbanized society, sprawling over a large land mass, with only a few places having sufficient population density to warrant intercity rail service. To be successful in any area except the Northeast Corridor, high-speed trains would have to make too many stops, and therefore would be too slow to compete.

Given the political changes in the new Congress and in many states, it’s hard to imagine that we’ll see many bullet trains whizzing through our future. But that doesn’t necessarily mean that all is lost for rail advocates. The incoming chairman of the U.S. House Transportation and Infrastructure Committee, Florida Republican John Mica, is outspoken in his opposition to the administration’s plan, which he claims is likely to lead to many “slow-speed trains to nowhere.” But he does support what he calls “a better directed high-speed rail program.”

Shaking up the Elections: Saturday Night’s Alright for Voting

Why did Indiana and other states establish township government back in the 1850s? Because of the farming economy and the need for people to travel by horse and buggy to conduct government business. Why are elections held on Tuesday? Same reason.

The Indiana Chamber and its partners have repeatedly pointed out over the last six-plus years that township government needs to go — for a variety of reasons. Check some of them out at MySmartGov. Now, election reform advocates are saying Tuesday votes are a relic and at least one of the reasons the U.S. ranks a staggering 140th globally in voter participation.

Here’s part of a recent Governing article on making the switch to Saturday elections. It, combined with vote centers, might make sense. Thoughts?

“Voting on Tuesday is the No. 1 remaining burden to voter participation,” says Jacob Soboroff, executive director of Why Tuesday?, a national nonpartisan group that advocates weekend voting. “Moving Election Day to the weekend is the single biggest thing we can do in our country to get more people involved in the political process.”

When Congress was trying to establish a national Election Day in 1845, the biggest concern was accommodating an agrarian society. Farmers needed a day to travel to the county seat, a day to vote and a day to return home. Ruling out days of worship left Tuesday and Wednesday, but Wednesday was typically market day. So, Tuesday it was.

Few Americans still rely on a horse and buggy to get to the voting booth. In today’s urban society, reform advocates say, Tuesday voting is more a hassle than a convenience. In recent years, expanded early voting periods and no-excuse-needed absentee voting in many states have made it easier to cast a ballot without missing work. But what’s really needed, these reformers argue, is a full-out shift to Saturday voting.

Voters in one jurisdiction will get to experiment with weekend voting next year. Last month, San Francisco residents overwhelmingly approved a measure to open polls for the November 2011 election on Tuesday and the previous Saturday. “We’re trying to engage more people in the democratic process,” says Alex Tourk, a local political affairs consultant who spearheaded the effort. “It’s not rocket science to hold an election on a day when most people aren’t working.”

Still, there are complications. Since the San Francisco pilot project essentially establishes two full election days, there’s an added cost to the city. Tourk must cover those expenditures by raising funds from private sources — but establishing what those costs are will be tricky.

Saturday voting won’t be the norm anytime soon. But San Francisco’s experiment could provide some interesting insights into what happens when people don’t have to choose between voting and putting in a full day at the office. Weekend voting may ultimately not change anything, but given America’s bottom-of-the-barrel turnout rates, it sure can’t hurt. 

Too Much Government in Too Many Places

Check out these words of New York Attorney General (and candidate for governor) Andrew Cuomo:

Our system of local government is broken … New York has more than 10,521 overlapping governments, including counties, towns, villages, school districts, special districts and public authorities. These entities impose layer upon layer of taxing structures — with citizens receiving multiple tax bills annually — resulting in the highest local property tax burden in the nation … To hold government to account the people must have a government they can understand. But what they have today instead at the local level is a ramshackle mess. The current local government system is the product of sheer historical accumulation — not logic, reason or common sense.

Well said. No, make that very well said. The Indiana Chamber and many, many others have put forth a strong case in recent years that township government in our state is beyond repair. Each new revelation of outlandish township reserves, unsightly administrative costs to deliver poor relief and outright criminal behavior further makes the point.

But like most challenges, it’s not just an Indiana problem. The Governing magazine article that featured the Cuomo quote also included the following. Maybe, just maybe, the momentum will grow, lawmakers will step up to the plate and all Hoosiers will benefit.

Rich Pahls, a Nebraska state senator from Omaha, has proposed merging many of his state’s 93 counties. The jurisdictions were designed for the days of the horse and buggy, he pointed out to the New York Times, not an era when “people will drive 100 miles to the grocery store.”

New Jersey, meanwhile, has some of the highest property taxes in the country, thanks in part to its 567 municipalities, a third of them with fewer than 5,000 residents, along with 611 school districts and 486 local authorities. Bergen County alone has 70 school districts and 76 superintendents.

New York State has more than 10,500 governmental entities that levy taxes and fees, and that depend on state largesse for any number of needs. This includes towns, villages and a multiplicity of water, sewer, lighting, school, 911 and other districts. Erie County, which is where Buffalo is located, has over 1,000 such local governing entities alone.

But while political leaders in the U.S. have been talking about local government rationalization, in Denmark, they’ve actually done it.

In 2007, Denmark shrunk the number of municipalities from 271 to 98. County government was completely eliminated. Fully 455,000 local government employees were involved in the restructuring; and 30,000 physically relocated to a new site. The government projects $274 million (1.6 billion DKK) in savings from the restructuring.

The implementation of this massive reform, which began in 2002, offers important lessons as other governments look to achieve big cost savings through rationalizing local government.

Anyone hoping to rationalize the delivery of services from the state level on down must first understand where the opportunities lie to eliminate duplication and inefficiency. Then, you need to lay the groundwork for public acceptance of the change. Both of these goals can be served by gathering hard data on what every unit of government does, how much it spends and what it gets for its money. Only after these goals have been achieved can you make that information readily available to the public.

This is not an easy task. The collection of data alone is enormous. But data gives you the ability to shine a light on what is taking place under the status quo, making the tough task of driving change a little easier.

A LEED Standard for Roads?

LEED and environmentally-friendly designs are becoming popular among builders of homes and businesses alike. Now, a group is seeking to push for similar standards for sustainable road designs in an effort to preserve the environment. Very interesting. Governing has more:

Hoping to do for roads what LEED has done for buildings and Energy Star for household appliances, Greenroads has unveiled a new rating system for sustainable road design and construction. In development since early 2007, the system seeks to encourage the more than $80-billion-a-year road construction industry to adopt standards that will build sustainable roads with less environmental impact, lower life cycle costs and resulting in more positive societal outcomes. The rating system, which was jointly developed by researchers from the University of Washington and the global engineering firm CH2M Hill, outlines the minimum requirements that must be met to qualify as a green roadway. Requirements include producing a noise-mitigation plan, reducing stormwater runoff and mitigating urban heat island effects. The system also awards credits for voluntary actions, such as minimizing light pollution, using recycled materials, incorporating quiet pavement and accommodating non-motorized transportation. The system can be used for either new road projects or for upgrades on existing roads. Oregon’s Department of Transportation and the British Columbia Ministry of Transportation and Highways have already expressed interest in the program.

Two-Way Streets Profitable for City Merchants

So says Vancouver, Washington, at least.

Governing’s Alan Ehrenhalt has an interesting piece about how the city has used two-way streets to revitalize its downtown area. While many cities, including Indianapolis, have long taken the one-way street approach, he explains how two-ways may be more lucrative for downtown merchants:

Over the past couple of decades, Vancouver, Washington, has spent millions of dollars trying to revitalize its downtown, and especially the area around Main Street that used to be the primary commercial center. Just how much the city has spent isn’t easy to determine. But it’s been an ambitious program. Vancouver has totally refurbished a downtown park, subsidized condos and apartment buildings overlooking it and built a new downtown Hilton hotel.

Some of these investments have been successful, but they did next to nothing for Main Street itself. Through most of this decade, the street remained about as dreary as ever. Then, a year ago, the city council tried a new strategy. Rather than wait for the $14 million more in state and federal money it was planning to spend on projects on and around Main Street, it opted for something much simpler. It painted yellow lines in the middle of the road, took down some signs and put up others, and installed some new traffic lights. In other words, it took a one-way street and opened it up to two-way traffic.

The merchants on Main Street had high hopes for this change. But none of them were prepared for what actually happened following the changeover on November 16, 2008. In the midst of a severe recession, Main Street in Vancouver seemed to come back to life almost overnight.

Within a few weeks, the entire business community was celebrating. “We have twice as many people going by as they did before,” one of the employees at an antique store told a local reporter. The chairman of the Vancouver Downtown Association, Lee Coulthard, sounded more excited than almost anyone else. “It’s like, wow,” he exclaimed, “why did it take us so long to figure this out?”

A year later, the success of the project is even more apparent. Twice as many cars drive down Main Street every day, without traffic jams or serious congestion. The merchants are still happy. “One-way streets should not be allowed in prime downtown retail areas,” says Rebecca Ocken, executive director of Vancouver’s Downtown Association. “We’ve proven that.”

The debate over one-way versus two-way streets has been going on for more than half a century now in American cities, and it is far from resolved even yet. But the evidence seems to suggest that the two-way side is winning. A growing number of cities, including big ones such as Minneapolis, Louisville and Oklahoma City, have converted the traffic flow of major streets to two-way or laid out plans to do so. There has been virtually no movement in the other direction.