The Innovations on Social Finance Conference was a fascinating overview on new methods and formulas to rethink how Connecticut funds its social services. The focus is on being more effective, and being able to use smart, targeted investments to make every single count. You can watch the full conference below, as covered by CT-N:
As state budgets shrink and the demand for social services grows, a group of Connecticut nonprofit organizations are searching for ways to serve an increasing demand with fewer and fewer funding sources.
Things look bleak, but Liz Dupont-Diehl, policy director for the Connecticut Association for Human Services, sees a possible light at the end of the tunnel.
The sustained economic recession is forcing nonprofits and other social service organizations, including the state, to think outside the box when it comes to funding mechanisms. One of those outside-the-box ideas is called “social impact bonds.”
With a social impact bond, a private investor puts money toward preventative services and gets money back when and if outcomes are produced. Financial returns to investors are made by the public sector on the basis of improved outcomes. The bonds have been the subject of experiment in the United Kingdom as well as New York and Massachusetts.
CAHS is always interested in the potential for CT to improve outcomes, and to better offer services that advance our mission of ending poverty by empowering, equipping and engaging people to build a secure future.
Given the ever-increasing state budget shortfall, one area we are looking at is innovative financing methods such as Social Impact Bonds, or SIBs.
SIBs are generating a lot of enthusiasm for their ability to generate private investment in public services, and to bring a new emphasis to both accountability and population-level results. They were piloted in England where they have been in use for a couple of years to fund services to reduce prisoner recidivism.
The concept is that private investors fund programming that will save society money, and they get back their money, and a profit, if and when their services produce the agreed-upon result – say, reduction in prisoners going back to jail. This offers the opportunity to offer needed services, gauge results based on population-level impact, break down the silos that divide and fracture programming, and allow funding to be combined over multiple years.
In the US, New York City has recently begun a program, funded by Mayor Bloomberg, and Massachusetts has just awarded two grants for SIBs to address chronic homelessness and juvenile recidivism. In CT, the Department of Correction applied to the US Department of Justice to use SIBs for programming to reduce prisoner recidivism in Bridgeport and Waterbury. That grant was not awarded, but interest remains.
There are other new and innovative ways of financing generating similar interest. One intriguing model model is Human Capital Performance Bonds in Minnesota.
CAHS is working with the Capital Region Council of Governments and Community Impact Strategies to host informational conference December 4. These and other models will be explored and you'll have the opportunity to ask questions of the people using these models in Massachusetts.
Some are concerned, and say these new financing methods would lead to undue profit for the private sector, or letting the state walk away from its obligation to fund human services.
Certainly, caution and oversight is warranted and needed. The incentives need to be carefully crafted and reflect the public interest.
But they offer the chance for our systems to recognize the value added by preventative services - the return on investment when we provide effective preventative services that prevent future increased costs to the state.
The Minnesota pilot identifies these goals:
"....using bonds to finance social services is an implicit recognition by the state that benefits often accrue over a number of years. (emphasis mine)
"For example, we don’t educate 5-year-olds because we hope they’ll be contributing members of society by the time they are 7. Currently the state tends to underinvest in social services, because budgeting rules recognize payback periods of only two to four years.
"Second, budgeting tends to take place inside strict silos, carefully guarded by state agencies. But as the work-force training example showed, costs and benefits are spread over many agencies. The Department of Employment and Economic Development pays for the services. The Departments of Human Services and Corrections see reductions in spending as a result. And the state’s coffers grow from increased tax revenue.
"Human Capital Performance Bonds provide a way of accounting for these costs and benefits. For the first time, the budgets of disparate state agencies will be considered from a single point of view — service providers’ impact on those budgets — and adjusted accordingly. This will help public agencies see and act upon the bigger-picture impact of human services.
"Finally, the focus shifts from activity to outcomes. How can we identify and fund those services that contribute to the health of our communities over the long run? Government budgets are notorious for funding activities (i.e., seat time for school children) rather than outcomes (how much they learned)."
Stay tuned for more news about the December 4 informational conference.
Jonathan Cohn, in the New Republic, has a fascinating article comparing how states compare regarding anti-poverty programs and its results. On one side, Cohn puts all "blue states" the ones that have voted reliably democrat since 2000. On the other column he has the red states, those than went for Bush and McCain in the past three election cycles. The results are not surprising, but still worth looking at:
No surprise here: blue states offer better coverage on all their anti-poverty programs, offering a more generous safety nets than red states. Some Federal programs have fairly strict guidelines (SNAP, S-CHIP), so the difference is fairly minor in those cases. In others, like unemployment insurance, coverage is up to 50% more generous (unemployment).
So far, so good - democrats spend much more. The important question, however, is how big a program is, but how well does it work for poverty reduction. Luckily, Cohn also has some interesting numbers there:
By nearly every measure, people who live in the blue states are healthier, wealthier, and generally better off than people in the red states. It’s impossible to prove that this is the direct result of government spending. But the correlation is hard to dismiss. The four states with the highest poverty rates are all red: Mississippi, Louisiana, Alabama, and Texas. (The fifth is New Mexico, which has turned blue.) And the five states with the lowest poverty rates are all blue: New Hampshire, New Jersey, Vermont, Minnesota, and Hawaii. The numbers on infant mortality, life expectancy, teen pregnancy, and obesity break down in similar ways. A recent study by researchers at the American Institute for Physics evaluated how well-prepared high schoolers were for careers in math and science. Massachusetts was best, followed closely by Minnesota and New Jersey. Mississippi was worst, along with Louisiana and West Virginia. In fact, it is difficult to find any indicator of well-being in which red states consistently do better than blue states.
Mr. Cohn is wrong about one specific point: we do know that government spending can and does reduce poverty when done right. Ezra Klein points out that looking at total spending, blue and red states are not that far off. Blue state benefits, however, are far more generous than red state ones. As a result, they are also more effective reducing poverty, and in turn probably reducing the total cost in the medium term. A less generous, cheaper welfare state is much less effective moving people out of poverty, so it really never comes down.
Maybe the best way to reduce dependency on government is by making government work well.
1. According to the Every Child Matters Education Fund, 6 million Americans did not vote in 2008 because they didn't know how to register or missed the deadline. National Voter Registration Day, September 25, was created to make sure no American is left out in 2012. Click here for information about how to plan events and use the effort to increase turnout and voter registration.
2. In Connecticut, fewer than 50% of those eligible to vote do so, according to Secretary of State Denise Merrill's first-ever Civic Health Index.
3. Why does it matter? Our colleague Orlando Rodriguez at Connecticut Voices for Children blogged yesterday about a new National Bureau of Economic Research study showing that investing in children would return $2.6 billion to our economy.
The study found that "...the state could reap benefits equivalent to 1.28 percent of total disposable income (consumer spending) if families with children who live in poverty received additional support, as more of their children would reach the earnings capacity of the typical child. Furthermore, this increase would be 'in perpetuity,' which translates into more private sector jobs and additional tax revenues for state government -- forever."
How critical is this? We learned this week that Connecticut showed the fifth highest increase in child poverty in the country.
Vote, vote, vote!
Today's CT Mirror reports on a Congressional Research Service report, concluding that cutting taxes to the wealthy has not been shown to increase the number of jobs, and in fact is contributing to the widening income divide:
"A congressional research service is challenging the candidates who say that preserving Bush-era tax breaks for the rich are a way to increase jobs.
"In fact, the non-partisan Congressional Research Service not only found no evidence that six decades of relief for the wealthy helped the nation's economy, they also warned that this may have expanded the gap between the rich and the poor.
" "The reduction in the top tax rates appears to be uncorrelated with saving, investment and productivity growth,' researchers wrote in their latest report to Congress."
Sobering news, but different policy choices can give us different result. Jacob Hacker's new report, "Prosperity Economics: Building an Economy for All," offers a similar and sweeping analysis of the income in equality and shrining tax rate on our wealthiest citizens, and proposes a detailed three-pronged policy agenda to invigorate our democracy and turn the tide.
In Connecticut, Better Choices for Connecticut is a coalition working for a more fair and transparent revenue structure. A training this Friday afternoon will offer Connecticut revenue options and tips for advocates on how to talk about taxes. Contact me, firstname.lastname@example.org, or Suzanne Haviland, email@example.com, for details.
The latest row over the property taxes at a big residential development in downtown New Haven looks like a fairly local issue. A big new 32 floor building, 360 State Street was recently hit with an unexpectedly steep property reevaluation. The building owners, MEPT, claim that their tax burden will quadruple next year, and have been furiously lobbying both the city and the state to get some form of a tax break.
I won´t get into the specifics on who is right in this particular debate (as New Haven resident "enjoying" tax reevaluations in East Rock, I am not that impartial) but the underlying issue behind it is important. New Haven, as most Connecticut cities, are "tax-base poor" - most of the buildings or their grant list are comparatively cheap, often part of dense, low-income neighborhoods. Property values are, consequently, fairly modest; although areas like East Rock, downtown and Westville are fairly expensive, the median home price in New Haven is still below $160,000. Trouble is, the need for municipal services is anything but low; New Haven has a similar percentage of residents under 18 that the rest of the state, but they are poorer, 50% more likely not to speak English at home and with steeper education needs. No matter how much money the state contributes to city budgets through the ECS formula, New Haven (and Bridgeport, Hartford, Waterbury and the rest of urban areas) will have higher mill rates than suburban towns with higher property values.
This creates two problems for the cities. First, attracting any kind of new development it is extremely difficult, as the high mill rates quickly become a big barrier. North Haven´s taxes are 20 points lower than on the urban core; Branford´s are even lower. Any new business seeking for a new location to its facilities will probably bypass New Haven based on this disparities alone.
In addition, anyone foolish enough to invest in the urban core (investments that make sense, like building housing besides rapid transit like 360 State does) faces the sad truth of being an island of high property values in an overwhelmingly poor city. An expensive, fancy building in downtown New Haven will get hit almost invariably by a huge tax bill, as what it adds to the grant list is nowhere close enough to leave room for a lower mill rate. Turning a profit is, consequently, much harder, further complicating new development.
The result is a self reinforcing cycle of disinvestment. Cities have a harder time attracting development, meaning they create less jobs. Existing business and residents face a higher tax burden, which drives more of them to leave. The fact that Yale is New Haven´s biggest builder is not an accident; as a non profit, they do not pay property taxes.
The current property tax system reinforces the divide in Connecticut between poor cities and wealthy suburbs, and contributes to the huge income inequality we see in the state. Changing this, or at least seriously tackling how we fund our schools, should be on the table when we talk about poverty in Connecticut.
Connecticut Voices for Children has released the "State of Working Connecticut 2012."
The gap between rich and poor continues to widen, the report finds, adding that the recovery has not helped minorities and young workers. Left unchecked, our economic trajectory "will leave our next generation worse off than the previous one."
Solutions include public support for high-quality universal preschool and community colleges and universities and investing in initiatives to fight poverty, raise wages and support families.
Median wages statewide fell for the second straight year -- but those earning wages above the 90th percentile saw their wages increase by 11% from 2006 to 2011. "Workers with wages below the 10th percentile saw their wages fall slightly over the same period," the report says, "by -0.2%."
- "Connecticut's black and Hispanic workers have not had a recovery." In 2011, the unemployment rate for black workers was 17.3% - for Hispanics, 17.8%.
- Connecticut's private sector is recovering faster than its public sector.
- Higher-paying manufacturing jobs are disappearing and being replaced by lower-paying jobs in healthcare, hotels and restaurants.
- Increasingly, a college education is required for a good job in Connecticut.
The report examines unemployment data, job sector data and wage data, analyzing the state as a whole and by race, gender, educational attainment, and by nine labor market areas.
CAHS and Connecticut Voices for Children are members of Better Choices for Connecticut, which advocates for a more progressive tax structure, including higher income taxes on the state's top earners and greater transparency and accountability for businesses.
One of the most fascinating aspects of the modern welfare state is how it is not just distribution between the wealthy and the poor, but also between generations. Working-age adults pay most federal taxes, and those are increasingly used to pay for programs for the elderly. To be more precise, 20% of the federal budget goes to cover Social Security checks, 16% to Medicare and 4% to Medicaid services for the elderly. As a comparison the rest of safety net programs (SNAP, TANF...) take 13% of the federal budget. We are redistributing between generations, not just between income levels.
Of course, seniors have paid into the system - we pay social security and Medicare taxes all our working lives, after all. They are right there on the paycheck. That´s the theory; in practice it turns out that most seniors actually have paid much less into the system that what they get back from it (via Kevin Drum):
A couple of comments. First, the whole paying a specific tax to cover the costs of an specific service that we will be receiving in the future is largely a fiction. Federal programs are, essentially, pay-as-you-go systems: current workers are paying for the benefits of current beneficiaries, and they system relies on having more workers than recipients at any given time to cover its cost.
Second, baby boomers have a really sweet deal with this arrangement, specially regarding health insurance costs. This is worth keeping in mind when you hear politicians promising to keep Medicare intact for those over 55 while opposing the extension of health insurance coverage under the Affordable Care Act.
The tax code has many bad ideas, idiotic loopholes and senseless provisions, that´s for sure. There are not that many of them that make less sense, however, than the dreadful mortgage interest tax deduction. Matthew O´Brien, at the Atlantic, explains:
The chart below, numbers courtesy of the Tax Policy Center, puts the mortgage-interest deduction into nice pictorial perspective. It shows what percent of the total dollar value of the deduction goes to different income groups (...)
Just for reference, a whopping 75 percent of this 12-figure deduction goes to the top 20 percent of earners. The mortgage interest tax deduction costs the Federal government $100 billion a year, and it goes mainly to pay for bigger houses for the upper-middle class. It is a truly stupid idea, and should be first in line in any meaningful debate about tax reform.
There has been a lot of talk lately regarding marginal tax rates. The debate, as usual, has focused in the tiny, minuscule slice of population that would be affected by a hypothetical tax increase to those making more than $250,000 as year (2% of the population), and how a three point bump in their tax rate would affect their willingness to work.
If a 39% marginal tax rate could turn hard workers into slackers and reduce investment, it might be interesting to explore other parts of the tax system with huge marginal tax rate spikes. To be more precise, we can look at how the tax system looks like for a family that is receiving some means-tested public benefit programs as they get close to the income limit for those benefits. Eugene Steurle, from the Urban institute (via Paul Krugman) has a very detailed study on the marginal tax rates for those families, and the picture is certainly not reassuring:
What we see in this graph is what happens as a family gets closer to the Federal Poverty Level (FPL) threshold and begins to lose benefit programs. The dotted line above is how the system is set up now; the line below is how the social safety net will operate once the Affordable Care Act (ACA) is fully implemented.
In real terms, a family that moves from 50 to 51% FPL (the cut off point for Medicaid) sees a 50% marginal tax rate, as a modest income increase is undermined the loss of benefits. The jump is even more pronounced in the 130% FPL line, where most families start losing SNAP benefits (food stamps) and the Earned Income Tax Credits (EITC) begin to phase out. A single mother might end up seeing marginal tax rates above 90%, with almost 90 cents of extra dollar earned going to cover each dollar of benefits lost.
If high marginal tax rates drive families to work less, we should pay less attention to what happens to the top 2% and look at the huge fiscal cliff that low income families face as they hit the income limits for means-tested benefits. The ACA will help to diminish this, as the subsidies extend much further (up to 400% FPL), but the problem remains: the non-universal, means-tested nature of much of our safety net ends up creating a huge incentive against getting out of poverty. Moving towards more universal programs (like Medicare or Social Security) is the only way to avoid these penalties.