Saturday, May 26, 2007

UI Held Hostage Day 490 - Search & Taxes

May 26, 2007 7:10 a.m., 8:35 a.m., 1:55 p.m., 3:30 p.m.

UI Presidential Search: Campus Visits, Yes; Details? Not Yet

I have already commented about the seeming inconsistency between Search Committee II's (a) insistence on total secrecy because the best candidates would not stay in the pool if their identities would ever be revealed, but (b) the recent conversion to equal insistence that campus visits for something more than the "final four" (to be presented to the Regents) be arranged.

According to this morning's news story, excerpted below, apparently this is going to result in one or more individuals who might otherwise have been candidates now dropping out. As a matter of fairness to those individuals this is just one more reason why I have long urged that the decision regarding on-campus visits should have been declared by Search Committee II in early January rather than late May.

But forget the inconsistency, fairness, and delay. I'm just pleased the tradition of campus visits is to be honored.

Of course, the precise details as to how many will be coming, who they are, when they'll arrive, how long they'll be here, and just who in the UI and Iowa City community will be notified and involved remain to be worked out. Here are some excerpts from this morning's report in the Press-Citizen:
A University of Iowa presidential search subcommittee is looking at a series of one-day interviews as one possibility for the final round.

UI internal medicine professor Paul Rothman, who is serving on the subcommittee, described a process where the candidate would come in at night, interview throughout the following day, and then have an exit interview the next morning.

"We can have in consecutive day interviews as many candidates as this committee feels is necessary," Rothman told the full search committee during a meeting Friday.

Search committee chairman and College of Dentistry Dean David Johnsen said after the meeting that candidates' interviews could overlap, with more than one being on campus at the same time, and that it would be "nice" if they could get all the interviews done in one week.

. . . Semifinal interviews with fewer than 20 candidates were conducted May 13-14 at an undisclosed location. The committee decided last week to make final interviews public and on campus.

The committee is charged with presenting a slate of four or more finalists to the Iowa state Board of Regents, which will then select a president. That is expected to happen by July 1.

The board office is in the process of coordinating a two or three-day block of time around the weeks of June 11 or 18, at least in part for the presidential search. Johnsen said the final round isn't scheduled yet, . . ..

The committee now must re-evaluate its pool to determine which candidates are in and which are out in light of last week's decision to make interviews public. Johnsen said some top candidates are adamantly opposed to revealing their name unless they will be named president. . . .
Brian Morelli, "Search group touts '24;' Looks at using 1-day interviews for final round," Iowa City Press-Citizen, May 26, 2007, p. A1.

I can make guesses as to why shorter visits are preferred by candidates (all of us have full schedules), but since this request has been presented in a way that has tied it to their demands for secrecy, that connection eludes me. (a) Whether a candidate visits here for one day or four, if they really have a need to keep their home institution in the dark about their willingness to leave, it seems to me their cover is blown either way. (b) There is also the suggestion that shortening the time between the day they set foot on the UI campus and the day the Regents make their final decision somehow helps minimize the serious harm to their reputation resulting from the public knowledge that they are willing to be considered for the UI presidency. I don't understand that one either. Why is their reputation less harmed if they are kept in suspense for two weeks than if the process takes three or four weeks?

[The Iowa Open Meetings Law provides for exceptions when meetings, otherwise required to be open, may be closed. One of those exceptions describes a situation in which closure may be permitted "when necessary to prevent needless and irreparable injury to [an] individual's reputation." Iowa Code Sec. 21.5.1.i (2007). The position of some applicants, supported by Search Committee II, has been until now that for it to be known that an educational administrator was being considered as a possible president of the University of Iowa would, of course, cause "needless and irreparable injury" to that candidate's reputation -- thus the Committee members' willingness to hold secret sessions at undisclosed locations, risking their violation of the open meetings law, rather than disclose where their interviews were being held.]

And why is it that Iowa City tends to hold elections when the students aren't in town, and these on-campus interviews are going to be held when no one is in town? Coincidence? Perhaps.

But I'll put those questions aside as well, as I look forward to this whole mess being finally put behind us sometime during the next month or so.

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Taxes: Categories of Inquiry

[A number of interuptions throughout the day caused this entry to be finished much later than I'd anticipated initially; on the other hand, I don't suffer the illusion that anyone was breathlessly waiting for it to be concluded.]

I don't know why I was thinking about tax policy yesterday. I'd long since paid my income taxes. And I certainly claim no expertise on that subject.

Maybe it was because the Iowa City City Council is thinking about increasing the sales tax.

People who want to increase sales taxes always talk about increasing them "a penny" or by "one percent." That may be good public relations and politics, but it's not good math. A few months ago the sales tax in Iowa City was 5% on top of the sales price of an item or service. Now it's 6%. If the City Council raises it "another penny" at it's 7% -- all in a matter of months. An increase from 5% to 7% is a forty percent increase in the sales tax, not a "one percent increase."

Can you imagine the howl that would go up -- from, above all, those who go around promoting sales tax increases -- if our income taxes, or property taxes, were to go up by 40%? The "get the government off my back" crowd would be taking classes in how to make and hold picket signs and walk in protest marches.

But I'm getting ahead of myself -- and with regard to the very matter I want to think through: what are the categories of subjects we need to think about when thinking about taxes, or proposing reforms? In other words, I want to dig around a bit "deep in the heart of taxes."

Anyhow, I had abandoned the idea of making my brain work that hard on a Saturday morning when I opened the Press-Citizen this morning and found a column by Peter Fisher. Fisher is a Ph.D. economist, professor in the University of Iowa's Department of Urban and Regional Planning, and research director of the Iowa Policy Project (a non-partisan Iowa "think tank" that provides what is often the only analyses worth reading about a given Iowa public policy question). In short, he actually knows what he's talking about on this subject. In fact, he's just finished a study documenting that, when it comes to taxes, Iowa businesses aren't as abused (compared with other states) as their legislative friends claim they are. See, Peter S. Fisher, "Falling Below Average: Why Iowa Taxes Are Competitive" (February 2007).

Here's what he had to say this morning:
Owners of shopping malls, office towers and apartment buildings in Iowa argue that they are paying too much in property taxes. They appear to have gotten a sympathetic ear among Iowa legislators and Gov. Chet Culver.

But despite much fanfare surrounding the issue early in the last legislative session, the Iowa General Assembly was unable to produce a bill dealing with the problem. The reason is quite simple: If commercial taxes are reduced, someone else has to pick up the tab, and no one wants to take the blame for doing that.

The overall system

Is there really a problem here? Property taxes are not driving business out of Iowa, as some claim. Property taxes are just part of the overall system of state and local taxes. Businesses that occupy commercial real estate are also taxed under the corporate or personal income tax. Iowa's personal income tax level is about average, and the corporate income tax in Iowa is well below average. Furthermore, researchers have examined the overall level of business taxation (including property taxes) and found that Iowa is about average among the 50 states.

State-local taxes are a small share of the cost of doing business at any rate. Research has shown, in fact, that tax levels have little to do with how a state's economy grows. Furthermore, commercial property is the prime beneficiary of tax abatements and subsidies through tax increment financing (TIF). Much new commercial investment pays far less than the nominal property tax rate because of these incentives.

This is not to say that there are no problems with the property tax in Iowa. The rollback system that reduces residential and agricultural assessments was designed to prevent a large shift in property taxes to residential property, and it has succeeded admirably.

But it has also produced a situation in which commercial owners pay on all of the market value of their property, while homeowners now pay on less than half the value. As a result, an apartment building will pay over twice the property taxes that would be due on an identical building that has units owned as individual condos, because the condos are considered residential property. In a few years, residential assessment rates could fall to 33 percent, at which point the apartments will pay three times the rate on condos.

This tax disparity creates a powerful incentive to convert apartments to condos, or to build condos instead of apartments, which creates a scarcity of rental property and keeps rents high.

Other issues of fairness

There are other issues of fairness. Older Main Street businesses are paying commercial property taxes without the relief afforded many newer businesses through TIF incentives and abatements. This is not a level playing field. And cities are using TIF ever more aggressively, shifting the cost of city services to rural and state taxpayers and, in many cases, wasting tax dollars on incentives that do nothing for real economic development.

The residential rollback system needs to be reformed. Local governments cannot keep pace with inflation and the needs of a growing population when the rollback formula continues to shrink a large chunk of the tax base. Decisions about building apartments vs. condos should be based on market conditions, not a peculiarity of the tax system. Solving these problems requires that we freeze the residential rollback and then begin moving at least part way back to a system based on market value.

Any substantial reductions in taxes on commercial property should also address the inequities and waste inherent in Iowa's system of tax increment financing. There should be no commercial property tax relief without some substantial TIF reform.

Property tax reform will not be easy; someone will have to pay for it. TIF reform could, in fact, provide some of the funds. And while failure to enact drastic reductions in commercial property taxes will not lead to economic ruin, the rollback system cannot continue in its present form forever. Let's hope that the next session of the Legislature begins to tackle the long-term problems with Iowa's property tax system.
Peter S. Fisher, "No Tax Relief Until We See TIF Reform," Iowa City Press-Citizen, May 26, 2008, p. A11.

In addition to being an integrated and thoughtful essay in its own right, the piece offers examples of some of my categories.

1. "Taxes" is too vague. In order to have a constructive -- and non-combative -- exploration of tax policy we have to be more precise than "taxes." For example, Fisher writes about "commercial property taxes" and "residential property taxes." Politicians who say things like "read my lips, no new taxes" and "I like cutting taxes" are contributing to neither our understanding of the problems nor their resolution.

2. It's not "taxes," it's "programs." Even when we use an adequately precise language of taxation, we're missing the point. "Taxes" are simply another form of currency -- like cash, checks and credit cards -- for buying stuff. What determines both our quality of civic life, and the quantity of the various taxes we pay, are the programs we buy with those taxes. To say that we "can't afford" the universal health care enjoyed by every other industrialized nation on earth, but we can afford to pass on to our grandchildren up to $2 trillion in debt for the unnecessary and counter-productive war in Iraq, is an example of the decisions regarding programmatic priorities that we ought to be addressing -- rather than "taxes."

This is not to say that "money is no object." At some point we need to tally up the total cost of all the tax-funded programs we would like to have. And when we do that we will want to do a kind of triage with them, based on benefit-cost analyses and other techniques -- which to create or expand, which to hold steady with tweaking, and which to cut back or eliminate -- based on their outputs, what we're getting for our money.

The point is, we need to begin with a focus on programs -- the budgeted items in our city, county and state budgets -- rather than begin with a focus on taxes.

3. Which taxes? There are a great variety of "taxes," and all need to be taken into account -- more, presumably, than those of which I am aware. Federal and state income taxes. Commercial and residential property taxes. Sales taxes -- sometimes, as with our "SILO" tax, earmarked for limited purposes (in that case, schools). Estate taxes. Social Security (FICA) taxes -- a very significant, and often unmentioned, tax paid by the working poor. Gasoline taxes. Without regard to what the total tax take may be, there are public policy reasons for advocating one mechanism for gathering tax revenues rather than another.

4. Breaks, abatements and corporate welfare. "The Lord giveth and the Lord taketh away." Trying to figure out what happens to the money in a tax code is like trying to follow the moves of a very skillful "shell-and-pea game" player. Fisher talks about TIFs.

I'm not advocating a "flat tax" (there's a lot of devilment in those details). Nor am I (at the moment) arguing that any of these transfers of money from the taxpayers to for-profit businesses should be eliminated. Let them (for now) keep receiving the money. What I do think would be a big help in getting our minds around these numbers would be if the Legislature would pull the corporate welfare provisions out of the tax code and put them elsewhere. It's politically more acceptable to give a corporation a "tax break" than an outright cash gift; I understand that. But when it's hidden in the tax code it makes it very difficult for us to figure out just how big the gift is.

And obviously, both need to be taken into account when assessing an individual's, or a business's, "tax burden." It makes little sense to look at what a business pays in property taxes, for example, while ignoring the money it's getting from the state in the form of tax abatements, out-and-out cash grants (such as from Vision Iowa and comparable taxpayer-funded accounts), or taxpayer-funded infrastructure projects primarily benefiting the corporation.

Consider the TIFs that Fisher talks about. What I'm suggesting would not affect the bottom line of the TIF beneficiaries one dime. They would simply pay the same property tax that any other business in their position would pay, and then the governmental unit (that, by not collecting the tax ,is now, in effect, slipping them the money under the table and calling it a TIF) would write a check for that amount that all could see.

In terms of accountability, to take in the money and then pay it back out again is very different from never collecting it in the first place.

5. The Mix, Beneficiaries and User Fees What's the most appropriate mix of tax sources (e.g., income, property and sales taxes)? By what criteria? What programs so substantially benefit the entire population that all should contribute (e.g., K-12 public education, police and fire protection)? When is it possible to identify a segment of the population that benefits disproportionately from a program, and charge only them on the basis of the quantity of that benefit (e.g., the use of gasoline taxes to pay for roads; "the more you drive the more you pay")?

6. "From each according to his ability"? Should the wealthy pay not only more, say, income taxes (because, by definition, they have more income), but a higher percentage of their income in taxes as well (a "progressive income tax")? Admittedly, the wealthy (and their lawyers and lobbyists) have always been able to work the system in ways that enable them occasionally to pay even less taxes than their employees. But at least the ostensible rate of taxation was in the past much more progressive than it is today. This is essentially a moral and ethical -- rather than an economic or accounting -- issue. But it comes up during campaigns to raise the retrogressive sales tax -- especially when proponents come out and unabashedly admit they want to use the increased sales tax revenues to reduce property taxes (essentially shifting the tax burden from the wealthy to the poor).

7. Unintended consequences. Fisher talks about the shift from rental property to condominiums that has resulted from the fact that commercial property taxes (on, in this instance, apartments) are higher than on residential property taxes (on, in this instance, condos). Presumably (at least one would hope) this significant reduction in available rental properties has come about as an unintended consequence rather than by design. I once had an elected public official explain to me that the reason she favored increasing commercial properties in her city (rather than "affordable housing") was because -- like an official of any regular for-profit corporation -- she was out to maximize the City's bottom line (i.e., the property tax revenue it could collect). Presumably, from this perspective one would seek to come as close as possible to a system of taxation that would be neutral in its impact on human behavior.

8. Taxation as regulation. On the other hand, the so called "sin taxes" (e.g., cigarette and alcohol taxes) are designed, at least in part, to discourage use of tobacco, and excessive use of alcohol, as a means of improving public health. One could also argue that these taxes should be pegged at a level that roughly approximates the added public costs of providing health care, police protection, and other programs necessitated by use of tobacco and alcohol. This would tend to satisfy the libertarian argument that people should be free to harm themselves as long as they are not harming others -- while alleviating the harm to others of having to pay for the external costs imposed on the public from the users' unhealthy behavior.

There are, undoubtedly, other "categories" or ways of approaching issues of taxation policy, but these are at least illustrations of the kinds of ideas occurring to me at the moment.

UICCU and "Optiva"

The UICCU-Optiva story is essentially behind us. There may be occasional additions "for the record," but for the most part the last major entry, with links to the prior material from October 2006 through March 2007, is
"UICCU and 'Optiva'" in Nicholas Johnson, "UI Held Hostage Day 406 - March 3 - Optiva," March 3, 2007. Since then there have been two major additions: Nicholas Johnson, "Open Letter to UICCU Board" in "UI Held Hostage Day 423 - March 20 - UICCU," March 20, 2007, and "'Open Letter': Confirmation from World Council of Credit Unions" in "UI Held Hostage Day 424 - March 21 UICCU," March 21, 2007.

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[Note: If you're new to this blog, and interested in the whole UI President Search story . . .

These blog entries begin with Nicholas Johnson, "UI President Search I," November 18, 2006.

Wondering where the "UI Held Hostage" came from? Click here. (As of January 25 the count has run from January 21, 2006, rather than last November.)

For any given entry, links to the prior 10 will be found in the left-most column. Going directly to will take you to the latest. Each contains links to the full text of virtually all known media stories and commentary, including mine, since the last blog entry. Together they represent what The Chronicle of Higher Education has called "one of the most comprehensive analyses of the controversy." The last time there was an entry containing the summary of prior entries' commentary (with the heading "This Blog's Focus on Regents' Presidential Search") is Nicholas Johnson, "UI President Search XIII -- Last Week," December 11, 2006.

My early proposed solution to the conflict is provided in Nicholas Johnson, "UI President Search VII: The Answer," November 26, 2006.

Searching: the fullest collection of basic documents related to the search is contained in Nicholas Johnson, "UI President Search - Dec. 21-25," December 21, 2006 (and updated thereafter), at the bottom of that blog entry under "References." A Blog Index of entries on all subjects since June 2006 is also available. And note that if you know (or can guess at) a word to search on, the "Blogger" bar near the top of your browser has a blank, followed by "SEARCH THIS BLOG," that enables you to search all entries in this Blog since June 2006.]

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Media Stories and Commentary

See above.

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1 comment:

Anonymous said...

"And why is it that Iowa City tends to hold elections when the students aren't in town, and these on-campus interviews are going to be held when no one is in town? Coincidence? Perhaps."

There's an obvious answer here--the interviews would not be taking place now had the Regents not failed the first search. The committee is working on the schedule they were stuck with as the result of the first fiasco.