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Where is OCC in court battle over state usury limits?

April 28, 2016, 8:41 AM

The following op-ed was co-authored by William M. Isaac, senior managing director and global head of financial institutions at FTI Consulting.

A surprising decision of the Second Circuit Court of Appeals in the case of Midland Funding v. Madden threatens the functioning of the national markets in loans and loan-backed securities. The ruling, if it stands, would overturn the more than 150-year-old guiding principle of “valid when made.”

The effects of the decision could be wide-ranging, affecting loans beyond the type at issue in the case. It is in the banking industry’s interest for the Supreme Court, at the very least, to limit its applicability. And since the Madden case could deal a blow to preemption under the National Bank Act, it is time for the Office of the Comptroller of the Currency to voice an opinion.

Under the valid-when-made principle, if the interest rate on a loan is legal and valid when the loan is originated, it remains so for any party to which the loan is sold or assigned. In other words, the question of who subsequently owns the financial instrument does not change its legal standing. But the appeals court found that a debt buyer does not have the same legal authority as the originating bank to collect the stated interest.

In the words of the amicus brief filed before the U.S. Supreme Court on behalf of several trade associations:

Since the first half of the nineteenth century, this Court has recognized the ‘cardinal rule’ that a loan that is not usurious in its inception cannot be rendered usurious subsequently. ” U.S. credit markets have functioned on the understanding that a loan originated by a national bank under the National Banking Act is subject to the usury law applicable at its origination, regardless of whether and to whom it is subsequently sold or assigned.

This, the argument continues, “is critically important to the functioning of the multitrillion-dollar U.S. credit markets.” So it is. And such markets are undeniably big, with hundreds of billions of dollars in consumer credit asset-backed securities, and more than $8 trillion in residential mortgage-backed securities, plus all whole loan sales.

Marketplace lenders and investors have already raised intense concerns about the decision, but the impact could go further. The validity of numerous types of loan-backed securities packaged and sold on the secondary market could suddenly be called into question. Packages of whole loans, as well as securitizations, include the diversified debt of multiple borrowers from different states with different usury limits, and then sold to investors. But the Madden decision suggests those structures are at risk of violating state usury laws.

A possible interpretation to narrow the impact of the case would be for future court decisions to find that the Madden outcome only applies to the specific situation of this case, namely to defaulted and charged-off loans sold by a national bank to an entity that is not a national bank. Thus, only the buyers of such defaulted debt would be bound by state usury limits in their collection efforts, and the impact will largely be limited to diminishing the value of such loans in the event of default.

The Second Circuit decision might not, based on this hypothesis, apply to performing loans or to the loan markets in general. However, as pointed out in a commentaryby Mayer Brown: “it will take years for the Second Circuit to distinguish Madden in enough decisions that the financial industry can get comfortable that Madden is an anomaly.” The law firm’s commentary presented many potential outcomes, including that the Madden case could be “technically overturned” but without the high court providing explicit support for the “valid-when-made” principle. That “would be a specter haunting the financial industry,” according to the firm’s analysis.

In the meantime, what happens?

It would be much better for the Supreme Court to reaffirm the valid-when-made principle as a “cardinal rule” governing markets in loans, and the Supreme Court is being petitioned to accept the case for review.

But at this point, one would also expect the OCC, the traditional defender of the powers of national banks and the preemption of state constraints on national bank lending, to be weighing in strongly. The comptroller of the currency should protect the ability of national banks to originate and sell loans guided by the valid-when-made principle. But the OCC seems not to be weighing in at all and is strangely absent from this issue.

Everyone agrees that national banks can make loans under federal preemption of state statutes, subject to national bank rules and regulations. Everyone agrees, as far as we know, that the valid-when-made principle is required for loans to move efficiently among lenders and investors in interstate and national markets, whether as whole loans or securities.

In our view, the OCC ought to be taking a clear and forceful public position to support the ability of national banks to originate loans which will be sold into national markets.

Limiting premium subsidies for crop insurance

April 28, 2016, 8:00 AM

One of the most persistent inaccurate claims made by some farm-lobby advocates, not to mention elected representatives with agricultural constituencies, is that any change to the Federal Crop Insurance Corp. program that does not expand subsidies to farmers will devastate U.S. crop production. Whether the proposal is a modest reduction in subsidies to private crop insurers, as was debated in November 2015 thanks to a provision of the 2015 bipartisan budget act, or a proposal to place modest caps – in the range of $40,000 to $50,000 – on the premium subsidies an individual farm may receive, the outcry from farm-subsidy proponents is the same.

Such claims not only are unsubstantiated, but they also are inconsistent with available evidence on the determinants of crop production. However, relatively little data-based evidence has been collected on the extent to which farm revenues, or any other aspect of farmers’ lives, would be affected by premium subsidy caps.

Also under explored are the potential impacts of various proposals to restrict farm subsidy payments based on an individual farm family or landowner’s taxable income. Some federal farm subsidy programs – with the crop insurance program as a notable exception — already prohibit payments to farm families or farm owners with annual taxable gross incomes that average more $900,000 over a three-year period. Economists generally have regarded such caps as ineffective, as anything short of draconian enforcement mechanisms would still leave farm owners able to reconfigure the structure of their ownership to avoid such payment restrictions. Therefore, the focus has been on the extent to which caps on crop insurance premium subsidies to farms would affect the farm sector.

Two major questions are examined in this study. The first is whether different premium-subsidy caps would have any impact on the subsidies farms receive – if so, how many farms would be affected and how many would not. The second is the extent to which those farms affected by premium-subsidy caps would see a substantial reduction in the gross income from their crop operations (market revenues plus government subsidies), not simply in dollar terms, but in terms of the likely proportional declines in their gross incomes. Net farm-income effects are not considered, for two reasons. First, all estimates of farm costs of production are highly imprecise and include many outlays that would be viewed as consumption expenditures for nonfarm households. Second, at the farm level, costs genuinely associated with the production of a crop vary substantially among farms, not least because of wide variations in soil quality, topography, climate and management skills. However, if the reductions in gross incomes that result from premium caps are negligible in percentage terms, then the impacts on farm household incomes are also almost surely negligible.

The analysis is based on publicly available data collected by U.S. Department of Agriculture agencies through three major vehicles: the most recent (2012) agricultural census; the annual survey of farms carried out by the National Agricultural Statistical Service; and the data on federally subsidized crop insurance premium rates and program participation rates that are provided, maintained and collected by the USDA Risk Management Agency. The focus is on farms producing major crops that are heavily insured in 12 states. Six are “Corn Belt” states in which corn and soybeans are major crops: Illinois, Indiana, Iowa, Minnesota, Nebraska and Ohio. Three – Kansas, North Dakota and Oklahoma – historically have been viewed as “wheat” states, although corn is now raised more extensively in Kansas and North Dakota than in the 1990s and early 2000s. The other states are Georgia (cotton and peanuts), Arkansas (rice) and Texas (cotton and wheat).

The approach is to identify typical crop-oriented farm operations in each of the states by farm size, in terms of acreage allocated to the crops of interest; to identify typical crop insurance products used by producers in the states; to obtain representative premium rates for the requisite products; to identify the crop insurance coverage levels (the amount of protection on a per-acre basis) selected by most producers for each crop; and to calculate premiums and premium subsidies for each size class of farm.

We find only about 9 percent of the estimated 254,233 farms in the 12 states that plant corn, cotton, peanuts, rice, soybeans and wheat would experience a reduction in their crop insurance premium subsidy payments under a $50,000 premium subsidy cap. The absolute size of the reductions in those payments, in dollar-amount terms, would be relatively small for most of the affected farms and would be close to negligible relative to their annual average revenues from market sales, which for the vast majority of the affected farms are well over $750,000 a year (and in many cases, are in the multiples of millions of dollars).

More substantial premium caps would affect a larger proportion of farms. For example, a $30,000 premium-subsidy cap could affect premium-subsidy payments of an estimated 14 percent of all farms considered in the analysis. A $10,000 premium cap would affect 37 percent of farms considered in the analysis. However, even in the case of a $10,000 premium-subsidy cap, the financial impacts would be modest and manageable for nearly all farms.

Despite these generally modest and negligible impacts, regional and crop-specific differences with respect to the effects of the premium caps are likely to result in vigorous lobbying efforts by agricultural commodity groups to prevent legislation that propose such caps. In addition, because effective premium-subsidy caps may reduce the demand for many widely used federal crop insurance products, the crop insurance industry also is likely to oppose the introduction of such limits on premium-subsidy payments.

Vincent Smith

April 27, 2016, 3:48 PM

Vincent H. Smith is a professor of economics in the Department of Agricultural Economics and Economics at Montana State University and an associate fellow of the R Street Institute.

He is the director of Montana State’s Agricultural Marketing Policy Center and has been a visiting scholar at the American Enterprise Institute since 2011. He received his doctorate in economics from North Carolina State University in 1987

Email: vsmith@montana.edu

Statement from R Street Institute’s Policy Analyst Nathan Leamer on the unanimous passage of HR 699

April 27, 2016, 3:32 PM

WASHINGTON (April 27, 2016) – The R Street Institute is pleased by this strong statement of unanimous support from the House. Most of our lives are on our screens, and it’s about time we expand essential Fourth Amendment protections to our phone and computer correspondence. We urge the Senate to act quickly and decisively on this commonsense bipartisan reform.

Bryn: Texas rains bring people together

April 27, 2016, 2:56 PM

From Pasadena Citizen

That is precisely why many others, from ExxonMobil to reliably conservative think tanks in Washington like the R-Street Institute, continue to point out that any carbon price must be REVENUE-NEUTRAL. This basically means the government doesn’t keep the money, but instead it is all returned to the economy in some way. This “revenue-neutrality” may sound like a subtle difference, but it’s not – it’s a game changer that alters the economics dramatically.

TWIA shifts on reinsurance

April 27, 2016, 9:40 AM

Texas’ state-created windstorm pool is looking at changes to the way it would cover losses in the event of a major storm. Last week the Actuarial Committee of the Texas Windstorm Insurance Association (TWIA) met with the organization’s reinsurance broker Guy Carpenter to discuss possible changes to its reinsurance policies.

State law requires TWIA to maintain adequate funds to cover a 1 in 100 year event, which is estimated to be $4.9 billion. TWIA has traditionally met this obligation partly through reinsurance and partly through other mechanisms, such as the agency’s Catastrophic Reserve Trust Fund.

Now, as reported at Seeking Alpha:

Due to a projected $100m increase in the size of the CRTF for 2016, based on premiums coming in and the ability for TWIA to increase CRTF funding as a result, in order to maintain the $4.9 billion of funding TWIA would only need to have $2.2 billion of reinsurance and catastrophe bonds in place, a $100m reduction in reinsurance limit required as the attachment point shifts up to $2.7 billion.

And this is what the Actuarial Committee have proposed to the TWIA Board, that the organization should secure enough reinsurance or additional catastrophe bonds in order to maintain the $4.9 billion funding level, for the lowest cost possible.

The decision on whether to access the catastrophe bond market again will depend on analysis done by Guy Carpenter as well as the response of the traditional reinsurance and alternative markets. However if cat bond capacity is available at a conducive price, within the layer, TWIA may well seek to sponsor another bond.

Making this change would, however, increase TWIA’s vulnerability should it face multiple events in a year:

TWIA has a potential gap in its funding should a major event occur in 2016 and erode the CRTF, leaving the other financing to drop down while the reinsurance and cat bond coverage would continue to attach at $2.7 billion.

That could leave as much as a $700m gap in TWIA’s funding structure, just below the reinsurance attachment point. The Guy Carpenter brokers told the Committee that there could be various options available to close that gap, by securing some sort of second or subsequent event coverage or reinstatement.

This could be achieved by buying another $700m of reinsurance which inures to the CRTF layer, so replacing any CRTF that is eroded and ensuring no gap in coverage.

While the overall change here is relatively minor, it does indicate improved confidence on the part of TWIA in its fiscal position, which has been aided by low storm activity and some rate increases.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Dear Philadelphia, Uber isn’t ISIS

April 27, 2016, 9:33 AM

One of the most disappointing aspects of being involved in politics is the tone one consistently encounters. Differing opinions are rarely given the benefit of the doubt.

Do you have nuanced views on environmental issues? You’re either a tree-hugging wingnut or you’re leading the charge to raze Earth’s rainforests.

Do you disagree with a given party line on immigration? You either don’t want Americans to be safe or you’re a racist.

For too many, the extreme margins of any given issue are all that exist – you’re “pro” or you’re “anti.” Of course, upon further examination, even the most extreme views are often far more nuanced than they might seem. Policy stances are rarely actually a result of outright bad faith. But recent developments in Philadelphia have proven to be a rather dramatic exception to the rule.

Ridesharing company Uber is back in the headlines in Philadelphia after the Pennsylvania Utilities Commission last week announced an $11.4 million fine against the company. The commission would no doubt maintain that the fine represents incredible generosity, since the regulatory body had originally wanted Uber to pay nearly $50 million for ostensibly operating illegally (i.e., having the gall to offer an alternative to cab companies) within Philadelphia. The story comes at a time when some observers are heralding new legislation as the solution to a long standoff over ridesharing in Philadelphia. But this is a rare instance in which Philadelphia regulators do not deserve the benefit of the doubt, as many local officials’ responses to the rise of ridesharing have taken anti-competitive crony capitalism to – and I truly don’t say this lightly – near-villainous extremes.

Consider the case of Raymond Reyes. When Reyes began driving for Uber in 2014, it was his sole source of income. So his devastation was understandable when, one evening, upon dropping two customers safely at their destination in Northeast Philadelphia, Reyes found Philadelphia police officers waiting for him alongside representatives from the Philadelphia Parking Authority (PPA). Reyes was accused of operating an illegal taxi, his personal car was impounded for nearly three weeks and his only source of income was gone.

Reyes’ story is not the only one of its kind. Far from a neutral desire to ensure a simple, fair regulatory framework, regulators in Philadelphia have unabashedly abused their positions both to block transportation network companies’ ability to conduct business and to harass ridesharing drivers personally.

Many localities have struggled to keep up with the emergence of Uber and Lyft, due to the plodding nature of bureaucracies filled with folks for whom working on a 30-year-old Commodore Amiga is just another day at the office. Philadelphia, on the other hand, has greeted the rise of ridesharing as one might expect the city to greet a surge in gang violence.

Since Uber introduced its services in Pennsylvania in 2014, the campaign against the company by allies of the city’s firmly entrenched (to put it lightly) cab companies was both organized and fierce. A month before the company was scheduled to begin operating in Philadelphia, the general counsel for the PPA, Dennis Weldon, was already hard at work, actively campaigning in support of an initiative in the Legislature that would carve out an exemption for Philadelphia – blocking Uber from operating in the state’s largest city.

“FYI. The House is the problem. We all need to focus there, hard. Is your guy OK?” Weldon wrote in an email to the cofounder of a local taxi company. The emails were later leaked. A few days after his initial message, Weldon continued his strategy session, suggesting how best to prevent Uber from operating:

Again, word is that the House is more resistant to a Philly carve out. I think this is an area where your lobbyist can bring some real world info to the members as to the impact this bill will have on the legally operating medallion business. Just my $.02, your lobbyist may see a different path

Included in the emails – which display the sort of shameless corruption most Americans are only accustomed to seeing while binging House of Cards – are references to concerted efforts by everyone from the director of the PPA’s taxicab and limousine division, all the way up to the PPA’s executive director.

Contrary to the assertions of Alex Friedman, the “totally reasonable” president of the Pennsylvania Taxi Association who also is counted among the participants in the leaked PPA correspondence, Uber is not “exactly the same menace” as “a terroristic act like ISIS invading the Middle East.” Nor, presumably, are the 700,000-plus Philadelphians who have used Uber since its debut doing so due to some deep-seated commitment to automotive jihad. Instead, the city’s residents are being offered a service they view as superior to an entrenched monopoly that remains content to beat would-be competitors into submission, rather than improving their own level of service to remain competitive. Basketball fans might recognize it as the “hack-a-Shaq” strategy, reimagined: if you can’t stop a dominant player through legitimate means, intentionally foul him to prevent him from being able to shoot at all.

It is no surprise that Philadelphia received the lowest score out of the 50 cities graded for the R Street Institute’s annual Ridescore project, which ranks the friendliness of localities’ regulatory frameworks toward ridesharing and other transportation-for-hire services. While other cities that had received low scores in previous years had begun to change their ways, according to the latest report, the City of Brotherly Love stood alone in its refusal to adapt to modernity. Philadelphia’s “failure to improve has left it alone at the bottom as the only city to receive a failing grade” on friendliness to ridesharing.

State Rep. Bob Godshall, R-Souderton, who chairs the Consumer Affairs Committee in the Pennsylvania General Assembly, has asked all involved parties to present a compromise on the latest piece of legislation by today, April 27. But given its history of aggressively seeking to choose winners and losers using government resources, it is unlikely the PPA’s efforts to sink evenhanded ridesharing legislation are over, despite the body’s hollow statement that its only “goal is to ensure public safety.” Philadelphians would be well-advised to keep an eye on the progress of the legislation, recognizing that the only outcome of this protracted battle that ultimately would benefit the city’s residents is a reasonable regulatory framework that offers maximum consumer choice and robust, equal competition.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Bipartisan coalition to Rules Committee: Recommend to Senate that Dr. Carla Hayden be confirmed as Librarian of Congress

April 26, 2016, 6:53 PM

Dear Chairman Blunt, Ranking Member Schumer and Members of the Committee:

We are organizations, businesses, libraries, coalitions, and associations from across the political spectrum and around the country that today call on the Rules Committee to speedily vote to recom­mend to the full Senate that Dr. Carla Hayden be confirmed immediately as the nation’s 14th Librarian of Congress. We appreciate the thoughtful hearing with the nominee on April 20th and look forward to your acting promptly.

The relationship between the Librarian and Congress is of significant importance, as is the role the Library of Congress should play in the life of our nation. Indeed, the Library of Congress is in the midst of a critical transformation to serve the public as a 21st century institution and a strong leader is necessary to prioritize that digital change. There is no time to waste in bringing more congressional information online and doing so in formats that allow public engagement and comprehension. We commend the following three issues to your attention throughout the nomination process and afterward.

First, the Library of Congress plays — or should play — a key role in making information about Congress available to the public. Over the last few years the House and Senate made tremendous strides in publishing legislative data online in formats the public can reuse, but the Library often has not been at the forefront of these efforts. We hope the Library will embrace the mission of publishing congressional information online in formats that allow the public to fully engage with information held by the Library. In addition, we hope the Library will build tools to enhance public comprehension of information held by the Library, including through collaboration with the public and civil society.

Second, the Library of Congress has garnered a reputation in some quarters as an insular institution. We hope the Library will commit to a process of ongoing public and stakeholder engagement on its missions and programs, particularly concerning its mission of online public access to congressional information. We would welcome a permanent stakeholder advisory group in support of that mission.

Finally, the Library of Congress holds many important documents, from committee documents to Congressional Research Service Reports, from the Constitution Annotated to the Statutes at Large. We hope the Library of Congress will adopt a pro-disclosure bias, supporting online public access to information held or generated by the Library except in limited circumstances.

Based on her experiences and testimony, we are hopeful Dr. Hayden will take these concerns to heart and work to transform the Library into the 21st century institution the American people need it to be. We look forward to her confirmation.

For more information, please contact Congressional Data Coalition co-chairs Daniel Schuman or Zach Graves at daniel@demandprogress.org or zgraves@rstreet.org.

With best regards,

Center for Data Innovation

Data Coalition

Demand Progress

Government Accountability Project

GovTrack.us

iSolon.org

New America’s Open Technology Institute

OpenTheGovernment.org

Project On Government Oversight (POGO)

R Street Institute

Sunlight Foundation

The OpenGov Foundation

67 organizations and companies to Congress: Support the Email Privacy Act

April 26, 2016, 2:03 PM

Dear Representative,

We, the undersigned civil society organizations, companies and trade associations, write to express our support for the Email Privacy Act (H.R. 699). The Act updates the Electronic Communications Privacy Act (ECPA), the law that sets standards for government access to private internet communications, to reflect internet users’ reasonable expectations of privacy with respect to emails, texts, notes, photos, and other sensitive information stored in “the cloud.”

The bill would end ECPA’s arbitrary “180-day rule,” which permits email communications to be obtained without a warrant after 180 days. The Act would also reject the Department of Justice interpretation of ECPA that the act of opening an email removes it from warrant protection. These reforms would ratify the Sixth Circuit’s decision in U.S. v. Warshak, which held that email content is protected by the Fourth Amendment and that law enforcement access requires a probable cause warrant. Moreover, the changes reflect current practices: DOJ and FBI policies already require law enforcement officials seeking content to obtain a search warrant, and many service providers will not relinquish their users’ content without one.

The bill reported from committee does not achieve all of the reforms we had hoped for. Indeed, it removes key provisions of the proposed bill, such as the section requiring notice from the government to the customer when a warrant is served, which are necessary to protect users. However, it does impose a warrant-for-content rule with limited exceptions. We are particularly pleased that the bill does not carve out civil agencies from the warrant requirement, which would have expanded government surveillance power and undermined the very purpose of the bill.

For these reasons, we support H.R.699 and urge its immediate passage without any amendments that would weaken the protections afforded by the bill.

Sincerely,

Adobe

ACT | The App Association

Amazon

American Civil Liberties Union

American Library Association

American Association of Law Libraries

Americans for Tax Reform

Application Developers Alliance

Association of Research Libraries

Automattic Inc.

Brennan Center for Justice

BSA | The Software Alliance

Center for Democracy & Technology

Center for Financial Privacy and Human Rights

Cisco Systems

Competitive Enterprise Institute

CompTIA

Computer & Communications Industry Association

The Constitution Project

Consumer Action

Consumer Technology Association

Council for Citizens Against Government Waste

Data Foundry, Inc.

Deluxe Corp

Digital Liberty

Direct Marketing Association

Distributed Computing Industry Association (DCIA)

Dropbox

Electronic Frontier Foundation

Engine

Evernote

Facebook

Foursquare

FreedomWorks

Federation of Genealogical Societies

Future of Privacy Forum

Golden Frog, GmbH

Google

Hackers/Founders

Hewlett Packard Enterprise

HP Inc.

Information Technology and Innovation Foundation

Information Technology Industry Council

Instacart

Institute for Policy Innovation

Internet Association

Internet Infrastructure Coalition – I2Coalition

The Jeffersonian Project

Less Government

LinkedIn

Microsoft

NetChoice

New America’s Open Technology Institute

Newspaper Association of America

Niskanen Center

Personal.com

R Street Institute

Reform Government Surveillance

Software & Information Industry Association

Sonic

Taxpayers Protection Alliance

TechFreedom

TechNet

Twitter

U.S. Chamber of Commerce

Venture Politics

Yahoo

 

Michael W. Carroll, American University Washington College of Law*

James X. Dempsey, University of California, Berkeley*

Paul Rosenzweig, Visiting Fellow at the Heritage Foundation*

* For identification only

R Street Institute urges Congress to vote yes on H.R. 2901, the Flood Insurance Market Parity and Modernization Act of 2015

April 26, 2016, 12:26 PM

Dear Representative,

The R Street Institute urges all members to vote yes on H.R. 2901, the Flood Insurance Market Parity and Modernization Act of 2015, sponsored by Reps. Dennis Ross and Patrick Murphy. The legislation is a necessary follow-up to the Biggert-Waters Flood Insurance Reform Act of 2012, as it clarifies Congress’ intent to encourage the development of a private market in flood-insurance products to compete with the taxpayer-subsidized policies offered through the National Flood Insurance Program.

The NFIP is more than $20 billion in debt to U.S. taxpayers. Shifting the risk for the program’s $1.1 trillion of total property exposure requires a thriving private market, which insurers and reinsurers are willing to provide. However, the current statutory language unnecessarily limits the available admitted policies and stymies development of acceptable options in the private sector.

H.R. 2901 defers to the states’ expertise in insurance regulation to develop appropriate guidelines for qualifying policies, including those written through the excess and surplus lines markets. Additionally, it ensures that any period in which a property is covered either by an NFIP policy or a private policy is to be considered “continuous coverage.”

These commonsense adjustments and clarifications represent important steps toward flood insurance reform. It’s long past time to put the NFIP on a fiscally sound trajectory and provide those living in flood-prone properties more choice. We urge all members to support this bill.

Sincerely,
R Street Institute

Rideshare rules could cost Austin coveted ‘Smart City’ designation

April 26, 2016, 7:30 AM

Austinites will vote next week on how to regulate ridesharing companies in the city (early voting began Monday). On the ballot is Proposition 1, which would continue the ridesharing regulations currently in place and pre-empt a new pending set of rules approved by the City Council late last year.

Uber and Lyft (the two main ridesharing companies) consider the new regulations unjustifiably burdensome, and have announced that they will suspend operations in the city unless Proposition 1 passes (I’ve written about some of the issues with the new regulations here).

Aside from the specifics of the different regulations, many see the battle over Proposition 1 as symbolic of Austin’s openness to new technologies and business models in general. The latest voice to weigh in is the U.S. Chamber of Commerce, which has suggested that forcing ridesharing out of the city could undermine Austin’s bid to win the Smart City Challenge:

In a letter to U.S. Transportation Secretary Anthony Foxx, the U.S. Chamber of Commerce writes, if Uber and Lyft leave Austin that will be a setback for the Smart City approach. The ridesharing companies have threatened to leave if voters support an ordinance to fingerprint drivers as a background check.

Austin was one of seven cities selected as finalists for the Smart City Challenge. Victory means not just bragging rights, but also $50 million.

Whether the failure of Proposition 1 would mean Austin will lose the Smart City Challenge is unclear. But it would mean an end to Uber and Lyft in Austin. Given the (often lifesaving) value that ridesharing brings to cities like Austin – that, in and of itself, is pretty significant.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Lehrer at the Aleph Institute’s ASKS Summit

April 26, 2016, 7:00 AM

R Street President Eli Lehrer took part recently in the Alternative Sentencing Key Stakeholder (ASKS) Summit, hosted in Washington by the Aleph Institute. Eli moderated a panel March 8, the second day of the summit, on whether federal criminal justice reform legislation would pass and whether it would make a difference. Panelists included John Malcolm of the Heritage Foundation, Jesselyn McCurdy of the American Civil Liberties Union and Nicole Austin-Hillery of the Brennan Center for Justice. Video of the full panel is embedded below.

Day 2 Will Federal Criminal Justice Reform Pass v11 from The Aleph Institute on Vimeo.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Amicus brief for Impression Products v. Lexmark International

April 25, 2016, 1:09 PM

According to the patent exhaustion doctrine, once a patentee sells an article embodying the patented invention, “the patentee may not thereafter, by virtue of his patent, control the use or disposition of the article.” United States v. Univis Lens Co., 316 U.S. 241, 250 (1942). Yet the Court of Appeals approved of two mechanisms by which a patentee may sell a patented article and yet still control use or disposition of that article. The questions presented are whether those mechanisms are tenable under the exhaustion doctrine. Specifically:

1. Whether a “conditional sale” that transfers title to the patented item while specifying post-sale restrictions on the article’s use or resale avoids application of the patent exhaustion doctrine and therefor permits the enforcement of such post-sale restrictions through the patent law’s infringement remedy.

2. Whether, in light of this Court’s holding in Kirtsaeng v. John Wiley & Sons, Inc. that the common law doctrine barring restraints on alienation that is the basis of the exhaustion doctrine “makes no geographical distinctions,” 133 S. Ct. 1351, 1363 (2013), a sale of a patented article—authorized by the U.S. patentee—that takes place outside of the United States exhausts the U.S. patent rights in that article.

The full amicus brief is attached above. 

Betsy’s page: cruising the web

April 25, 2016, 10:32 AM

From Betsy’s Page

Eli Lehrer details some of the reasons why Harriet Tubman is such an admirable role model. In addition to her work leading 300 slaves to freedom on the Underground Railroad, she was also a brave spy during the Civil War.

10 rising stars in the energy and environment world

April 25, 2016, 10:30 AM

From The Hill

Catrina Rorke, director of energy policy, R Street Institute

Rorke has become a champion of a controversial idea: that taxing carbon dioxide emissions is a conservative solution to climate change.

It’s a challenging case to make, because most Republican policymakers dispute that humans significantly contribute to climate change. But Rorke sees a carbon tax as one of the few palatable options for Republicans who want action to mitigate global warming.

 

The idea of a public good

April 25, 2016, 9:18 AM

One of the key concepts needed to better understand the economic argument for environmental protection is the idea of a public good.

When economists talk about public goods, they don’t mean just anything that’s good for the public, such as a school or hospital. Rather, to qualify as a public good, a thing must be nonexcludable (meaning it can’t easily be provided to some, but not others) and nonrivalrous (meaning that once the good is provided to some, it doesn’t really cost more to provide it to others).

One classic example of a public good is national defense. The existence of the military protects a sovereign nation against the threat of invasion. However, it’s not possible for the military to protect my neighbor from the invasion or attack without also protecting me. So national defense is nonexcludable. And, there’s really no incremental cost to protecting both of us compared to costs to protect my neighbor alone. Thus national defense is nonrivalrous.

The not so good thing about public goods is that the market doesn’t easily produce them. The fact that a public good is nonexcludable means I’d continue to receive its benefits even if I don’t pay for it.

From a self-interest point of view, I’m better off letting others bear the cost, while I “free ride” on their contributions. If everyone acts in his or her own interest, however, no one would be willing to pay for the public good at all, and the public good wouldn’t exist. This problem is known as the public goods problem (economists are nothing if not creative) or, sometimes, as the “free rider” problem.

One traditional solution to this problem is government action.

People don’t get to choose whether they will contribute toward national defense; they have to pay their taxes or they risk jail time. Economists like Elinor Ostrom have also written about ways that groups have used social norms and other nonstate mechanisms to overcome the public goods problem. In some cases, more carefully or creatively defined property rights can alleviate the public goods problem by giving a single individual or group ownership of the asset.

Many environmental problems are best understood as public goods problems. Clean air, for example, looks like a typical public good; it’s hard for me to have clean air without my neighbors having it too, and the cost of measures to improve air quality doesn’t change if he moves away and his house remains vacant.

Another example of an environmental public good is coastal wetlands. Leaving aside the strictly environmental benefits they provide, wetlands also serve as a valuable form of protection against flooding. By absorbing storm surge, wetlands can reduce the damage from flooding and windstorms, sometimes significantly. A recent estimate puts the flood-protection benefit from wetlands at $23 billion a year. Given the vulnerability of Texas’s coast to tropical storms, wetlands are vitally important to the state.

But, while wetlands can provide large economic benefits, these benefits meet the criteria for a public goods problem. A wetland that protects my house from flood damage is probably going to do the same for the other houses in my neighborhood, and the cost of maintaining the wetland typically doesn’t go up if a new house is built.

For that reason, public action to preserve wetlands (such as the recent decisions to protect wetlands using a portion of the proceeds from fines collected from BP as a result of the Deepwater Horizon Spill) can be economically beneficial to society as a whole.

Build a way out of high housing prices

April 25, 2016, 8:25 AM

If there were 30 loaves of bread and 50 people who wanted them, you can guess what would happen. Prices for those loaves would rise, from, maybe, $2, to $3 or even $10, depending on how desperate people were to make sandwiches. Those prices wouldn’t fall until some buyers switched to tortillas or bakers started baking more bread.

That concept is so simple it’s almost embarrassing to point it out. Yet when policymakers talk about other products, they lose sight of these basics. The housing market jumps to mind. Prices throughout California are still going up. Affordability is down.

I know well-paid professionals in some coastal cities who have basically given up on the dream of homeownership given the typical $1-million-plus price tag for a tiny bungalow. A modest apartment in San Francisco can easily set you back $4,000 a month. Orange County isn’t much better.

For years, people have retorted: “That’s the price for living near the beach.” Actually, it’s the price we pay because those who already live in such lovely places lobby city councils, boards of supervisors and the state Legislature to put the kibosh on new construction, supposedly to stop congestion. A few minutes’ drive from the Golden Gate Bridge, one finds endless, lovely countryside – all tightly growth-controlled to keep out young families and other riff-raff.

In California, it’s always fair game to blame politicians. Over the years, they’ve certainly passed a lot of laws that make it tough to build new houses. As they dream up far-reaching new programs on myriad subject matters (e.g., the Secure Choice retirement plan for the private sector), they steadfastly avoid dealing with major problems where they could effect change.

“The lack of housing supply fuels headlines that reveal the state’s housing prices at their starkest,” Liam Dillon wrote in the Los Angeles Times. “It could explain why doctors and others making as much as $250,000 a year are struggling to find homes in Palo Alto.” Prices in California are double the national average, Dillon writes, yet “legislators have shied away from tackling broad efforts to increase housing supply.”

Of course, state legislators aren’t the only ones to blame. City councils and county boards of supervisors love to control housing growth. But often, they merely succumb to public pressure. The Register reported this past week that a judge ordered Huntington Beach to “immediately comply” with a previous ruling requiring it to permit more low-income units as part of a high-density housing project.

The city, which has vowed to appeal, has been at odds with housing advocates “since last May, when the council, reacting to public outcry, eliminated more than 2,400 units of potential high-density housing from plans along portions of Beach and Edinger,” according to the report. Focus on the phrase, “reacting to public outcry.” Try to find any development project that doesn’t spark a backlash from neighbors, environmentalists and slow-growth activists.

Affordable-housing activists miss the big picture, of course. They believe the solution to the housing-affordability crisis is to subsidize (or mandate) the development of below-market-price “affordable” units. That’s a drop in the bucket; traditionally, “affordable” housing is best found in the “used” housing market. There’s no constitutional right to a subsidized new condo. They are right that localities need to permit more infill housing, but they need to green-light every type of new housing. If you feed supply into the system, it will help at every price point.

Vox’s Matthew Yglesias reported that a San Francisco supervisor “is forcing the city’s chief economist to conduct an unprecedented economic impact study of the city’s various land-use and development rules.” There’s this from the Santa Rosa Press Democrat: “Healdsburg is likely to create more affordable housing if it repeals a voter-approved growth management ordinance that restricts the number of new homes to an average of 30 per year.”

Maybe the local pendulum is swinging back in a more sensible direction, even if the Legislature hasn’t gotten the memo. The problem isn’t a secret.

A report last month by the state Legislative Analyst’s Office came to this conclusion: “[C]ommunity resistance to housing, environmental policies, lack of fiscal incentives for local governments to approve housing, and limited land constrains new housing construction. A shortage of housing along California’s coast means households wishing to live there compete for limited housing. This competition bids up home prices and rents.”

It’s simple stuff. The problem won’t be fixed until people stop coming here, stop having children or the government finally just lets builders build more houses.

Nonprofits urge high court to hear patent exhaustion suit

April 22, 2016, 5:13 PM

From Law360

EFF, along with Public Knowledge and the R Street Institute, said the Federal Circuit’s decision in Lexmark International Inc.’s infringement suit against Impression, a printer cartridge refurbisher and reseller, has created loopholes in traditional ideas regarding ownership.

California GOP blathers about freedom, but mostly backs ‘secrecy lobby’

April 22, 2016, 5:12 PM

From Reason

In one of my favorite Far Side comic strips, the first panel offers what people typically say to dogs: “OK Ginger I’ve had it. You stay out of the garbage! Understand Ginger?” The next panel translates what dogs actually hear: “Blah blah Ginger, blah blah blah Ginger.”

I think of that comic sometimes when I’m stuck on the floor of the state Assembly or Senate and hear a Republican legislator giving a speech about “freedom.” All I hear is, “Blah blah Constitution, blah, blah limited-government.” My comprehension skills are better than the average mutt’s, but I’m trained to know blather when I hear it.

Read more…

R Street Institute welcomes Uber settlements in California, Massachusetts

April 22, 2016, 11:12 AM

WASHINGTON (April 22, 2016) – Concluding a legal battle that began last year, ridesharing company Uber announced it will pay $100 million to settle two class-action lawsuits initiated by drivers who sought to be classified as employees, rather than as independent contractors.

Eli Lehrer, president of the R Street Institute, reacted to the announcement:

“While it would have been far better for the government to simply leave an innovative business model alone and empower workers to make their own decisions, this is still a welcome development in that it preserves the basics of an important, innovative business model,” Lehrer said.

The classification of its drivers as independent contractors has been integral to Uber’s rapid growth, as well as to its famed ability to offer its drivers flexibility in creating their own schedules. By applying a more traditional model to Uber, courts and regulators would threaten that approach, since classifying every driver as an employee would legally entitle drivers to minimum wage, overtime pay, unemployment compensation and more. Such a dramatic increase in per-employee costs would undoubtedly lead to the necessary establishment of limitations on when and how much drivers work for the company.

While the settlements are a welcome development, in that they avert a threat to the emerging ridesharing business model, the situation highlights the need for state and federal lawmakers to take decisive action to provide clarity. Labor markets need sensible regulatory policies that finally put an end to the continuous regulatory and legal challenges that have plagued startups like Uber and Lyft in their formative years.

In its annual Ridescore project, which scores 50 of America’s largest cities on how friendly their regulatory frameworks are toward ridesharing and other for-hire transportation services, R Street noted a general trend of improvement over the past year. But even as states like West Virginia, Mississippi and South Dakota have proactively passed legislation classifying most ridesharing drivers as independent contractors, labor-classification issues were seen as the “next wave of TNC policy challenges, as the initial matters of legal status, insurance and background checks approach complete resolution.”

“The time has come for lawmakers to begin sketching a policy framework that provides workers and firms much greater flexibility than exists in today’s rigid, old-economy structures,” noted the report’s authors. “Regulatory regimes that divide labor only into traditional salaried workers and entirely independent contractors do not suit the modern sharing economy.”