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Muni broadband: Even dumber in 2015 than 2005

January 28, 2015, 9:00 AM

Ahead of his State of the Union address, President Barack Obama went to Cedar Falls, Iowa to tout municipal broadband. Despite a landscape littered with missed goals, incomplete build-outs and outright financial ruin, Obama still thinks local governments should saddle themselves with millions in debt to fund broadband systems that would compete with service providers that have been there for years.

To press the point, the Obama administration is pushing for federal legislation to pre-empt states from blocking municipal broadband projects, even though, as ultimate guarantors of the bonds, they have full right to. A number of states, after seeing the financial damage these projects do, have done so already.

The principal argument for municipal broadband is market failure: Internet service providers are entrenched duopolies that have no interest in serving residents without the financial means to pay upward of $100 a month for a broadband package. Yet while touting the wonders of the 10 Gb/s fiber to the home access the City of Cedar Falls is providing, Obama neglected to mention that it costs $275 a month. Broadband for the people, indeed.

Let’s say it one more time: municipal broadband doesn’t work. Even systems that are operating — such as those in Lafayette, La., and Chattanooga, Tenn. — have not achieved their goals of providing ubiquitous fiber-to-the-home, higher-quality service and cheaper rates than incumbents. While the may boast positive cash flow, they are still losing money and behind their revenue plans.

It’s only going to get worse. Current municipal systems followed the “triple-play” model, bundling phone, cable and high-speed Internet into a package that could generate the average revenue per user necessary to meet operating costs and service debt.

Ten years ago, these business plans made some sense, although in most cases, the consultants who wrote them played down the competitive threat of satellite TV and the high cost of programing acquisition.

But what the feasibility studies didn’t foresee was the rise of over-the-top (OTT) video networks that bypassed cable TV systems. First came Netflix and Hulu, then Showtime and CBS announced plans to stream programming. Then came the real game-changer—ESPN’s plan, announced in January, to stream live sports.

This was significant because live sports is one of the main reasons people retain cable TV. Make the Super Bowl an OTT option, and suddenly, cord-cutting becomes attractive not just for twentysomething renters content to watch movies on their tablets, but for entire households. (Thanks to devices like Google’s Chromecast, video programming downloaded from phone or tablet can be routed directly the family widescreen TV.)

This trend has the major ISP/cable concerned. An estimated 7.6 million U.S. households have scrapped pay TV over the past several years. Nearly one-fifth of Americans who have Netflix or Hulu Plus accounts don’t subscribe to a cable or satellite TV service, according to research from Experian Marketing Services. These consumers may be holding onto Internet service only, or using 4th generation wireless service. But for large wireline ISPs that banked on bundling, these numbers present a bleak outlook.

How much more a problem is this going to be for munis? For example, Lafayette’s $140 million broadband bond issue anticipated it would see 3 to 6 percent annual growth in cable TV revenue for next 15 to 20 years. That’s just not going to happen. These operations face a major reckoning.

UTOPIA, a fiber-based broadband network financed by a group of 11 Utah cities, provides a grim preview. After failing to reach the threshold of customers needed to pay the debt on construction, the project was turned over to Australia-based Macquarie Capital. As part of the agreement for Macquarie to fund completion of the network, the UTOPIA cities proposed assessing residents a $20 a month utility surcharge for the next 30 years. Who knows what broadband will be like in 2045, but Utah homeowners will still be paying off a technology platform that, by then, will be as old as a Commodore 64 is to us. Is it any wonder that five of the UTOPIA communities have balked at this deal?

Despite the president’s continued cheerleading for municipal broadband, it’s hard to see, given the pressure on conventional ISP wireline bundling, even a conservative municipal broadband project plan getting the necessary underwriting—at least at rates below junk status.

Google Fiber, which prices 1 Gb/s access with TV at $120, is expanding into more cities. Now the company has plans to enter wireless with a new business model. New market developments like these make the cries of monopoly less and less credible. Municipal broadband is hardly the “necessity” for digital inclusion Obama claims it is.

Rather than sink millions into building a system that will never come close to paying for itself, cities can do more for broadband investment by revisiting the franchise fee process, streamlining the wireless tower siting process and reducing right of way fees. This has helped attract disruptors like Google, and overall, will do more to foster private investment and development far better than the government-funded approach.

For more about market-friendly ways cities can spark broadband investment, see my R Street paper, “Alternatives to Government Broadband.”

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

Portland State e-cigarette claims debunked in the New York Times

January 27, 2015, 1:46 PM

New York Times op-ed columnist Joe Nocera today knocks Portland State University researchers’ claims that e-cigarettes produce higher levels of formaldehyde than cigarettes – bogus findings that I slammed last week.

Lead author of the research paper, Dr. David Peyton, told Nocera that his study had been mischaracterized:

It is exceedingly frustrating to me that we are being associated with saying that e-cigarettes are more dangerous than cigarettes. That fact is not in evidence.

What is not in evidence is the researchers’ credibility. On Jan. 22, Dr. Peyton was quoted in his university’s press release:

Our research shows that when heated at higher temperatures, e-cigarette juices can vaporize and form large amounts of ‘hidden formaldehyde,’ five to 15 times higher than the amount of formaldehyde in traditional cigarettes.

Kudos to columnist Nocera.

Obama takes on oil drilling from giant jet

January 27, 2015, 1:23 PM

I don’t remember the last time I heard the term “ANWR” – the Alaskan National Wildlife Refuge – before this weekend. I think I recall some controversy over it during the Bush administration, around the same time Jennifer Lopez divorced her second husband, and then there was the time Sarah Palin declared that the caribou would be just as happy toddling around oil rigs as they are currently. But before Barack Obama declared that America’s highest priority this week is to preserve the pristine Alaskan wilderness from the mere prospect of economic stimulation, the issue had lain dormant for approximately my entire adult life.

But, of course, that was until the Obama presidency became more about goading Republicans into fights that might damage them ahead of a 2016 contest, and less about preserving the American economic machine. Cynical as that observation may be, it’s important to remember that shale oil drilling in the Dakotas quickly increased after the president declared a halt to drilling on federal lands nearby, though his commitment to preserving the natural beauty of the Badlands ended when he wanted to take credit for lower gas prices in his State of the Union speech. And state permitting ahead of the federal declaration, even in Alaska, is expected to continue unabated (and may even increase if they think the Department of the Interior is about to wall off the oil fields as a polar bear sanctuary).

And, you can tell the president isn’t super serious about his environmental commitment because he taped the video announcement from a giant, gas-guzzling military airplane.

Air Force One, which is a specially outfitted Boeing 747, burns approximately five gallons of gasoline per mile. The flight between Ronald Reagan Washington International Airport and Indira Gandhi International Airport in New Delhi, where the president currently is, is about 8,000 flying miles. On a regular United Airlines flight that stops briefly in Newark, N.J., that’s a flying time of around 22 hours. In one round trip, the president will, by himself, burn 80,000 gallons of climate change-inducing fossil fuels, conveniently close to the atmosphere, where the gaseous byproducts will chew up the ozone layer to practically nothing.

Now, obviously, Obama’s behavior is right in line with the behavior of other world-leading environmental stewards – 1,700 private jets descended on Davos, Switzerland just last week to address the global fuel consumption crisis and heal the world’s environmental wounds – but that doesn’t make the irony of announcing an environmental policy change on a massive airliner any less hilarious.

President Obama is more King John than Robin Hood

January 27, 2015, 12:58 PM

In the State of the Union address, President Obama certainly left the impression that he would like to be considered a type of Robin Hood to the American middle-class. The story of the legendary British outlaw is a powerful tale that many of us learn as children. As King Richard the Lionheart is away on the Third Crusade, England falls prey to the oppressive hand of King Richard’s brother, John. Robin Hood and his Merry Men become outlaws “robbing from the rich and giving to the poor.”

Every child who has heard the legend leaves with the sense that Robin Hood is a hero. He responds to the plight of his countrymen dominated by royal oppression. Robin Hood is more than a common thief because his fight is just.

Strangely, the real history during the time of Robin Hood and his Merry Men is more like our current political situation than many of us might realize.

President Obama operates much more like King John than some nimble bandit. King John used taxes as a means for exerting political dominion over his potential opposition. When he needed to generate diplomatic favor or exercise control, he would lessen the tax burden on some while enforcing more strident collection on others.

Sound familiar?

While President Obama may not be Robin Hood, neither are his affluent corporate and individual tax targets. They look much more like 13th century barons who generated wealth from the land they controlled.

The barons were certainly no champions of the people. They were the original one percent. Barons were essentially chief-tenants of sections of the king’s land and were obligated to provide taxes and soldiers for the army. Not surprisingly, most of them were more interested in keeping their gold, silver and military might for themselves rather than remitting payment to the crown.

The king and the baron oligarchs were not fighting for the right to improve the lives of the serfs that worked the land; they were battling for political control. Money and power fought money and power.

Ringing a bell yet?

Ironically, their conflict gave birth to an agreement that became an icon of freedom. In 1214, the barons rebelled against King John. They were able to successfully capture London, but they were unable to defeat him.

Instead of continued hostilities, they drafted the Magna Carta, which set forth an agreement between the two sides on the issues of taxation, feudal rights and justice in England. To be sure, it was no lofty experiment in democracy. In fact, it was so little respected by each side that the first issuance only lasted for ten weeks.

Even so, the warring monarch and oligarchs of Robin Hood’s day inadvertently set forth the symbolic groundwork for the concepts of individual liberty, equal justice and restrained state power. The Magna Carta was, in a real sense, the grandfather of the U.S. Constitution.

As much as things change, they still stay the same. Many of us may feel outclassed in a battle to secure our lives, liberties, and pursuits of happiness, but we have a powerful tool. Our heritage is a nation that has rejected a feudal system that forces us into the servitude of one master or another. We are free to chart our own course.

The American people are not required to submit as serfs to a powerful government in exchange for our provision. Neither are we obliged to have the fruits of our labor taxed and squandered as handouts to politically connected elites.

While Robin Hood may have been a legend, we could use a few like him today, men and women who understand that America’s power is designed to rest in the hands of the people. Reclaiming that power from our own versions of kings and barons is critical if we intend to embrace our unique inheritance of liberty and justice for all.

R Street outlines solutions for reforming Florida’s property insurance market

January 27, 2015, 11:25 AM

ORLANDO, Fla. (Jan. 27, 2015) – The Florida Legislature should consider steps to make the state’s insurance market more solvent and competitive, according to a new paper released jointly by the R Street Institute and the James Madison Institute.
The paper, “Lasting Reforms for Florida’s Property Insurance Market,” written by R Street Senior Fellow R.J. Lehmann, was presented at an insurance conference hosted by the Florida Chamber of Commerce today.

In the paper, Lehmann outlines problems with the current state-backed Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund, which have only now shored up their claims-paying capacity after a nine-year stretch without a major storm.

“The current system works only in the absences of hurricanes,” Lehmann wrote. “Only after nine years of fair-weather hoarding can the instrumentalities of Florida’s government-run insurance system finally declare themselves sufficiently sound to cover a large storm.”

To address these concerns, and prepare for the 1-in-100 year storm that scientists say is coming only in a matter of time, Lehmann suggests steps that should be taken by the Legislature to ensure that the market is able to weather significant storm damages without placing additional burdens on taxpayers.

In the case of Citizens, it is important to return the company to its intended role of insurer of last resort. This can be done by further reducing coverage limits, making more properties ineligible for Citizens policies and including surplus and excess lines carriers in the current depopulation program. Any reforms of this nature keep an eye toward consumer protection, with all changes to requirements and policies clearly spelled out to customers.

“Ultimately, consumer protection should remain a top priority,” Lehmann wrote.

Also in need of reform is the Cat Fund, structured to provide Florida’s primary insurers with underpriced reinsurance coverage.  The Cat Fund does not collect sufficient premiums to break even over the long run and must therefore depend on its ability to sell bonds to make up the difference between the cash it has collected and the claims it must pay.

Reforming the Cat Fund should include reducing the amount of coverage it is required to sell to insurers, increasing the retention rate to decrease potential liabilities and setting aside some of the Cat Fund’s $10.95 billion surplus.

Additionally, the Legislature should explicitly authorize, but not require, the Cat Fund to negotiate the purchase of private reinsurance and other risk-transfer mechanisms.

“Reinsurance coverage represents money that does not have to be borrowed or repaid by taxpayers when the wind blows,” said Lehmann. “It allows Florida to be flooded with outside capital in the immediate aftermath of a storm rather than be saddled with debt.”

The Legislature should also take steps to eliminate the prohibition against insurers recouping the cost of reinsurance coverage purchased to cover obligations the Cat Fund might not be able to cover.

Lehmann also proposes the state should receive annual reports outlining the claims-paying capacity of all the state-run entities, including analysis of how bond markets would respond should Citizens, the Cat Fund and the Florida Insurance Guaranty Association all need to borrow funds simultaneously in the wake of a major storm.

“A sensible approach that recognizes the state’s role in Florida’s property insurance system, but trusts the market to solve many problems, will work best and bring the greatest stability,” said Lehmann.



Lasting reforms for Florida’s property insurance market

January 27, 2015, 11:21 AM

With the 2014 Hurricane Season having drawn to an unremarkable close, Florida has now gone nine years without a hurricane making landfall. This represents the longest such “drought” on record for the state.

However, little has changed to explain Florida’s unprecedented streak of good luck. For example, the state’s position as a low-lying tropical peninsula jutting 500 miles into the most hurricane-active waters in the world is the same as it was 10 years ago, and 100 years ago. Indeed, many scientists believe climate change could magnify the perils facing that peninsula, with increases in the severity and incidence of storms.

That’s bad news for Florida, given that it’s been struck by the most hurricanes of any U.S. state. That includes the most powerful hurricane on record, and seven of the 10 costliest hurricanes to have affected the United States (six of these within an 18-month stretch from 2004 to 2005). Therefore, a nearly decade-long respite should not be considered the norm, but rather a fortuitous anomaly. In short, it only means the state is long overdue for another strike.

Moreover, Florida’s population, its built environment and, therefore, the lives and property exposed to hurricanes also have grown dramatically. Although the state’s population shrank slightly during the recession, it has almost tripled since 1970, growing to more than 19.9 million residents. Florida recently surpassed New York to become the third most-populous state in the country.

This growth has increased Florida’s total coastal exposure to more than $2.9 trillion. Indeed, it has more property at risk than the other “hurricane alley” states (Louisiana, Virginia, Texas, North Carolina, South Carolina, Georgia and Mississippi) combined.

Nevertheless, instead of taking steps to reinforce its shaky insurance system, Florida has used this period of population and economic growth, coupled with tropical calm, to continue its politically expedient policy of artificially suppressing insurance rates.

It’s true that the current hurricane-free stretch has allowed Florida’s state-sponsored insurance entities to slowly shore up their claims-paying capacity. For instance, Citizens Property Insurance Corp. boasted a healthy $7.6 billion in combined policyholder surplus in 2014. The state-run insurer simultaneously lowered its overall exposure due both to organic migration of policies to the private market as well as depopulation initiatives to transfer policies to private companies directly. The Florida Hurricane Catastrophe Fund has likewise shored up its reserves to a projected $10.95 billion at year-end 2014.

Despite these encouraging figures, the misplaced public policy goal of insurance rate suppression pursued by the Legislature and past governors has led to a dysfunctional property insurance system. The current system works only in the absence of hurricanes. Only after nine years of fair-weather hoarding can the instrumentalities of Florida’s government-run insurance system—Citizens and the Cat Fund —finally declare themselves sufficiently sound to cover a large storm.

But what happens when that storm finally arrives? What happens once a major storm or series of smaller storms wipes out the surplus built over this unprecedented period of calm?

This paper looks to offer background on how Florida has chosen to finance its enormous hurricane risk largely through post-event assessment mechanisms that would be levied on almost every Floridian. It also will establish how Citizens and the Cat Fund are essentially “one-hit wonders,” designed to cover just one adverse hurricane season with no practical means to cover a second or third season without economically devastating consequences.

Finally, the paper explores solutions that could reasonably be implemented during the 2015 legislative session, while Citizens, the Cat Fund and the state’s private insurance sector are all in ideal financial positions to absorb reforms without undue adverse impacts on taxpayers, ratepayers or the state’s economy.

Ultimately, Florida’s insurance system must be structured to cover multiple hurricane strikes without posing a risk to taxpayers or the state’s economy.

Green groups eyeing Republicans for climate support

January 27, 2015, 9:07 AM

From the Washington Examiner:

“It puts a number of people on record and really gives the party a pretty safe way to take a position,” Eli Lehrer, president of the conservative R Street Institute and a promoter of a carbon tax, told the Washington Examiner. “It’s a complicated issue, and a lot of Republican senators are not under any real pressure from their own constituents to say anything.”

…Republican staff held a closed-door meeting with a pollster who tried to present them with strategies to promote their own solution to climate change, but the suggestions offered were straight from the Democratic playbook. Meanwhile, offices have invited conservative groups such as the R Street Institute and the Energy and Enterprise Initiative — led by former Rep. Bob Inglis, R-S.C. — to discuss free-market approaches to reducing emissions.

Lehrer, speaking of the 15 Republicans who voted for Hoeven’s amendment, said, “I don’t see a sea change here. But you are seeing some clarity that the Republican Party is taking some of these issues more seriously than they have in the past.”

Lost a drone? The Secret Service might have it

January 26, 2015, 4:53 PM

If you were the lucky amateur pilot who landed a “Quadcopter” drone on the White House lawn late last night, the Secret Service has your unmanned robot aircraft and would probably like a word with you.

Apparently, a small, commercially available drone flew over the White House fence and onto the hallowed grounds around 3:08 a.m., and like most commercially available drones operated by people whose entire history of flight experience involves an XBox or a copy of SkyMall (RIP), immediately crashed. White House security responded somewhat immediately, cleared the object, and are now waiting for a hapless tourist or area resident who wanted an aerial view of the landmark to please come collect both their toy and their criminal charges.

The Secret Service has identified the device that was found overnight on the White House grounds as a “quad copter.”

The agency said an on-duty Secret Service officer saw and heard the 2-foot-wide commercial “quad copter” fly low onto the grounds of the executive mansion at about 3:08 a.m. ET. It crashed on the southeast side, the agency said in a statement.

“There was an immediate alert and lockdown of the complex until the device was examined and cleared,” a spokesman said in the statement.

The spokesman said an investigation was under way.

Earlier, the White House said the device posed no threat to the first family.

The First Family is, actually, in India, where we are handing $4 billion of our money to the Indian government so that they can improve infrastructure.

Now, the whole drone mess might seem funny, but only because you know how this exact scenario played out. Someone thought it would be neat to fly the drone they got for Christmas over the White House, realized only too late that they’re next to impossible to control, and instead of the usual (crashing it into a tree, sending a small woodland creature careening to the ground), they took a divot out of the South Lawn. They are now, probably, cowering in closet apartment or hotel room, ruing the day they decided to use that Brookstone gift card on a quadcopter instead of one of those fancy foot massagers.

But the implications are serious. If someone had actually known how to pilot a drone, they could have gotten a rather detailed aerial view of the president’s house, or could have even deposited something nefarious. It’s a little disconcerting that, after all of the security we pay for, and all of the congressional hearings that have reinforced the duties of the Secret Service, particularly in light of their presumed duty to Columbian hookers, we’re still having to explain to the people guarding our nation’s president that things are capable of flying over a seven-foot fence.

Thankfully, this time, no one was in any danger.

NAIC seeks input on TNC white paper

January 26, 2015, 4:18 PM

The National Association of Insurance Commissioners has begun a 30-day comment period on a draft white paper (available here) that no doubt will shape the development in states across the country of insurance requirements relevant to transportation network companies like Uber and Lyft.

The NAIC is a forum in which insurance regulators gather to discuss public policy issues related to insurance regulation. To codify its findings and to encourage uniformity between the states, the NAIC regularly produces studies and pieces of model legislation.

TNCs and the “sharing economy” as a whole have emerged as pressing issues for insurance companies and their regulators, alike. Questions about the contours of liability and the applicability of personal automobile insurance coverage vs. commercial insurance coverage are leading different jurisdictions to adopt different approaches.

California Insurance Commissioner Dave Jones — by now, a seasoned voice on the issue after the Golden State passed its own TNC legislative compromise last year — is seeking to provide a policy baseline from which other states can approach their work. Jones has overseen the creation and work of a “Sharing Economy Working Group” within the NAIC.

As the chairman of the working group, his team in California is likely to provide a significant portion of the white paper’s content. Thus, while the white paper will seek to outline and grapple with the insurance implications of TNCs nationally, one could reasonably suspect some bias toward California’s regulatory régime.

This has its advantages and disadvantages. California’s TNC legislation is, overall, quite a good starting point. Yet California’s preference for active administrative oversight might not comport with the preferences of other jurisdictions. To ensure that the interests of all states are well represented, it is crucial that other state insurance regulators meaningfully engage.

Fortunately, Jones and the NAIC are eager for commentary about the draft white paper. Between now and Feb. 20, the NAIC is soliciting comments on the white paper. While an admittedly abbreviated time frame, the pressing importance of the TNC issue is forcing regulators to move fast. His goal is to have the NAIC as a whole consider the white paper at its spring meeting in Phoenix, scheduled for March 28 through March 31.

Whatever the white paper’s final form, the NAIC will no doubt profit by providing careful and ongoing attention to this issue. Given the speed at which TNCs and other new economy adopt new technologies to respond new behaviors, the findings of this or any other report on the “state of the market” should always been seen as provisional.

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

New Orleans smoking ban should exclude vaping

January 26, 2015, 1:36 PM

Years after most American cities have enacted smoking bans, the City of New Orleans is poised to enact one. With a unanimous vote Jan. 22, the City Council has forwarded the measure on to Mayor Mitch Landrieu, and it would go into effect 90 days after he signs it.

The ordinance would ban smoking in all enclosed public places, private clubs, correctional facilities and school buildings, as well as banning outdoor smoking within 25 feet of public property, five feet of commercial buildings and in public parks during events hosted from the city. However, it would allow smoking in the common areas of apartment buildings, retirement and nursing homes, cigar and hookah bars established before Jan. 8 and public events not sponsored by the city.

Most disconcertingly, the smoking ban would include e-cigarettes, which do not pose the same risks that conventional cigarettes do. In fact, switching to e-cigarettes serves to reduce the harm tobacco does to both its users and those around them.

One of the rationales behind a smoking ban is that second-hand smoke is harmful to those who breathe it in. From a public health rationale, a ban on second-hand smoke actually makes sense given the harmful effects it has on non-smokers. The conflict is whether or not a ban infringes on private property rights. However, from a public health rationale, there is no evidence that vaping poses to a risk to non-smokers.

R Street’s Eli Lehrer addressed this issue in an op-ed in The Weekly Standard:

New York, Los Angeles, Chicago and Philadelphia have already passed municipal bans on ‘vaping’ in public that treat the products as if they were cigarettes. But the rationale for conflating e-cigarettes and tobacco cigarettes is weak. The main ingredient in e-cigarette aerosol (other than water vapor) is propylene glycol, which is also a common propellant in asthma inhalers, and its toxicological category is ‘generally recognized as safe,’ according to the FDA. An October 2012 study published in the journal Inhalation Toxicology found that, for all byproducts measured, e-cigarettes produced very small exposures relative to tobacco cigarettes. Common sense, as well as the great bulk of existing research, suggests that e-cigarettes and their vapor present essentially no risk to bystanders.

In addition, studies have shown that vaping and e-cigarettes have less health risks than traditional tobacco cigarettes. E-cigarettes deliver the nicotine that conventional cigarettes do without all the harmful tar and chemicals. E-cigarettes can reduce the harmful effects of conventional cigarettes by as much as 98 percent. The reason is because nicotine itself isn’t the killer in cigarettes; it’s the tar and chemicals that come from burning tobacco that causes cancer and other health problems.

With e-cigarettes are included in the public smoking ban ordinance, New Orleanians will lose out on one of the most effective tools to help them quit smoking. According to the National Institutes of Health, stop smoking medicines such as nicotine patches fail for approximately 95 percent of all smokers. However, recent surveys show that e-cigarettes can serve as a valuable tool to get smokers to quit smoking. If e-cigarette users don’t stop smoking entirely, it can get them to reduce their tobacco usage. A survey from the University of North Carolina found that a majority of physicians believed that e-cigarettes were safer than conventional cigarettes and found they helped people quit smoking. Finally, despite hysteria that e-cigarettes would increase tobacco usage among non-smokers, the British government found that e-cigarettes were overwhelmingly used by former and current smokers.

While the City of New Orleans is clearly well-intentioned with its proposed smoking ban, it needs to make sure that it does not throw away positive advances in public health at the same time. The city should exempt e-cigarettes and “vaping” from its smoking ban. The evidence from a public health standpoint simply doesn’t support a vaping ban, which could ultimately do more harm than good in reducing deaths from tobacco.

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

Keeping PACE in Texas: Revitalizing industry, saving water, guiding better policy

January 26, 2015, 11:26 AM

From Breaking Energy:

This week, Environmental Defense Fund and R Street Institute, with support from Google, hosted a breakfast roundtable at the Texas Capitol to highlight one of those bills. The panel highlighted the potential for Property-Assessed Clean Energy (PACE) and other commonsense, market-driven financing policies to be game-changers for accelerating the deployment and adoption of clean energy resources and water conservation practices across the state of Texas.

Ex-Wikimedia counsel takes libertarian think tank GC job

January 26, 2015, 11:24 AM

From Corporate Counsel:

Mike Godwin, a former top lawyer for Wikipedia operator Wikimedia Foundation Inc., will serve as the first general counsel and innovation policy director for the libertarian think tank R Street Institute, the Washington, D.C.-based group announced Thursday.

Godwin will start work Monday. He most recently was a senior policy adviser at media training organization Internews.

He said he has deep respect for R Street’s work, noting the group’s interest in protecting the Internet and its users. Last year, for example, R Street pushed Congress to approve legislation that would rein in the surveillance power of the National Security Agency.

“I think we [share] some obvious chemistry and creative energy,” Godwin said.

Godwin said he expects to spend a “great majority” of his time working on innovation policy, focusing on privacy, intellectual property and free speech, among other issues. But he said he agreed to take the GC role to help ensure that R Street’s legal needs are met.

“That seemed like an immediate, value-added position,” he said.

At Wikimedia, where he served as general counsel from 2007 to 2010, Godwin worked on a variety of issues, including privacy and IP matters. In July 2010, three months before he left the job, Godwin made news for a snarky letter he sent to the FBI in response to the agency’s demand to remove an image of the FBI’s seal from Wikipedia.

At the time, it wasn’t clear if Godwin’s parting was related to his letter. But Godwin said Friday the letter wasn’t connected.

“That letter is loved by everyone … outside of the [J. Edgar] Hoover Building,” Godwin said, referring to the FBI’s headquarters.

Godwin said he finished what he wanted to complete as Wikimedia’s GC, and noted that he worked as a Wikimedia consultant for two years after he stepped down as the organization’s top lawyer. He also said he received the “sweetest” recommendations from Wikimedia when he sought to join R Street.

In addition to Wikimedia and Internews, Godwin has worked as a staff counsel for Internet-rights organization Electronic Frontier Foundation and as a columnist for ALM Media, the parent company of CorpCounsel.com and The National Law Journal.

“I’ve admired Mike from afar for years and I’m delighted that he’s joining the team at R Street,” R Street President Eli Lehrer said in a statement. “He’s the absolute best person we could possibly imagine for this job, and we are eager for him to bring his knowledge on board.”

Read more: http://www.corpcounsel.com/id=1202715951860/ExWikimedia-Counsel-Takes-Libertarian-Think-Tank-GC-Job#ixzz3Pwf1sN9C

ECPA letter to U.S. House

January 23, 2015, 5:24 PM
January  22,  2015 The Honorable Robert W. Goodlatte Chairman House Judiciary Committee The Honorable John Conyers, Jr. Ranking  Member House  Judiciary  Committee

We, the undersigned companies and organizations, are writing to urge speedy consideration of Rep.  Yoder and Rep. Polis’ Email Privacy Act that we expect will be introduced in the coming weeks. The bill would update the Electronic Communications Privacy Act (ECPA) to provide stronger protection to sensitive personal and proprietary communications stored in “the cloud.”

ECPA, which sets standards for government access to private communications, is critically important to businesses, government investigators and ordinary citizens. Though the law was forward-looking when enacted in 1986, technology has advanced dramatically and ECPA has been outpaced. Courts have issued inconsistent interpretations of the law, creating uncertainty for service providers, for law enforcement agencies, and for the hundreds of millions of Americans who use the Internet in their personal and professional lives. Moreover, the Sixth Circuit Court of Appeals in US v. Warshak has held that a provision of ECPA allowing the government to obtain a person’s email without a warrant is unconstitutional.

The ECPA Amendments Act would update ECPA in one key respect, making it clear that, except in emergencies, or under other existing exceptions, the government must obtain a warrant in order to compel a service provider to disclose the content of emails, texts or other private material stored by the service provider on behalf of its users.

This standard would provide greater privacy protections and create a more level playing field for technology. It would cure the constitutional defect identified by the Sixth Circuit. It would allow law enforcement officials to obtain electronic communications in all appropriate cases while protecting Americans’ constitutional rights. Notably, the Department of Justice and FBI already follow the warrant-for-content rule. It would provide certainty for American businesses developing innovative new services and competing in a global marketplace. It would implement a core principle supported by Digital Due Process, www.digitaldueprocess.org, a broad coalition of companies, privacy groups, think tanks, academics and other groups.

This legislation has seemingly been held up by only one issue – an effort to allow civil regulators to demand, without a warrant, the content of customer documents and communications directly from third party service providers. This should not be permitted. Such warrantless access would expand government power; government regulators currently cannot compel service providers to disclose their customers’ communications. It would prejudice the innovative services that all stakeholders support, and would create one procedure for data stored locally and a different one for data stored in the cloud.

Because of all its benefits, there is an extraordinary consensus around ECPA reform – one unmatched by any other technology and privacy issue. Successful passage of ECPA reform sends a powerful message – Congress can act swiftly on crucial, widely supported, bipartisan legislation. Failure to enact reform sends an equally powerful message – that privacy protections are lacking in law enforcement access to user information and that constitutional values are imperiled in a digital world.

For all these reasons, we strongly urge all members of the Senate Judiciary Committee to support the ECPA Amendments Act.


ACT | The App Association
American Association of Law Libraries
American Booksellers for Free Expression
American Civil Liberties Union
American Library Association
Americans for Tax Reform and Digital Liberty
Association of Research Libraries
Autonet Mobile
Brennan Center for Justice
BSA  | The Software Alliance
Center for Financial Privacy and Human Rights
Center for Democracy & Technology
Center for National Security Studies
Competitive Enterprise Institute
Computer & Communications Industry Association
Council for Citizens Against Government Waste
Data Foundry
Deluxe Corporation
Demand Progress
Direct Marketing Association
Distributed Computing Industry Association (DCIA)
Discovery Institute
Electronic Frontier Foundation
First Amendment Coalition
Future of Privacy Forum
Gen Opp
Golden Frog
Information Technology Industry Council (ITI)
Internet Association
Internet Infrastructure Coalition (I2Coalition)
Less Government
Liberty Coalition
New America’s Open Technology Institute
Newspaper Association of America
R Street
SIIA:  Software & Information Industry Association
Taxpayers Protection Alliance
The Constitution Project
The Federation of Genealogical Societies
U.S. Chamber of Commerce
Venture Politics

Keystone XL Pipeline may force Republicans to embrace climate change

January 23, 2015, 3:57 PM

From Scientific American:

Others say that Democrats could be making inroads with moderate Republicans who might be willing to support climate action, rather than offering “point-scoring” amendments.

Andrew Moylan, executive director of the R Street Institute, which supports enacting a carbon tax in order to lower tax rates on things like income and businesses, wondered why Democrats didn’t offer language that, for example, seeks to reduce emissions while also promising not to expand government.

“If they wanted to be helpful on advancing solutions to climate change, they would do the difficult work of … assuring a wary conservative base and wary Republicans that this is not some sort of a game to advance the [liberal] interests,” Moylan said.

Tools for transparency in copyright law

January 23, 2015, 3:31 PM

Over the span of one week in October 2014, Google received requests to remove more than 11 million URLs from its search engine due to copyright-infringement claims.

Enshrined in Article One of the U.S. Constitution, the purpose of copyright is to provide incentives for innovation by creating financial rewards for new creations. But in the more than two centuries since the Constitution was written, we have witnessed radical evolution in the methods of creation and the rise of lucrative industries that profit from the commodification of creative works.

The result has been a complex and sometimes dizzying web of copyright rules, unevenly and erratically enforced, particularly in the digital realm. For the average Internet user, it can be difficult to discover what materials are in the public domain, and which can be freely accessed and reused. When does fair use apply? What material has been removed from the Internet and on what legal grounds?

Luckily, the same technologies that complicate copyright law also provide us new methods for collecting, analyzing, understanding, and distributing data about how our world operates, both in terms of copyright enforcement and beyond. APIs and Twitterbots continuously scrape information sources and deliver real-time updates, such as every time a congressional staffer edits a Wikipedia page.

By collecting and publishing data about takedown requests, digital platforms like Google and Wikimedia are beginning to provide insight into the ways that rights holders are enforcing copyright law. The reports showcase aggregate trends on how much content is being removed over time and which copyright owners are requesting the most takedowns.

The details reveal some of the unusual and, in some cases, unfair ways that concerned parties try to apply intellectual-property law. Wondering why you’ve had difficulties finding recipes for “Derby Pie”? Kern’s Kitchen trademarked the name and has litigated tirelessly to make sure sites do not post recipes using that name without permission.

The Chilling Effects clearinghouse functions as a searchable archive of requests to remove purportedly copyrighted information from the Internet, most of them made under the Digital Millennium Copyright Act. Though a popular tool for researchers, advocacy groups, journalists, and interested individuals, the project has been criticized as a tool for pirates as well, as the takedown notices contain links to the allegedly offending content — and it recently removed its individual notice pages from search-engine results. The decision was met with harsh criticism from online news publications TechDirt and TorrentFreak, prompting Chilling Effects to issue an explanation:

Given increased public attention on the project, the wide variety of notices and types of claims that we catalog, and the sheer number of notices included in Chilling Effects database, we decided to take the interim step of de-indexing the site’s individual notice pages from search engines’ search results. Now that we have taken this step, we are hard at work building new tools and workflows that will allow us to better achieve the balance we are constantly seeking to strike between our dual missions of transparency and educating the public (on the one hand) and the strongly-felt concerns of those who send takedown notices (on the other).

That workflow overload attests to the growing appetite for transparency reporting mechanisms. Increased public awareness about how copyright laws are enforced has spurred activism by those who want to develop reasonable copyright solutions for today’s information environment. Transparency sites have changed the game by drawing public scrutiny to information that certain parties have tried to suppress, in accordance with a phenomenon known affectionately as the Streisand effect.

Copyright law does not exist in a vacuum, and transparency mechanisms let us all be part of the debate. Increased access to creative works has the potential to foster new creativity and economic growth. Transparency reporting is just one tool in an ongoing process to reform copyright law to strike a fair balance between the right to freedom of expression and the right of copyright owners to receive compensation for their work.


Six reasons Texas should kill the margin tax

January 23, 2015, 2:24 PM

One of the most basic laws of economics is that if you tax something, you get less of it. So why is business-loving Texas one of the few states that imposes a damaging tax on business revenue?

In its current form, the Texas margin tax dates to 2005, when the state overhauled its franchise tax to raise money for school financing. The margin tax was sold as a fair, transparent way for the state to raise needed revenue. In practice, the tax hasn’t lived up to these standards. In fact, the margin tax represents everything people hate about paying taxes.

1. It’s complicated. The margin tax includes four different methods for calculating a business’ tax base, multiple tax rates and numerous deductions and exemptions, all making it difficult to even summarize how the tax works in practice. In some cases, a company may find it costs more to calculate what they owe than what they will actually pay. The law’s complexity has also resulted in several high-profile lawsuits, as businesses have sought refuge in the courts from bureaucratic uncertainty.

2. It’s unfair. Economists long have criticized gross-receipts taxes because they disproportionately burden some types of businesses more than others. Unlike a retail sales tax, which is imposed once at the end of the production and distribution process, a gross-receipts tax (like the margin tax) can apply at multiple points along the way. A company that buys lumber to build doll-houses, for example, could end up paying higher effective rates than a service-oriented business, like a law firm.

3. It’s hidden. Each time a good or service is taxed, the cost of the tax is passed on to the next buyer in the form of higher prices. The cost of the margin tax is therefore borne largely by consumers, rather than businesses themselves. But unlike a retail sales tax, people have no way to know just how much the tax is costing them in the form of higher prices.

4. It’s bad for business…and everyone else. According to recent analysis by University of Texas at San Antonio professors John Merrifield and Corey DeAngelis, personal income in Texas is between $30.5 billion and $46.3 billion lower than it would be if the margin tax had never been enacted.

5. It doesn’t raise much money. Perhaps surprisingly, given the economic damage it causes, the margin tax hasn’t proven very effective at raising revenue. When originally enacted, the margin tax was projected to bring in $5.9 billion in revenue a year. Instead, revenue from the margin tax totaled only $4.5 billion in 2008 and $4 billion in 2009.

6. It puts Texas at a competitive disadvantage. The margin tax is making Texas out of step with other states. Only four other states have a gross receipts tax, and several states have recently moved to repeal their versions of similar taxes. Just last year, voters in Nevada rejected a proposal to enact a gross-receipts tax along Texas lines. The margin tax’s continued existence is a serious drag on Texas’ economic competitiveness. According to a study by the Tax Foundation, were Texas to repeal the margin tax, it would immediately jump from 10th to 3rd in the rankings of states with the most business-friendly climates.

Given the large volume of tax revenue currently flowing into state coffers, repealing the margin tax is not only possible, it may be necessary to prevent the temptation to overspend. More than a half-dozen bills already have been filed this session that would either phase out or immediately repeal the margin tax. The Legislature should follow through and put the tax out of its misery.

Bogus research on formaldehyde in e-cig vapor

January 23, 2015, 1:56 PM

The New England Journal of Medicine this week published a letter claiming that vapor contains “hidden” formaldehyde at far higher levels than cigarettes, which made headlines worldwide. That conflicts with a report I discussed last week, documenting that formaldehyde levels in e-cigarettes were far lower than those in traditional cigarettes.

Paul Jensen and colleagues at Portland State University produced the new results by overheating an e-cigarette, a condition (called dry puffing) that is familiar to vapers; the resulting product tastes so bad it cannot be inhaled. In other words, the formaldehyde produced under abusive conditions is not “hidden” at all, because it is in vapor that users find intolerable.

Dr. Konstantinos Farsalinos, a cardiologist at the University of Patras in Greece and a recognized expert in vapor devices, has documented that the formaldehyde findings are bogus:

Lack of experience on e-cigarettes and no contact with vapers can result in such erroneous and unrealistic results, which can create confusion and misinformation both in the scientific community and among users and potential users of e-cigarettes… The authors of the NEJM study should have read our study and should have known about the existence of this phenomenon.

One of the new study’s authors, James Pankow, has published other scaremongering reports. In 2010, he claimed that wintergreen flavor in smokeless tobacco is dangerous and he coauthored a largely theoretical study claiming that “infants and children are particularly at risk” from thirdhand smoke.

Modern automobiles have remarkably low pollutant emissions, but anyone behind a car that is overheating or otherwise abused can smell noxious fumes as they are released. Using the New England Journal of Medicine, Jensen and colleagues have created global headlines with a defective e-cigarette experiment, producing scientific pollution.

Personal auto insurers wade cautiously into ridesharing waters

January 23, 2015, 12:59 PM

In recent months, controversy over the potential “uninsured” status of drivers for app-based transportation network companies like Uber and Lyft has finally started to settle down. Those two services — the largest, thus far, in this growing field — both have announced that they have secured commercial insurance policies that will cover their drivers from the moment they agree to accept a fare until he or she arrives at his or her final destination.

Such developments, in concert with the adoption of regulatory frameworks covering TNCs by such jurisdictions as Colorado, California, Illinois and the District of Columbia, had seemingly settled what was initially an issue of immense controversy; namely, who would cover ride-sharing drivers and would such coverage be personal or commercial? The major TNCs, having backed off their earlier contention that rides for hire would be covered under drivers’ personal insurance policies, seemingly provided the answer: “We will cover them.” Which is fortunate, as most of the major personal insurers had an answer of their own: “We will not.”

But perhaps that conclusion was a bit too hasty. A lingering issue that has come to the surface in each state that thus far has looked to regulate TNCs is how to treat the period when a driver has an app “on,” but is not in transit with a passenger and has not even agreed to provide a ride. Does driving around with an Uber app on constitute “commercial activity,” as it would with a taxi driver roaming the streets to pick up fares? Or is this more akin to driving with a GPS, which would fall more on the “personal” side of the personal/commercial divide?

This is not just an abstract theoretical, and there are big stakes involved for how courts, regulators, lawmakers and insurers themselves answer the question. If this period (which California Insurance Commissioner Dave Jones has helpfully dubbed “Period 1″) counts as commercial activity, then TNC drivers may be subject to the same heightened standards of care as other professionals, and face consequently greater liability. This is of particular interest if, as some have speculated, the “surge” pricing schemes some TNCs promote might inadvertantly provide incentive for drivers to speed quickly and recklessly to areas of town where fares are most profitable.

States have been split on how to treat Period 1. Thus far, all that have passed TNC frameworks require there be coverage during this period, although the mandatory limits have been significantly lower (matching the general limits required of all drivers on the road) and in Colorado, at least, the TNC isn’t required to provide it. Such confusion opens a potential coverage gap, should both the TNC and the driver’s own personal policy each deny responsibility during the period.

While the personal lines industry as a whole continues to be firm in its contention that it should not be required to provide coverage during Period 1, interestingly, two notable insurers are now stepping forward with products to fill the gap.

USAA was first to market, announcing a pilot product to cover ridesharing drivers in Colorado from the moment they turn on their app until they are matched with a passenger. The product launches in February, and will cost $6 to $8 a month or $40 to $50 for a six-month policy. Farmers followed shortly thereafter, announcing that they would begin offering an optional endorsement to new and existing customers to cover ridesharing, starting Feb. 16. The company estimates the endorsement will add about 25 percent to an insured’s premium.

This is wonderful news, and I hope it won’t be excessive back-patting to say that it’s a development we predicted would happen eventually. It also underscores our primary advice to regulators and lawmakers looking to address this still emerging field — tread lightly.

It’s still very much unclear how these markets will emerge and what shape they will take. Overly prescriptive regulatory regimes risk cementing into place a limited conception of what business models are possible, and locking out competitors who imagine new and better ways of doing things. Focus on how best to identify and address genuine consumer harms, but otherwise, stay out of the way and let the markets figure it out themselves.

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

Are police radars that ‘see through walls’ as scary as they sound?

January 22, 2015, 5:34 PM

In a growing trend begun a few years ago without much public disclosure or debate, at least 50 police departments across the country — including the FBI and U.S. Marshals Service — now deploy radar devices that could allow them effectively to “see through walls.”

The technology consists of hand-held devices that send out radio waves which can detect the slightest movement, even breathing, from distances up to 50 feet away. Other advancements currently in development could be mounted on drones and other vehicles and could possibly map out a building’s interior and locate people inside it.

These systems, which first appeared on the battlefields of Afghanistan and Iraq, have been the subject of significant investment by the Justice Department. Law enforcement experts believe the devices could be valuable tools to keep officers safe when entering a building to arrest suspects or rescue hostages. Of course, they also have attracted the attention of civil liberties advocates and even some federal courts. Civil libertarians understandably worry that police departments could use the devices without a search warrant, potentially in violation of the Fourth Amendment’s protections against unreasonable search and seizure.

The devices have been the subject of least one federal appellate Courts ruling thus far, when the 10th Circuit last month upheld the conviction of a man for a parole violation and firearms charges, after he was apprehended by U.S. Marshals who used the devices. While acknowledging the radar system posed troubling Fourth Amendment questions, the court ultimately punted on those, noting that, in executing the suspect’s arrest warrant, marshals already had other evidence establishing probable cause that he was in the residence.

Should questions about the technology ever reach the U.S. Supreme Court, which seems terribly likely, there are at least two similar cases that might provide some guidance. In 2001, the high court ruled that police needed a warrant to scan the outside of a house with a thermal camera. In a 2013 case involving a decidedly less high-tech form of surveillance, the court put restrictions on law enforcement’s use of drug dogs to sniff outside a house.

In the end, the relevant public policy questions lie not in the technologies themselves. There’s good reason to believe these hand-held sensors could improve safety, both for police officers and for the general public. One of the concerns with so-called “no-knock” raids is that frequency with which innocent people are harmed or even killed, and this technology could alert law enforcement to the presence of innocent civilians or counsel them to pursue less risky means of apprehension.

Nonetheless, with the potential both for harm to civil liberties and increased safety for both police and civilians are like, state legislatures and Congress should examine whether regulations on this sort of technology are appropriate, before these cases do wind up in the courts. Some guidelines might include

  • Public disclosure and transparency when these devices are purchased and when they’re deployed. Easily accessible public records should be kept about how and when these radars are used.
  • Fourth Amendment rights must be preserved, and the use of such devices without either a search or an arrest warrant should be proscribed in all but the most extreme circumstances, such as a hostage situation or search and rescue after a disaster.
  • Helicopter and drone-mounted radars should be limited to manhunt situations, and only if a warrant is obtained, unless in a search and rescue situation.

These must be considered among the most intrusive tools available to law enforcement, but if used properly, they could make policing less dangerous for civilians. It’s up to state legislatures and Congress to craft radar usage regulations that protect both civil liberties and the lives of police officers and ordinary civilians.



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

R Street study outlines ways to expand number of Californians who purchase earthquake insurance

January 22, 2015, 11:56 AM

SACRAMENTO, Calif. (Jan. 22, 2015) – Lawmakers need to find ways to expand the number of Californians who purchase earthquake insurance, given the extremely low take-up rate in the state and the inevitability of a catastrophic temblor, a new study by the R Street Institute concludes.
In his paper “Insuring a way out: Modernizing the California Earthquake Authority,” R Street Western Region Director Ian Adams outlines some of the very real challenges facing the state-run earthquake insurance instrumentality. While some have proposed the CEA should lower its rates by relying more heavily on post-event funding mechanisms, Adams warns that “risk that is not maintained in private hands will become a public burden.”

The CEA is a well-managed organization that is nonetheless in need of structural changes, Adams noted. “In order to modernize the current system, policymakers need to take a hard look at updating the CEA’s enabling legislation to reflect its current mission – expanding the number of Californians with earthquake coverage,” he said.

Meaningfully increasing the take-up rate can be achieved through a combination of deft legislative and regulatory changes. For instance, the CEA is beginning down the right path by seeking to diversify its product offerings to reduce premiums. Affordability is one of the most significant factors limiting the take-up rate of earthquake insurance. In some cases, adding an earthquake policy can nearly double the cost of basic homeowners insurance.

“Likewise, current investments in mitigation are undervalued because only minimal savings are realized before an event occurs,” Adams said. “Instead, customers should be given options and incentives in the form of long-term mitigation financing and premium discounts to encourage them to make their homes better prepared to face an earthquake and to mitigate damage when the event occurs.”

“As with mitigation efforts, tax incentives for homeowners to purchase coverage and tweaks to lending rules to ensure the risk of earthquake-related defaults is priced into mortgage loans will reward Californians for purchasing earthquake insurance up front, rather than going with the temptation to self-insure against these catastrophes,” said Adams.

The paper also notes insurers’ commitment to the CEA needs to be wholehearted and with an eye toward expanding earthquake coverage. Toward that end, the first step is to rethink CEA’s backward assessment structure.

“The current assessment structure discourages insurers from increase their number of earthquake policies in order to limit exposure,” Adams said. “Instead, insurers should face a separate assessment if their share of the CEA policies is markedly less than their share of the overall residential insurance market share.”