Out of the Storm News
When tech companies AOL, Apple, Facebook, Google, LinkedIn, Microsoft, Twitter and Yahoo wanted to voice their concerns about government surveillance, they took to a very traditional medium: full page ads in the New York Times, Washington Post, Roll Call, Politico, and the Hill.
Their call to action comes at the same time as a petition to the White House to overhaul ECPA (the law that defines your more than six-months old email as “abandoned” and thus ok for warrantless spying), with over 66,000 signatures in support, is nearing its final hours.
These big tech companies have banded together to demand the government rein in snooping because they see that fading trust in U.S. technology products is already starting to wreak economic mayhem on some of America’s biggest firms.
They realize it’s time to stop runaway government spying, before its chilling effect on online business and communication threatens to take us back to the 20th century.
The companies have five key principles that government intelligence gathering ought to follow. First, any data gathering should be focused, extending an existing investigation, not fishing for a new one. Think wiretaps on a specific suspect with probable cause, not listening in on every phone call and doing a few keyword searches.
The second principle is also a request to bring e-investigations back into line with traditional policing. The allied companies call on the intelligence agencies to be subject to real adversarial oversight, not the rubber-stamping of the FISA courts.
In order to watch the watchdogs, the tech companies are calling for increased transparency, so it doesn’t take a Freedom of Information Act request to find out what kind of surveillance is being approved and how often.
The tech companies also want increased transparency so they can clear up their own complicity in government snooping. Google, Microsoft, and others were left in a nasty PR fix when they were not permitted to say what kind of data they were compelled to share with the NSA. They were unpleasantly surprised to learn that it wasn’t just their users who had been misled, as the Snowden leaks unfolded.
Not content with the data they requested, the NSA had been tapping into the fiber optic links between internal servers at Google and other companies, skimming off massive amounts of supposedly secure data. It’s not surprising, then, that Microsoft now considers the U.S. government an “advanced persistent threat” — a term previously reserved for foreign-sponsored hackers and cyberterrorists.
With government snoops poking their nose into data as it streams to and from the cloud, it’s no wonder the tech companies devoted one of their principles to “respecting the free flow of information.” Threatening the security of websites and data storage – whether by invading the privacy of users or by building in “back doors” that will eventually be discovered and exploited by other malefactors – will drive users away from the Internet.
Companies might consider going back to handcuffed briefcases and couriers, rather than letting trade secrets go through channels they know have been compromised at least once.
In order to help information flow both freely and securely, the companies specified that “governments should not require service providers to locate infrastructure within a country’s borders or operate locally.” Although they might be spied on anywhere, they fear the precedent the United States is setting of making back-door access a condition of operating within the nation’s borders.
Of course, when it comes to cloud services, it’s a bit unclear how much of a footprint a company needs to have in order to be subject to a nation’s laws. Google obeys local laws (no sassing the king of Thailand), but discloses the censorship requests it gets. They are barred from revealing surveillance requests the same way.
The final principle these companies are calling for is that they shouldn’t each be responsible for parsing contradictory international law. They call upon world governments to set up “a robust, principled and transparent framework to govern lawful requests for data across jurisdictions.” In other words, the nations of the world should all sit down together and work out a transparent and coherent rule for when companies must bow to the demands of intelligence agencies, and when they may refuse.
Perhaps the companies are hoping, with this last demand, that countries like the United States consider the risks of escalating a spying cyber-war. Would we really want to give China or Russia carte blanche to treat Google or Microsoft or Facebook servers the way we do?
In the wake of officially receiving approval for bankruptcy protection, Detroit’s story has become a familiar one. Once the poster child of America’s industrial might and middle-class prosperity, decades of economic decline have brought the city to its knees before a bankruptcy court with as much as $20 billion in debt. The decline of an iconic American city has led to a flurry of finger-pointing, both to assign blame for the crisis and to identify the right direction forward.
The facts of today’s Detroit are staggering. Businesses and individuals labor under heavy tax burdens, with an income tax set at the maximum level allowed by state law and property taxes ranking highest among America’s 50 largest cities. City services range in quality from mediocre to unconscionably bad, such that the average response time to a 911 call is now 58 minutes and 40 percent of street lights aren’t working. Residents suffer an unemployment rate that has been at Depression-era levels in recent years, reaching as high as 25 percent and settling at 16 percent today. By most measures, Detroit is the most dangerous city in the nation, registering 20 more murders in 2011 than Philadelphia, despite containing fewer than half as many residents.
The collapse of the city has led to it being placed under the control of an emergency financial manager, attorney Kevyn Orr, who is granted broad unilateral powers to restructure its government and debt without the need for approval from elected officials like the mayor or city council.
Michigan’s record of state interventions in local government has been somewhat mixed. Take the on-again, off-again takeover of the Detroit Public School System. Under an emergency manager for all but four of the past 14 years, the system is finally in the black for the second year in a row, but only after years of persistent deficits and strong backlash from Detroiters opposed to restructuring by an unelected official.
On the other hand, the nearby city of Pontiac’s finances have been under state supervision since 2009 and the results, from a dollars and cents perspective, are undeniable. Expenditures dropped from about $55 million to $29 million annually and the city is now in spitting distance of true solvency for the first time in years, despite a steep decline in its tax base. Orr now faces the unenviable task of enacting similar reforms in Detroit to better manage its finances while also unifying the city’s fractious population to rebuild civic institutions.
Identifying a cure for the Motor City’s problems requires an accurate assessment of their causes. A popular conservative narrative has been to point the finger at Democrats and labor unions, both public and private, for driving the city to ruin. Tempting as it might be to lay the blame on one’s political rivals, hand-waving about the salutary effects of electing Republicans does not constitute a serious plan. Liberal governance surely did the city no favors in helping create its yawning chasm of debt. But one sees plenty of successful large cities that had equally liberal and corrupt leadership, yet do not face insolvency because they do not suffer from Detroit’s unique mix of significant size and radical depopulation.
More than one million people have headed for the Motor City’s exits since its size peaked in 1950. Even when compared to other Rust Belt cities that have experienced significant population loss, Detroit stands out. The only city that has dropped farther from its mid-20th century peak is St. Louis, but its population has never been even half as large as Detroit’s. In fact, of the eight U.S. cities that have lost more than 50 percent of their population in recent decades, Detroit is far and away the largest. Even in its shrunken state today with just over 713,000 residents, it is larger than Pittsburgh’s all-time peak of 677,000.
The Steel City was able to realign its economy around world-class universities and vibrant health and technology sectors, positioning itself as the smaller-but-viable city that it is today. Detroit, meanwhile, lacks any obvious infrastructure to capitalize on growth industries. Though it does boast some world-class medical facilities, the rest of its top 20 employers are an odd grouping of government entities, businesses in the turbulent auto industry and casinos. As a result, its economy is largely stuck in the same rut it has occupied for decades.
Detroit also suffers from a long and sordid history of racism that has contributed significantly to depopulation and regional division alienating the city from its suburban neighbors. Though many point to the 1967 riot as the spark that lit the fire of racial discord, the truth is that tensions had been smoldering for upwards of 100 years by that point. The city’s rapid population growth in the 19th and early 20th century, driven in large part by an influx of African-Americans from the south, ignited countless ugly incidents, including significant riots in 1863 and 1943. By the time the civil rights era arrived, Detroit’s toxic racial politics meant that so-called “white flight” was already well underway.
The city’s epic population loss and poor governance created a debt monster. Job number one for Orr as emergency manager will be working to reduce the city’s staggering liabilities, something that is much easier with bankruptcy protection that allows for rewriting many contracts to allocate losses.
The largest share of debt is associated with the Water and Sewerage Department, a major asset for the city which services much of Southeast Michigan. Orr is already working to restructure its debt while exploring ways to spin it off as a regional authority from which Detroit could receive lease payments, a plan that could also help ease ongoing tensions with suburban neighbors that draw from the system.
The next biggest portion of debt is $5.7 billion in unfunded retiree health care liabilities. Detroit spent so lavishly on these benefits that its per-household liability is higher than every other large city except for Boston and New York, both of which are much wealthier. Fully two-thirds of its annual health care bill goes to retirees, with just one-third for current workers. Reforming these obligations is among the “easiest” things the city can do because, unlike pensions, there is no protection in the Michigan Constitution for health care benefits. Though it will be difficult politically, Orr should consider reducing promises made to new employees, increasing deductibles and co-payments, and raising eligibility requirements to receive coverage. Ultimately, the city should pre-fund its health care obligations, but aligning costs with ability to pay is step one.
The other big chunk of debt is associated with unfunded pension liabilities, totaling $3.5 billion. Like many city and state pension systems that are in trouble, Detroit has been systematically overstating the health of its fund by assuming unreasonably high investment returns and playing games with “smoothing” of investment losses such that the stock market crash of 2008-2009 still hasn’t been fully factored into its estimates.
The challenge with pension benefits is their unique protection in Michigan’s constitution, which says that they “shall not be diminished or impaired.” The legal boundaries of reform are disputed, but it’s likely that Orr will freeze the current pension systems and create a defined-contribution 401(k)-style plan for new employees. If the law allows, (the judge overseeing Detroit’s bankruptcy last week ruled that pension cuts are on the table), he should also consider transitioning all current employees into such a system while restructuring benefits for current retirees.
Additional federal or state funding to soften the bankruptcy blow is unlikely (and probably unwise), but Washington and Lansing could focus instead on altering existing funding streams. Detroit gets substantial aid already, far more than any other Michigan city on both a gross and per-resident basis. But it is unable to process these dollars effectively or quickly enough and many of the funds are targeted at things that could fairly be characterized as “wants” rather than “needs” for a city in such distress.
For example, the city forfeited $9 million in federal weatherization assistance last year due to mismanagement and faces a similar threat with Community Development Block Grant funds this year. Instead of disparate funding streams earmarked for very specific purposes (which require complicated application and implementation processes), lawmakers could instead unify existing dollars into one single payment for Detroit to use to address its highest priorities, like tearing down some of the 78,000 vacant structures in the city, bolstering police protection or addressing legitimate human needs in the form of hunger, homelessness, and unemployment. Any of these would be better uses for federal tax dollars than buying energy-efficient windows.
The city should also pursue potential sale of some of its other assets. The Detroit Institute of the Arts, for example, has in its possession an estimated $2.5 billion worth of art that could be auctioned in order to help ease the debt load. After all, that represents more than 12 percent of the city’s obligations. The prospect of art sales has rankled many in the press corps, but the simple fact is that cultural pursuits fall well below things like police protection on any reasonable hierarchy of a city’s needs.
Once the process of addressing Detroit’s debt has begun, repopulating the city will be the order of the day because what it needs more than anything else is human capital. It needs more density, more vibrant neighborhoods, more businesses, and more economic activity. To address that goal, some have discussed redrawing Detroit’s physical borders by unincorporating sparsely-populated portions. After all, at 139 square miles, the city is larger than Boston, San Francisco, and Manhattan combined. However, such geographic shrinkage is basically unprecedented for large cities and it’s not clear where the new borders would be drawn. A more innovative and less obtrusive policy would be imposing variable pricing for municipal services based on distance from densely-populated areas, some iteration of which the city is sure to pursue despite the likely pushback from residents.
In order to attract more people, the city will need to do a much better job of attracting and maintaining businesses. Unfortunately, the ability to reduce high tax burdens is relatively limited due to the sheer size of the city’s ongoing deficit problems. Reforming taxes in a revenue-neutral manner, however, might be possible as a way to better orient the code toward growth.
For example, Michigan currently has a uniform sales tax statewide, but the state legislature could consider allowing Detroit a local add-on that would increase its sales tax in exchange for elimination of its city income tax. While income and property taxes are very high, its sales tax of six percent is actually quite low when compared to other large cities. There is widespread agreement among economists that consumption-based taxes are less damaging to growth than income-based taxes, so this kind of tax swap could improve the city’s economic prospects.
Detroit could also improve the business climate in other ways, such as completely eliminating (or at least, making much less restrictive) zoning and land use restrictions that stand in the way of development. The city already has moved (although belatedly and haltingly) to legalize urban farming operations, which have been putting Detroit’s vast open spaces to productive use. Loosening regulations in other areas could make building a business easier and cheaper.
Likewise, it could wipe away senseless licensing restrictions which place barriers to entry before entrepreneurs. Detroit has myriad foolish licensing laws and fees that are tremendously costly for businesses. The Eastern Market Corp., a business association for Detroit’s iconic outdoor market, conducted a survey of licensing and inspection fees for food businesses in the city, compared to similar operations in several other cities. The costs imposed by New York City, for example, were less than one quarter as much as Detroit’s. This anti-business posture has, among other things, hindered a flourishing food truck industry, which has been a bright spot in many other cities across the country.
None of these changes will be easy. Reshaping a broken city with strong traditions of insularity and distrust of authority would be difficult in any event, but the nature of Detroit’s problems puts it in essentially uncharted territory.
The city’s motto in Latin, “Speramus meliora; resurget cineribus,” translates to “We hope for better things; it shall rise from the ashes.” And rise it will. Not through hope alone or simply electing Republicans and cutting taxes, but by starting the hard and necessary work of repopulating and rebuilding a once great American city from the ground up.
WASHINGTON (Dec. 13, 2013) – Research from the R Street Institute suggests new legislation introduced by Sens. Dianne Feinstein and Barbara Boxer, both D-Calif., offers the wrong approach to increasing the proportion of homeowners who are insured for earthquake risks.
Under the senators’ Earthquake Insurance Affordability Act, the California Earthquake Authority and other “non-profit insurance programs” would be eligible for federal loan guarantees for bonds issued following a major catastrophe, displacing their reliance on private reinsurance.
But while the bill’s proponents project it would immediately reduce earthquake insurance premiums and increase take-up of the coverage by significant amounts, a 2012 paper from R Street Associate Fellow Lars Powell found only negligible effects on those fronts.
According to Powell, the best case first-year effects of the program would be to reduce premiums by 8 percent and increase take-up by 3.5 percent. Assuming the program suffers no losses in the first five years after it is instituted, the maximum cumulative premium savings would be 16.5 percent and the maximum increase in take up would be 7.9 percent. Only about 9 percent of Californians in seismic zones currently purchase earthquake insurance.
Moreover, a more recent paper by R Street Senior Fellow R.J. Lehmann suggests a much more direct means to increase take-up of earthquake insurance: make coverage a requirement for mortgage loans owned or secured by the government-sponsored entities Fannie Mae and Freddie Mac.
“Right now, the taxpayers of the United States are effectively serving as the world’s largest insurer of earthquake coverage, extending what amounts to a $100 billion annual subsidy to the GSEs for their earthquake risk,” Lehmann said.
“The answer to this problem is not to shift that risk into yet another government-backed loan-guarantee program,” he added. “It is to require that those with a federally backed mortgage get coverage for their earthquake risks, just as they already must for wind, fire, flood and other risks. That this isn’t already required is the result of a bizarre loophole, one we would encourage the senators to close.”
From National Public Radio:
CORNISH: And sitting in this week, Reihan Salam a columnist for The National Review and Reuters and a fellow at the R Street Institute. Hi there, Reihan.
REIHAN SALAM: Thanks for having me…
…CORNISH: Reihan, I’m start with you. Why isn’t the speaker holding his tongue anymore?
SALAM: Well, I think that during the previous government shutdown fight, there was the sense the speaker wanted to accommodate some of the members of his group who were craving a confrontation. Whereas now, it could be that he’s trying to accommodate and allay the concerns of some of those member who felt that they had been neglected, that their political seats were being jeopardized, that their interests weren’t being responded to.
CORNISH: Do you think that they’re kind of moderate voices?
SALAM: Exactly. The ones who didn’t want the shutdown or who felt that shutdown really endangered their political fortunes. So I think that he’s speaking to that constituency now…
…CORNISH: Now, when we talked to the GOP budget chair, Paul Ryan, this week, he actually mentioned the unemployment benefits saying that wasn’t going to be a part of this bill, that wasn’t what this bill was about. But this brings us to another headline out of this budget deal story, which is the reemergence of Paul Ryan, frankly. You know, he said that if we pass this, that’ll show we’re making a statement that we don’t want to lurch from crisis to crisis.
Reihan, is that how this will actually be seen?
SALAM: Well, I think that if this deal passes, there’s not going to be a risk of another shutdown until October of 2015. Now, that’s not all that far off, but it’s far off enough to give a lot of Americans breathing room. I think that many Americans, including many Republicans, were really disturbed by the shutdown so that’s a very good thing.
And another thing that Ryan has been saying and that Patty Murray, his Democratic partner on this deal has also been saying, is that, look, this is divided government and in divided government, you don’t always get what you want. And what’s really striking is that a lot of Republicans in the House who were eager for a confrontation earlier on were willing to accept that logic.
So I think that that represents big progress for Republicans as a whole, but then you’ve got a lot of Republican senators who don’t seem to feel the same way…
…CORNISH: Reihan, a lot of people are saying that this is just the beginning of worse battles for the Senate. What’s your take?
SALAM: Well, you know, E.J. said something very astute just now. He said that the filibuster was a bad thing in blocking a particular piece of legislation. Now, Senate Majority Leader Harry Reid actually has gotten rid of the filibuster for judicial appointments short of the Supreme Court, and for nominees. But I think that E.J.’s implicit point is very on-point. That is that the filibuster is not long for this world when it comes to legislation.
And what that means is that let’s say you’ve got a Republican majority in the Senate, you know, at some point in the future, and they want to repeal Obamacare. Well, if they say that, you know, look, the filibuster, we can get rid of it quite easily. Then suddenly, the barrier to repeal gets a lot lower. So I think you’re potentially going to see a lot of legislative change when you get rid of what’s wound up becoming a kind of supermajority requirement.
So I think that it absolutely is going to change the tenor of the Senate, but I’m not sure it’s necessarily going to change it for the worse. It’s just that some of the people who initiated this change might regret some of the outcomes that follow…
…CORNISH: And Reihan, for you.
SALAM: The administration is very concerned about the rollout of the Obamacare law. They’re trying to get a lot of support from insurers. They’re trying to get insurers to cut them so slack on some things that are going to be political difficulties. So I think that they would be willing to give a lot to get a little from Republicans on Obamacare. I’m not sure exactly what that would be, but I think that they’d be willing to bargain somehow.
CORNISH: That’s Reihan Salam, columnist for National Review and fellow at the R Street Institute, and E.J. Dionne of the Brookings Institution and Washington Post. Thank you both.
SALAM: Thank you.
WASHINGTON (Dec. 12, 2013) –Road-pricing advocates need to link their proposals to tangible benefits like increased capacity, reduced congestion and improved transit service if they are to overcome political objections to new fees and tolls, R Street Institute Senior Fellow Reihan Salam argues in a new policy study.
Salam notes that road pricing “is the most promising tool we have to improve the productivity of America’s aging surface transportation infrastructure.” In addition to reducing congestion, pricing schemes could help to reduce air pollution, boost economic growth and improve the quality of infrastructure, he adds.
Salam cites National Surface Transportation Infrastructure Commission estimates that it would take $59 billion per year to maintain U.S. transportation infrastructure at current levels and $78 billion per year to meet the design standards set by transportation planners. In addition, congestion costs for urban areas topped $121 billion in lost productivity in 2011.
Local experiments with road pricing demonstrate that some approaches are more likely to find public support than others. For instance, “dynamic pricing” systems deployed in the Atlanta, Los Angeles and Washington, D.C. metropolitan areas in which regular lanes charge modest tolls only during peak periods, while premium lanes n uncongested level of service at all times and would charge demand-based tolls for access.
“At first, only a small number of new lanes would be built, on which demand-based tolls would be imposed,” Salam writes. “If these roads proved popular, the number of premium lanes would gradually expand and, in some cases, they would replace existing regular lanes. Eventually, drivers should be given the option of using a complete HOT network of priced lanes, financed with toll revenues.”
The Oregon Department of Transportation is experimenting with a mileage-based tax, charging drivers 1.5 cents per mile driven. Consumers have the option of reporting their mileage through a GPS-enabled device, but given privacy concerns, the department has been careful to make the use of such devices voluntary.
On the other hand, the failure of New York City’s congestion-pricing proposal, where voters failed to see a tangible connection between the charge and improved transit, suggests that a charge with a more direct tangible benefit — such as lowering or even eliminating transit fares — might stand a better chance of public support, Salam noted. He also proposes potentially “abolishing the federal gasoline tax and devolving responsibility for surface transportation to state governments.”
“In the near term, however, the most powerful impetus for the spread of road pricing in the United States may well be its potential to reduce the federal budget deficit,” Salam writes, noting that user fees in surface transportation could yield $312 billion in deficit reduction over the next decade. “As the costs associated with financing old-age social insurance programs increase, and as they threaten to crowd out other vital government functions, road pricing might prove an irresistible ‘win-win’ strategy.”
Text of the full paper can be found here:
Road pricing — the use of fees or tolls applied to road usage — is the most promising tool we have to improve the productivity of America’s aging surface transportation infrastructure. But while transportation experts generally are enthusiastic about road pricing, voters are not.
There are exceptions. Successful toll roads have made believers out of at least some skeptical drivers, and voters in regions with particularly high congestion levels have at times been open to road pricing proposals. But political resistance to road pricing has been a huge obstacle to its spread.
That has to change. The potential benefits of road pricing to reduce congestion and air pollution, to boost economic growth and to improve the quality of infrastructure, are so great that we can ill afford to pass them up. Building support for road pricing requires changing how the public thinks about infrastructure. More broadly, it will require revamping the institutions that govern U.S. infrastructure.
In 2009, the National Surface Transportation Infrastructure Commission estimated the federal government would have to devote $59 billion per year to highway and transportation spending to maintain U.S. infrastructure at current levels, and $78 billion per year (in 2008 dollars) to meet the design standards set by transportation planners.
Drawing on data from the National Cooperative Highway Research Program, economists Matthew Kahn of UCLA and David Levinson of the University of Minnesota estimate maintaining and operating existing roads at current levels of performance will require $145 billion per year (in 2007 dollars), an amount that also takes into account spending at the state level.
The costs of actually upgrading U.S. infrastructure to reduce current congestion levels are expected to be higher still. The 2012 Texas Transportation Institute Urban Mobility Report, published by the Texas Transportation Institute at Texas A&M University, finds total congestion costs for urban areas reached approximately $121 billion in lost productivity in 2011, a reflection of, among other things, 5.5 billion hours in travel delays. Congestion costs peaked in 2005, at $128 billion in lost productivity, an amount that likely will be surpassed as the U.S. economy recovers in the coming years.
Fifty-four years ago, the Advisory Commission on Intergovernmental Relations was established by statute to examine the best or most logical accommodations of federalism. For many years, it held quarterly meetings in the New Executive Office Building in Washington, letting some of the most able, or at least most logical, representatives of federal, state and local governments sort out what level of government was best equipped to accomplish particular governmental functions.
The ACIR had a respected staff and performed studies which informed serious debates about block grants, welfare reform, criminal law and the growing problem of interstate smuggling, which looked to arbitrage differences in state taxation of products like cigarettes. The commission itself was composed of members of the U.S. House and Senate, state legislators, governors, mayors and county commissioners, and a handful of non-governmental members with credentials and reputations in public policy.
The Clinton administration reportedly withdrew support for the ACIR over its handling of unfunded federal mandates, and it folded in the fall of 1996. It is still possible to find its excellent work referenced where appropriate.
We probably need something to take its place, because all levels of government have been positioning themselves to perform all governmental tasks, including a few new ones that have been discovered in the meantime.
Last week, the National Conference of Insurance Legislators met for the third and final time this year. As the name would suggest, this is an organization to which many states pay dues so that the lawmakers who mostly run or at least sit on the legislative committees where insurance issues are debated can compare notes and develop model legislation on topics as varied as reuse of undeployed airbags and best practices for opioid regulation to curb the rising tide of abuse of largely prescription drugs— a major issue in workers compensation in many states.
The meetings are also increasingly battlegrounds for jurisdiction with not just our own federal government, but with the European Union and other multinational associations, over significant differences in how to measure the solvency of these companies; even though it is clear that state-based regulation kept the insurance industry sound while other American financial institutions were weakened and many broken. Added to the mix is the association for state insurance regulators, which, through its firm grasp on certification requirements of insurance companies, has as much power over them as a multi-million dollar central staff and 11,500 state employees around the country can produce.
One of the issues on the near horizon is a new international accounting system that would usher in immediate new tests for soundness, which many of the American institutions mentioned above are viewing with alarm. A new method of matching risk with capital requirements could potentially show many companies as technically insolvent. Which, I assure you, is a lot bigger deal in the private sector than in government.
Against this backdrop of concern about intrusion into a state-based system that has worked reasonably well for over 150 years, the association has written two letters in the last three weeks to congressional leadership, the Federal Insurance Office, the Financial Stability Oversight Council, the Council of State Governments, the National Association of Insurance Commissioners, the National Conference of State Legislatures and the National Governors Association. Both of these letters assert that state-based regulation covering one-third of the insured premium volume in the world has benefited consumers overall and managed all insurance crises. Actually, six states have insurance markets placing them in the top twenty markets on the planet.
According to Alabama state Rep. Greg Wren, the new NCOIL president:
“Since the financial crisis, there has been an increased focus on global financial regulation. Some of these international regulatory efforts could have a significant influence on state-based insurance regulation, which successfully withstood the financial crisis. It is vital that state lawmakers, who determine insurance public policy in the states, play a prominent role in any international insurance regulatory discussion moving forward.”
Wren and the NCOIL leadership are aware that a prevalent academic theory and the overwhelming view from public policy organizations on the right is that the government produced, directed and to some degree cast the housing bubble that caused so much damage to our economy when it burst in 2007. They do not want to see a more nationalized or even internationalized system replacing what the states have always been capable of handling.
If we still had a good vehicle to sort out what level of government should take on what regulatory function, we could save billions in duplication costs, and we would probably have a more rational approach to protecting customers in financial transactions. Now is time for the discussion to get serious, as the states — meeting in Mount Vernon this past weekend to consider constitutional strategies — move toward wresting back their authority from dysfunctional national and supranational attempts to sort out rights and responsibilities for their citizens.This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
Early Thursday morning, with just hours remaining before the cutoff, a WhiteHouse.gov We the People petition to reform ECPA (Electronic Communications Privacy Act) and update privacy laws to protect online communications and data passed the threshold of 100,000 signatures. We’ll be eagerly awaiting the official White House response.
ECPA, while forward looking for its time, became law in 1986. This was long before many of the services we use today, including email, cloud services, or Facebook even existed. As it stands the IRS, NSA, and hundreds of other government agencies can read your electronic communications and data without a warrant.
If you want learn more, our friends at the Center for Democracy and Technology have put together a great resource page.This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
WASHINGTON (Dec. 11, 2013) – The R Street Institute welcomed today’s news that an effort to gut vital flood insurance reforms has failed in the U.S. Senate.
S. 1610, the Homeowners Flood Insurance Affordability Act of 2013, would put off indefinitely reforms to the National Flood Insurance program that Congress passed in the Biggert-Waters Flood Insurance Reform Act of 2012. A floor motion to adopt the measure by unanimous consent failed after Sen. Pat Roberts, R-Kansas, objected on the Senate floor.
Among other changes, Biggert-Waters requires the NFIP, which is currently more than $24 billion in debt to the federal treasury, to phase out longstanding premium subsidies for vacation homes, business properties and properties that have suffered severe repetitive losses. It also asks the Federal Emergency Management Agency to update its flood insurance rate maps and, over a four-year period expected to start in October 2014, to phase-in adjustments to policyholders’ premiums to reflect the true risk the properties face.
Sponsored by Sen. Bob Menendez, D-N.J., S. 1610 would halt any increase in rates due to remapping and any decrease in premium subsidies, while also reinstating subsidies that already have begun to be phased out.
“Sen. Menendez’s bill proposes an absurd and protracted process – four years, at minimum — of studies, recommendations, hypothetical and non-amendable future pieces of legislation, and then, for good measure, an extra six months of ramp-up, before a single property would see their rates adjusted to reflect their real risks,” R Street Senior Fellow R.J. Lehmann said. “The unstated, but quite clear, goal of this convoluted process is simply to gut any reform until the NFIP’s existing statutory authority would be scheduled to expire.”
As efforts to roll back Biggert-Waters reforms continue to be debated in both chambers of Congress — including a new House bill from Rep. Bill Cassidy, R-La., that would push back remapping changes for five months – Lehmann urged that any tweaks to the law be considered through a thoughtful and deliberative process.
“To the extent that there are legitimate concerns about affordability or how the Biggert-Waters reforms are implemented, those are best addressed through targeted, limited and means-tested programs considered through regular legislative order,” Lehmann said.
“Simply kicking the can down the road with delays, whether short-term or long-term, fails to grapple with the reality that the flood program is broke, that the benefits being phased out flow disproportionately to wealthy homeowners and that, against the backdrop of rising sea levels and increasingly costly catastrophes, we simply can no longer afford to encourage people to live in flood-prone areas,” he added.
Good news from Florida on the insurance front: the state-run Citizens Property Insurance Corporation has shrunk their exposure by some 35 percent. This is a win for competitive insurance markets and for the taxpayers of Florida.
Last week in The Hill, I noted that taxpayers continue to bear significant risk from natural disasters:
The calm Atlantic hurricane season was a blessing for taxpayers, because both state and federal governments have taken on a large share of financial liability for hurricanes and other natural disasters. In Florida, the state-run Citizens Property Insurance Corporation has a half-trillion dollars of liabilities on its books. In Louisiana alone, the federally backed National Flood Insurance Program has over $100 billion in exposure.
While there’s still more work to do, it’s great that this amount has been pared back from $510 billion to $330 billion in the last 21 months. That still leaves taxpayers facing liabilities when a major storm next hits Florida, but it’s a great step in the right direction.
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TALLAHASSEE, Fla. (Dec. 10, 2013) – The R Street Institute welcomed today’s news that Florida’s state-run Citizens Property Insurance Corp. has seen its policy count fall to just over 1 million, a drop of 31 percent since 2011.
According to data presented to the Florida Cabinet – which consists of the governor, chief financial officer, attorney general and agriculture commissioner – over the past 21 months, Citizens’ total exposure has decreased by 35 percent to $330 billion and its probable maximum loss from a 1-in-100 year storm has decreased by 26 percent to $16.15 billion.
“These latest figures are an encouraging sign that the steps taken by the Legislature in recent years to shrink Citizens is working,” R Street Florida Director Christian Cámara said. “Indeed, the successful ‘takeout’ efforts pursued by management at Citizens, as well as its successful shift to using more private reinsurance, also deserve credit.”
As its surplus has grown to $7.66 billion, Citizens has managed to reduce its reliance on the Florida Hurricane Catastrophe Fund to $4.48 billion from $6.91 billion in 2012. It now cedes $1.85 billion to private reinsurance markets, up from just over a half-billion in 2011. Most importantly, the layer that would be funded by post-storm hurricane taxes has also fallen dramatically, to $3.99 billion from $11.61 billion in 2011.
But Cámara also noted that more needs to be done, as Citizens continues to pose a great threat to Florida taxpayers and the state’s ability to recover quickly after a hurricane.
“The Legislature should continue exploring ways to eventually restore Citizens as the state’s true insurer of last resort to reduce or eliminate the likelihood of a taxpayer bailout following a bad hurricane season,” he added.
Regarding your editorial “Coming to the aid of the Gulf of Mexico” (Our Views, Dec. 5), you are absolutely correct that the RESTORE Act presents an exceptional opportunity for Florida and other Gulf Coast states to invest in projects and infrastructure that support the coast’s interconnected ecology and economy.
But this is just an opportunity — not a guarantee. To ensure that the funds are spent effectively and as intended, it is critical that the funds be allocated and spent in a fully transparent manner, with benefit-cost analyses posted online long before decisions are made. Further, funds must be spent effectively on public goods, not on pet projects and lining the pockets of special interests.
The RESTORE Act shows great promise for the Gulf of Mexico. Whether it delivers on that promise will be up to how it is implemented.
Daniel M. Rothschild
The writer is senior fellow at the R Street Institute.
Imagine a purely hypothetical election. An incumbent president who is despised with unmatched wrath by his party base is swept out of office in disgrace after his administration’s pathological capacity for deceit is exposed. The next election sees a populist, seemingly moderate member of the other party from an infrequently won state elected on the promise to speak honestly and forthrightly to Americans. Partisans of the new president celebrate, believing the deep-seated ideological and systemic problems within their coalition have been papered over by a new chance at power, while the other party appears on the verge of being taken over by its most ideological wing.
The year is not 2016, as the reader may expect. It is 1976, when the stink of Watergate rendered Republicans so perpetually toxic for four years that America turned away from the infant Ford administration and elected Jimmy Carter. Ford, damaged by a primary challenge from the seemingly unelectable cowboy Ronald Reagan, is cut off inexorably from his party’s base, and as the 1980 race looms large, Carter looks poised for a landslide against what is probably his most ideologically unfriendly opponent.
The landslide came, but as we all know, it was not Reagan who got buried. Indeed, Reagan’s supposedly ideological, unelectable worldview ended up realigning the country, to the point where the best defense that Christopher Hitchens – at the time, a committed leftist – could offer in 1985 was that 1980 was merely “the election that Watergate postponed.”
Flash forward to now, and let me paint a similar picture of the future: Republicans, having just been drubbed in two successive elections, once when running a lukewarm moderate, and the second time running a nominee who, despite his personal moderation, ran on the most ideological platform his party has ever endorsed, are desperate for good news. Like clockwork (or rather, like Watergate), the good news comes in the form of Obamacare, which in just one short year threatens to derail the entire Obama presidency. The insult of Obamacare, coming on top of a presidential record that makes Nixon’s look positively transparent, re-galvanizes the Republican Party as Obama leaves office in disgrace. Hillary Clinton, like Ford before her, tries to tap into the zeitgeist of her increasingly ideological party, but fails, resulting in the election of unlikely conservative hero Chris Christie.
But Christie’s first term is marred by the aftershocks of Obama’s, and unlike with Obama, the press is not so forgiving. Soon, Christie becomes caricatured as a bully, more interested in rewarding his rich friends than helping the poor. The demographics that elected him at first, having been disgusted with Obamacare, sour on him almost instantly. Still, Republicans comfort themselves, they are in a strong position going into 2020, when Democrats appear poised to nominate their most ideologically extreme candidate in a generation – Elizabeth Warren. Surely the only possible result can be a Christie landslide?
Naturally, some details in this picture may change. It is far from certain that Christie will be the Republican nominee in 2016, for instance, nor is it certain that the Clinton machine has lost all its juice in the event that Hilary is nominated. However, in the event that the Obama administration’s many Nixonesque failings hand Republicans the White House in 2016, the broader trends of history still suggest that their first term should be treated as borrowed time. And while Elizabeth Warren may not be the candidate of 2020, it is nearly unquestionable that the Warren-style left is the Democrats’ only out in a world where moderate liberalism has been so tainted by Obamacare. Faced with Warrenism, Republicans will have to make a choice: Will they drag the country back towards conservatism, or will 2020 become “the election that Obamacare postponed?”
As of now, it appears that Republicans are courting their own Carter-style defeat. No stronger evidence for this exists than the interpretation of the Harvard Institute of Politics’ most recent poll showing millennial voters apparently souring on Obamacare so drastically that Republicans believe their electoral fortunes will soar. Unfortunately, the problem with this reading is that it is selective to the point of ridiculousness – almost as if those adhering to it had walked into a forest fire and remarked on how vibrant and stable the local ecology was based on a single clump of unburnt trees.
This reaction is understandable, despite its naivete. Yes, it is true that President Obama’s approval ratings among young voters have plunged from 52 percent to 41 percent, and at least 56 percent of young people now disapprove of Obamacare, even when it is called by its less toxic name.
Those are the unburnt trees. But drill down deeper into the data, and the smell of smoke and the screams of dying animals intrude on the consciousness. For instance, while approval of Democrats in Congress has fallen by five points from the mediocre 40 percent to a worrisome 35 percent, approval of Republicans in Congress has fallen from a critical 27 percent to a suicide-inducing 19 percent, below President George W. Bush’s final approval rating on leaving office. Unsurprisingly, Republican Party registration lags Democrats by 6 points among voters aged 18-24, and by an unbelievable 16 points among voters aged 25-29.
The heat starts to become unbearable and the smoke starts to clog the eyes when an issue completely untouched upon by the press – student debt – enters the picture. According to the poll results, 42 percent of all millennials suffer from student loan debt, including 40 percent of Republicans. Moreover, 57 percent of millennials (the same as the rate for Republicans) view student debt for young people as a major problem, with only 26 percent disagreeing.
And unlike the average Fox News viewer, those millennials are not likely to blame the government, or themselves, for this issue. Rather, a solid 42 percent place blame on colleges and universities, with only 30 percent blaming the federal government. In contrast, only 11 percent blame students for the debt issue.
And when the “Buffett Rule,” another issue left untouched by the press, is introduced, the Republican Party may as well have been trapped by burning logs. Polling shows 69 percent of young people, including 57 percent of Republicans, favor the so-called “Buffett Rule,” requiring people making over $1 million a year to pay at least 30 percent of their income in taxes.
This is the good news for Republicans? If so, it’s a poison pill. Yes, Obama and his health care law have become more toxic than they were, but disapproval of a single policy and a single politician do not equate to disagreement with the project of liberalism. Especially not when one of liberalism’s totems – taxation of the wealthy – is a project supported even by 57 percent of millennial Republicans, and when one of the main issues young people care about – student debt – is one where Republicans’ only touchstone is often a formless anti-college resentment that treats students cheated by bad schools as entitled, hedonistic, stupid brats.
Can Republicans escape these problems and put out the forest fire? Time will tell. But to give them a spur, here’s a sobering reminder of one fact: There is one Democrat for whom the abatement of student debt and the taxation of the wealthy unify as factors in their mass appeal.
That politician? None other than the ideological, unelectable Elizabeth Warren. And if Republicans go into future elections unprepared to compete with her on the same terms, then a prescient quote comes to mind:
“There you go again.”This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
From the New York Times:
Why? One idea is that Mr. Reagan himself had had skin cancer, and allowed a concern for public health to triumph over ideology. Eli Lehrer, the head of a Washington think tank called the R Street Institute and a longtime Reagan admirer, offered me a simpler theory: that the man truly loved nature. He was never happier than when riding horses and chopping wood. Perhaps the science of the ozone hole just spooked him. We know it spooked Margaret Thatcher, the British prime minister and Reagan ally, who had been a research chemist in her early life.
The Gulf Coast states — Florida, Alabama, Mississippi, Louisiana, and Texas — are all governed by Republican governors and have Republican majorities in both legislative chambers. With the exception of purplish Florida, these are rock-ribbed conservative states. Yet they may be on the verge of significantly growing their state budgets and public sector payrolls.
That’s because each state is looking at a one-time windfall totaling between the hundreds of millions and several billions of dollars in fines from BP and Transocean paid pursuant to the 2010 Deepwater Horizon oil spill. Under the terms of the RESTORE Act, which Congress passed in 2012 with strong bipartisan support, 80 percent of Clean Water Act fines will go into a trust fund for economic and environmental projects along the Gulf Coast. States directly control 65 percent of that fund and indirectly control most of the remainder.
Conservatives helped lead the charge for the RESTORE Act (the House version was sponsored by now-Republican Study Committee Chairman Steve Scalise, R-La.), and it embodies a number of conservative principles including devolution of authority from Washington and an emphasis on economic growth. Perhaps most notably, it didn’t create any new bureaucracies or permanent programs reliant on taxpayer funds.
But just because the legislation represented conservative fiscal policy doesn’t mean the states will execute it that way.
The simple fact is, states don’t have a great track record with windfall money, which, even when tied to specific spending, has a knack for making its way into general revenues. Revenue volatility tends to exacerbate poor decision-making. And”“temporary” spending tends not to be so temporary.
The RESTORE Act funds are just such a one-time windfall, and it’s entirely possible that funded projects could (if incorrectly designed) create ongoing liabilities for taxpayers. In other words, conservatives could inadvertently use this windfall to permanently grow the governments of the Gulf Coast states. As the massive growth of government under the Bush administration showed, conservatives that think it will help them win elections aren’t shy about busting budgets just as much as those on the political left.
Given the near-religious fervor with which many progressives want to raise taxes (especially on higher incomes), it would seem odd if this were not a deliberate strategy on their end. The urge to add new public sector jobs — and (ostensibly) private sector “green jobs” that rely on public subsidies — will be strong, and something conservatives may be willing to give up in political horse trading.
They shouldn’t. Nor should they use the RESTORE Act funds as an excuse to put off politically painful, but necessary, reforms. That way lies failure.
There are certainly things for which the RESTORE Act provides that conservatives can and should support. Louisiana is facing a crisis as its wetlands disappear; this puts citizens, homes, and businesses across the state progressively closer to the ocean. Louisiana’s Coastal Master Plan provides a good template for decision making in the state about RESTORE Act money, and the media and watchdogs should question every RESTORE Act dollar spent outside the Master Plan.
The economy and the ecology of the Gulf Coast are closely linked, so good environmental programs (including flood infrastructure) can have significant economic benefits. Gulf Coast tourism supports over half a million jobs and generates over $45 billion in annual consumer spending. Restored shrimp, oyster, and fish habitats are critical to the commercial and recreational fishing industries. Since the coast’s ecology has been damaged in no small part by generations of failed federal water management policies, undoing the damage is only sensible. Contrary what many believe, the Gulf Coast is far from “fixed”; they are still finding tar from the spill, and fisherman are still hurting.
Politically, good environmental and economic programs make sense as well. Pace the enviros, conservatives don’t want to strip-mine the earth and pave it over. The RESTORE Act is a good chance for conservatives to show their conservationist bona fides — and show why conservative environmental policies that focus on responsible stewardship of the environment and use of natural resources are preferable to left-wing command-and-control policies that see man as a threat to and not a part of the natural world.
All five Gulf states, as well as their political subdivisions charged with implementing the RESTORE Act and spending its funds, need to commit to complete transparency throughout the process. This means, at a minimum, building online databases of all spending, and project benefit cost analyses should be published as well. Journalists have a critical role to play in tracking the spending and making sure it’s on the up-and-up.
And conservatives need to call out bad programs for what they are — even when a Republican is proposing them. Mississippi’s plan to spend $15 million from an earlier settlement related to the oil spill on a minor league baseball stadium for an as-yet non-existent team stinks of cronyism and corporate welfare.
It’s important that policymakers ensure that money is spent in a way that doesn’t create ongoing liabilities for taxpayers, either as a matter of policy or a matter of politics. One of the great conservative selling points of the RESTORE Act is that it created no new bureaucracies or permanent claims on the public fisc. Undermining this principle in execution would be unfortunate.
WASHINGTON (Dec. 9, 2013) – The R Street Institute welcomed today’s news that leading private sector technology firms have formed a coalition seeking reform of government surveillance laws and practices.
Consisting of AOL, Apple, Facebook, Google, LinkedIn, Microsoft, Twitter and Yahoo, the coalition is asking that governments around the world codify sensible limits on compelling service providers to disclose user data, allow companies to publish the number and nature of government demands for such data and for intelligence agencies to operate under a clear legal framework with checks and balances.
In an open letter to President Barack Obama and members of Congress, the coalition asks that the United States “take the lead and make reforms that ensure that government surveillance efforts are clearly restricted by law, proportionate to the risks, transparent and subject to independent oversight.”
“There is growing evidence that runaway government surveillance is impacting U.S. business interests abroad, so seeing this sort of outreach from our domestic technology community is very welcome,” R Street Policy Analyst Zach Graves said.
R Street has been active in pointing to the need to update the Electronic Communication Privacy Act to reflect changes in communications technology over the past quarter-century. An online petition calling on the Obama administration to support ECPA reform has already gathered more than 65,000 signatures.
The Food and Drug Administration (FDA) should highlight e-cigarettes as a way to reduce tobacco harms, says Dr. Joel Nitzkin, a senior fellow in tobacco policy for the R Street Institute.
The trouble is it paid $80,000 to two longtime advocates for letting states levy sales taxes on remote online sellers to do so. (“Hat tip,” or credit, to Andrew Moylan of R Street for finding the contract.)
The death of Nelson Mandela is being mourned across the world, and for good reason. As the first president of post-apartheid South Africa, he served as a symbol of national reconciliation and as a defender of South Africa’s new and fragile liberal constitution. It is also true, however, that the movement he led, the African National Congress, has not lived up to lofty expectations, and that at least some of the responsibility lies with the great man himself.
Before we turn to what has gone wrong with post-apartheid South Africa, it is worth briefly rehearsing what has gone right, thanks in no small part to Mandela. During the apartheid era, South Africa’s Afrikaner-dominated ruling National Party warned that majority rule would bring violent reprisals against the country’s white minority, a Marxist revolution that would mean the end of private property and an alliance with the Soviet bloc that would threaten the free world. None of that ultimately came to pass, for a variety of reasons. As the Soviet threat receded, and as anti-apartheid activists pressured governments in the United States and Western Europe to isolate the South African government, elements within the governing National Party sensed that the days of minority rule were numbered, and that some accommodation with the ANC was the only way to prevent a bloody denouement. And Mandela, to his great credit, proved a willing partner. Having established his moral authority within the liberation movement as a champion of armed insurrection against the apartheid government, he committed himself to a path of non-violence. One shudders to think of what might have happened had Mandela chosen differently. Mandela’s fateful decision to work with his former enemies paved the way for the ANC’s extraordinary political success.
Since 1994, when South Africa held its first authentically democratic and multiracial national elections, the ANC has won every national election by substantial margins, and there is good reason to believe that it will win the election that will be held next spring. Yet after almost two decades of ANC rule, the country suffers from shockingly high levels of poverty, unemployment and violent crime. Hundreds of thousands of educated South Africans — white, black, and Asian — have emigrated in search of opportunity in Britain, Australia, the U.S. and elsewhere. Many middle-income countries that were in the same economic ballpark as South Africa in 1994 in terms of GDP per capita — like Poland, Malaysia, Chile, Mauritius and neighboring Botswana — have raced ahead in the years since. When we compare South Africa to China or South Korea, the contrast is more dismal still.
One of the key reasons for South Africa’s weak performance is that while high-growth countries saw large numbers of workers shift from low-productivity sectors, like subsistence farming, into high-productivity sectors like export-oriented manufacturing, South Africa’s high-productivity sectors have seen little growth. There are many theories as to why this has been the case. Some will attribute this to the rigidity of South Africa’s formal labor market while others will attribute it to a failure on the part of South Africa’s government to pursue a more ambitious industrial policy. Regardless of the answer, what is striking is that despite South Africa’s economic woes, the same political party keeps winning election after election.
Over the five years Mandela served as president, he ceded most of his day-to-day executive authority to Thabo Mbeki, a polarizing figure notorious for his elitism and authoritarianism. Though Mbeki succeeded Mandela as leader of the ANC only in 1997, and as president in 1999, he was the true architect of the new South African state. By choosing Mbeki as his heir apparent, Mandela all but guaranteed that though South Africa had the formal trappings of a modern multiparty democracy, the ANC itself would remain a rigid Leninist organization, which would reflect the flaws and the pathologies of its leaders.
One of the most celebrated aspects of the ANC during the anti-apartheid struggle was its commitment to building a multiracial society, a reflection of the movement’s socialist ideals. Mbeki was far more willing to deploy racialist rhetoric to achieve his political objectives, something he did quite freely after Mandela exited the political stage. Moreover, though ostensibly still committed to socialism, Mbeki devised economic policies that essentially transferred wealth to a new politically-connected black elite. His leftist critics accused him of being a neoliberal technocrat who neglected the needs of South Africa’s poor. Yet he was hardly a champion of economic laissez-faire. Rather, Mbeki favored policies that entrenched and expanded his power. Over time, resentment of Mbeki built to the point where he was replaced by his temperamental and stylistic opposite, the charismatic Zulu populist, Jacob Zuma, South Africa’s current president. And it is under Zuma that the ANC has started to unravel.
Zuma, like Mbeki before him, has a habit of seeking to delegitimate his political opponents. South Africa’s largest opposition party, the Democratic Alliance, is a centrist party that has taken the ANC to task for its corruption and its economic mismanagement, among other things. Yet because it is a party that is closely identified with the country’s white minority, its ANC detractors often accuse its members of racism, or of wanting to reimpose Boer rule. Now, however, the ANC faces a new set of political rivals. Julius Malema, a former leader of the ANC’s youth wing, has established a political movement that aims to, among other things, seize the property of South Africa’s largest white landowners to redistribute it to the country’s black majority. Though it is unlikely that Malema will fare terribly well at the polls, he has managed to outflank the ANC when it comes to overheated rhetoric.
A more formidable challenger to the ANC is Agang South Africa, another centrist opposition party that has much in common with the Democratic Alliance, yet which has the distinct advantage of being led by Mamphela Ramphele, a renowned anti-apartheid activist who can’t be dismissed as a white interloper. And there are growing signs that the Congress of South African Trade Unions (COSATU) and the South African Communist Party (SACP), both of which are part of a Tripartite Alliance with the ANC, might break off to form a new labor-aligned political party. ANC loyalists find the prospect of a more diverse, more competitive political environment distasteful. But this political fragmentation could mean that South Africa is finally moving past the soft authoritarianism that was first established under Mbeki and, despite his best intentions, Mandela. Given time, it’s at least possible that some other party will be able to take a crack at steering South Africa’s economy in a more promising direction.
Last Saturday, the 2013 Atlantic hurricane season came to a close, not with a bang but with a whimper. While in the Philippines, Typhoon Haiyan was responsible for more than 5,000 deaths and broke records for its size and intensity, in the Atlantic we only saw two hurricanes and 13 named storms.
The calm Atlantic hurricane season was a blessing for taxpayers, because both state and federal governments have taken on a large share of financial liability for hurricanes and other natural disasters. In Florida, the state-run Citizens Property Insurance Corp. has a half-trillion dollars of liabilities on its books. In Louisiana alone, the federally backed National Flood Insurance Program has over $100 billion in exposure.
In other words, if a major hurricane had hit the Gulf region, taxpayers would undoubtedly be ponying up. The question is not “if,” but “who,” and “how much.”
Indeed, even if every taxpayer-backstopped insurance program were to meet its obligations without taking a penny of general revenues, virtually any storm will require billions of taxpayer dollars to pay for infrastructure repair, short-term relief and overtime for first responders.
And while some efforts have been made to move government insurance programs towards a sounder financial footing, progress has been fleeting, and risk borne by taxpayers remains mammoth.
But with the RESTORE Act, a law passed in 2012 with strong bipartisan support, there exists an opportunity to begin reversing this trend.
Formally called the “Resources and Ecosystems Sustainability, Tourist Opportunity and Revived Economics of the Gulf States Act,” the RESTORE Act devotes 80 percent of the civil and administrative fines from the 2010 Deepwater Horizon oil spill to measures supporting environmental and economic restoration across the Gulf Coast.
Among other things, the RESTORE Act provides funding for “flood protection and related infrastructure,” which allows states to build or improve infrastructure that increases resiliency to future disasters. This provides an opportunity for states to invest in infrastructure and storm damage mitigation projects that will reduce risk—and future costs to taxpayers.
There are a number of ways that states can use RESTORE Act funds to develop infrastructure to reduce the costs of future disasters.
First among these is the redevelopment of wetlands and barrier islands that help attenuate storm surges and reduce the power of hurricanes. The Louisiana Coastal Protection and Restoration Authority calculates that continued loss of barrier islands, swamps and marshes along the state’s coast will cause annual flooding damages to increase by tenfold by 2061, from $2.4 billion a year to $23.4 billion annually.
Wetland and barrier island restoration is precisely the kind of investment the RESTORE Act is ideally suited to address. This kind of “green infrastructure” can absorb storm surge and reduce the effects of storms, saving both taxpayers and the private sector considerable money. Moreover, having natural barriers in place strengthens local economies, and also helps protect the natural environment. That’s why these types of projects should be at the front of the line for funding.
Additionally, states can invest in traditional flood protection infrastructure such as levees, floodgates and drainage infrastructure. Contrary to what many people think, the majority of flood works in the United States are the responsibility of state and local governments. Of the almost 15,000 miles of levees in the U.S. Army Corps of Engineers’ National Levee Database, about 85 percent are operated by state and local governments—and the database represents only a fraction of the estimated 100,000 miles of levees across the country. State and local governments must take a larger role in flood protection.
Third, states can use RESTORE Act funding to create incentives for homeowners and commercial building owners to make their properties more resilient to natural disasters. Property owners can strengthen their buildings and reduce the costs of floods and hurricane through many simple improvements such as roof tie-downs, hurricane shutters and elevated electrical systems. Using RESTORE Act funds to encourage such mitigations may be appropriate in some areas along the Gulf Coast.
Given that reality, the RESTORE Act provides an opportunity to strengthen coastal economies and environments and making them more resilient to future disasters, whether natural or manmade.