Wrong again: ALEC can’t pick its own ‘winners’ among states

The 20 states that performed best on the four measures of income actually score much worse on ALEC’s ranking than the 20 states with the lowest income.

ALEC — the American Legislative Exchange Council — persists in peddling “research” that knocks down its own policy ideas.

In its latest edition of Rich States, Poor States, just released, ALEC’s Economic Outlook Ranking scores states on 15 measures reflecting ALEC’s preferred policies towards business. Our Grading the States analysis has exposed the flawed methodology of ALEC’s report, but the authors have not changed it for the 9th edition.

ALEC’s dilemma: The index purports to predict which state economies will perform the best, but in fact there is no relation between a state’s score and how well the economy grows subsequently.

Since the first edition in 2007, it remains the case that ALEC’s “best” states — the ones with the highest rankings — are actually poorer on several measures than the supposedly “worst” states. The graph below has been updated to reflect the 9th edition rankings and the latest income data.

Basic RGB

The 20 states that performed best on the four measures of income (the actual rich states) actually score much worse on ALEC’s ranking than the 20 states with the lowest income (the actual poor states).

In its fervent anti-government bias, the report offers a package of policies — for fiscal austerity, suppressing wages and imposing proportionately higher taxes on low-income people — with a promise of economic growth, when it really is a recipe for economic inequality, declining incomes for most citizens, and starving public infrastructure and education systems of needed revenue.

2010-PFw5464Posted by Peter Fisher, Research Director of the nonpartisan Iowa Policy Project and developer of IPP’s Grading the States website, GradingStates.org.

 

 

IPP’s Cost of Living: A better measure

One reason we produce our Cost of Living in Iowa research is to offer a better picture than official definitions of what it takes for a family to get by.

Cost of Living Threshold Is More Accurate than Federal Poverty Guideline

Why do we produce our Cost of Living in Iowa research at the Iowa Policy Project? One reason is accuracy — to offer a better picture of what it takes to get by, rather than a vague concept of “poverty.”

Federal poverty guidelines are the basis for determining eligibility for public programs designed to support struggling workers. But those official guidelines have challenges that we address with basic-needs budget calculations in The Cost of Living in Iowa.

The federal guidelines do not take into account regional differences in basic living expenses and were developed using outdated spending patterns more than 50 years ago.

For example, the calculations that compose the federal poverty guidelines assume food is the largest expense, as it was in the 1960s, and that it consumes one-third of a family’s income. Today, however, the average family spends less than one-sixth of its budget on food.

Omitted entirely from the guideline, child care is a far greater expense for families today with 23.5 million women with children under 18 in the labor force.[1] Transportation and housing also consume a much larger portion of a family’s income than they did 50 years ago.[2]

Considering the vast changes in consumer spending since the poverty guidelines were developed, it is no wonder that this yardstick underestimates what Iowans must earn to cover their basic needs. Figure 1 below shows that a family supporting income — the before-tax earnings needed to provide after-tax income equal to the basic-needs budget — is much higher than the official poverty guidelines.

Figure 1. Cost of Living is Much Higher than the Poverty Level

Fig 1 pov guideline comp

In fact, family supporting income in the absence of public or employer provided health insurance ranges from 2.1 to 3.3 times the federal poverty guideline for the 10 family types discussed in this report. Most families, in other words, actually require more than twice the income identified as the poverty level in order to meet what most would consider basic household needs.[3]

[1] Hilda L. Solis and Keith Hall, Women in the Labor Force: A Databook, Bureau of Labor Statistics (December 2011).
[2] Sylvia A. Allegretto, Basic family budgets: Working families’ incomes often fail to meet living expenses around the US, Economic Policy Institute (August 30, 2005).
[3] Even with public health insurance, the family supporting income exceeds twice the poverty level in all cases except the two parent family with one worker. (That family type not shown here.)
2010-PFw5464Posted by Peter Fisher, Research Director of the nonpartisan Iowa Policy Project and author of The Cost of Living in Iowa, 2016 Edition.
Peter Fisher is a nationally recognized expert on tax and economic development policy. He holds a Ph.D. in Economics from the University of Wisconsin-Madison, and he is professor emeritus in the School of Urban and Regional Planning at the University of Iowa.

 

 

ALEC Lauds Tax Cutting States

Once again ALEC is pushing its discredited notion that tax cuts are a potent tool to promote state economic growth, defying the preponderance of serious research.

Once again the American Legislative Exchange Council, or ALEC, is pushing its discredited notion that tax cuts are a potent tool to promote state economic growth. While the preponderance of serious research indicates that cuts to a state’s income tax or its business taxes have little positive effect on a state’s economy, and may well prove harmful to the long term prospects for growth and for increased prosperity, ALEC continues to push its anti-tax anti-government agenda. The latest effort is its State Tax Cut Roundup for the 2015 legislative session.

ALEC lays out in this report its principles of good tax policy, based for the most part on standard economic principles of taxation (transparency, simplicity, neutrality, fairness, reliability, and revenue adequacy), plus the need for balance between state and local governments, and its favorite: pro-growth policies, or economic competitiveness. As in other ALEC reports on tax policy, however, the discussion here is exclusively on ALEC’s notion of pro-growth tax policy — tax cuts of pretty much any variety. It is, after all, the Tax Cut Roundup, but there are no corresponding ALEC reports called the “State Tax Fairness Roundup” or the “State Tax Revenue Adequacy Roundup.”

The recent experience of Kansas should be caution enough against tax cutting as economic policy. For advocates of income tax cutting, Kansas was to be the poster child. Governor Sam Brownback signed legislation in 2012 slashing income taxes and cutting the state budget by over 13 percent. The tax cuts had been pushed by Stephen Moore and by Arthur Laffer, author of ALEC’s Rich States, Poor States, who argued they would provide an “immediate and lasting boost” to the economy. But instead of boosting the economy, Kansas GDP actually declined by 1.1 percent in 2013, the first year of the tax cuts, while nationally GDP grew at 1.3 percent. In 2014, Kansas growth once again lagged the nation, 1.4 percent versus 2.2 percent. Estimates for 2015 show the trend continuing, with state GDP growth expected to be just half of the national rate. Read more.

That the underlying ALEC agenda is to shift taxes from upper to lower income groups becomes clear when one contrasts its statement of tax fairness in the State Tax Cut Roundup with the tax policies ALEC actually favors. The principle stated by ALEC is: “The government should not use the tax system to pick winners and losers in society, or unfairly shift the tax burden onto one class of citizens. The tax system should not be used to punish success or to ‘soak the rich,’ engage in discriminatory or multiple taxation, nor should it be used to bestow special favors on any particular group of taxpayers.”

So how do ALEC’s policy prescriptions stack up against the concept of fairness? A state tax system that did not alter the distribution of income, as ALEC supposedly favors, would be a proportional system: It would take the same percentage of income from every income group. However, most state tax systems are regressive: They take a larger percentage of income from lower income groups, because they are dominated by sales, excise and property taxes, and an income tax generally of only modest progressivity.

Yet ALEC invariably applauds income tax cuts, which would make a state’s system more regressive, moving the state further from the goal of neutrality with respect to income distribution. Apparently shifting taxes from upper to lower income groups is the fair thing to do according to ALEC.

 

2010-PFw5464Posted by Peter Fisher, Research Director of the Iowa Policy Project
pfisher@iowapolicyproject.org
Peter Fisher is professor emeritus of Urban and Regional Planning at the University of Iowa. A nationally recognized expert on economic development issues and tax policy, he authored two “Grading Places” books that examined business climate rankings by various organizations, including ALEC. From this research, Fisher and the Iowa Policy Project have developed a new website, Grading the States, at gradingstates.org, to permit timely tracking of such studies and offer context to those wishing to review them. The post above is a version of a recent post by Fisher on the Grading the States website.

Sensible context on school aid growth

If the Legislature were to curtail business tax credits even slightly, plenty of money would be available to properly fund education and other actual public priorities that are the traditional and best-focused business of state government.

There are many ways to measure Iowa’s lagging commitment to public schools. One is a comparison of growth in school aid to growth in state revenues.

As K-12 schools are a significant share of the state budget, it seems sensible that we would expect at least similar numbers of growth in one vs. the other.

Basic RGBThat is not the case.

While not a perfect comparison — there are moving parts with both figures — you can get an idea of the general trend in the accompanying graph. Net General Fund revenues have been coming in with average yearly increases around 4 percent,* while the key school-aid number, for Supplemental State Aid, has averaged about half that.**

The numbers below are taken from the latest Revenue Estimating Conference report, available here: https://dom.iowa.gov/sites/default/files/documents/2016/03/rec-projections-2016-03-16.pdf

  • The actual ending balance for FY2015 (the budget year ending last June 1) showed a net over-the-year revenue change from FY2014 of 5.1 percent. For that same period, schools had 4 percent Supplemental State Aid — the only year that high since FY2010.
  • For the current year, the most recent official revenue estimate is for a 3.3 percent state revenue increase, while schools are operating on budgets reflecting 1.25 percent per-pupil growth.
  • For FY2017, the estimate is for a 4.4 percent state revenue increase, and the deal just hatched at the Statehouse — 13 months late — is for schools to see 2.25 percent per-pupil growth.
  • For FY2018, for budgets to be approved a year from now, the state is expecting 4.1 percent revenue growth. The school aid number for FY2018 by law was to have been set a month ago so school districts could properly plan their budgets when enrollment counts are set this fall, and to negotiate staff contracts without big uncertainties. That number has not been set and apparently will not be during this legislative session, as neither the House nor the Governor is interested.

Understand, the revenue growth number is held artificially low by the growing and incessant demand for business tax breaks that undermine revenues. So the net revenue number would be much higher if legislators wanted it. Instead, they continue to give away hundreds of millions of dollars before they even reach the state treasury.

If the Legislature were to curtail business tax credits even slightly, plenty of money would be available to properly fund education and other actual public priorities that are the traditional and best-focused business of state government.

Alas, that is not the political world in which we live.

*The average growth for general fund revenues includes both actual results for FY11 through FY15, as well as projections by the Revenue Estimating Conference for FY16 and FY17.
**Supplemental State Aid — which is a percentage for per-pupil cost growth that districts must use in building an enrollment-based budget — includes the recent deal approved by the Senate and House and expected to be signed by Governor Branstad.
Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project
mikeowen@iowapolicyproject.org
Mike Owen is a former journalist in Iowa and Pennsylvania. He covered state government for the Quad-City Times from 1980-85 and was editor and co-publisher of the West Branch Times from 1993-2001. He is serving his third term on the West Branch Board of Education, and is a member of the Professional Advisory Board of the University of Iowa School of Journalism and Mass Communications.

Finding closure on the job count

Not only are the actual job increases about half of what the Governor had hoped — but even his own “gross” counting method leaves him short, at 184,000.

For years, we had to watch Governor Branstad’s bogus job count tracked on the official nonfarm jobs spreadsheets provided by Iowa Workforce Development.

Basic RGBYou might remember: The Governor set a goal for 200,000 new jobs in five years. We didn’t come close — 104,500 net new jobs from January 2011 through January 2016. Everyone wants new jobs, but it was clear for a long time the goal was unrealistic.

And it was a distraction for those of us who work with such data carefully, as we do each month in our Iowa JobWatch report.
Nevertheless, the Governor’s people concocted a way to count jobs that no elementary arithmetic teacher would sanction — leave out the job losses. So IWD added a line to the official sheet, for “Gross Over-the-month Employment Gains.” And that way, the Governor claimed, he made it with a couple of months to spare.

In fact, at IWD’s budget hearing in November, the Governor asked IWD Director Beth Townsend to back up her slideshow to bolster the claim with the media present.

A few months later, it looks like we should back up that slideshow once again. The jobs data have now gone through their regular annual review, and the numbers show something different.

Not only are the actual job increases about half of what the Governor had hoped — but even his own “gross” counting method leaves him short, at 184,000.

Yes, we all want more jobs in Iowa, better jobs, more sustained job growth. But we also want the facts treated properly. Is it too much to ask for the Governor or IWD to acknowledge publicly that the “mission accomplished” claims were wrong?

When we see the news release, we’ll be sure to pass it along.
Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project
mikeowen@iowapolicyproject.org

School money: Big deal (not really)

Finally, after these many months — 13 months past the legal deadline — Iowa lawmakers have decided what schools are going to receive for the next budget year.

A Des Moines Register story on the deal included this:

House Speaker Linda Upmeyer, R-Clear Lake, added this will be the sixth year in a row that schools have received an increase in funding.

Big deal. As if there’s any question that there should be an increase every year. As if any increase, no matter how small, is something schools should celebrate. Especially when you recognize that not all schools receive an increase.

This deal leaves Iowa at around 2 percent per-pupil spending growth, on average, for the last seven years. Understand that a 2.25 percent “Supplemental State Aid” number does not mean all schools get even that meager amount of growth.

For many districts that have declining enrollment, the increase will not keep their budgets where they stood for this year. That means property tax increases. This, from the folks who tell you throughout their legislative campaigns and at Saturday morning coffees that the sun rises and sets on the idea that we have to cut property taxes. These very same legislators are forcing property tax increases for dozens of school districts.

Education is underfunded in Iowa. Education is not the priority, even if it is the greatest share of spending, because it is not funded in a way that reflects any strategic thinking.

If it were, education funding would be the first item determined in the legislative session — for the following budget year, as the law requires.

As it stands, the new number is coming less than one month before school districts certify their own budgets (they don’t get a pass on their April 15 deadline). And the number for FY2018, which was supposed to have been set a month ago, remains an open question and may well not be determined during this legislative session.

Once again Iowa lawmakers have decided that the first priority that needs their attention is figuring out who gets tax breaks. Education then has to fight for what is left over.

It’s not enough to keep up with the bills, and it’s not enough to make sure that we are paying what is necessary to assure we can keep great teachers in the profession, and attract potentially great teachers to the profession.

Owen-2013-57Posted by Mike Owen, Executive Director of the nonpartisan Iowa Policy Project.
mikeowen@iowapolicyproject.org
Mike Owen is a former journalist in Iowa and Pennsylvania. He has been a member of the West Branch Community School Board since 2006.
What it looked like last year:

Budgeting in the dark — April 13, 2015

Uncertain wage, certain messages

“If you work here I’m afraid you’re going to have to get along with less.”

 

Last fall the Johnson County supervisors gave the county’s low-wage workers a raise, and come May 1 they will get another one. The county raised the minimum wage from $7.25, where it has stagnated for eight years due to national and state inaction, to $8.20 November 1 in the first of three steps. The county minimum wage is scheduled to rise to $9.15 on May 1 and to $10.10 in January 2017.

It is worth recalling why this landmark legislation was needed.  While American workers are far more productive than they were 40 or 50 years ago, their pay has not risen accordingly. After accounting for inflation, the average wage earner is not much better off now than in the 1960s or 1970s.

Even at $10.10, the minimum wage will not be enough to support even a single person, or two adults with no children both working full time, at a basic, bare-bones standard of living in Johnson County. For families with children, that wage is even further from a self-supporting one. Yet, contrary to some perceptions that minimum wage workers are just teen-agers working part time, over 40 percent of the workers in Johnson County currently making less than $10.10 work full time, almost 80 percent are over age 20, and over one in five are parents.

Some have tried to argue that localities shouldn’t set minimum wages because it is a statewide issue, while others seem to think it is just an Iowa City problem (and some, paradoxically, argue both points). Let’s be clear: Johnson County is all one labor market. People who live in Iowa City or Coralville or North Liberty or Solon work in all those places as well; city boundaries have little to do with commuting patterns. At the same time, only about 6 percent of low-wage workers in Johnson County commute from outside the county.

So having a single minimum wage throughout the Johnson County labor market makes good sense. Certainly it would be best if the state Legislature acted on a statewide minimum wage increase, but its failure to do so should not be an excuse for localities in Johnson County to drop below the county minimum. And it certainly makes no sense to complain that a county minimum creates a patchwork across the state, which is not a single labor market, and then to create an actual patchwork within the county by local ordinance.

Raising the wages of low wage workers to something closer to a self-sustaining wage is good for the local economy. Higher wages boost spending power, driving up sales at local retail and service businesses. Businesses find that higher wages can be offset through increased productivity, lower turnover, and slight increases in prices. Study after study has shown that local minimum wage ordinances have no discernible net effect on employment.

Johnson County residents should be proud to join the 28 other cities and counties across the country that have taken action to boost the wages of low-wage workers. Consider the message of localities choosing to deprive their workers of a long-overdue raise.

Does North Liberty or Tiffin really want to say to residents: “If you work in Iowa City or Coralville, we’re glad you’re going to get a raise, but if you work here I’m afraid you’re going to have to get along with less; oh, and please don’t take it out on our local businesses by shopping elsewhere.”

2010-PFw5464Posted by Peter Fisher, research director of the nonpartisan Iowa Policy Project.
pfisher@iowapolicyproject.org