Sunday, April 13, 2014

Tussling Over TIFs: Pros and Cons

April 13, 2014, 8:25 a.m.

Tough TIF Talk
Introduction: For years, TIFs have been controversial. ("Tax Increment Financing," by reducing a developer's property taxes, or directing them solely to his or her project, has the effect of transferring taxpayers' money to the bottom line of private, for-profit ventures.) Proponents cite a "benefit" -- essentially the existence of the developer's project -- while skeptics list a rather substantial list of the costs and burdens they believe more than outweigh any such benefit under any rational benefit-cost analysis.

The Gazette for Sunday, April 13, 2014, led its "Insight & Books" section (editorials, guest columns) with two guest columns taking opposite sides regarding the merits of TIFs: "Weighing the Pros and Cons of Tax Increment Financing; Talking TIF" -- found on the Opinion Page of The Gazette's Web site, and in hard copy as: Nicholas Johnson, "Costs Outweigh Possible Benefits," pp. A9, A12, and Chad Heiman, "TIF a Necessary Tool for Growth" pp. A9, A12.

Talking TIF: Costs Outweigh Possible Benefits

Nicholas Johnson
The Gazette
April 13, 2014, pp. A9, A12
http://thegazette.com/costs-outweigh-possible-benefits-20140413
[Submitted as: TIFs’ Multiple Costs Outweigh Any Possible Benefit]

There are many reasons why further enriching the backers of for-profit, private ventures with taxpayers’ money is a really bad idea. [Photo credit: Patrick McDonough.]

In 2006 I began a blog. Dozens of its 1000 essays deal with reasons to oppose TIFs. See “TIFs: List of Blog Essays,” http://fromdc2iowa.blogspot.com/2014/03/tifs-links-to-blog-essays.html.

Any one of them is reason enough to reject a TIF. To approve it, proponents need to show why none applies.

The issue is not whether a TIF has a single benefit. Benefit-cost analysis requires we total all the costs and burdens of that TIF and weigh them against its individual benefit.

Few if any can pass that test.

Ideological hypocrisy. How can those supporting free private enterprise, capitalism, and marketplace forces, who think “government is the problem” and want it “off their back,” justify taking money from the public collection plate?

Anti-democratic. City councils need voters’ approval of bonds for legitimate government projects. Yet they can give our money to their friends’ private projects on a whim.

Lowered credit rating. TIFs can impact credit ratings. Coralville went from a Moody Aaa credit rating, the highest, to a “lower medium grade” Baa2 in two years.

Opportunity costs. Spending money on one thing costs the lost opportunity to spend it elsewhere. Johnson County Supervisor Rod Sullivan once found a diversion of $700 million of property off the tax rolls. As a result, either we pay more taxes or Supervisors cut needed programs.

Unfairness to neighbors. The TIF-granting body’s neighbors often lose out as well – other communities and school districts with less money in their budgets.

Unfairness to competitors. TIFs tilt the playing field. They unfairly upset a free market, punishing honest competitors and benefitting no one except the TIF recipient.

Risky business. Money’s always available for good deals. If an entrepreneur, family, friends, investors, venture capitalists, and banks aren’t willing to fund a project, maybe taxpayers shouldn’t either.

TIFs complicate taxes. We don’t deserve more tax complexity and even less transparency.

“Money can’t buy love.” Why compete with bribes? A business that needs port access to the Pacific Ocean isn't coming to Iowa. If it did, it would leave for a bigger bribe. Maytag, offered $100 million to stay, left anyway.

TIFs are unnecessary. The Corridor is one of the fastest growing, lowest unemployment areas of Iowa. We already have what businesses want: skilled labor, transportation and communication infrastructure, quality education, cultural attractions and outdoor recreation.

TIF grantors’ poor skills, record. The subsidy-grantors' record is not great. Elected officials are more skilled at keeping contributors and constituents happy than at evaluating taxpayer-funded business proposals. TIFed projects have gone belly up, missed deadlines, and new jobs goals. With reasonable follow-up and transparency we’d know about many more. But TIFs in Iowa have more lenient provisions, and less oversight, than in most other states.

“Need” is unknowable. Many projects will go ahead without subsidy. If tax breaks are available, of course developers will say they need them. Maybe this is blackmail. Maybe they need to look harder for funding. There’s no way to know.

At a minimum, here are questions to ask before approving TIFs:

What is this government’s past record, when we compare promised results with ultimate return or loss?

Why is this project needed?

Why does that need exceed all conventional needs for public funds?

What will other government units lose? How much more will their taxpayers have to pay?

Of all possible TIF projects, why is this one a top priority?

Who benefits: all citizens, a small segment or primarily the recipient?

How much money is involved?

Why are those who will profit unwilling to invest what is needed? Are their reasons equally applicable to taxpayer funding?

Does the business plan indicate financial success, or reveal risks of failure?

If and when the recipient fails, skips town, goes bankrupt, or misses deadlines, how will taxpayers be protected?

What relationships are there between the potential recipient and the officials approving the funding?

How will the recipient’s unfunded private competitors be harmed?

TIFs shouldn’t be used at all. If used anyway, let’s do the wrong thing better:

Leave the tax code alone. Taxes are taxes, gifts are gifts – through appropriations, fully disclosed and audited.

Don’t privatize profits and socialize losses. It’s our money. Don’t give it. Loan it or invest it. Earn us some interest – with a City or State Bank. Invest our tax money; take an ownership share. Give us at least a gambler’s chance at occasional profit. Publicize the details.

We don’t have a fascist state, just a fascist economy, government and private enterprise blended to more resemble a purée than a stew with identifiable ingredients.

In Washington, D.C., it’s billions of tax dollars; in Des Moines hundreds of millions; in Iowa’s cities, TIFs. Without a taxpayer revolt, it’s unlikely to change.
_______________
Nicholas Johnson of Iowa City maintains www.nicholasjohnson.org and http://FromDC2Iowa.blogspot.com.

# # #

TIF a necessary tool for growth

Chad Heiman
The Gazette
April 13, 2014, pp. A9, A12
http://thegazette.com/tif-a-necessary-tool-for-growth-20140413

The 21st century global economy we live and work in is consistently evolving. The rapid pace by which business owners must adapt to meet market demands has never been more challenging.

As a community and region it is critical that we promote public policy that allows companies the option to not only operate their business under the status quo, but create an environment that promotes capital investment, company expansion and job creation.

MISINFORMATION

On the local level, the key tool to aid in doing this is Tax Increment Financing (TIF). There has been misinformation about TIF; specifically, how it works and the side effects of the tool being used. Marion has chosen to be forward thinking and responsible in using TIF as an incentive for companies to do business in our community.

It has been written that TIF incentives are awarded by a City Council without any public approval process; this would violate Iowa Code. A public hearing before the City Council is required for any new TIF project before it gets approval.

An additional public hearing must take place before an amendment to the Urban Renewal Area (designated area in which TIF project occurs) is approved. The process is public and allows for citizen involvement.

How do cities protect their investment? TIF incentives are financed through new property taxes that are generated by the development; current public funds are not used to finance the TIF incentive. An estimate is provided in the development agreement, but the actual TIF award is determined by the assessor. Taxpayers are protected because whoever has title to the property will be subject to pay the associated property taxes. With new development, no existing revenues are lost because of TIF.

ESCO GROUP’S TIF

The ESCO Group in Marion was awarded a TIF incentive package for construction of its new corporate headquarters in Marion’s Tower Terrace Road corridor. The ESCO Group is a Marion-based company that provides plant automation, electrical construction, power engineering, testing and safety training. The City of Marion provided ESCO with a $200,000 grant and an annual 60 percent rebate on their property taxes starting in 2013 and expiring in 2022, The total rebate will not exceed $1 million, per the agreement.

Because of this incentive package, ESCO chose to locate in Marion and brought a capital investment of $5.8 million for the community. The expansion is leading to the creation of 25 new, highly technical, quality jobs in the corridor. A law of economics states that people respond to incentives. The ESCO Group responded by building in a newly developing region in Marion and the commercial property tax base is expanding because of it. Many projects would not have happened without the economic development tool of TIF.

Before the development of the ESCO headquarters, the 2.85-acre piece of ag-land that ESCO now sits on would bring an estimated $4,000 in property taxes. Following development of this land, the estimated property tax bill will stand at an estimated $130,000 annually. I think we can all agree that a 1,315 percent increase in assessed value is a quality return on investment for Marion, our schools and our citizens.

The return on investment is magnified when one considers that new employees in the community will need places to live, stores to shop and restaurants in which to dine. Existing private business benefits because of TIF. The positive impact of this economic development tool is felt well beyond the brick and mortar involved with new construction.

ESCO CEO Ray Brown told us: “By opening up this valuable development area, Marion has great opportunity to expand its tax base to more commercial-light industrial, helping ease the tax burden of residential while also creating quality of life opportunities within this development.”

FAIR PLAY DEALS

Positive community development is everyone’s goal. One recent opinion was that “trying to move businesses from one community to another with competing TIF bribes is a lose-lose game,” and I would agree with that assessment.

That is why the communities in the Cedar Rapids metro area have signed fair-play agreements with each other establishing guidelines for communities when creating TIF incentive packages in the Corridor. When Marion experiences expansion, the Corridor as a whole benefits; the same can be said about business growth in the entire Cedar Rapids metro area.

Marion is one of the fastest-growing communities in Iowa, and that presents challenges, but we are growing our commercial and industrial tax base in a responsible manner. Making policy decisions or sweeping generalizations about TIF without facts, and based on one occurrence or anecdotal evidence, is dangerous.

TIF is anything but a lose-lose tool — it is the tool that allows private enterprise to flourish while giving communities the opportunity to realize its true economic potential. It’s a win-win for everyone.
_______________
Chad Heiman is Communications Manager for Marion Economic Development Company. Comments: chad@medcoiowa.org

# # #

Tuesday, April 01, 2014

April 1 Update: Early Deloitte Efficiency Proposals

April 1, 2014, 9:50 a.m.

Early Revelations Shock UI Faculty, Staff

Edward Snowden's revelations regarding NSA abuses have pretty much sucked all the oxygen out of the attention that was formerly focused on Julian Assange's documents.

But a couple of encrypted emails last evening, that had obviously been routed through a number of countries, make me think we're about to hear more from him -- especially locally. [Photo credit: Getty Images; multiple sources.]

Why Assange would care about the Deloitte efficiency study is, frankly, beyond me. He's never before indicated much interest in Iowa, its universities in particular, or higher education scandals in general. Something he wrote suggested he may have seen my blog essay of March 29th, "UI Says, 'Deloitted to Meet You,'" but I think that's unlikely.

Anyhow, it appears that somebody has provided him with some of the pre-inquiry proposals being considered by Deloitte. At least I assume it's too early for Deloitte to have suggestions coming from the Iowa universities' stakeholders. There's no indication who his source might have been, but it would seem it would have to have been someone inside Deloitte, the Regents, or upper echelons of the universities' administrators. Clearly the writing is riddled with the usual "consultant-speak": shared governance, transparent, collaborative, open, data-driven analysis, transformational, ongoing process.

What I have so far are two impressively long lists of suggestions, so I won't try to reproduce all of them here, but just provide some illustrative examples. If I get additional emails from that source throughout the day containing anything worth sharing with you, I'll add them.

It came as no surprise to me that the proposed "efficiencies" are not limited to cost savings, but include new or enhanced revenue streams and sales of assets. The Jackson Pollock painting, with an estimated value of $150-500 million, heads that list.

What is more surprising is the proposal to sell off the universities' "Lakeside Laboratory Regents Resource Center" at Lake Okoboji in Northwest Iowa. Why surprising? As mentioned in my March 29th blog essay, the University of Iowa's experts are perfectly capable of investigating and reporting potential cost-saving efficiencies. One recent such effort recommended the total elimination of ten or so programs, and reductions of up to $400,000 in others. One of the programs it recommended eliminating was the 1909 Lakeside Laboratory subsidy. This would have saved the University some $176,000 a year. Notwithstanding that recommendation, what happened? The Regents not only rejected that suggestion, they actually nearly doubled the subsidy! Why is it now back on the death penalty list? Either it's because of the change in the membership of the Regents, or more likely the idea is coming from another source.

One of the more imaginative proposals is the possible sale of the Pentacrest. There are some references to Marc Moen, but it's not clear if he is the one involved, and apparently there is no specific offer yet on the table from anyone. The suggestion is that Jessup Hall, Macbride Hall, MacLean Hall, and Schaeffer Hall would be demolished. Some sources indicate there's a proposal to replace them with multi-purpose towers, but that's not repeated anywhere in the documents I have. The Old Capitol exterior would be preserved, but the interior would be remodeled into $500,000 condo units, with a cocktail lounge inside an expanded dome. As a part of the proposal to sell the Finkbine Golf Course to a housing developer, it's possible a large glass structure will be built there, matching the architectural design of the UI Athletics Hall of Fame and Museum, across Mormon Trek. The new building would provide space for whatever current Liberal Arts and Sciences departments are currently in the four Pentacrest Buildings and are not eliminated for efficiency during future reforms.

One of the more imaginative possible sales may actually be favored by some faculty: the transfer of the football program to what is tentatively proposed to be named "The Budweiser Bullies," with a lease of the former Kinnick Stadium (to be renamed, "Budweiser Field"). "In Heaven There Is No Beer" is scheduled to replace the National Anthem.

One of the most voluminous collections of ideas involve reductions in payroll -- one of the University's most obvious cost centers. One idea is called "flip the instructors." Graduate teaching assistants will be preferred over adjuncts, adjuncts over non-tenured faculty, and non-tenured faculty over those with tenure. This alone will substantially reduce the cost of instructors.

The abolition of any future grants of tenure was to be expected. [Photo credit: Source unknown; appears in James Dean, "Deloitte Fights Back After Phoenix Four Fine," The Times [London]," October 5, 2013 ("The tribunal found in July that Deloitte had deliberately flouted professional standards when arranging two deals for the Phoenix Four and issued the fine — ten times its previous largest — last month.")]

What came as a surprise to me were two cost-saving measures that I had frankly never heard of before: (a) The abolition of benefits, such as health care and retirement funds. Apparently many American workers don't have such additions to their salaries.

(b) Since professors' pay is supposedly sort of half for teaching and half for research and writing, these components are to be treated separately. This alone will further cut pay in half for those who are not doing substantial scholarly writing.

Research and writing that a Regents' review committee considers "practical," and a meaningful potential boost to Iowa's economy, will be compensated on a per-piece basis, similar to what other freelance writers are paid in the corporate marketplace. (Teaching will be paid for at a relatively generous per-classroom-hour rate when compared with current proposals for an increased minimum wage.)

Well, that's all I -- and you -- have time for now.

If any of Assange's emails have come to you, feel free to supplement my list with whatever from them you care to share in the form of a comment, below.

# # #

Saturday, March 29, 2014

UI Says, 'Deloitted to Meet You'

March 29, 2014, 10:00 p.m.

Table of Contents
Presumed Innocent
1. What's the Problem?
2. Preliminaries
3. Incrementalism
4. Implementation
5. Process
What is really needed
6. Iowa's Accomplishments
We have found the enemy

Executive Summary: This blog essay discusses some of the issues raised by the Iowa Board of Regents $2.5 million contract with Deloitte to improve "efficiency" at the state's public universities. It can be read in its entirety, or by individual sections (linked from the Table of Contents, above).
"Presumed innocent" explores motive, and states this essay's working hypothesis that "efficiency" is the actual purpose.
"1. What's the Problem?" questions the project's assumption that the UI is inefficient.
"2. Preliminaries" notes that what educators effectively do, and why they do it, needs to be addressed and agreed to by educators before there are efforts by anyone to do whatever "it" is more efficiently.
"3. Incrementalism" makes the point that there's an enormous body of literature regarding "efficiency" in general, and in higher education in particular -- available for free. It asks, what "incremental" suggestions beyond that will our $2.5 million buy?
"4. Implementation," not "good ideas," is the real challenge.
"5. Process" questions how sincere, and effective, are the offers to be "inclusive," including, in "What is really needed," a suggestion.
"6. Iowa's Accomplishments" is a reminder of some of "1. What's the Problem?" and examines the alternatives for reducing tuition and student debt, concluding with "We have found the enemy."

Iowa's Board of Regents wants more "efficiency" from its three universities -- University of Iowa, Iowa State University and University of Northern Iowa.

To assist them in this quest they have enlisted a subsidiary of Deloitte Touche Tohmatsu Limited -- a very big business advising other big businesses. Deloitte's global parent understandably brags that, "Deloitte has in the region of 200,000 professionals at member firms delivering services in audit, tax, consulting, and financial advisory in more than 150 countries. Revenues for fiscal year 2013 were US$32.4 billion." "About Deloitte," Deloitte.com. The firm has divided the surface of Planet Earth, and its 150 countries, into five regions, and discourages what are in effect their subsidiaries from competing with each other.

The Regents have decided to add an additional $2.5 million to Deloitte's $32.4 billion.

"Opening night" for this show (morning actually) was last Friday, March 28, at an hour-long presentation in a packed UI auditorium. The cast is now taking the show on the road, where it will be performed in Ames and Cedar Falls. [Photo credit: Nicholas Johnson.]

We start, as in a criminal trial, with participants who are "presumed innocent." Until proven otherwise, I will assume that the Regents sincerely want to make higher education more affordable, and that the Deloitte folks will ultimately come up with some savings that neither we, nor any other university, has ever thought of before, savings that both make possible more affordable education and are so many multiples more than the $2.5 million we're paying for them that this will be seen to have been a very wise investment.

Indeed, it's always possible that the real purpose of this exercise is both commendable and hidden -- as is the case in a good many instances of institutional use of consultants. It may be the Regents' real purpose is primarily to convince the people of Iowa and their elected officials that their three state universities are already about as efficient and effective as any universities can be. Maybe they intend to explain why the state's economy and quality of life, its ability to attract business and retain its young people, is dependent on quality higher education. They may spread the news: earlier state support of what was truly public education -- in California free to all students, and in Iowa very nearly so -- has dropped, first to about 60% of the cost and by today to 30%, with a proportionate, inverse increase in tuition, and that we simply must do something about ever-rising tuition and the $1 trillion (national) student loan debt.

That might well be worth the $2.5 million. Until that becomes clearer to me than it now is, however, I will proceed on the assumption that the effort really is focused on "efficiency."

It's early in this process; too early to be forming any final judgments about the endeavor in general or its outcome in particular.

It is not, however, too early for some initial thoughts.

1. What's the problem? I am so far unaware of a case having been made as to why the University of Iowa's process, approach, and accomplishments regarding "efficiency" have been inadequate. Nor is it clear how the increases in tuition (necessitated by the radical decline in the Legislature's financial support of its public, "state universities") can be stopped, and tuition decreased, as a result of even more "efficiencies." If there are obvious, unused, suggestions of how the quality of education can be increased simultaneously with decreases in costs, they should certainly be discussed. It may be that such opportunities can be found. But unless and until they are, we are not only dealing with "a solution in search of a problem," but a "solution" that would be ineffective even if we had a problem.

Consider what the University of Iowa has already done. UI's President, Sally Mason, gave some examples in her opening remarks March 28 of
a number of successful efficiencies already on our campus. So let me mention just a few of these.
Example one: Our energy center, which manages campus-wide energy usage, and controls from a single site, plus the work of our "Energy Hawks Team" in Facilities Management. These two things have saved us about a half-million dollars in energy costs annually. And those numbers are expected to increase, as we implement more of our sustainability plan.
Second, building a consolidated computer server center for both the UI and the UI Hospitals and Clinics has resulted in more than $800,000 in savings in annual hardware and software costs.
Third, we have evaluated a number of our academic programs, and have closed some of the low-demand programs and consolidated others.
Fourth, our new, fully-integrated student information system, MAUI, has created significant efficiencies in registration, workflow, admissions, student records, financial aid, and billing.
And finally, we reduced fringe benefit costs through innovation in our UI health plans by about twenty million dollars annually.
Sally Mason, Opening Remarks, March 28, 2014, 10:00 a.m.; transcribed from video at http://efficiency.uiowa.edu/article/video-town-hall-meeting-march-28. And see, President Sally Mason, "College Affordability and the American Dream," Huffington Post, May 2, 2012; and "University of Iowa’s 2020 Vision nets real success; Waste Management helps UI achieve ambitious sustainability goals," University Business: Solutions for Higher Education Management, December 2012.

I assume that list is neither all that could be nor has been done. But the least that can be said is that it doesn't look like the behavior of a public institution that is insensitive to costs or unimaginative about potential "efficiencies."

2. Preliminaries. As I used to say to my school board colleagues as they rushed to the architect before talking about alternative methods of education, "Usually, before people go to an architect, they know whether they want to build a courthouse or an outhouse."

There is no such thing as stand-alone educational "efficiency." The University of Iowa is an educational institution. Before we can decide how to do something more efficiently, we need to think through what it is we want to do, and what our data and intuition as educators tell us is the most effective way to do it. Only then can we address how to improve our efficiency. For example, if there's an educational judgment that online lectures, for some part of some courses for some students, improve educational quality, we can then address the most efficient way to do that while maintaining the educational benefit. But it would be inconsistent with a university's educational mission and obligations, and the best interests of its students, to adopt a procedure merely because it would cut costs.

A major university is a complex institution of many parts, missions and budgets, unlike any other -- whether military, religious, non-governmental (NGO), or business. A for-profit public corporation, focused on its core competency, whether in manufacturing, retail, or the service sector, can view every dollar saved through increased efficiency as additional profit -- its goal and single measure of success -- so long as it can do so while increasing, or at least maintaining profit margins and market share. This is not to say that "money is no object" when it comes to public higher education. Of course it's important. But it is not, and should not become, the single measure of a school's performance.

3. Incrementalism. If you have a seven year old car, and you trade it in for a new one, you don't go from having no car to having a car. What you are purchasing are simply the incremental improvements over the car you had before, such as more safety features, or better gas mileage. So what is the incremental benefit Iowa's three universities will get from Deloitte?

(a) We already have the "efficiencies" that the University has created on its own without any outside help. There's no reason to pay Deloitte for those ideas.

(b) Deloitte may have 200,000 employees, but only a small portion claim any expertise in providing consulting services to universities. At the University of Iowa alone we have over 22,000 faculty and staff, many of whom have as good or better qualifications, education, experience and expertise as their Deloitte counterparts, and all of whom work in higher education.

(c) At a minimum, for $2.5 million we ought to insist on seeing (with such redaction for institutions' privacy as may be appropriate) the comparable reports they have prepared for other universities, including a handful in the Big Ten. (In President Mason's opening remarks March 28, she said Deloitte has done studies like this for "dozens of universities." Sally Mason, Opening Remarks, March 28, 2014, 10:00 a.m.; transcribed from video at http://efficiency.uiowa.edu/article/video-town-hall-meeting-march-28.) How much more than the boilerplate suggestions they give to every university are we getting? [Photo credit: Des Moines Register.]

(d) It's not like others have never addressed issues of institutional efficiency in general, or efficiency in higher education in particular. Other universities, hospitals, consulting firms, think tanks, foundations, colleges of business, education and engineering, congressional and state legislative bodies, numerous federal and state agencies, and the authors of thousands of books have been contributing to an enormous body of literature since Frederick W. Taylor's work in the 1880s. Any able UI junior with some research and writing experience and a laptop with WiFi access to Google could find resources, and summarize the highlights, of ideas and procedures not yet known by any of our 22,000 employees.

This is not rocket science (although we have faculty and graduate students who can handle that as well). ABC's Evening News on March 29 had a story of a ninth grader who came up with a $400 million cost saving idea for the federal government. Even I have written numerous blog essays since 2006 regarding efficiency and management of our state university system: the most appropriate and effective (and "efficient") governance model and principles for the Board of Regents, ways to eliminate (or radically reduce) the burden of student debt (some of which are now being put forward by the Obama Administration), a rational cost-saving approach to college football, efficiencies in dealing with binge drinking (and its accompanying sexual assaults), the wasted multi-million-dollar asset of a statewide radio network for which the universities hold the licenses but seldom to never use, the best response to the coming threat "when the University of Iowa loses its monopoly [for granting college degrees]," or an improved relationship between the University and the gambling and alcohol industries. If even I, with no claim to special expertise, can think through such challenges, imagine what our universities' real experts could do with them. So why are we -- researchers and educators -- paying big bucks to a bunch of strangers to do our thinking for us? As Avis former CEO Robert Townsend described consultants: "Consultants borrow your watch to tell you the time, then they walk off with your watch." Rolex watches are never cheap, but the one we handed Deloitte cost us $2.5 million!

(e) In short, what we will receive from Deloitte is not going to take us from zero to whatever they provide. It will only take us from what we already have done, know about, or could find -- including the boilerplate suggestions that they have previously provided to "dozens of universities." What we are buying is the incremental addition from that to whatever they come up with that is new, formerly unknown, or perhaps in some way unique to Iowa. And good luck with that last one. As Deloitte Director Rick Ferraro candidly acknowledges, "We don't know Iowa . . .." (The full quote: "'The first stage is just to find out where the opportunities seem to be, we don’t know where they are,' Ferraro said. 'We don’t know Iowa well enough yet.'” Ian Murphy, "Officials Address Efficiency; Regent Officials Promise Transparency and Public Involvement in the Upcoming Efficiency Study," The Daily Iowan, March 31, 2014, p. A1.)

4. Implementation. Creative problem solving is fun. As Maritime Administrator, when I found out that 90% of the cost of moving goods across the Pacific Ocean is incurred within 10 miles of the ports on each end of that voyage, I pushed the idea of container ships (with containers that could also feed inland rail and truck transportation more efficiently). As FCC commissioner in the 1960s, I saw the need to convert the analog, single-purpose AT&T network into one that would be able to handle what I predicted would be a flood of multi-purpose digital traffic. But most of my thinking about such things, in the more than 1000 blog essays located here, and writing elsewhere, has been little more than a hobby -- such as my totally unsuccessful efforts to point out the folly of TIFs.

There are many impediments to the implementation of "good ideas" within any institution, segment of an economy, or entire society. But there are special difficulties in implementing change within the culture of "the academy." One of the many ways in which a university is not like a business is that the top quality faculties are not made up of members of a "team," all working toward a single, shared goal. They are made up of independent -- sometimes iconoclastic and curmudgeonly -- individuals, pursuing their own intellectual passions, research and teaching, with the occasional fiefdom cluster of researchers, and all protected with "tenure." This system has, on the whole and over time, worked well for America. But it poses special challenges to those who wish to "improve" it, or make it more "efficient."

So what is Deloitte offering us for our $2.5 million? Rick Ferraro, director of Deloitte Consulting, was very candid: “We can’t figure this out by September,” he said. “We can only find possible opportunities to discuss further by September. That what’s we’re doing.” Sara Agnew, “Regents launch major review at UI; Firm examining how to make state's public universities more efficient," Iowa City Press-Citizen, March 29, 2014, p. A1.

It has yet to be demonstrated either that the University of Iowa is not already in the process of implementing a significant proportion of such additional "efficiencies" as may be available, or even if that were not the case that the savings from those additional "efficiencies" would make a significant dent in solving the rising tuition, and student loan burden. But assume hypothetically that both propositions were demonstrated to everyone's satisfaction. What will we have "by September"? Some $2.5 million worth of Deloitte's "ideas" for greater efficiency -- which the universities are then left to figure out how to implement within the culture of the academy.

And as we have just seen from the section on "Incrementalism," immediately above, even if their ideas were to be easily implemented, it is highly likely that most to all of them are already available to us, for free, from a great many sources.

Want to know how to, more efficiently, find and implement "efficiencies"? Don't give the $2.5 million to a global corporation unfamiliar with Iowa and its universities. Give it to the employees. "What?!" you gasp. Well, not exactly "give." During the administration of President Lyndon Johnson we had what he called a "War on Waste." Civil servants were rewarded for their cost-saving ideas. As Maritime Administrator I obtained permission to reward my employees with cash bonuses, some of which were quite handsome. Give the UI faculty and staff the possibility of financial reward (geared to the savings) for solutions to bureaucratic frustrations in their unit -- things they have probably already identified and regularly complain about -- and you'll find some additional "efficiencies." The savings probably won't amount to enough to solve the $1 trillion student loan burden. But at least the "ideas" will be easier to implement.

5. Process. "Friday’s public forum was the first of what officials say will be many opportunities for the public to chime in on the process, ask questions about proposals and make suggestions on ways to save money, time and resources. . . . Officials have said the review will be a lengthy process that will provide plenty of opportunity for public input and dialogue." Vanessa Miller, “UI students, faculty express concerns about efficiency review; Forum is first of three,” The Gazette, March 29, 2014, p. A3.

Unfortunately, there is at this point a considerable disconnect between these assurances and the reality of what's available. As a result of prior experiences, there is widespread public cynicism regarding any institution's representation that it really cares about the opinions of employees, taxpayers, or consumers. There is often no meaningful way that stakeholders can share their "public input and dialogue." It would be a tragedy if the three universities' stakeholders would come away with that impression of this undertaking.

Each university has an "efficiency" Web site: University of Iowa, efficiency.uiowa.edu; Iowa State University, web.iastate.edu/efficiency; and University of Northern Iowa, uni.edu/web/efficiency. (One is tempted to observe that it might have been more efficient if (a) there was a parallelism between the URLs, and even (b) there was a single Web site with drop down menus for each school and each category of topics across the schools.

Iowa State and UNI provide an email address, or form, one may use to send comments and questions into the void. When I last looked, it was not apparent that the University of Iowa even provided that inadequate opportunity.

But what is really needed -- if "dialogue" is to even be permitted, let alone encouraged -- is a kind of online forum where stakeholders can post their comments and questions for all to see, and to truly engage in "dialogue" with other stakeholders as well as having one-on-one exchanges with university or Deloitte personnel (if that). If one truly wants a public dialogue, and the "efficiency" of modernization and technology, what could be more efficient than to utilize the numerous alternative ways of encouraging online group discussions?

Moreover, like the leadership in Turkey that tried, and ultimately abandoned, efforts to shut down Twitter, even if Deloitte and the Regents want to silence any possible exchange of views between stakeholders they will find they do not have the technological ability to do so. If they do not provide the forum that is needed, it will simply pop up elsewhere, even more out of their control.

One of the first written questions submitted to the individual reading questions to the Regents and Deloitte representatives on the March 28 panel involved this issue. Inexplicably, it was never asked of them.

6. Iowa's Accomplishments. And so I will close as I began -- for now, as there will undoubtedly be much more to come throughout the year. So far, I am unaware of a case having yet been made as to why the University of Iowa's accomplishments regarding "efficiency" have been inadequate, or not the product of an appropriate process. Iowa's President, Sally Mason, gave some examples in her opening remarks March 28 of
a number of successful efficiencies already on our campus. So let me mention just a few of these.
Example one: Our energy center, which manages campus-wide energy usage, and controls from a single site, plus the work of our "Energy Hawks Team" in Facilities Management. These two things have saved us about a half-million dollars in energy costs annually. And those numbers are expected to increase, as we implement more of our sustainability plan.
Second, building a consolidated computer server center for both the UI and the UI Hospitals and Clinics has resulted in more than $800,000 in savings in annual hardware and software costs.
Third, we have evaluated a number of our academic programs, and have closed some of the low-demand programs and consolidated others.
Fourth, our new, fully-integrated student information system, MAUI, has created significant efficiencies in registration, workflow, admissions, student records, financial aid, and billing.
And finally, we reduced fringe benefit costs through innovation in our UI health plans by about twenty million dollars annually.
Sally Mason, Opening Remarks, March 28, 2014, 10:00 a.m.; transcribed from video at http://efficiency.uiowa.edu/article/video-town-hall-meeting-march-28. And see, President Sally Mason, "College Affordability and the American Dream," Huffington Post, May 2, 2012; "University of Iowa’s 2020 Vision nets real success; Waste Management helps UI achieve ambitious sustainability goals," University Business: Solutions for Higher Education Management, December 2012.

Does this mean there's absolutely nothing more we could do that might enable us to deliver more and better education at less cost? Of course not. But what we have here may turn out to be little more than an inadequate solution in search of a non-existent problem. Business talks in terms of "profit centers" and "cost centers." Public universities are non-profit organizations. Their version of "profit centers" are cash flow: legislative appropriations, research grants, and tuition.

Even the Regents and Iowa's legislators seem to agree that we can't go on increasing tuition.

Research grants are very closely related to the quality of the faculty and their research. So cutting there is kind of a foot shooting exercise.

Public universities -- like the evolution of public K-12 schools centuries before -- were created to provide free or radically reduced-cost higher education to the people of their states, out of an awareness of the relationship between education, economic growth and quality of life.

California became the seventh largest economy in the world in large measure because of its three systems of free education for Californians: the universities of California, the California state universities, and its community colleges. The entire nation enjoyed the economic boost provided by the GI Bill -- that brought World War II veterans to the University of Iowa campus for a free education when I was growing up in Iowa City.

In short, like Walt Kelly's character in the comic strip "Pogo" once observed, "We have found the enemy and he is us" -- us and those we have chosen to elect to our legislature, which has refused to provide adequate public support for what has been historically recognized as an enviable and productive American public good.

# # #

Tuesday, March 25, 2014

TIFs: Too Many Negatives

March 25, 2014, 9:25 a.m.

Introduction: There has been a little spurt of TIF (tax incremental financing) stories and comments recently.

On March 18 an op ed column of mine was published by the Press-Citizen: Nicholas Johnson, "TIF: If You Can't Beat 'Em, Insist on More Transparency," Iowa City Press-Citizen, March 18, 2014, p. A7, embedded in "TIF Apology," March 18, 2014. Its assertions regarding the categories of reasons to oppose TIFs were supported by the earlier, "TIFs: Links to Blog Essays," March 16, 2014. [Photo credit: Patrick McDonough.]

The point of the March 18 blog essay/column was that TIFs are merely a natural instrument within a fascist economy. The reason they are the wrong thing to do lies within the nature of our economy rather than the nature of TIFs. Like other mixes of government and private money, however, they can better protect the interests of taxpayers (whose money it is that funds grants to business) if the money is loaned and invested rather than gifted -- thereby producing a return of interest and dividends, like any other conventional transaction.

The Gazette continued with articles that, in part, were efforts to justify TIFs and tax breaks to for-profit buinesses as a legitimate part of a capitalist economy. Chelsea Keenan, “The Benefits of Tax Breaks,” The Gazette, March 23, 2014, p. D1, online as “Are Tax Incentives an Effective Economic Development Tool?.” Rick Smith, "The Upside of TIFs," The Gazette, March 15, 2014; online as "TIF Incentives Can Bring Happy Endings; New Jobs, Infrastructure Improvements, Advancement in Shovel-Ready Sites Grow with Help of Incentive Programs."

I continued to take issue with those arguments for TIFs in the following letter to the editor:


Too Many Negatives, Too Little Upside to TIFs
Nicholas Johnson
The Gazette
March 25, 2014, p. A6

Your “The upside of TIFs” (March 15) needed what Paul Harvey used to call “the rest of the story.” No one I know argues there has never been any benefit from any tax increment financing deal, anywhere, at any time.

But that’s not the issue in a rational benefit-cost analysis.

There are 10 to 20 categories of reasons why all TIFs are a bad idea (See http://fromdc2iowa.blogspot.com/2014/03/tifs-links-to-blog-essays.html). And I have yet to see any TIFs benefit that could begin to outweigh all of those categories of disadvantages.

Here’s an example:

There would be “a benefit” to letting elementary school students simply roam freely throughout the community without parental supervision or need to attend school. They might better develop their natural curiosity and sense of self-reliance.

But the costs of that proposal — lack of student safety and education among them — would so heavily outweigh its potential benefit that no one seriously would propose it.

So it is with TIFs. An occasional “upside?” Of course. But hardly ever enough to outweigh the multiple downsides.

Nicholas Johnson
Iowa City

# # #

Tuesday, March 18, 2014

TIF Apology

March 18, 2014, 7:20 a.m.

Note: And see "Addendum: If North Dakota Can Prosper from a State-Owned Bank, Why Not Iowa?" at the bottom of this blog essay/op ed column; and "TIFs: Too Many Negatives," March 25, 2014.

Note: The following was submitted to the Iowa City Press-Citizen with the headline, "TIF Apology," and was published this morning with the headline below. That headline's use of the word "transparency" is somewhat misleading. The column is not calling for governments to be more forthcoming and transparent regarding the details of their gifts to for-profit enterprises under the current system. [See, e.g., "TIFs: Too Many Negatives," March 25, 2014.] It is calling for a different system, a recognition of the reality that ours is a blended corporate-government economy, one that should substitute investments by taxpayers for what are now simply gifts. Taxpayers should get an ownership share, and a return on their investments. (The hard copy version also had a link to a nonexistent site. As reproduced in this blog essay the link is correct.) -- N.J. [Photo credit: Patrick McDonough.]

TIF: If You Can't Beat 'Em, Insist on More Transparency
Nicholas Johnson
Iowa City Press-Citizen
March 18, 2014, p. A7

I now realize that the dozens of my columns and blog essays over the years, itemizing in detail the evils of TIFs, grew out of a faulty premise.

It is not easy to admit a mistake, especially when one has made it so often. But you are owed that admission – along with a fuller explanation.

We’ve heard that “seeing is believing.” However, it is also true that “believing is seeing.” And what my upbringing and early education imbedded in my brain was a belief that colored my vision like the rainbow from a prism in the sun.

And what was that belief? It was that we have a capitalist, free private enterprise, market economy. Oh, sure, we had socialist enterprise as well: the Interstate highway system, national and state parks, libraries, public schools and universities. But business did business and government did government.

Now comes the realization that what I once saw so clearly was but a child of the ignorance born of ideology. It was the believing that made possible my seeing -- like the lines from the poem, “Last night I saw upon the stair/A little man who wasn't there.” (Hughes Mearns, 1899.)

I was believing in, and seeing, an economy that wasn’t there.

That’s why TIFs were seen to be an aberration, a cancer simultaneously attacking both capitalism’s foundation and taxpayers’ pocketbooks. (For numerous links to sources, see “TIFs: Links to Blog Essays,” http://fromdc2iowa.blogspot.com/2014/03/tifs-links-to-blog-essays.html.)

Like "Amazing Grace," I was blind, but now I see: We don’t have a capitalist system. We probably never did.

So how should we describe our economy? The word “fascism” carries too much baggage from World War II -- dictators, suppression of opposition, aggressive nationalism, and even racism. “Fascism” doesn’t describe America today. But from Washington, D.C., to cities, counties and states all across America, in terms of an economy, ours is the economy of fascism.

The more acceptable word today, “corporatism,” is less accurate. Because the economy we have is a blend, more resembling a purée than a salad or a stew with identifiable ingredients.

Cities’ taxpayers who cannot afford the tickets to an NFL, or even college football game, invest billions in stadiums, given as gifts to attract the billionaires who own teams of millionaires.

States have multiple funds of taxpayers’ money used to compete with other states by giving it away to attract businesses.

Washington is essentially an open bazaar, awash in money gladly given and generously rewarded.

Is this system corrupt? Of course. Welcome to the real world. All economic systems can have corruption – communist, socialist, capitalist, or our fascist.

Is our fascist economy less efficient than a true capitalist economy? Absolutely. Everybody is handling other peoples’ money. Is it less humane than a socialist system might be? Of course. When it comes to minimum wages or safer working conditions, our fascist economy is still driven by the character Gordon Gekko’s belief, in the movie "Wall Street," that “Greed is good.”

Folks, in the words Walter Cronkite used to sign off the CBS Evening News, “And that’s the way it is.” That’s the system we have. Get used to it. The beneficiaries love it. The victims don’t revolt.

What can we do? Tweak the system. Insist our governments invest our money rather than giving it away; that they take a share of the ownership – and the profits. Insist on detailed accounting of the return on our money they’re investing.

If a fascist economy is wrong, but intractable, we can at least try, as John Carver bemoans in another context, to “do the wrong thing better.”
_______________
Nicholas Johnson maintains the website www.nicholasjohnson.org and blog http://FromDC2Iowa.blogspot.com.

_______________

Addendum: If North Dakota Can Prosper from a State-Owned Bank, Why Not Iowa?

It only makes sense, so long as we're committed to a fascist economy, that we should try -- as the last line of the op ed column suggests -- "to do the wrong thing better."

One of the most obvious positive tweaks to our fascist economic system would be for governments to enter the banking business. (a) Instead of putting such balances as cities, counties and states have into commercial banks, or credit unions, they could earn more on our money by doing the banking themselves. (b) As a part of a proposal that financial aid to business favor loans over gifts (or what would hopefully become "investments" earning a return) the governmental unit could make loans to the favored businesses from the government's own bank.

Think this is a crazy idea? Think again. It's a fascist economy that's the crazy idea. City, county and state-owned banks are a big improvement over what we have, in our effort to do this "wrong thing better."

But who would ever do such a thing? How could you ever find a government willing to take on its local, commercial bankers?

Take a look at North Dakota: Robb Manelbaum, "What North Dakota’s Public Bank Does for Small Businesses," New York Times, March 13, 2014
North Dakota uses the bank to funnel deposits from state agencies back into the state’s economy through . . . loans, teaming with local private banks that initiate the transactions with borrowers. The state-owned bank typically takes half of a business loan, and the interest rate on the state-lent portion is normally one or two percentage points below the market rate.

In January, the Bank of North Dakota played a bit part in an ideological skirmish in the blogosphere after a young activist, Jesse A. Myerson, suggested putting a public bank in every state as one of “Five Economic Reforms Millennials Should Be Fighting For.” The piece led to some interesting discussions, including this response that Mr. Myerson’s suggestions were actually conservative reforms — and that the state-owned bank was responsible for there being more small-business loans in North Dakota than in neighboring states. . . .

[P]ublic banking advocates point most hopefully to efforts in Vermont. Last week, 15 Vermont towns passed resolutions urging the state legislature to establish a public bank. It could be very beneficial to the small community banks and the state. Even big cities could do this . . ..


North Dakota, Vermont -- why not a "City of Iowa City Fascist Economy Public Bank"? How about it Councillors?
# # #

Sunday, March 16, 2014

TIFs: Links to Blog Essays

From the time this blog began, in 2006, a recurring topic of the blog essays has involved the variety of ways in which governments transfer taxpayers' money to the bottom line profit of various businesses.

Categories of reasons why these transfers are bad for taxpayers, consumers, competitors of the recipients, the general economy, neighboring communities and governments have been repeatedly identified and illustrated -- all with about as much impact as an oak leaf in October, falling upon a lake, and slowly drifting to the bottom. Nonetheless, it seems worthwhile to maintain this single site of titles and links for any who share the author's concern. -- Nicholas Johnson, March 16, 2014.


2014

"TIFs: Too Many Negatives," March 25, 2014

"TIF Apology," March 18, 2014

2013

"A TIF Discussion; Evolution of a Family's TIF Policy Position," June 9, 2013

"TIF Towers; Giving TIFs the Sniff Test," April 9, 2013

"Crony Capitalism's Failures: Iowa City Style; Gone With the Wind," April 8, 2013

"First Step to Reducing National Debt; Sunlight is the Best Disinfectant," April 4, 2013,

"Repealing Corporate Welfare: Step One; The Journey of a Trillion Dollars," March 25, 2013

2012

"Big Boxes, Little Bookstores and Taxpayers; We'll Leave the Prairie Lights on For You," June 6, 2012,

2011

"TIFs Wealthy Relatives; $7 Trillion Secret Giveaways to Banks; Marlins' Stadium," December 6, 2011

"TIF Impact Statements; The Questions We Should Insist Officials Ask First," November 29, 2011


"SSMIDs, Taxes and TIFs: The Lessons; Say 'No' to Tax Increases, 'Yes' to SSMIDs?!"
November 3, 2011

"The True Price of TIFs," October 1, 2011

"The Religious Indictment of Republicanism; Catholic University Professors Say Republican Budget Violates Basic Catholic Moral Teachings," May 14, 2011,

"Brother, Can You Spare a TIF? TIF Helps the Rich Get Richer," April 25, 2011

2010

None.

2009

None.

2008

"Taxpayer Rescue; The Way Free Private Enterprise is Supposed to Work: Thinking and Acting Globally and Locally," September 15, 2008

"Growing Iowa's Economy the Right Way," April 27, 2008

"Bush and Giveaways to Sheraton; Who's Best Bush? And, Raising Taxes to Increase Corporate Profits," April 25, 2008

"Call the Cops, Robbery in Progress," April 24, 2008

"Golden Rules & Revolutions: A Series - VIII," April 19, 2008 (with links to prior 7)

"Football, Skating and Corporate Welfare," January 25, 2008

2007

"Understanding TIFs," October 5, 2007

"Courage, Councilors," October 3, 2007

"TIFing Your Doctor," September 12, 2007 (with TIF lyrics for "Folsom Prison Blues")

"Public Money, Private Profits," August 24, 2007

"Cable, Coralville, Coal and Consultants, August 17, 2007 (subsection headed "Desperately Trying to Put a Good Face on TIFs")

"The Terrible TIFs; They're Back: The Terrible TIFs," July 26, 2007,

2006

"Riverside's Deeper Gambling Debt," November 11, 2006

"Riverside's Tax to Nowhere," October 31, 2006

"It's Not About 'Taxes,'" October 24, 2006

"More on Corporate Welfare from 'Hat's Off' Winner," October 22, 2006

"Call the Cops: $3.755 Million Robbery in Progress," October 18, 2006

"Why Do They Hate America?" October 4, 2006

"Press-Citizen Says 'Tough TIF,'" September 22, 2006

"Supervisor Sullivan Says 'TIF, TIF, Tsk, Tsk,'" September 16, 2006

"TIF-ing My Toolshed," September 2, 2006

"Coralville's Hotel: 'Trust But Verify,'" August 16, 2006

"Are TIFs 'Corporate Welfare'?" July 22, 2006

"More: Justifying Corporate Welfare," July 13, 2006

"Neutral Principles, Anyone? Justifying Corporate Welfare," July 12, 2006

# # #

Saturday, March 08, 2014

Comcasting for Dollars

March 8, 2014, 12:30 p.m.

Like to join over 150,000 people -- on its way to 200,000 -- who are protesting this merger? Click here for information: http://www.credomobilize.com/petitions/help-me-stop-the-comcast-time-warner-merger-2
Why You Need to Care

A company called "Comcast" wants to acquire, and merge with, one called "Time Warner Cable." [Photo source: Comcast.]

Why should you care? Because of this merger's impact on our nation in general, and on you and your children's online life in particular.

Executive Summary

America's Internet and cable access services are already in bad shape, and this proposed $45 billion merger will make them worse, not better. The provision of access to Internet and cable television networks ought to be, like the interstate highway system, a part of the basic, public infrastructure of this country -- as it is in countries with far better Internet service than what we have. Since America refuses to go down that path, a provider of Internet and cable access should at least be perceived and regulated as the common carrier public utility it is -- with a prohibition on common ownership of the content we want and the conduit through which it comes -- like the former AT&T network. But America has a reluctance to learn from the wisdom of other nations. That is why we have not joined the near-unanimous major nations that provide their citizens with universal single-payer healthcare. We are quite willing to pay more while getting less in order to avoid having to modify our ideology. So it is highly likely that, for the immediate future, we will continue to pay more and get less for our cable and Internet access as well.

The merger will only provide incentives for more mergers, provide the merged company with more monopoly power to raise rates while simultaneously requiring less investment in innovation and the kind of more, better and cheaper broadband service available to the citizens of other countries (thereby leaving us lagging even further behind our global competitors) -- while making Comcast the sole source for business' broadband access in 19 of our 20 largest metropolitan areas; create a presence in more congressional districts, thereby increasing its political power, along with even more money to spend on campaign contributions and lobbying. It is a bad deal for America, for Iowa families, for entrepreneurs and the creative community, and even -- as some of the analyses below point out -- for investors in these two companies.


The History and Rationale for Regulating Common Carriers

For starters, any companies that provide services as essential as connection to the Internet (and cable television programming), whose excesses are restrained by neither vigorous marketplace competition nor effective regulation, ought to be treated as common carrier public utilities. No matter how the conflicting views of this merger are ultimately resolved, we are "starting off backing up," with our hopes limited to the possibility we can figure out "how to do the wrong things better" (as John Carver has characterized most efforts to reform school board governance; Nicholas Johnson, "Board Governance: Theory and Practice").

To understand why this is so, and what this merger is really all about, we need a little background.

Historically, there have been some industries and companies thought to be so important, and potentially dangerous, that many countries required that they be owned and operated by the government -- with regard to communications, an agency often called a "Postal, Telegraph and Telephone Service," or "PTT." Our preferred compromise (between government ownership-operation on the one hand, and unregulated private ownership-operation on the other) was to permit private ownership, but subject the firms to regulation of everything from their rate of return on investment to the quality of their customer service.

Such companies usually had two qualities. (1) They provided what many would consider to be "essential services." (2) Because they were often natural monopolies, their prices and quality of service were not controlled by a competitive free market.

For example, railroads are an essential service for manufacturers who want to ship their products to customers and retail outlets. And the cost of creating and maintaining track, locomotives and rolling stock make it economically infeasible to have two or more railroad companies serving the same route.

President Theodore Roosevelt explained, "The Government must in increasing degree supervise and regulate the workings of the railways engaged in interstate commerce. [It] is the only alternative to an increase of the present evils on the one hand or a still more radical policy on the other. Above all else, we must strive to keep the highways of commerce open to all on equal terms; and to do this it is necessary to put a complete stop to all rebates." See "Railroad Regulation" in "Presidency of Theodore Roosevelt," Wikipedia.org.

Iowa farmers, and their representatives -- especially Iowa's U.S. Senator William Allison -- played a major role in the legislation that followed, including the Elkins Act of 1903 and Hepburn Act of 1906. Those laws gave the Interstate Commerce Commission (ICC) the power to examine the railroads' financial records, set their rates, and eliminated the preferences they gave to some shippers. Ibid. [Photo Source: bioguide.congress.gov.]

Such companies are called public utilities, or common carriers.

The Civil Aeronautics Board, from its inception in 1938 until its abolition in 1985, did for another form of transportation, the airline industry, what the ICC did for railroads. Water is supplied to most American homes by a municipally-owned agency or regulated public utility. Electricity and natural gas companies are regulated monopolies. Our original effort to create a nationwide telephone "universal service," using the monopoly AT&T, was regulated as a public utility. A similar commitment to another form of "universal service" to benefit every American took the form of our national Postal Service.

By every rational, historical, legal, and economic analysis the monopolists providing Internet access and cable television (often "bundled" with phone service as well) should be conceived of, and regulated as, common carrier public utilities. (a) Internet access, and to a somewhat lesser degree, cable television, are as essential to Americans in the early 21st Century as electricity and telephone service were to those in the early 20th Century. (b) And they are similarly monopolistic -- unconstrained in price setting and truly lousy customer service by either the forces of a truly competitive market or effective regulation.

Indeed, it is the consumer satisfaction indices that tell the tale. The industry with the absolute lowest level of consumer satisfaction? Cable television. And not insignificant with regard to this proposed merger, who is at the bottom -- not near the bottom, or among those at the bottom -- but at the very bottom of the list of cable companies for consumer satisfaction? Comcast and Time Warner Cable.

There is little or no justification for permitting any cable companies to merge. But if just one merger was to be approved, why on earth would one select and reward the two worst companies in the industry by permitting them to merge? See Adam Pasick, "A Comcast-Time Warner Cable Deal Would Combine Two of America's Most-Reviled Companies," Quartz, Feb. 13, 2014 (the 2013 rankings of Internet service providers in the American Customer Service Index ranged, for the top five, from 64 to 71; Comcast, at 62, was at the very bottom, and Time Warner Cable was immediately above it, at 63).

Maintaining a Separation of Content and Conduit

There is another problem that will persist no matter how the requested merger is resolved. Those providing our path to cable television and Internet content will also own some of that content, which they can favor in various ways over the content of their competitors. This creates a potential for enormous innovative mischief, destroys a fully competitive marketplace, is unfair to their competitors, and harms consumers in a variety of ways.

Why is this so? Once again, we need a little background.

One of the reasons for the antitrust law's restrictions on mergers is that it makes more sense to avoid the circumstances that breed anti-competitive practices than to permit the creation of those circumstances, and then try to regulate powerful industry players with an administrative agency's oversight of their every move. This is not rocket science. It is no more than one of many practical applications of the centuries-old maxim, "an ounce of prevention is worth a pound of cure." Benjamin Franklin, "Old Citizen," Pennsylvania Gazette, Feb. 4, 1735. [Photo source: commons.wikimedia.org.]

Prevention of corporate abuse (as by forbidding the mergers that make it possible) is simply more effective, cheaper for taxpayers, better serves consumers, is fairer for competitors, and produces a healthier economy than any alternative.

And so it is with "the separation of content and conduit."

The one-time telephone monopoly, AT&T (1875-1984), was the occasional butt of jokes. Lilly Tomlin's routine, as the AT&T spokesperson "Ernestine," was one of the best known. In response to customer complaints, she finally concludes, "We don't care. We don't have to. We're the Phone Company." "The Phone Company," Saturday Night Live Transcripts, Season 2, Episode 1, 76a, Sept. 18, 1976.

But none of the complaints about AT&T, whether serious or dressed in humor, at least so far as I recall, ever involved the company's preferences of some customers over others, or a control of the content of their conversations. I don't believe the American Civil Liberties Union ever had to sue AT&T for its restraints on the content of customers' conversations. Law enforcement agencies might care if you used your phone for harassing or stalking someone, the fraudulent promotion of a stock, sale of an illegal substance, or the disclosure of classified information. However, so far as AT&T was concerned, you were (with possibly insignificant exceptions) free to speak to anyone you wished, for as long as you wished, about anything you wished -- for a flat monthly fee.

AT&T just provided the conduit -- including the twisted pair of wires that carried those voice conversations into your home and ultimately your black telephone. Everyone who wanted a phone was entitled to have a phone. Everyone's calls moved through the network at the same speed. (And, not incidentally, the service for local calls was cheap -- about $2.00 or $3.00 a month as I remember from my youth. "Universal service" not only provided everyone a phone, it also subsidized the cost of that local phone service with the prices charged for business phones and "long distance" calls.)

There was, in short, a total separation of "content" (what was said) from "conduit" (the ownership and operation of the network of cables and switches).

Just as it was explained above, "by every rational, historical, legal, and economic analysis the monopolists providing Internet access and cable television [should be considered, and regulated as, common carriers]," so too (and for similar reasons) should they have the same separation of content and conduit as the old AT&T.

Why? Because in a business of offering access to cable programming, or the Internet's vast content, there are thousands of potential unfair competitive advantages available to the company that owns both the programming and the wires (or towers) through which it travels. It can slow download speeds for its competitors' programming, or degrade the signal quality. It can block customers' access to some sites entirely. It can exact extra payment from its competitors in exchange for a slight improvement in its customers' access to competitors' programming. The opportunities are endless.

So to what extent is Comcast in the programming business? Here's the list that freepress.net put together:
Company Overview. In 2011, the Federal Communications Commission approved Comcast’s takeover of a majority share of NBCUniversal from General Electric. This merger combines the nation's largest cable company and residential Internet service provider and one of the world's biggest producers of TV shows and motion pictures. Comcast’s media holdings now reach almost every home in America. It serves customers in 39 states and the District of Columbia. In addition to its vast NBCUniversal holdings, Comcast has 23.6 million cable subscribers, 18 million digital cable subscribers, 15.9 million high-speed Internet customers and 7.6 million voice customers. Comcast recently entered into a partnership with Verizon in which each company will market and sell the other's services.

TV: NBCUniversal; twenty-four television stations and the NBC television network; Telemundo; USA Network; SyFy; CNBC; MSNBC; Bravo; Oxygen; Chiller; CNBC World; E!; the Golf Channel; Sleuth; mun2; Universal HD; VERSUS; Style; G4; Comcast SportsNet (Philadelphia), Comcast SportsNet Mid-Atlantic (Baltimore/Washington, D.C.), Cable Sports Southeast, Comcast SportsNet Chicago, MountainWest Sports Network, Comcast SportsNet California (Sacramento), Comcast SportsNet New England (Boston), Comcast SportsNet Northwest (Portland, Ore.), Comcast Sports Southwest (Houston), Comcast SportsNet Bay Area (San Francisco), New England Cable News (Boston), Comcast Network Philadelphia, Comcast Network Mid-Atlantic (Baltimore/Washington, D.C.); the Weather Channel (25 percent stake); A&E (16 percent stake); the History Channel (16 percent stake); the Biography Channel (16 percent stake); Lifetime (16 percent stake); the Crime and Investigation Channel (16 percent stake); Pittsburgh Cable News Channel (30 percent stake); FEARnet (31 percent stake); PBS KIDS Sprout (40 percent stake); TV One (34 percent stake); Houston Regional Sports Network (23 percent stake); SportsNet New York (8 percent stake)

Online Holdings: MSNBC.com (50 percent stake); Hulu (32 percent stake); DailyCandy; iVillage; Fandango

Telecom: Clearwire Communications (9 percent stake)

Other: Comcast Interactive Media; Plaxo; Universal Studios Hollywood; Wet 'n Wild theme park; Universal Studios Florida; Universal Islands of Adventure; Philadelphia 76ers; Philadelphia Flyers; Wells Fargo Center; iN DEMAND; Music Choice (12 percent stake); SpectrumCo (64 percent stake)
One would think those holdings sufficient to satisfy even the most aggressive investor's wildest dreams of avarice. Why would Comcast also need to own, set the standards, operate, and profit from the pipe that delivers that content, along with that of its competitors, to roughly one-third of all American homes?

But that's not all

So far we have only addressed the problems inherent in the pre-merger marketplace -- the failure to prevent Comcast and Time Warner Cable from becoming as big as each already is, the failure to treat both as common carrier public utilities, and the failure to insist that they make a choice between operating the conduit or providing the programming, rather than permitting them to do both.

We now proceed to our equivalent of the question put to Mrs. Lincoln after her husband was assassinated in the Ford Theater: "Apart from that Mrs. Lincoln, how did you enjoy the play?" (the line is attributed to Tom Lehrer). That is, apart from the fact that consumers and competitors are going to continue to be abused by these companies regardless of how the merger is resolved, how might this merger make matters even worse?

As Elizabeth Barrett Browning said when asked about this merger, "Let me count the ways."

"[C]ompanies are profit-driven, and . . . work toward the specific incentive of making more money. . . . This . . . does not bode well for consumers . . .. [They would] merge control of about a third of the country's cable customers into one company. Customers are already stuck paying whatever these companies decide . . . where they are the only option for cable. [They do not compete] in any of the same zip codes across the country. In addition, these two companies have placed at the absolute bottom of customer service quality lists for years. Putting them together does not suggest an improvement . . .." Karl Avard, "Time Warner-Comcast Merger: A Bad Move for Both Companies," The Motley Fool, Feb. 21, 2014.

The Motley Fool?! Yes, that's right. This story is designed for investors, not cable subscribers. If you care, it's Avard's judgment that this merger isn't so great for investors either: "this merger will ultimately be bad for the business and stock prices of both Comcast and Time Warner Cable because it will mark the tipping point for consumers to start 'cord-cutting.'" Never mind what's meant by "cord-cutting." The point is that this merger is not only bad for consumers, it's even bad for investors according to this investment advisory source.

So The Motley Fool doesn't think much of this deal. Surely somebody in the business community likes it. Right? How about Bloomberg?

Oh my, here's what Bloomberg published: Susan Crawford, "Comcast's Time Warner Deal Is Bad for America," Bloomberg View, Feb. 13, 2014. [Photo credit: Benjamin N. Cardozo School of Law, Yeshiva University.]

So why does Bloomberg feel obliged to let its readers know that this merger "Is Bad for America"? Here are some excerpts from Ms. Crawford's piece:
David Cohen, Comcast Corp.'s executive vice president and the mastermind behind its deal to buy Time Warner Cable Inc., . . . had to acknowledge that the public might be worried about the power of this combination. "It may sound scary," he said.

Indeed it does. . . . Ninety-one percent of Americans who subscribe to data services also buy video services, so the relevant market for them is the bundle. When it comes to bundles, satellite companies Dish Network Corp. and DIRECTV can't offer the data capacity that Comcast can . . ..

[F]or the vast majority of businesses in 19 of the 20 largest metropolitan areas in the country, their only choice for a high-capacity wired connection will be Comcast. Comcast, in turn, has its own built-in conflicts of interest: It will be serving the interests of its shareholders by keeping investments in its network as low as possible -- in particular, making no move to provide the world-class fiber-optic connections that are now standard and cheap in other countries -- and extracting as much rent as it can . . ..

For a country attempting to compete on the global stage, this is a problem. It's time to recognize that industrial policy -- true leadership, the kinds of initiatives that brought us the federal highway system and national electrification -- is called for. If regulating these guys is too difficult, let's allow mayors to build alternative fiber-optic networks such as the one in Chattanooga, Tennessee, that has lured businesses and spurred economic growth. We can't allow our future to be captured by the short-term cash flow desires of Comcast's investors. . . .

Cohen . . . [points] out that these two companies don't compete in a single ZIP code in America. That's because they long ago clustered their operations and divided markets . . ..

The Department of Justice . . . can't create competition where none exists. It can't mandate that all U.S. businesses have world-class, inexpensive fiber-optic connections. But the Federal Communications Commission and the executive branch can. . . .

We're all the people of Fort Lee, New Jersey, trying to get on the George Washington Bridge. There's a bully narrowing our access to the world whose interests aren't aligned with ours. . . . Let's be clear: This is old-school monopolistic behavior. . . .

High-speed wired connections are now infrastructure, just like bridges, roads, and water. We [must ensure] that American businesses aren't forced to pay whatever tribute Comcast demands in order to thrive.
As she noted earlier for Bloomberg, "cable is a business that relies on scale; the game is to increase the number of subscribers and lower all possible costs, then grind away with one price increase after another. And when big operators get bigger, their scale grows." Susan Crawford, "Time Warner Cable Sale Will Cost Us All," Bloomberg View, Jan. 27, 2014.

The Business section of Time isn't any more sanguine about this deal. It quotes John Bergmayer of Public Knowledge, "An enlarged Comcast would be the bully in the schoolyard, able to dictate terms to content creators, Internet companies, other communications networks . . . and distributors who must access its content [which would] raise costs for consumers, who ultimately pay the bill." Its story notes that "Comcast already owns NBCUniversal, one of the giants of American media and entertainment . . . [and that the merger] will mean fewer competitive incentives to invest in network infrastructure, and will likely lead to higher prices and less innovation." Sam Gustin, "Massive Cable Deal Means Your Bill May Jump," Technology & Media, Business & Money, Time, Feb. 14, 2014.

Not surprisingly, these sentiments were shared over on the Huffington Post. Mark Gongloff, "Comcast, Time Warner Cable Deal Is A Disaster for Consumers," Huffington Post, Feb. 20, 2014. Here are excerpts:
They say two wrongs don't make a right, and consumers are about to get proof of that with the merger of Comcast and Time Warner Cable.

The $45 billion merger announced Thursday . . . will be no victory for their combined 30 million customers, who are already among the least-happy customers in all of Corporate America.

The two companies last year were the lowest-scoring cable companies in the American Customer Satisfaction Index, mainly because of the weakness of their customer service. That made them the least-loved companies in one of the least-loved industries for customer satisfaction. The only two industries with worse customer-satisfaction ratings, according to Consumerist, are newspapers and internet providers. By the way, Comcast and Time Warner Cable are also internet providers.

Little wonder, then, that the two companies were near the top of Consumerist's Worst Company In America contest last year . . .. Comcast . . . took home the title of Worst Company in 2010 . . ..

The history of mergers suggests customer service might only get worse for these two companies. Coupling companies typically struggle to knit together their massive systems, and customers get lost in the process. When Comcast bought AT&T Broadband for $50 billion in 2002, customer billing problems led to such a backlash that the company ultimately launched a "Think Customer First" training program.

A BusinessWeek study of 28 mergers between 1997 and 2002 found that customer-satisfaction ratings dropped significantly after the unions, with the effect lasting for years. Cable companies suffered some of the biggest drops in that study.. . .

"So much can go wrong — computer integration snafus, recordkeeping glitches, you name it," Cahill [Joe Cahill of Crain's Chicago Business] wrote, "and almost all of it affects customers." . . .

[C]ompanies scramble to keep customers from fleeing. But after a long history of industry consolidation, Comcast and Time Warner Cable have so little competition that their customers might have nowhere to flee.
So that's how I see this potential merger.

As I began, . . .
Things are already bad, and this proposed merger will make them worse, not better. The provision of access to Internet and cable television networks ought to be, like the interstate highway system, a part of the basic, public infrastructure of this country -- as it is in countries with far better Internet service than what we have. Since America refuses to go down that path, a provider of Internet and cable access should at least be perceived and regulated as the common carrier public utility it is -- with a prohibition on common ownership of the content we want and the conduit through which it comes -- like the former AT&T network. But America has a reluctance to learn from the wisdom of other nations. That is why we have not joined the near-unanimous major nations that provide their citizens with universal single-payer healthcare. We are quite willing to pay more while getting less in order to avoid having to modify our ideology. So it is highly likely that, for the immediate future, we will also be paying more and getting less for our cable and Internet access as well.

The merger will only provide incentives for more mergers; provide the merged company with more monopoly power to raise rates while simultaneously requiring less investment in innovation and the kind of more, better and cheaper broadband service available to the citizens of other countries (thereby leaving us lagging even further behind our global competitors) -- while making Comcast the sole source for business' broadband access in 19 of our 20 largest metropolitan areas; create a presence in more congressional districts, thereby increasing its political power, along with even more money to spend on campaign contributions and lobbying. It is a bad deal for America, for Iowa families, for entrepreneurs and the creative community, and even -- as some of the analyses above point out -- for investors in these two companies.

If you'd like to join over 150,000 people -- on their way to 200,000 -- who are protesting this merger, click here for information: http://www.credomobilize.com/petitions/help-me-stop-the-comcast-time-warner-merger-2



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