Well, as with any game, rules are never perfect. Being a new comer to the field (of publication), I think it would be fun to know the system and beat it. Here I collect for myself some SSCI journals of interest.

❑ SSCI: Master Journal List
❑ SSCI: Public Administration
❑ SSCI: Economics
❑ SSCI: Urban Studies
❑ SSCI: Area (China) Studies

“An assortment of economists, psychologists and sociologists are beginning to say that GDP is an imprecise measurement of economic performance that distracts policymakers from more important measures of societal well-being,” the TIME report says.

On Sept. 14, the Commission on the Measurement of Economic Performance and Social Progress, a 24-person panel chaired by Nobel Prize-winning economists Joseph Stiglitz and Amartya Sen, released a report on behalf of the French government calling for governments to form new measurements of economic vitality that account for factors other than growth.

The report provides some suggestions, including: (1) looking at household income and wealth rather than national production to avoid the false boost that debt-fueled consumer spending gives to GDP; (2) taking into account nonmarket activities such as raising children, caring for the elderly, and housecleaning, as well as environmental sustainability; and (3) pay attention to “soft” economic indicators that are linked to well-being, such as access to education, population health, and leisure time.

Rather than proposing a single GDP substitute, the panel suggests that countries publish an annual report that includes a range of measurements of well-being.

This sounds a great topic for class discussions for our students, especially MPPs interested in international development on those in our new Master of Development Practice (MDP) program.

❑ How Did Economists Get It So Wrong? - NYTimes.com (Paul Krugman, 09/07/2009)

In his New York Times Column, The Conscience of a Liberal, recent Nobelist Paul Krugman published an interesting long article about how economists have been blind “to the very possibility of catastrophic failures in a market economy.” In part, he argues that the economics profession, as a group, has “mistook beauty, clad in impressive-looking mathematics, for truth.”

Interestingly, Paul Krugman categorizes macroeconomics scholars into two factions: (1) “saltwater” economists (mainly in coastal U.S. universities), who more or less share a Keynesian view of recessions as inadequate demand due to irrational behavior or idiosyncratic imperfections of markets; and (2) “freshwater” economists (mainly at inland schools such U. Chicago and UMN), who hold the neoclassical assumption of perfect market or perfect rationality, and consider unnecessary to fight recessions as “the economy’s adjustment to change.”

I am not specialized in macroeconomics and so not have to take a stand in the argument. From a policy scholar’s perspective, however, I do support the columnist’s points that we ought to pay more attention “to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of market ...; and to the dangers created when regulators don’t believe in regulation.”

“Economists will have to learn to live with messiness,” Krugman argues. For theoretical building, I understand economists’ enthusiastic pursue of beautifully clean mathematical models; when it goes to practice, however, economists -- as well as all all other policy scholars -- should be very careful in providing recommendations to real world policy issues before they take into full consideration of that “messiness.”

❑ But the Economists DIDN'T Get Everything Wrong (Justin Fox, 09/04/2009)

Two days after I read the article by Paul Kurgman, I came across this Times article by Justin Fox. The defense reads weak to me, even just from the title. Nobody would blame that the economists “get everything wrong.” The proud profession were just expected to have been more right with policy issues as critical as recessions.

The project plans to offer educational sessions, to prepare a Legislative PPP toolkit, to develop greater NCSL expertise on the topic, and to inform the NCSL Transportation Committee’s deliberation of PPP in the context of state-federal relations.

Since the project is closely related to my research interest on PPP, I am tracking its progress in this blog-post.

❑ The project’s Concept Paper
❑ NCSL Legislative Summit, New Orleans, July 2008 (The P3s Partners Project approved)
❑ ARTBA Public-Private Ventures Conference, Sep. 2008 (A related News report)
❑ NCSL Fall Forum, Atlanta, GA, Dec. 2008 (A presentation by Connected Nation)
❑ NCSL Spring Forum, DC, April 2009 (Pre-Conference Meeting on PPPs)
❑ NSSL Legislative Summit, Philadelphia, PA, July 2009 (PPP Partners Project Education Session)
❑ ARTBA Public-Private Ventures Conference, Sep. 2009 (Conference information)
❑ NCSL Fall Forum, San Diego, CA, Dec. 2009 (Conference information)

More to come...

Minnesota Housing, in collaboration with other state agencies, other units of government, and private stakeholders developed Heading Home 2010 (the Plan). The Plan calls for the creation of 4,000 housing opportunities (both physical developments and rental subsidies/vouchers) targeted to those experiencing long-term homelessness (as defined by the state).

At its outset, the $483 million Plan included $60 million in Housing Tax Credits (HTCs). Under Section 42 of the Internal Revenue Code, HTCs provide a dollar-for-dollar reduction in tax liability for project investors. Credits also provide an equity investment for development, pulling down the rents required to achieve acceptable net operating income.

States currently receive credits worth $2.20 per capita (adjusted annually for inflation). Approximately 60% of the credits available to Minnesota are allocated by Minnesota Housing. The remainder are distributed by local government suballocators. HTCs have remained a mainstay of Minnesota affordable housing finance since their inception in the late 1980s but are not without shortcomings.

The market for tax credits is pro-cyclical—development of tax credit-financed projects drops as unemployment and foreclosure rates increase. This problem is particularly acute in non-major markets and in supportive housing developments. Some provisions of the American Recovery and Reinvestment Act of 2009 seek to temporarily stabilize the HTC market. Among them is the tax credit exchange program, in which tax credit allocators may sell unused 2008 and 2009 credits back to the Treasury for 85 cents on the dollar. This policy is expected to yield a windfall for “shovel-ready” projects.

Additionally, HTCs are inherently designed to finance moderate income housing, not the very-low housing as called for in the Plan. Only 30% of persons experiencing long-term homelessness are employed—only 12% full-time. Affordability to the lowest earners is a key barrier to housing.

Because of these structural weaknesses, additional financing is required in order to make housing financially sustainable and affordable to very low earners. In Minnesota, the state-appropriated Housing Trust Fund helps cover capital costs, but is vulnerable to budget reductions in tight economic times.

Other states have taken different strategies in combating long-term homelessness. Wisconsin funds five state programs to this end. In contrast to Minnesota, the Wisconsin programs all give direct payments to individuals. However, the Wisconsin programs seem skewed toward middle-income target populations, as they emphasize stable home-ownership.

King County, Washington has convened the Committee to End Homelessness, an effort very similar to Minnesota’s plan. Noting that long-term homeless populations tend to consume other social services at high rates, the Committee hopes to capture cost savings across all services by stably housing people. These cost savings realized through cross-system and cross-sector coordination finance the county’s housing efforts. [see chart below from CEHKC]

Clearly, long-term homelessness is causally complex and cannot be solved by HTCs alone. Minnesota should strengthen its Housing Trust Fund—the flexibility provided by this financing source is well-matched to the needs of the population and could help to fill systemic resource gaps. Additionally, Minnesota should continue exploring cross-sector, networked approaches to housing and social services.

It seems that during these harsh economic times most transit agencies are running a deficit. Major cities like St. Louis and Seattle are facing heavy choices ahead. Transit Agencies Facing Huge Deficits. Many services are considering cutting service or substantially raising fares. Metro Transit has not been spared. Initially, the expected deficit would be around $45 million which by latest estimates will be more towards the total of $62 million. Metro Transit Predicts More Red Ink. Metro Transit like many different transit agencies will have to reevaluate funding. 



However, Metro Transit should consider itself lucky to not be in a larger as other agencies are in. Metro Transit relies on several different funding sources for bus and light rail operational funding. The largest source of revenue comes from the Motor Vehicle Sales Tax. Because of a constitutional amendment, MVST has been dedicated for transportation funding with 40% dedicated to transit. Relying on this tax appears counter to the goals of transit. If transit ridership increases through new routes and transit corridors, people will place as many miles on their vehicles. Vehicles will last longer and new and used vehicle sales will decrease, decreasing the revenue for the MVST. However, this source only accounts for 38% of total funding sources. Minnesota Transit Spending. Some have called for a shift to a sales tax to stabilize funding and spending. However, transit systems relying heavily on a sales tax have also not remained stable. 



Seattle and S. Louis both rely heavily on a regional sales tax and fares. St. Louis Metro Funding. Seattle Transit Funding. Both of these systems are in serious deficit. Seattle is currently running a $100 million deficit and St. Louis is running a deficit 21% of its operating budget. Reliance on a sales tax and fares may not be the answer for a stable revenue flow. Transit may want to take the advice of a stock broker and diversify. 



Metro Transit is only running a deficit equal to 6% of its operating budget. This can be attributed to several different sources making up funding for the transit. Like with sales tax, diversifying the sources of revenue will allow for the system to become more stable. The formula of funding sources should not rely so heavily on an elastic vehicle sales tax. Consideration should be given for a regional transit sales tax as another funding source for transit. The most recent transportation bill included provisions for a county option sales tax for capital transitway and park and ride projects. Local Option Sales Tax. Consideration should be given for the addition of a sales tax to the formula of sources for operational funding. A county sales tax for operation will allow the reduction in the reliance on the motor vehicle sales tax and increase the diversity of funding sources creating a better formula for transit funding and stabilize the revenue flow.

In 1991, Minnesota created the Working Family Credit (WFC), based on the Federal Earned Income Tax Credit (EITC). The EITC has been around since 1975, when it was included in an economic stimulus package (sound familiar?). It was small, only $400 for families with children, but 6.2 million families still claimed the credit in its first year. The credit was made permanent in 1978, expanded significantly in 1986 under President Ronald Reagan, and doubled in size under President Clinton in 1993. It was in 1993 that a small credit for single working adults was added.

The EITC is one of the largest and generally considered the most successful anti-poverty programs of the Federal government. It's also one of the few US social welfare programs widely adopted outside North America. It may be surprising to learn that the origin of the EITC can be traced to a proposal by conservative economist Milton Friedman. He had originally suggested a negative income tax, which would have replaced all welfare programs with a cash payment that declined as income rose. Despite the support of then President Nixon, Congressional opposition to the idea led instead to the creation of the EITC.

The EITC, and the WFC, is a means-tested tax credit that applies only to earned income. The credit is calculated through a formula that considers the number of dependent children, shown below.

A taxpayer’s EITC increases for every dollar earned until a maximum earned income threshold is reached but the credit does not decrease until a much higher phase-out threshold is reached. The credit is structured this way to decrease the disincentive for individuals and families at the maximum earned income threshold.

The first state to establish its own state EITC was Rhode Island in 1986. Since then, twenty-two more states and the District of Columbia have created their own credits. Like the Federal credit, most state credits are refundable. Only 4 states do not provide refundable credits: Connecticut, Delaware, Maine, and Virginia. There are 18 states with a state income tax, but without a state version of the EITC credit. Households can claim both the Federal EITC and their state credit; they are not mutually exclusive.

Eligibility for these credits is based on the Federal EITC standard. Every state, except Minnesota, calculates its credit as a fraction of the Federal credit.

In 1998, Minnesota restructured its Working Family Tax Credit and renamed it the Working Family Credit. The old credit was set at 15% of the EITC and was scheduled to increase to 25% in 1998, but the Legislature was increasingly concerned with disincentives created by the interaction of the credit with wages and the state's welfare programs. So, the legislature created a two-tier system that increases the maximum benefit, so net income does not decline as a recipient works more hours. Unlike the EITC, when the maximum benefit is reached, the Minnesota state credit increases to a second and higher maximum. The state credit only begins to phase-out when earned income reaches a new higher floor. This change was made to address the relative regressiveness of state income taxes and increase the work incentive.

Most studies indicate that the EITC and similar state credits create a meaningful work incentive and raise low-income working families out of poverty. In 2003, it was estimated that EITC lifted 4.4 million families above the poverty line. It is also estimated that 60% of the increase in employment of single mothers is also because of the credits.

Although the EITC and related state credit programs are generally regarded as effective and successful, there are some common issues associated with them. These problems include: work disincentives, low participation rates, and tax filing costs. Another criticism sometimes leveled at the program is that it does not address poverty for indigent non-working adults. This latter criticism seems to miss the point of the credit. Minnesota has already addressed the first problem with the 1998 revisions to its credit formula. To address some of the other concerns, we recommend the following actions: increase outreach to eligible populations, especially non-native English speakers; ensure free tax filing services are available in low-income communities; and monitor WFC usage and job participation. We believe these actions will provide a solid first step toward addressing common problems with the WFC and increase the credit's effectiveness.

The Wall Street Journal (Laise, 05/02/2009) has an interesting article about Monte Carlo simulation in financial planning, for example, to estimate the odds of reaching retirement financial goals.

These tools typically “run a portfolio through hundreds or thousands of potential market scenarios” to estimate potential outcome. But the chance is little to highlight a scenario like the current market slide, because such simulations “often assign minuscule odds to extreme market events.”

The report provides a simple example of a typical Monte Carlo procedure in retirement-planning. “The user enters information about his age, earnings, assets, retirement-plan contributions, investment mix and other details. The calculator crunches the numbers on hundreds or thousands of potential market scenarios, guided by assumptions about inflation, volatility and other parameters.” Finally, results of the simulation are summarized to get a “success rate,” which show the percentage of market scenarios in which the investor had money remaining at the end of his estimated life span.

The problem is that simulations are only as good as their underlying assumptions. Critics argue that many Monte Carlo models have mistakenly assume that market returns fall along a bell-curve-shaped (normal) distribution, while in fact extreme market cases happen a lot more often. Therefore, market risks were underestimated.

To address the issue, the report argue that (1) Monte Carlo models should allow users to choose a bell-curve-shaped distribution or a “fat-tailed” distribution, and (2) they should run enough iterations (“tens of thousand or hundreds of thousands”) to help “gauge” extreme events at the tail end of the distribution.”

These are great ideas, but I like to add my 2cents as well. Assumptions do not fall automatically out of the blue sky. They should be justified by empirical tests of historical data. Better yet, they can be dynamically assessed and revised as priors in ongoing iterative Bayesian procedures.

There are many measures to judge our system of highways, transit, and transportation options. However, there are two very noticeable measures that we tend to monitor: congestion and commute times. And in Minnesota both are increasing. Congestion first: A recent study by the Minnesota Department of Transportation (MNDOT) reported that freeways in the Twin Cities were 14% more congested in 2007 than the previous year. Now commute times: Another recent study from MnDOT revealed that commute times in Minnesota are on the rise. During the 1990s, commute durations in Minnesota increased by about 2 1/2 minutes on average (this is a lot!). Furthermore, this trend is expected to continue through the 2000s.

While some the increases in congestion and commute times can be attributed to the collapse of the 35W Interstate Bridge in August, the same report warned that “without additions to freeway capacity, we can expect the future to continue the long-term trend of growth in congestion. MnDOT has limited resources to slow projected increases in congestion.” By 2030, MNDOT projects that 41.5% of the Twin Cities freeway system will be congested. In other words, Minnesota is not adequately funding its transportation system. If we fail to increase funding to provide additional capacity, almost half of our metropolitan freeways will turn into parking lots by 2030.

Assuming our current transportation modal choice, between 2008 and 2030, MnDOT estimates that the “additional funding needed to maintain our transportation system in good condition and to meet some of the growing demand on the system is near $1.8 billion per year.” This growing problem is not lost on Minnesotans. After the weather, traffic congestion is a favorite topic of conversation. So if it stands as a clear problem, why haven’t we addressed it? Why does our transportation system go underfunded?

One piece of the problem is politics. While taxpayers demand better more efficient transportation, the political feasibility of providing adequate funding remains low for a number of reasons.

First, our current system of funding transportation has few options for increasing current revenue sources. Before 2008, Minnesota’s fuel tax has not increased since 1988 – inflation has eroded purchasing power:

• The motor vehicle sales tax revenue simply replaced tab fee and property tax revenue;
• Transit service continues to decrease and fares continue to increase;
• Cost for transportation construction projects continues to increase at rates greater than inflation.
        
In other words, additional funding for transportation would most likely have to come from new revenue sources or increased taxes.

Second, Minnesota’s elected officials face an intense political agenda against raising taxes. In 2008, after six Republican legislators in the House helped override the Governor’s veto of gas tax increase, these select few lost leadership positions, some lost party endorsements, and others lost their seats.

Lastly, an increase in funding to transportation remains a highly visible and contentious issue among Minnesota voters. While Minnesotans did vote and pass a constitutional amendment to dedicate all motor vehicle sales tax revenue to transportation, any increases in funding simply replaced existing funding from tab fees and property tax revenues. Furthermore, the recent increase in state’s fuel tax came only after the tragic collapse of the 35W Interstate Bridge.

Without adding new sources of income or increasing existing sources, Minnesota stands to face dramatic increases in congestion and commute times over the next 20 years. Can Minnesota policy makers and voters come together to solve this issue?

As our economy struggles to recover, unemployment insurance is an increasingly important safety net for Americans to survive the loss of employment.
Unemployment insurance found its genesis during our last period of prolonged economic struggle.  Our neighbors in Wisconsin adopted the first unemployment program in the early 1930s, and the Social Security Act of 1935 provided strong incentives for states to participate in a new federal program.  Unemployment insurance today is funded through federal and state taxes on employers. States are allowed to expand upon the basic federal unemployment framework.   

Generally, workers must lose employment through no fault of their own in order to be eligible for benefits, though there are some exceptions to that rule.  Workers receive benefits that are calculated based on the employee's reported quarterly earnings, and adjusted by the number of quarters the employee has been employed.   Workers must show they are actively pursuing work, and in Minnesota can utilize state-provided job search and retraining resources. MPR reports that about one third of eligible people generally decline to apply for unemployment, perhaps figuring they will find work soon. But the economic crisis may have changed that; data suggests fewer people are declining benefits today.

Each week, the federal Department of Labor posts information on rates of participation in unemployment programs.  In the last week for which there is data (the week ending April 18th), there were 7,725 new applications for unemployment, along with 125,426 Minnesotans receiving continuing unemployment insurance, out of the 2.6 million Minnesotans covered by unemployment insurance. Graphing this data from the last ten years shows the particular strain on the system today:

The Minnesota Department of Employment and Economic Development reports that March's 42,806 applications for unemployment was over double a year ago.  Included in that number, the manufacturing sector alone saw an additional 8,000 applications in March of this year versus last.  All industries saw an increase of at least 40% in applications, except utilities, which actually saw a decrease in applications.

All that said, if you're going to have to depend on unemployment insurance, the system is far more generous now than it has been in the recent past.   The Minnesota Budget Project described how unemployment benefits have been extended recently.   Typically, workers are eligible for 26 weeks of benefits.  But in recognition of the nation's dire financial straits, the federal government has made available an additional 33 weeks of benefits.  And once the state unemployment rates pass a certain threshold, yet another 13 weeks of benefits are made available.  As a result, a potential 72 weeks (or about 1.38 years) worth of unemployment benefits have been made available to Minnesotans.  If unemployment continues to remain high, another trigger could be passed to extend benefits even longer still.  

The stimulus (also known as the American Recovery and Reinvestment Act) contained funding that would help shore up state unemployment programs in exchange for loosening the rules of eligibility for unemployment to include certain temporary and seasonal workers.  Many will remember that unemployment benefits became the subject of a game of political football earlier this year when figures like Louisiana Governor Bobby Jindal very publicly declined to participate in the federal program, suggesting that the required rules changes would create new uncompensated long-term costs for states.

Unemployment benefits are taxed, which may seem a bit curious, as most people who are receiving unemployment benefits are receiving them during a period of time when every penny counts.  Taxation started after 1987; previously, unemployment benefits were not taxed.  The federal stimulus package at least rolls back these taxes temporarily, leaving the first $2,400 of unemployment income untaxed.  

Special assessment districts are geographic areas within which property owners gain some special benefit from a public improvement. Within the boundaries of the district, property owners are assessed a portion of the cost related to the special benefit accruing to their property as a result of the improvement. The rationale for the use of SADs is that property owners close to public improvements realize benefits that are greater than those experienced by the larger community. For example, the community may see a rise in economic activity as a result of a transit improvement, but those located nearby the transit improvement may also realize benefits based upon their proximity to the improvement. 

Special assessments are typically used to finance improvements like street construction, street lighting, sewer and water infrastructure, or transit infrastructure. More recently, cities have used special assessment districts to finance the construction of local transit systems. During the 1980s, Southern California Regional Transit District (SCRTD), now the Los Angeles Metropolitan Transit Authority (LAMTA), used special assessment districts around four metro stations to finance their construction. In Miami, special assessments helped finance a portion of their downtown people mover system. Through the 1990s, SADs remained a viable strategy for financing rail stations, with the opening of the New York Avenue Metro station in Washington, DC in 2000. More recently, cities such as Tampa, Seattle, Portland and Charlotte have used special assessment districts along urban corridors to finance streetcar and light rail infrastructure with many other cities including Columbus, Cleveland, Atlanta and Minneapolis considering its use for similar purposes. Such special assessment districts are often larger than other kinds of special assessment districts, since the benefits of such an investment are typically felt across a broader geographical base. For example, Atlanta's proposed Peachtree Street Streetcar Line will be over a mile long and half a mile long. Special assessments for transit use may be particularly appealing in high-density commercial districts, because benefits from the improvement are immediately felt in the form of higher traffic, increased revenues and higher demand for adjacent commercial and retail space.

While the cumbersome regulatory process required to implement and approve the use of special assessment financing reduces operational efficiency, the special assessment collection process is highly efficient, since special assessments are collected with property taxes. Moreover, special assessments are relatively economically efficient, because they do not distort the market. They are also relatively equitable, since the cost of the improvement is determined by each payor’s benefit. Where property value is a good measure of income, they are also equitable from an ability to pay perspective, because assessments are often based upon property value. However, where home value isn’t a good measure of income, special assessments may become regressive. Special assessments rarely provide adequate revenue to pay for the entirety of an improvement, but they can provide a crucial final financing source. In addition, special assessments are highly predictable, making them attractive to local governments. Finally, special assessments are administratively difficult to implement, they are easy to manage, since payments are collected with existing property tax collection resources. The political feasibility of special assessment financing depends on the nature and location of special assessments. As mentioned above, commercial property owners may be supportive of special assessments, since they realize immediate benefits in the form of more traffic deriving from the improvement. However, homeowners may be opposed to special assessments because they do not realize substantive benefits until they sell their home.

Minneapolis-St.Paul is now the 10th worst city in the nation when it comes traffic congestion, according to results of a national traffic study by the Washington-based firm Inrix. The Twin Cities ranked 13th on Inrix's 2007 survey, but moved up three spots to No. 10 in 2009. The bumper-to-bumper traffic brought a huge price on valuable time, productivity, energy consumption, air quality, and even safety on the road. Texas Transportation Institute calculated that the nearly 1.4 million Twin Cities rush-hour commuters in 2005 wasted 41.8 million gallons of fuel stuck in traffic. Also lost over the year were an average of 43 hours per driver valued at $14.60 per hour for individuals and $77.10 for businesses. That same year, the American Automobile Association (AAA) study said the Twin Cities area cost per resident of crashes was $757, and more than one study concluded crashes account for up to half the congestion we encountered.

As a market-based solution, congesting pricing became an experimental measure to reduce traffic volume. Some researchers estimated that a 1 percent increase in the time-plus-money cost of automobile travel would lead to roughly a 1 percent reduction in the rate at which those trips are taken. In 2005, Minnesota opened its first priced lane, the I-394 MnPASS HOT Lanes. In September 2009, a similar congestion pricing scheme which called Priced Dynamic Shoulder Lanes (PDSL).

According to the evaluation of I-394 HOT lanes in operation in 2007, it did successful work as a traffic management. Average speeds in the unrestricted/free lanes have gone from 58.9mph to 62.2mph - an increase of 3.3mph or nearly 6%. But the revenue is under half forecast, just a bit over $1m. How to financially self-support challenge this market-based measure. The emergence of Public-Private partnerships (PPPs) offers an innovative method for financing infrastructure in pricing roadways.

For decades, policymakers have largely relied on taxes from gasoline to fund investment in roadways. But the growing scarcity of fossil fuels and the political infeasibility of raising taxes make the revenues from transportation-related taxes are failing to keep apace with the needs of the transportation system, the congestion pricing really provides a trial not only in improving life quality, but also in funding transportation infrastructure.

City prepares for $35M shortfall in 2010
04/07/2009, By Briana Bieschbach, Minnesota Daily

Minnesota cities submit list of projects in effort to get federal stimulus funding
01/28/2009, By Elizabeth Dunbar, Associated Press

Lawmakers push government 'garage sale'
01/26/2009, By Chris Welch, CNN

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