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R Street spearheading coalition to fight the Remote Transactions Parity Act

June 16, 2015, 8:06 AM

WASHINGTON (June 16, 2015) – The R Street Institute today announced the formation of a coalition of nearly 20 groups representing millions of citizens opposed to a new Internet sales tax bill.

The Remote Transactions Parity Act, despite proponents’ claims that it would effect parity, imposes onerous new rules only on online retailers. Groups such as Americans for Prosperity, Americans for Tax Reform and Heritage Action have joined R Street in opposing this bill.

“These organizations have banded together before to successfully oppose similar legislation, such as the Marketplace Fairness Act,” said R Street Executive Director Andrew Moylan. “In a classic example of the whole being greater than the sum of its parts, we are thrilled to be able to get so many great partners to join us in continued opposition to overcomplicated laws that unwisely empower state and local governments.”

The coalition, which also includes the Competitive Enterprise Institute, FreedomWorks and the National Taxpayers Union among others, sent an open letter today to members of the House of Representatives outlining the many problems with the RTPA, sponsored by Rep. Jason Chaffetz, R-Utah.

“Like the failed MFA, the new RTPA would dismantle proper limits on state tax-collection authority while potentially causing serious damage to electronic and interstate commerce,” the coalition wrote. “Furthermore, the bill would create a decidedly unlevel playing field between brick-and-mortar and online sales.”

Under the RTPA, only remote retailers would be required to ascertain their customers’ place of residence; look up the appropriate rules in nearly 10,000 taxing jurisdictions; and then collect and remit sales tax for a distant authority with which they may have no tangible collection.

R Street has been a leader in identifying problems with legislation that promotes a “destination sourcing” taxing scheme for online sales. The institute has encouraged Congress to pursue a dramatically simpler approach based on “origin sourcing,” which would align remote sales tax-collection rules with those governing brick-and-mortar sales. Moylan discussed this potential solution in testimony before a House Judiciary Committee hearing earlier this year.

 

Coalition letter opposing Remote Transactions Parity Act

June 16, 2015, 8:00 AM

Dear Representative,

On behalf of the millions of citizens represented by the undersigned organizations, we write in strong opposition to the so-called Remote Transactions Parity Act (RTPA). Despite what some supporters claim, this legislation does not appropriately address the fatal flaws of its predecessor, the Marketplace Fairness Act (MFA). Like the failed MFA, the new RTPA would dismantle proper limits on state tax-collection authority while potentially causing serious damage to electronic and interstate commerce.

The Remote Transactions Parity Act would countenance an enormous expansion in state tax-collection authority by wiping away the “physical presence standard,” a baseline protection that shields taxpayers from harassment by out-of-state collectors. Current law dictates that a state can only require a business to collect its sales tax if it is physically present within its boundaries. Far from a “loophole” intended to advantage the Internet, it is the result of the 1992 Supreme Court decision in Quill v. North Dakota, which was grounded in a bedrock foundational principle of federalism: states must not be allowed to extend their taxation and regulatory authorities beyond their borders. Dismantling this protection for remote retail sales would create a very slippery slope for states to attempt collection of business or even income taxes from out-of-state entities.

Furthermore, the bill would create a decidedly unlevel playing field between brick-and-mortar and online sales. Brick-and-mortar sales across the country are governed by a simple rule that allows the business to collect sales tax based on its physical location, not that of the item’s buyer. Under the RTPA, that convenient collection system would be denied for online sales, forcing remote retailers to ascertain their customers’ place of residence, look up the appropriate rules and regulations in nearly 10,000 taxing jurisdictions across the country and then collect and remit sales tax for a distant authority with which they may have no tangible connection, subjecting themselves to as many as 46 state tax audits in the process. Imposing this unworkable collection standard on remote retail sales but not on brick-and-mortar retail sales would be unfair and result in enormous complexity and damage to interstate commerce.

While RTPA sponsors claim that it “fixes” auditing and compliance concerns raised by the previous Marketplace Fairness Act, the reality is that it does nothing of the sort. The bill’s paltry “small-seller exception” eventually settles at just $1 million and, unlike previous bills, applies to all annual receipts instead of just the portion associated with remote sales.

It also subjects all sellers on an “electronic marketplace” like eBay or Amazon to its requirements, no matter their sales volume. As a result, the RTPA would ensnare dramatically more businesses in burdensome collection schemes than the misguided MFA.

The legislation is also problematic in its increased reliance on so-called “certified software providers” to function as tax-collection agents for states. These software providers constitute an ostensibly private, but state-paid, middle man between tax agencies and sellers in whom most collection and audit responsibilities are vested.

While it theoretically protects businesses below a $5 million sales threshold from out-of-state audits, the language contains an enormous loophole empowering any state to audit any remote seller if it believes there is “intentional misrepresentation.” Aggressive states undoubtedly would seize upon this opening to audit businesses outside their borders.

In seeking to address the failures of the “use tax” systems employed by states, the RTPA ends up blessing a massive expansion in state tax-collection authority and dismantling a vital taxpayer protection upon which virtually all tax systems are based. This will harm online sales, which – despite their dramatic expansion – still only account for roughly $0.07 of every $1 in retail spending. Conservatives in Congress should oppose this unwise legislation and instead work to preserve geographical limits to tax authority and to encourage tax competition.

Sincerely,

Andrew Moylan
R Street Institute

Phil Kerpen
American Commitment

Brent Wm. Gardner
Americans for Prosperity

Grover Norquist
Americans for Tax Reform

John Tate
Campaign for Liberty

Tom Schatz
Council for Citizens Against Government Waste

Andrew F. Quinlan
Center for Freedom and Prosperity

Jeff Mazzella
Center for Individual Freedom

Wayne Crews
Competitive Enterprise Institute

Katie McAuliffe
Digital Liberty

Matt Kibbe
FreedomWorks

Luke Kenworthy
Generation Opportunity

Michael Needham
Heritage Action for America

Joe Bast
Heartland Institute

Tom Giovanetti
Institute for Policy Innovation

Seton Motley
Less Government

Pete Sepp
National Taxpayers Union

Paul Gessing
Rio Grande Foundation

David Williams
Taxpayers Protection Alliance

 

 

Letter to House Education and the Workforce Committee on workforce mobility

June 16, 2015, 7:30 AM

Dear Committee Members,

On behalf of the R Street Institute, a free-market think tank headquartered in Washington and with offices in five states, I write to urge your support for H.R. 2755, the American Worker Mobility Act of 2015 introduced by Rep. Tony Cardenas of California.

The act uses existing funds to provide vouchers to qualifying long-term unemployed individuals who wish to relocate, either for a job that already has been secured or to an area with an unemployment rate at least two percentage points lower than where the individual currently resides. Additionally, it requires the Department of Labor to track the program’s success and report on participants’ employment status, among other provisions.

As of May 2015, 2.5 million Americans were considered among the long-term unemployed. During and in the aftermath of the recession, joblessness has become more prevalent in nearly every cohort, with the college educated just as likely to fall into long-term unemployment as those with just a high school education. Older workers and African-American and Hispanic workers have been more likely to suffer than their white counterparts. While labor force conditions are beginning to bounce back, many workers have given up, due to prolonged joblessness.

As fiscal conservatives, we at R Street support smart, limited unemployment assistance for Americans who need it. The rise in long-term unemployment presents a unique challenge for those who both want to provide a reasonable safety net while encouraging work and fiscal responsibility.

The American Worker Mobility Act provides one possible solution, focused not on spending more but spending smarter. Our current unemployment insurance system may keep Americans afloat, but more can be done with the same funds. We can and should give a boost to those willing to seek employment in areas with more opportunity.

According to the Federal Reserve, 47 percent of Americans could not weather a $400 financial hit, let alone the average cost to move a family of between $5,600 and $12,500. Given that the financial situation of the long-term unemployed is more precarious than the average American, moving in search of opportunity is an extremely daunting prospect. In addition to providing help to those who need it, guiding unemployed Americans to more appropriate labor markets will reduce the burden on state welfare rolls and provide much needed labor to thriving areas.

We know that long-term unemployment creates a toll on workers and their families like little else. The financial strain is associated with increased divorce, depression and suicide, and evidence shows that prolonged joblessness for a parent may in fact impact a child’s work ethic and future employment prospects.

Additionally, we’ve recently learned more about the value to families of raising children in thriving areas, rather struggling ZIP codes. According to recent research from Harvard economists Raj Chetty and Nathaniel Hendren, moving to a stronger community at age eight can increase the present value of a child’s lifetime earnings by up to $99,000, as well as increasing the likelihood that they exhibit healthy marriage behaviors. The American Worker Mobility Act provides the long-term unemployed with the choice to relocate their family to an area where both parents and children can thrive, without creating a new, large welfare program.

Finally, the American Worker Mobility Act of 2015 is structured to encourage and preserve individual choice, personal responsibility and taxpayer accountability. By creating an opt-in system with strict rules regarding what type of relocation qualifies for assistance, the act respects the conservative principles of self-determination. The proposal steers away from the social engineering present in many forms of welfare assistance. The strict reporting requirements and limited availability of the program also help to make it a worthwhile experiment in how best to deliver assistance to those in need.

In short, the American Worker Mobility Act is a common-sense, responsible step to improve our nation’s unemployment insurance program. We urge you to move this bill through your committee and support its final passage.

Free-speech advocates support SPEAK FREE Act

June 16, 2015, 7:00 AM

Dear Chairman Goodlatte, Ranking Member Conyers, Chairman Franks and Ranking Member Cohen:

Every year, many Americans are sued for speaking out on issues they feel are important to express. And these lawsuits don’t discriminate – they include consumers expressing dissatisfaction through an online review site, individuals who are simply voicing their opinions about events taking place in their communities and even American journalists reporting on matters of public concern. These lawsuits are called “strategic lawsuits against public participation” (SLAPPs) and they are used to censor and intimidate critics through legal action.

Different laws and rules separately govern the federal and state legal systems. Thus, a federal anti-SLAPP law would protect defendants sued in federal court. Importantly, it would also allow state court cases to be transferred to federal court, so defendants can take advantage of the federal law’s speech protections. This is critical for state court defendants in the 22 states that are currently unprotected by anti-SLAPP laws and in states with weak anti-SLAPP laws that do not do enough to protect speech.

SLAPPs stifle public debate, threaten news reporting and diminish civic engagement – principles fundamental to our democracy. Every American is at risk for future litigation. That is why we are joining together to express our support for the SPEAK FREE Act of 2015 (H.R. 2304). This bipartisan legislation, introduced by Rep. Blake Farenthold and Rep. Anna Eshoo, strengthens First Amendment protections while bolstering the information economy that thrives on open public discourse and civic participation.

The SPEAK FREE Act will allow federal courts to determine whether a lawsuit targeting speech is a SLAPP and dismiss any bogus claims unless the plaintiff can show that the suit would succeed on the merits. It also includes important fee-shifting provisions that protect defendants who prevail on an anti-SLAPP motion from having to pay the staggering legal fees, fees that have bankrupted countless defendants who were forced to defend themselves against meritless lawsuits. The legislation was carefully drafted to respect and maintain the difficult balance of protecting citizens’ free speech while avoiding overly punitive measures so as not to deter the filing of valid lawsuits and ensure every deserving party gets their day in court.

The SPEAK FREE Act would be a nationwide backstop to stop SLAPPs from stifling free speech. We encourage you to advance this bipartisan legislation as swiftly as possible.

Committee-passed Innovation Act includes significant litigation reforms

June 15, 2015, 2:12 PM

Now that House Judiciary Committee Chairman Bob Goodlatte, R-Va., has successfully shepherded the Innovation Act through his committee, I’m heartened to note the significant major reforms that made it through the process.

This latest effort at patent reform targets some particular problems in patent litigation, including provisions dealing with venue and discovery. Like the chairman, I was pleased with the committee’s strong 24-8 vote last week in favor of the reform-focused act, which now goes to the full House for approval. The chairman is right to mark the committee vote as a major step forward.

I’m particularly happy to see the latest draft includes an amendment from Rep. Doug Collins, R-Ga., (co-sponsored by Reps. Ted Deutch, D-Fla.; Zoe Lofgren, D-Calif.; and Blake Farenthold, R-Texas) that provides for a “stay of discovery pending a preliminary motion.” Limiting discovery proceedings – especially in early phases of patent litigation, when the trial court is still trying to determine the nature and scope of the claim – will make the costs of defending patent claims more containable. The amendment also includes carve-outs for Food and Drug Administration and biological product applications under 35 USC 271(e)(2), so the new stay-of-discovery provision wouldn’t apply to parties in infringement actions brought under that subsection.

I also applaud the latest version’s language to put reasonable limits on the appropriate venue for patent-litigation cases. It’s an important first step to limit forum-shopping by patent trolls.

Patent reform advocates have good reason to look forward to final passage of the Innovation Act by the full House and eventual harmonization with its Senate counterpart, the PATENT Act.

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

R Street opposes new Internet sales tax bill

June 15, 2015, 12:51 PM

WASHINGTON (June 15, 2015) – The R Street Institute expressed deep disappointment at today’s introduction of new Internet sales tax legislation, the so-called “Remote Transactions Parity Act” sponsored by Rep. Jason Chaffetz, R-Utah.

Like the failed Marketplace Fairness Act before it, the RTPA would dismantle proper limits on state tax-collection authority and could potentially cause serious damage to electronic and interstate commerce.

“Current law dictates that a state can only require a business to collect sales tax if it is physically present in that state,” said R Street Executive Director Andrew Moylan. “That precedent is the result of a Supreme Court decision grounded in a bedrock foundational principle of federalism: states must not be allowed to extend their tax and regulatory authorities beyond their borders.”

The bill also creates an imbalanced playing field between brick-and-mortar and online sales. Under the RTPA, only remote retailers would be required to ascertain their customers’ place of residence, look up the appropriate rules in nearly 10,000 taxing jurisdictions and then collect and remit sales tax for a distant authority with which they may have no tangible connection.

“Imposing this unworkable collection standard on remote retail sales only, and subjecting online retailers to as many as 46 state tax audits in the process, would not only be unfair but would result in enormous complexity and damage to interstate commerce,” Moylan said.

Other problems with the legislation include more complicated auditing and compliance processes and an overreliance on “certified software providers,” which essentially serve as middlemen between tax agencies and sellers.

R Street has been a leader in identifying problems with “destination sourcing” legislation like the MFA and RTPA and has encouraged Congress to pursue a dramatically simpler approach based on “origin sourcing,” which would align remote sales tax collection rules with those governing brick-and-mortar sales. Moylan discussed this potential solution in testimony before a House Judiciary Committee hearing earlier this year.

“The RTPA ends up blessing a massive expansion in state tax-collection authority and dismantling a vital taxpayer protection upon which virtually all tax systems are based,” Moylan said. “Conservatives in Congress should oppose this unwise legislation. Instead, they should work to preserve geographical limits to tax authority and to encourage tax competition.”

 

Jeb Bush, climate-change equivocator

June 15, 2015, 10:42 AM

From the New Republic:

Long before he even launched his campaign, Bush managed to raise hopes that he will be one of the few reasonable Republican presidential aspirants on climate change. Those hopes haven’t panned out. So far, Bush has only sent mixed (and for environmentalists, mostly discouraging) signals that he intends to align more closely with the climate-change denying camp than with believers. “It’s not entirely clear he has both feet directly in either camp at the time,” said Andrew Moylan, executive director of R Street, a think tank with conservative solutions for climate change…

…“In some ways Bush gets a somewhat bad rap from folks who claim he is throwing his lot in with deniers and skeptics,” Moylan said of Bush’s support for natural gas as a way of reducing greenhouse gas emissions, and his acceptance that the climate is changing (even though he won’t say humans are responsible). Though Bush hasn’t endorsed specific climate policy solutions, Moylan thinks he still “has a reasonably good grasp” of the issue.

Postal banking is an idea whose time has come—and gone

June 15, 2015, 8:30 AM

From 1911 through 1967, the old U.S. Post Office offered savings accounts. The enterprise started because private banks seldom insured deposits. The establishment of the Federal Deposit Insurance Corporation in 1933 removed the raison d’être for postal banking. By the time Congress ended it, deposits had dwindled, as the public greatly preferred private banking.

In recent years, postal banking has been floated again on Capitol Hill. Michael Lind of the New America Foundation revived the idea in 2008 in the pages of The New York Times.

[T]he structure of public and private finance in the United States chronically fails to address four problems: the almost 10 percent of Americans without a bank account; the concerns of all Americans about the security of their savings; the growing indebtedness of the country to foreign governments and financial institutions; and underinvestment in public assets like sewer systems and bridges. These four problems may seem unrelated. But they can be addressed in the United States, as they have been in similar countries, by a single institution that is at once new and old: the postal savings bank.

Lind’s big proposal initially got little traction beyond the liberal intelligentsia. Postal banking reappeared in January 2014 when the U.S. Postal Service inspector general’s office issued a report. The IG’s more modest proposal urged USPS to offer “non-banking financial services” tailored to the needs of the “unbanked” and “underbanked.” These are the “millions of Americans” who “do not have a bank account, or use costly services like payday loans and check cashing exchanges just to make ends meet.”

Left-leaning publications like the New Republic and Salon love the idea, and the IG’s report made a splash on Capitol Hill. It dangled the prospect of government profit with a social purpose in a policy twofer: shore up the financially foundering USPS and save the poor from predatory lenders. A second IG report released last month further presses the case for postal banking.

To date, no legislation has been introduced in Congress, and there are healthy grounds for skepticism. Contentious and unanswered policy questions abound. These include what financial services the USPS would offer; what interest rates it could and would charge; whether postal union employees would do the work; and, perhaps most crucially, if the USPS failed at banking, would it be bailed out by the taxpayers?

But these issues pale in comparison with a more fundamental objection: that postal banking is not a solution. It will not improve the USPS’s financial condition. Nor does there appear to be much demand for such services.

The “financially underserved market” is $103 billion per year, according to the Center for Financial Services Innovation. Of that, just $13.7 billion is reaped by the much-loathed payday lenders and pawn shops. The rest of the expenditures go to other purposes, like auto loans and subprime credit cards. The IG estimates the USPS could see $382 million in revenue from check-cashing. A nice 20 percent profit on those transactions would earn the agency $76 million annually. That’s not nearly enough to save the USPS, which last month booked a second-quarter loss of $1.5 billion and is $15 billion in debt.

Some casual readers of the IG’s initial report seized on its mention of 68 million “underserved adults.” This number includes both the wholly unbanked and anyone who “used at least one nonbank financial service during the past year,” like check-cashing services. Only about 7.7 percent of households—16.7 million adults—are wholly unbanked and unserved by private banks, according to a 2013 Federal Deposit Insurance Corp. survey.

Of those 16.7 million people, 18.6 percent said they are unbanked because they do not trust or like banks or have privacy concerns. Another 49 percent said they were unbanked because they do not have enough money or because bank fees are too high, and 2.6 percent thought banks had inconvenient hours. These individuals are apparently unaware of online banks that offer no-fee savings and checking accounts. Customers can deposit checks by smartphone app 24 hours a day, and deposits are FDIC-insured. Thus, 70.2 percent—11.7 million individuals—are unbanked by choice or from mistaken notions.

That leaves 5 million adults who might be underserved by the private banking sector. And that number may wildly overstate matters. FDIC found only 1.2 percent of the unbanked—200,000 people—blamed their plight on banks’ failure to offer desirable products and services.

Those seeking a quick fix to the Postal Service’s many problems would do well to look elsewhere. Postal banking is less a solution than a bad penny.

Saving Atlantic City: A mayor who thinks small may be the answer

June 15, 2015, 8:00 AM

Atlantic City, N.J. – Just about every morning when the weather is nice, Don Guardian rides his bike along the boardwalk and digs into the beach sand. “They’re supposed to clean the top 6 inches of sand,” he explains. “And I check to make sure that they actually do it. .  .  . That’s what I’m here for: the small stuff.”

Guardian, the tall, 61-year-old, bow-tied, balding, gray-haired Republican mayor of Atlantic City, N.J., is a political oddity. He describes himself as an admirer of Republican budget priorities who is “economically to the far right.” In office just over a year in this majority-nonwhite city of about 40,000, he already has cut the size of his city’s workforce by about a third, trimmed its budget sharply and fought with labor unions. He’s a first-time politician but a skilled political operator, talking with ease to blue-collar city workers and visiting drag queens.

He also has loads of praise for President Barack Obama’s “My Brother’s Keeper” mentoring program; has overseen sharp increases in municipal property-tax rates; and says he’s “to the far, far left” on social issues. He won election in a city where Democrats outnumber Republicans nine-to-one—partly on the strength of his popularity in the city’s large African-American community. He also is the first openly gay Republican to head a significant American city.

In the roughly three years left in his term, Guardian will face one of the toughest challenges of any prominent mayor in the country: the reinvention of a city that has squandered a fortune. If he succeeds, Atlantic City could emerge as an example of how a genuinely smaller, more efficient government benefits a diverse and troubled city. If he fails, there’s a real chance this famous resort town could disappear from the map. The ultimate outcome will depend not on executing grandiose plans, but on getting the small things right.

Atlantic City long has held deep cultural significance. From 1921 through 2004, it hosted the Miss America Pageant, which returned to Boardwalk Hall last September after a decade away. It is home to the first boardwalk, the birthplace of saltwater taffy and the source of the street names in Monopoly. With the 1964 Democratic National Convention, it became the smallest American city to host a major-party political convention in modern times. It’s also the place where gambling began its transformation from the disreputable refuge of gangsters to a mainstream form of entertainment.

Most important, though, Atlantic City offers a uniquely American story of invention, innovation and reinvention. Perched on coast-hugging barrier islands, the city offers excellent beaches and perfectly flat land for building. But it’s basically an overgrown sandbar, and nature, left to its own devices, will almost certainly wash it away in time. (Indeed, since the 1980s, federal policy has prohibited subsidies for new development of many such coastal areas.) Before legalized gambling arrived in 1978, the city progressed through a series of identities: a health resort, before modern medicine; a hub of railroad hotels, before the advent of the automobile; a “free zone” where Prohibition went unenforced, until Prohibition was repealed; and the home of one of the nation’s first true convention centers, before larger, better-appointed palaces began to draw business away.

Over time, such reinventions have proven more difficult to pull off. The city has lost population fairly consistently since the end of World War II. In 1976, New Jersey voters legalized casinos in the city, hoping to create a cash cow for the state that would also stimulate local development and keep out organized crime. Licenses were doled out sparingly, with the state Casino Control Commission requiring prospective developers to put up massive resort hotels. Current city planning director Elizabeth Terenik says commission officials of the time “knew quality and understood it.”

For a while, it seemed to work. The Taj Mahal became the first heavily themed casino outside of Las Vegas, and the Borgata became the first big casino in the country to combine a gaming resort with boutique hotel ambiance. The city’s casinos were launched and financed by legitimate businesses. Money was raised on Wall Street, rather than from the mob, so crucial to Las Vegas’s earliest growth. As the only sizable gambling mecca east of the Mississippi, Atlantic City’s casinos thrived through the 1990s and early 2000s. Just three years after the first legal bets were placed, gaming revenues topped $1 billion. They continued to rise each year for the next quarter-century.

While most of the taxes collected went to statewide programs, Atlantic City’s local government got to enjoy the benefits of ever-increasing property tax receipts. “You could increase spending by $5 million a year and nobody would notice,” explains Guardian. “The money was always there.”

But soon enough, the taste for legal gambling spread. For a time, this posed little threat to Atlantic City and may even have helped it, by normalizing entertainment options previously frowned upon as vice. But the legalization of big casinos in nearby Pennsylvania and Maryland dealt a serious competitive blow. Since 2006, annual gaming revenues have fallen almost by half, from $5.2 to $2.9 billion.

Last year, four of the city’s 12 casino hotels—including the much-touted, super-luxury Revel beach resort—closed their doors. This meant mass layoffs that continue to spill over into related industries in a town where more than half the private sector jobs involve the casinos directly. Atlantic City’s unemployment rate remains well above 12 percent, and poverty rates are twice the national average. With more than 85 percent of all municipal revenues coming from the casinos, and with the collapsing real estate market bringing a raft of property tax appeals, the city’s finances entered a freefall.

That was the situation that greeted Don Guardian last fall, when he defeated a two-time incumbent to become the first person elected mayor of Atlantic City listed on the ballot as a Republican. (Elections before the 1990s were officially nonpartisan.) A self-described “lifelong Jersey boy,” Guardian attended the now-defunct Upsala College in East Orange and first came to the Jersey Shore as a regional executive with the Boy Scouts of America. A connector and community activist, he involved himself in every aspect of the city and took a job with one of the then-new casino hotels. His employer seconded him to a Special Improvement District that used payments from the casinos to maintain the city’s boardwalk, beaches and other tourist areas. He ran the ACSID for 20 years, cleaning and brightening the city’s tourist district, even as an indifferent and corrupt city government wasted enormous resources and frittered away opportunities. Along the way, he met his now-husband and moved into a home in a largely African-American neighborhood on the city’s north side.

It’s easy to underestimate the difficulty of the job Guardian now faces or the depths of the crisis faced by his city. During a visit on a single day in May, his top two items of city business involved laying off more than 80 percent of the city’s recreation department and attending a development board briefing on the need to declare nearly the entire city an area in need of redevelopment. Atlantic City is in deep trouble.

Atlantic City’s plight offers a stark contrast to the political left’s standard narrative about what ails American cities. The decline of the manufacturing base isn’t the problem: Atlantic City never had any manufacturing to speak of. It’s not the decline of unions; the two major employers, casinos and government, have some of the strongest unions in the country. While its tax base is paltry today, tax receipts grew annually for 30 years, and the city could invest in almost whatever it pleased. Throughout that period, casino and government jobs were readily available to nearly any local resident with a modicum of skill. Endemic racism also doesn’t appear to be a determinant cause. The two Republican political bosses who ran the city for much of the 20th century, Enoch “Nucky” Johnson and Frank Farley, while corrupt, did not count racial bigotry among their numerous faults. Indeed, both relied on the support of black citizens and helped them play a role in the Atlantic County political machine.

But conservative explanations of urban blight and decline do little better in this case. Gambling can’t be the cause of Atlantic City’s unique troubles; 20 of the 25 largest metropolitan areas in the United States now have casinos. Las Vegas, which relies just as heavily on its gaming industry, got hit much worse than Atlantic City during the recession, but now has a significantly lower unemployment rate. Corruption long has been rampant in local government, with at least five mayors that faced criminal charges in the past half-century. But Atlantic City’s population and prosperity peaked during the era when Nucky Johnson, a figure directly involved in organized crime, ran the place. Low residential property taxes and a major new industry didn’t exactly spark a boom; population continued to decline for the first decade after gambling was introduced.

So what’s the matter with Atlantic City? Part of the blame may lie with the New Jersey Casino Control Commission. Central planning by commission bureaucrats decreed that major casino resorts must have at least 700 rooms. These self-contained worlds gave patrons little reason to leave. As David Schwartz of UNLV describes in his book Suburban Xanadu, even when these structures were economically successful in their own right, they did little to benefit surrounding communities or serve as a catalyst for broader economic development.

It took some time for the commission’s folly to become evident. In the early 1980s, with Las Vegas the only real competition, it would have been hard to lose money in the gaming business. Through the early 2000s, it was still common for Atlantic City’s casinos to “comp” the overwhelming majority of their rooms to gamblers and even pay to bus them into town. Profits on the tables and slots were so large that every other part of the enterprises could be a money loser.

The “bigger is better” strategy continued even as Atlantic City’s East Coast gaming monopoly began to erode. Smaller operators and even one publicly traded company were denied casino licenses. Donald Trump and the precursors of modern casino giants MGM Resorts and Caesars erected their Atlantic City casinos with plenty of government support to build new roads and even to take private homes by eminent domain. This cozy relationship and insulation from new competitors didn’t exactly inspire tip-top management on the part of casino owners. On occasion, the commission had to force fire sales of hotels because of deplorable conditions. In 2007, it stripped the Tropicana of its casino license after rampant customer complaints about bedbugs, cleanliness and other basics of hotel management. But bringing about change proved hard.

“They were providing the jobs and benefits and pensions,” Guardian explained. “Nobody, and I mean nobody, wanted to change things back then.”

More recently, the state involved itself heavily in the construction of the $2.4 billion, 1,399-room Revel, opened in April 2012. An architectural marvel with sweeping views of the ocean from the casino floor, elegant dining and a top-end spa, Revel promised to reinvent the city. When funding ran out, the hotel received a tax credit, at the strong urging of Gov. Chris Christie, worth more than $260 million against future profits. The venture stayed open just a little more than two years, never made a profit and, in bankruptcy, has attracted bids of less than 5 percent of its construction cost.

In short, thinking big has failed Atlantic City. Central planning didn’t produce lasting prosperity. The Casino Control Commission’s strong hand locked Atlantic City into a disastrous pattern of building big even when the market demanded something else. Single-industry towns rarely prosper over the long run, and single-industry towns where central planners control that industry do so even less frequently. As corrupt as the city’s party bosses of days past may have been, as lacking as they were in honesty and effectiveness, their crowning grace likely was that they never tried their hands at central planning. Even the gangsters of the Prohibition era focused on smuggling booze, not serving it.

That’s why Don Guardian just might succeed by thinking small. “I don’t want to second-guess anyone,” he offers, and proceeds to do exactly that a few minutes later. “When I went to Revel [for a pre-opening celebration] they served me a martini that was $18. $18! That was a problem. It wasn’t what people wanted.” He reserves his greatest enthusiasm for things that probably don’t concern most mayors. He talks at length about some ground-level space in a parking garage behind a successful new outlet mall at the city’s entry. The space has been transformed into a combination art gallery and African-American history museum, with murals and frequent SoHo-style art openings.

In a conversation with a TV producer for a special promoting the upcoming summer season, he emphasizes other smaller-scale events that show progress: how casinos have remodeled to host smaller meetings, a new “entertainment shopping” Bass Pro Shops location with giant aquariums and taxidermy. He’s as eager to promote the “1,000 DJ sets” planned for the summer as he is headliners like Meghan Trainor, who will come to Atlantic City for concerts this summer.

Meanwhile, the government is shrinking drastically. Crime is down under Guardian, despite a police force that is nearly one-third smaller than it was a decade ago. Guardian also used his expertise in boardwalk maintenance to transform how the city cleans its streets. He terminated a contract with Atlantic County and replaced heavy street sweepers with leaner, nimbler, cheaper-to-operate equipment run by the city. Streets now can be cleaned daily during high tourist season for less than the city used to pay the county to do the same work every two weeks.

A previously bloated recreation department, with some staff who were paid to do something called “watching boilers,” will be cut to a small fraction of its former size. Some of the savings will be redirected to supplement existing programs run by the Boys & Girls Clubs and Little League. Guardian is dismissive when asked about the havoc unions will raise over the mass layoffs: “It’s a free country,” he says, with a wave of the hand.

It isn’t that Guardian is incapable of thinking big. He wants to attract a college to Atlantic City and, for now, has pinned hopes on a deal that, if all the complicated moving parts fit together, will bring a campus of the state’s Richard Stockton College to the now-shuttered Showboat Casino building. He also would like to see one of the large vacant casinos demolished and replaced with a waterfront piazza that would let visitors see the ocean when they arrive in the city. New tax arrangements with the remaining casinos, still up for approval by the state Legislature, likely will give the city a slightly larger share of the revenue and a more reliable revenue stream.

But thus far, it’s his vision of limited government and small thinking that is showing results. While bond rating agencies downgraded the city’s debt earlier this year, they gave positive notice to a plan by a state-appointed “emergency manager” (something of a misnomer, since he had no power to change municipal policy) to stave off bankruptcy for the near term. Nongaming tourist revenue, which Guardian says was under $100 million 10 years ago, exceeded $1 billion for the first time last year. Free waterfront concerts, newly remodeled casinos and a cleaner-than-before boardwalk also may lure visitors.

But the biggest problems Atlantic City faces are beyond a mayor’s ability to address. In late April 2014, the large casinos had 1,400 job openings. Filling them with city residents would likely bring the unemployment rate down to around the national average. But a very poor local school system leaves many locals unqualified for those jobs. Guardian hopes a college might train at least some of the otherwise unemployed to help fill the gap.

Even worse, there’s an existential threat to Atlantic City. Barrier island erosion and the natural sinking of the Eastern Seaboard, combined with climate change and sea-level rise, means it could eventually be wiped off the map, possibly within a century. Keeping the city whole will require improved flood protections, the cost of which will likely mount into the hundreds of millions of dollars, at least. Whether that price tag is worth paying will hinge greatly on whether the city’s economy dissipates as rapidly as the sand on which it is built.

If Atlantic City is going to succeed, it needs to change. It has done so before and, against long odds, has remained viable as a place to live and do business. Big government and lots of tax money could not save Atlantic City. Saving it will require thinking small.

 

Coalition letter to Sen. Cardin on private prisons FOIA loophole

June 15, 2015, 7:30 AM

We, the undersigned 20 organizations committed to transparency and open government, write to thank you for your concern with the effectiveness of the Freedom of Information Act (FOIA) as it pertains to non-federal entities that contract with the federal government to hold federal detainees or prisoners.

Almost 20 percent of detainees and prisoners in the federal system are held in private jails or prisons. Tens of thousands more are held in jails or prisons run by local jurisdictions. Despite the fact they are holding people in federal custody under color of federal law, these non-federal entities are not subject to the federal FOIA, and the federal agencies that contract out for jail and prison beds often rely on FOIA Exemption 4 – the business trade secrets exemption – to avoid responding in full to FOIA requests pertaining to privately run facilities.

This loophole in the FOIA must be closed. Transparency is essential to ensuring integrity and accountability in the operation of our governing institutions, including perhaps most importantly when those institutions are responsible for the care and safety of individuals stripped of their liberty for any length of time. We urge you to introduce legislation that would require federal government agencies to comply with FOIA requests relating to non-federal prisons, jails, or detention facilities that detain or incarcerate people for the federal government, in the same way that those agencies must comply with such requests relating to federally run facilities.

Such legislation should accomplish the following:

  • Create a mechanism by which federal contracting agencies can ensure that non-federal entities provide the information and access to records necessary for the government to respond to FOIA requests relating to prisons, jails, or detention facilities holding federal prisoners or detainees;
  • Place the obligation to respond to FOIA requests relating to non-federal prisons, jails, or detention facilities holding federal prisoners or detainees on the federal contracting agencies, using existing FOIA procedures; and
  • Continue to allow the government to protect confidential, privileged, and sensitive information from public disclosure under existing exemptions and exclusions.

We appreciate your leadership on this important issue. Please contact Ruthie Epstein at the American Civil Liberties Union (repstein@aclu.org) or Patrice McDermott at OpenTheGovernment.org (pmcdermott@openthegovernment.org) with any questions.

Sincerely,

American Civil Liberties Union
American Library Association (ALA)
Bill of Rights Defense Committee
Campaign for Accountability
Center for Media and Democracy
Citizens for Responsibility and Ethics in Washington (CREW)
Defending Dissent Foundation
Liberty Coalition
National Security Archive
National Latino Farmers and Ranchers Trade Association
New England First Amendment Coalition
OpenTheGovernment.org
People for the American Way
Project Censored/Media Freedom Foundation
Project On Government Oversight (POGO)
Rural Coalition/Coalición Rural
R Street
Society of Professional Journalists
Student Press Law Center
Sunlight Foundation

Coalition letter to OMB on evidence-based budgeting

June 15, 2015, 7:00 AM

We want to thank you, once again, for the important steps the Obama administration has taken over the last seven years to increasingly drive taxpayer dollars toward evidence-based, results-driven solutions.

We believe that in order to improve outcomes for our nation’s young people, their families and communities, government must be guided by the following three “Moneyball for Government” principles:

  • Build evidence about the practices, policies, and programs that will achieve the most effective and efficient results, so that policymakers can make better decisions;
  • Invest limited taxpayer dollars in programs that use evidence and data to demonstrate that they work; and
  • Direct funds away from practices, policies and programs that, despite continued efforts to improve, consistently fail to achieve measurable impact.

The attached policy recommendations would help meet these principles by helping federal departments and agencies use data, evidence and evaluation when making budget, policy and management decisions.

We strongly urge you to consider including the attached policy recommendations in the administration’s Budget Request for Fiscal Year 2017.

We look forward to continuing to work with you in the months and years ahead.

Sincerely,
Achievement Network
America Forward
America’s Promise Alliance
AppleTree Institute for Education Innovation
Aspire Public Schools
Atlanta Neighborhood Charter School
Atlantic Research Partners
Be The Change, Inc.
BELL
Bennett Pierce Prevention Research Center
California League of Middle Schools
Capital Impact Partners
Cascade Philanthropy Advisors
Center for Research and Reform in Education, Johns Hopkins University
Central Falls School District (RI)
Children’s Literacy Initiative
Citizen Schools
City Year
College Possible National
Communities in Schools
Community Training and Assistance Center (CTAC)
Congreso de Latinos Unidos, Inc.
CSH
Democrats for Education Reform
EDGE Consulting, LLC
Education Analytics
Education Northwest
Education and Public Outreach, Sonoma State University
Education Development Center
Empirical Education Inc.
Energy Policy Institute at the University of Chicago
Forum for Youth Investment
GreenLight Fund
Harvard Business School Social Enterprise Initiative
Housing Leadership Council of Palm Beach County (FL)
KIPP
Knowledge Alliance
Leading Educators
LIFT
Literacy Design Collaborative
Massachusetts Business Alliance for Education
Methodist Healthcare Ministries of South Texas
Metropolitan Education Commission
Mile High United Way
Montgomery County Schools (NC)
Morino Institute
National Forum to Accelerate Middles Grades Reform
New Classrooms
New Leaders
New Schools for New Orleans
New Teacher Center
Nonprofit Finance Fund
Nurse Family Partnership
Opportunity Nation
Policy & Research Group
R Street Institute
Reading Partners
REDF
Research Institute for Key Indicators, LLC
Results for America
RMC Research Corporation
Root Cause
Search Institute
Social Finance
Social Solutions Global
Spurwink Services
SRI International
StartSmart K-3 Plus
Student Peace Alliance
Success for All Foundation
Teach For America
Teach Plus
The Peace Alliance
Third Sector Capital Partners
Turnaround for Children
United Way for Southeastern Michigan
United Way of Greenville County
Uplift Education
Urban Arts Partnership
Urban Teacher Residency United
U.S. Soccer Foundation
Venture Philanthropy Partners
Waterford Institute
WestEd
Year Up
Youth Villages

USPS should sell its real estate

June 12, 2015, 1:06 PM

The U.S. Postal Service’s latest financial results have been released. They are not good.

The agency booked a loss of $2.1 billion in the first half of the fiscal year, which it ends with $15 billion in debt. Since 2011, the USPS has defaulted on $27 billion in payments to its Retiree Health Benefits Fund, and it may well fail to pay this year’s $5.7 billion installment, due September 30.

The Postal Service also reports that its 140,000-vehicle fleet is more than 20 years old and overdue for replacement. Two of its four employee unions are negotiating for better compensation, which would further raise operating costs at an agency where employee compensation already accounts for 80 percent of overhead.

The news was not all bad. The USPS has $6.1 billion in cash. Five years ago, the agency had less than $1 billion in cash, putting it on the brink of insolvency. The service also earned $1 billion more revenue in the first half of fiscal year 2015 than it did in the same period last year. Alas, a temporary increase in the price of postage, not increased mail volume, is to thank for this development. These “exigent” rates, much to the USPS’ dismay, likely will expire this summer, which does not bode well for its bottom line.

Congress designed the USPS to be financially self-sufficient, but it’s clearly struggling to live up to that goal. The Postal Service makes nearly all its money from selling postage. That market is down, with mail volume now 27 percent less than it was in 2008. More than half of what gets delivered is low-margin advertising, also known as “junk mail.”

The Postal Service has tried to cope by downsizing. Fifteen years ago, the agency had 800,000 full-time, permanent employees. It now has 480,000. The agency has shuttered some post offices and mail-processing plants and may close more. The agency delayed much-needed facility and equipment upgrades to save money.

Meanwhile, Congress has not exactly been keen to help the agency. For years, postal-reform bills have stalled over objections to any further reductions in service, like slowing delivery speeds, cutting back deliveries from six to five days per week, or requiring more citizens to retrieve their mail from curbside receptacles.

The Postal Service might be able to continue to tread water for a time, but this is not a long-term plan. The USPS needs to replace its vehicle fleet. The agency cannot ignore its $15 billion in debt or its $87 billion in unfunded health-care and other benefits. These bills will come due, and if the USPS cannot pay them, taxpayers may end up on the hook.

To address these serious financial issues, the service should leverage its real-estate portfolio. According to the agency’s inspector general, the USPS owns 8,600 properties with a market value of $85 billion, The Postal Service could tap those assets by executing leaseback agreements, wherein the property is sold to a private buyer who then rents the space back to the USPS.

If properly executed, leasebacks could be a win for everyone. The Postal Service gets much needed cash and can shift responsibility for building and property maintenance costs to a private owner. Local and state government benefit because the federal property becomes taxable private real estate. Private entrepreneurs gain a business opportunities. And the public does not have to see more postal facilities closed.

This is not a radical proposal. Unlike most other government agencies, the USPS has considerable legal freedom to buy, sell, and lease property. It already leases 25,300 properties, and it has used leaseback arrangements for many years. With no assistance coming from Capitol Hill, the Postal Service has no better option.

Confronting public misconceptions about ridesharing

June 12, 2015, 12:51 PM

I had a conversation with my mother several months ago about how I commute on a regular basis around Washington. As many young Millennials would reply, I told her how I frequently use Uber, the innovative ridesharing platform that brings a personal driver to your location at the push of a button.

To my surprise, my mother was extremely skeptical about this seemingly strange method of transportation. She exclaimed, “You’re trying to tell me you just get in some random stranger’s car without thinking twice?”

While I laughed at my mother’s shock, her sentiment is shared by many individuals and groups around the country, who question the safety of Uber, Lyft, Sidecar and the other various transportation network companies. Are such concerns warranted? Or are they simply typical of general consumer skepticism about new technology, combined with extensive negative public relations from frustrated competitors?

The Federal Trade Commission held a workshop this week focused on that very issue, exploring consumer concerns about the platforms, participants and regulators of what is being called the “sharing” economy. The sharing economy generally is described as an economic model based on sharing, trading or renting products or services that enable users to access some of the benefits of ownership. From Uber to Airbnb and beyond, hundreds of these peer-to-peer platforms have become a vital part of the economy, particularly in urban areas.

The abundant benefits of peer-to-peer platforms range from the cost savings that can accompany bypassing needless and counter-productive regulations to the efficiency gains that stem from eliminating intermediaries and more efficiently matching buyers and sellers. Looking at TNCs, specifically, their biggest appeal have been in offering the prospect of simplicity, reduced commute times and lower prices.

But critics like Matthew Daus, former chair of the City of New York’s Taxi and Limousine Commission, claim TNCs lack sufficient safety standards, such as government background checks for their drivers, which he said raises huge questions about consumer protection. Taxi companies and some regulators have helped catalyze these negative perceptions of TNCs. In several states, local governments have attempted to regulate and limit TNCs, claiming jurisdiction on the grounds of dispatching technicalities, insurance issues, licensing and many other claims.

Someone like my mother may lack information about how these services work. And Ginger Jin of the University of Maryland acknowledged the Internet could hypothetically exacerbate these kinds of information asymmetries. However, she notes the Internet also provides the tools to address these problems. Trust mechanisms – such as the ability to define acceptable users, reputation ratings, third-party regulators and the creation of user networks – have enabled peer-to-peer platforms to gain consumer trust and bolster their reputations.

As Steve Salter of the Council of Better Business Bureaus noted: “Platforms simply have a greater incentive than regulators to get things right.”

In reality, TNC background checks are much more substantial than critics claim, as they cover local, state and federal criminal and driving offenses, as well as cross-referencing state sex-offender databases. TNC apps also generally allow users to screen drivers before their trip, as the rider can see the driver’s name, face, rating and type of car they are driving. Additionally, unlike a taxi, which typically needs to be hailed from the street, TNCs can be ordered from the safety of one’s own home.

TNCs also carry insurance, in some cases up to 20 times more than that required of taxis. Joshua Gans, professor at the University of Toronto, said it was thanks to Uber’s high degree of accountability that it is one of the only transportation services he trusts with driving his children.

Ridesharing has resulted in declining drunk-driving rates, expanded employment for women and the greatest transportation innovation in decades. Alas, many governments would rather regulate it on the basis of questionable claims than let it flourish. As Adam Thierer of the Mercatus Center put it, we need to stop “regulating up” and start “regulating down,” shedding unnecessary existing rules that limit innovation. Or as Ashwini Chhabra, Uber’s head of policy development for Uber, put it: “What we need for 21st century innovations are equally 21st century regulations.”

As TNCs continue to expand and gain positive exposure, public misconceptions about the degree of consumer protection already in place hopefully will fade away. This won’t be an easy task, as market incumbents inevitably will continue to push back. Nevertheless, Uber and other ridesharing platforms’ success with self-regulation has exhibited the efficiency of free markets and cautions against too stringent an approach to regulating the sharing economy.

P.S. Don’t worry, mom, I’m in good hands with the “strangers.”

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

Insurers could underwrite more terrorism risk, CBO says

June 12, 2015, 10:06 AM

From SmartBrief:

Surplus capital in the reinsurance market means insurers could take on more terrorism risk than they are, Ray Lehmann writes, arguing that reforms passed by Congress this year didn’t go far enough, as there was “ample evidence that private insurers, reinsurers, brokers and underwriting syndicates are ready and able to do more.” The Congressional Budget Office supports that stance, Lehmann writes.

Obama admin wants ‘economic diversity’ for wealthy neighborhoods

June 12, 2015, 9:00 AM

The City of Chicago has an interesting Section 8 philosophy that mandates apartment buildings – even the really fancy ones – have a certain number of abodes set aside to serve as Section 8 housing.

It’s not a bothersome provision. Most of the Section 8 tenants are perfectly nice, and the apartments are doled out through a lottery system to preserve at least a sense of fairness. But it’s always interesting to note that there’s a certain unidentifiable percentage of your neighbors who don’t pay very much for an apartment you often consider selling your organs on the black market to afford.

If the Obama administration has its way, a similar program will expand from just high-cost, high-rise apartments to wealthy neighborhoods. A new HUD rule, due out this month, is supposed to suggest what critics are calling a “utopian vision” of HUD’s equal opportunity housing plan: granting money to organizations to put up “affordable housing” in traditionally affluent neighborhoods.

The Obama administration is moving forward with regulations designed to help diversify America’s wealthier neighborhoods, drawing fire from critics who decry the proposal as executive overreach in search of an “unrealistic utopia.”

A final Department of Housing and Urban Development (HUD) rule due out this month is aimed at ending decades of deep-rooted segregation around the country.

The regulations would use grant money as an incentive for communities to build affordable housing in more affluent areas while also taking steps to upgrade poorer areas with better schools, parks, libraries, grocery stores and transportation routes as part of a gentrification of those communities.

“HUD is working with communities across the country to fulfill the promise of equal opportunity for all,” a HUD spokeswoman said. “The proposed policy seeks to break down barriers to access to opportunity in communities supported by HUD funds.”

Typically, as a libertarian conservative, I’d be diametrically opposed to these sorts of housing mandates. After all, the right to own property is one of the foundational rights of our republic, and self-organizing into neighborhoods, free from government manipulation and societal engineering is part of that right. But this kind of forced gentrification is one of those instances where something ends up being much more interesting in practice than it does on paper.

Chicago, for instance, has a hipster problem. Hipsters move into a decaying neighborhood – usually an ethnic neighborhood, though not exclusively – open up fair-trade coffee shops, put up bike posts and sell artisan tacos from food trucks under canopies of string lights for a while, while cleaning things up and making it both safer and more commercialized. Once they’ve hiked property values enough that mainstream stores are the only ones that can afford storefronts on the neighborhood’s main drag, the hipsters declare said neighborhood “over” and move on to the next available decaying quadrant. This is all done, incidentally, in the name of social justice, as the mostly liberal post-grad crowd can’t help but believe that their presence – and their money – is making the lives of neighborhood residents that much better. “Now they can get organic veggies!” they say. “They have access to public art!” they crow. “We’ve vastly improved their neighborhoods,” they think.

What really happens is much, much worse. Longtime residents are often forced to uproot because property values – and by extension, property taxes – take a violent hike upward. Hipster businesses, financed by student loan deferments and trust funds, drive out mom and pop stores, as the kids prefer handmade pies to bodega cats. Neighborhoods lose their character, cultures become whitewashed – often literally – and residents are forced to move to lower-income neighborhoods without the quality, safety and community that they’re used to. Hipster efforts to “help” the great unwashed end up hurting the very communities they intend to help.

I’m not saying I want this to happen – not by far – or that gentrification doesn’t have its benefits. But it’s all in how you execute the program. Generally, gentrification happens naturally. With this effort by HUD, it would happen on a planned scale, which means that even the slow change most neighborhoods experience would be carefully managed by midlevel bureaucrats.

And then, there’s the question of where these new “neighborhoods” designed to even playing fields are supposed to go. If HUD’s vision is to become reality, this lower-income housing would have to be located in places where the opportunities truly are: places with better schools, better health care, nicer homes and higher property values. Places where people would live if they had the money to live there, schools where people would send their children if school choice were a reality. This means, of course, that most of these housing projects would go in high-income, mostly white, possibly very liberal areas.

It would be interesting to see, if and when this is brought to fruition, which communities are staunchly opposed to such a change in their own backyard. I can almost guarantee, judging by their reaction to things like school choice, that limousine liberals will balk at the very idea of having to share their schools and grocery stores with what they consider to be the undesirables. They may know what’s best for poor people, but they certainly don’t want to have to interact with them.

It may be the progressive dream, but it quickly becomes the progressive nightmare.

FTC should heed advice on the sharing economy

June 12, 2015, 8:00 AM

Regulation shouldn’t be used to make new business platforms fit the rules crafted for older regimes. That was the consensus of policy experts, bureaucrats, economists and industry representatives who took part in a June 9 Federal Trade Commission conference on the emerging “sharing” economy.

Speakers didn’t doubt that regulation should play in protecting consumer safety and experience, but several insisted regulation should do only that, while deregulation of existing industries should make the marketplace more competitive.

The introduction of new, Internet-based technologies into many sectors of the economy arguably has reduced the need for regulator interference on several fronts. Consequently, the FTC and other regulators are now beginning to make the tough admission that their power is not as necessary any more. Reputation, review systems and reactive platforms already regulate the marketplace for shared goods in ways that no government could do.

Uber allows riders to rate their drivers on a 1-5 star scale after they reach their destination. Uber then regulates who is allowed to drive and if any driver’s average score falls below 4.7 they are not allowed on the platform any more. It is not erroneous to claim that the average score for traditional taxi drivers likely would not be above a 4.7, if there were a way to collect that data.

Airbnb uses an extensive review system in which both lenders and borrowers of space review each other after each stay (70 percent of stays are reviewed). In the hotel industry, by contrast, only 1 percent of stays are reviewed, and they are never done from the supply side.

Both businesses quickly react to consumer complaints on either side of the market with “platform guarantees,” often offering settlements for coffee spilled on a couch or for a rider who experienced malicious driving. Where regulation may be needed–and where it already emerging in many states–is on the labor, insurance and customer privacy fronts. These issues differ from the asymmetric information and transaction-cost problems, which technological innovation has worked to solve.

Trust and consumer confidence are the largest products that online peer-to-peer platforms offer. There are therefore already strong incentives to protect market participants. Platforms like Uber and Airbnb are designed to match independent buyers and sellers. Profits are taken from reducing transaction costs and solving a large portion of the asymmetric information problem. As long as the platforms do not enter one side of the market (i.e., providing or buying services), tough regulations are not necessary.

Antitrust regulation is another area the FTC may consider, but it needs to move slowly and deliberately before taking action. Some early forecasters, especially those representing the interests of current industries, predict that certain peer-to-peer platforms will gain monopoly power. However, platforms become larger and gaining market share through network effects is not necessarily a bad thing. In fact, their growth actually encourages more competition. When any market expands to a new city or neighborhood, that growth is accompanied both by increased supply and increased demand. Antitrust suits that splinter these markets would hurt consumers.

Policy should move to accommodate sharing-economy platforms and other similar innovations, not to lock in already entrenched firms and business models. Taxi commissions should repeal overly restrictive metering rules, eliminate medallions and permit innovation. In the hotel industry, taxes should hew closer to regular sales tax rates and inspections should only examine services and products hotels do not already have an incentive to regulate themselves.

Current law does not prohibit existing firms from adopting the technology=based protections that newcomers have developed. In fact, doing so likely would boost the customer experience. Taxis, hotels and any other industry “threatened” by the sharing economy have incentive to protect consumers, without Big Brother doing it for them.

The brilliance of the sharing economy is that it transforms industries that once required high volumes of physical capital to start and operate to become much less dependent on fixed costs. Instead, they are almost completely dependent on variable costs. Burdensome regulation which does not directly protect consumer safety will reverse that trend, raising fixed costs for emerging platforms.

The Federal Trade Commission, state legislators and local officials need to prod slowly to avoid regulatory capture by rent seekers who hope to slow down the emergence of the sharing economy.

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

Obama admin asks FISA Court to ignore ruling finding NSA actions illegal

June 12, 2015, 7:00 AM

Just a few short weeks ago, our elected legislators were very, very concerned about the future of the National Security Agency’s bulk data-collection programs.

Some were absolutely convinced that forcing the NSA to submit to the rubric set forth in the U.S. Constitution that requires probable cause and a warrant to search through Americans’ phone records was going to lead to the downfall of the entire homeland security structure, rending America incapable of seeking out and destroying our domestic enemies, even though it was through a program that rarely, if ever, actually worked.

Others were convinced that, without a radical realignment of the PATRIOT Act, the government was merely going to work its way around any roadblocks to authorization, thus making any argument or measure designed to curb the NSA’s power almost useless in the real world. Championing a complete overhaul of the act, done with now great distance from the events of Sept. 11, 2001, would allow us to discern the cost of our security with a fresh eye.

The Obama administration, it now seems, realized that neither side of the debate really mattered, brushed them both aside and went ahead with attempts to reauthorize the NSA’s bulk data-collection programs regardless of congressional and public concerns. Yep, the man who was going to put an end to warrantless wiretapping just asked the secretive FISA court to ignore a public court’s ruling declaring the NSA’s bulk data-collection program illegal and proceed with reauthorizing said collection as soon as possible.

The Obama administration has asked a secret surveillance court to ignore a federal court that found bulk surveillance illegal and to once again grant the National Security Agency the power to collect the phone records of millions of Americans for six months.

The legal request, filed nearly four hours after Barack Obama vowed to sign a new law banning precisely the bulk collection he asks the secret court to approve, also suggests that the administration may not necessarily comply with any potential court order demanding that the collection stop.

U.S. officials confirmed last week that they would ask the Foreign Intelligence Surveillance court – better known as the FISA court, a panel that meets in secret as a step in the surveillance process and thus far has only ever had the government argue before it – to turn the domestic bulk collection spigot back on.

That’s right – the ink wasn’t even dry on the USA Freedom Act before the Obama administration turned around and said the act wasn’t legally binding on the FISA court or the NSA. While the president was still removing the television makeup after making his address on the subject, he was ordering his lawyers to make sure the NSA’s data-collection programs continued.

The administration argues that the USA Freedom Act gives it six months to wind down the program, so it needs full – not partial – authorization to continue collecting Americans’ metadata records. The admin also argued that it doesn’t matter what the Second Circuit Court of Appeals thinks anyway. Since FISA is a secretive court charged with authorizing the NSA’s programs and operating outside of the normal route of legal appeal, the Second Circuit’s ruling isn’t binding. Instead, the administration’s lawyers said the FISA court should just rely on its own ruling about the program’s legality – and, of course, you know what that means.

Luckily for us, the FISA court, while it may not be covered by the traditional appeals process, is bound by congressional authority, and the court will have to consider what the USA Freedom Act means for the NSA’s data-collection program before they authorize themselves to authorize the NSA. Unluckily for us, the FISA court would, essentially, have to rein in its own power by edict in order to abide by the generally accepted USA Freedom Act interpretation, and that’s not likely to happen. So bulk data-collection is probably going to continue regardless of what anyone says or wants.

New paper: economic liberty requires patent reform

June 11, 2015, 11:30 AM

R Street Associate Fellow Derek Khanna has an excellent new paper on the economic case for patent reform. Writing for the free-market technology group Lincoln Labs, he argues not just for litigation reform, but for reforms that address fundamental problems with patent quality and clarity:

James Madison warned us 200 years ago to guard patents and copyrights with “strictness against abuse.” Patent trolling, created and exacerbated by modern patent policy, is one manifestation of that abuse and is increasingly stifling competition, reducing innovation, and limiting potential economic growth….If Americans want robust innovation and competition, then they must confront this cronyism in our midst and demand free markets and free competition without the government choosing winners and losers by granting patents for non-inventions.

Here at R Street, we’ve supported similar reforms, and made the argument that patent reform is a free-market idea. With the House Judiciary Committee marking up its patent reform bill today (H.R. 9, the Innovation Act), this is well-timed to influence the broader debate in Congress. Read his full paper here.

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

Jurassic Pork: A policy blockbuster

June 11, 2015, 11:00 AM

Much to the chagrin of The Newsroom‘s Will McAvoy, many Americans no longer get their news from prime-time news anchors like Walter Cronkite, let alone the humble messaging of Brian Williams. Shows like Last Week Tonight with John Oliver and The Daily Show have supplemented traditional media as Millennials’ primary news sources. Mixing humor and sarcasm with real journalism has become the preferred way to share a political message.

Instead of relying on old-school charts and traditional (read: boring) means of communicating policy, Sen. Tom Coburn, R-Okla., for the past few years released an annual Government Wastebook that included clever comics, listicles and videos to highlight the absurdity and enormity of our government’s addiction to wasteful spending. While Sen. Coburn has retired, other legislators have an opportunity to pick up where he left off.

Sen. Jeff Flake, R-Ariz. has filled this void by producing BuzzFeed-style content to communicate the severity of the nation’s outrageous spending habits. Instead of an annual waste book, Sen. Flake releases a “weekly roasting of egregious federal spending” using the Twitter hashtag #PorkChops to promote his findings. Some of the highlights include:

  • Draft Day BustAn NFL Draft-themed report highlighting how the National Guard spent “between$97,500 and $115,000 to the NFL’s New York Jets for ‘advertising and promotion’ that fans may have assumed were genuine gestures to thank and recognize soldiers.” This report got traction as many were outraged that professional sports leagues are being paid by the U.S. military to “salute the troops.”
  • Map Men – A Mad Men-themed graphic highlighting the wastefulness of the U.S. Department of Agriculture’s Market Access Program, which will give away more than $170 million in taxpayer funding this year alone to trade associations to promote a number of specific products, including booze.
  • House of PorkChops In an homage to Netflix’s House of Cards, Sen. Flake’s team highlights a National Endowment for the Humanities transaction: “$28,397to purchase a 2015 Ford Transit Connect van,” for a library in Gaffney, S.C., the fictional hometown of House of Cards’ Frank Underwood.

For last week’s #PorkChop, Sen. Flake released an ominous trailer titled “Coming Soon: Jurassic Pork.” The spooky (if a bit cheesy) video featured a crazed pig running through the wilderness, spliced with clips of politicians claiming to end earmarks. Text then appears onscreen saying that “old earmarks have survived” and ends with a porked-out version of the “Jurassic Park” theme.

Well, the wait is over and today, Sen. Flake released his Jurassic Pork Act. As Flake’s office explains, this bill would “eliminate some of the ‘dinosaurs’ in the transportation earmark world that continue to live on.” According to the Congressional Research Service, dozens of earmarks worth more than $120 million remain on the books from laws dating from 1989 to 2004. This summer, more than 1,200 earmarks will officially hit “orphan” status, representing $2 billion in unobligated funds.

The Jurassic Pork Act would cancel funding for earmarks in which 90 percent of the money remains unused after 10 years of the project designation. The money would be sent back to the federal Highway Trust Fund.

With the HTF expected to hit bankruptcy later this summer, the Jurassic Pork Act is a viable option legislators should consider as part of a long-term solution to the highway funding crisis, which Congress has so far failed to address adequately.

While fixing the HTF’s insolvency isn’t as dramatic as a Steven Spielberg thriller, it is essential that Congress work to address wasteful spending. Too often, politicians reflexively throw more money at problems. Sen. Flake’s proposal sets a template for how legislators can reduce this kind of waste.

One hopes more legislators will learn from Sen. Flake’s approach to creative communications and pragmatic solutions. In the meantime, if you are looking for some fun commentary that creatively explains earmarks, wasteful spending and the Highway Trust Fund, might I suggest a double feature of Sen. Flake’s “Jurassic Pork” and John Oliver’s recent thriller “Infrastructure.”

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

Wendler: A ribbon for everyone

June 11, 2015, 9:14 AM

From The Southern Illinoisan:

Now, you say, this language is too strong and clearly an overstatement. Not really. It is nearly impossible to fire a federal employee, according to a Kevin Kosar commentary, “The Common Perception Is True.” The Merit System Protection Board, likely a meritless system, boasts that 77,000 full-time federal employees were fired between 2000 and 2014, that’s slightly over 5,000 employees per year, but it is a scant 0.15 percent of all federal civil service employees when probationary periods are excluded, three people in 2,000. This defies the laws of probability regarding human resource management and human performance.