Is Rackspace Officially Dead?

RXT

It’s hard to overstate the importance Rackspace played in San Antonio’s imagination about itself in the year 2009, when I first arrived in town. A scrappy mid-sized technology company, launched by 3 college kids in their proverbial dorm room, had established an early-mover advantage in the growing technology service known as cloud hosting, and was using that advantage to fend off the biggest names in tech: Amazon, Microsoft, and Google. With the cult slogan “Fanatical Support,” hopefuls wondered if Rackspace could do for San Antonio what Dell had done for Austin. Would rackers overmatch the difficult competition and transform sleepy Alamo city into a tech hub?

The relentless, one-way drop in RXT shares from $20 two years ago to just over $2 shares as of this writing tells us that David did not, in fact, slay Goliath. The stock’s chart over the last two years is just a Matterhorn-shaped downward slope with no bottom in sight.

The equity market capitalization dropped in that period from $4 billion to around $250 million by mid-May 2023, approaching one-twentieth of its former size. Looking at that kind of chart in May I naturally ask the fundamental question: “Is Rackspace dead?” And also the technical question, “what the heck is wrong with RXT shares?”

Now, here I want to distinguish between a company and its shares. A good company can be a bad stock investment. And in certain instances a bad company can be a good stock investment. And everything in between. I will mostly save the judgment about whether Rackspace is a good company with good long-term prospects, “the fundamentals,” for a future column. Today I mostly want to discuss “the technicals,” which addresses the question “What the heck is wrong with the stock?” rather than the more profound question of business prospects.

Still, we’ll do 3 sentences on the fundamentals, and then the rest of the column on the specific technical issues that may have plagued RXT, the stock, for the past two years, and in particular the last few months. And then a technical change in stock market plumbing announced last month that reflects RXT’s changed prospects.

The Fundamentals

RXT reported a loss of $612 million for the quarter ending March 2023, following a full year loss in 2022 of $805 million, on $759 million in quarterly and $3.1 billion in annual revenue, respectively.

Rackspace
Rackspace Stock Over 3 Years

As of March 2023, the company reports $3.3 billion in long-term debt at an average of 5.5 percent, not due until 2028, giving it attractively-priced debt service, and a runway of 5 years before it needs to refinance the debt. 

Cloud computing services, as an industry, are projected to grow between 15 and 20 percent annually for the next 5 years, so an experienced provider that merely maintains market share with the natural tailwinds of the industry could be positioned to grow nicely.

Fundamentally, we have 5 years to find out whether Rackspace is dead.

The Technicals

So then what technical forces are crushing RXT, the stock, these past 2 years?

Technical analysis seeks to explain the current and future price movements of a stock according to the supply and demand dynamics specific to the stock. This is distinct from studying the fundamental revenue, cost, debt, and cash flows of the business itself, as we did above.

The largest holder of RXT remains private equity firm Apollo Global Management with 61 percent of the company’s shares. In 2016 Apollo took the company RAX private from the New York Stock exchange. Apollo then relaunched Rackspace via IPO under the ticker RXT in August 2020 on the tech-oriented Nasdaq. In part because Apollo still owns most shares, the supply of tradable shares, or “float,” is quite small. Very few individual, or “retail” investors own any shares. 

The volume of share transactions in RXT has declined over the past year, along with the stock price. A year ago between $5 and $8 million worth of shares traded hands per day. That has slowed to an average of less than $2 million per day over the past two months. 

A low “float” of the shares, the declining dollar amount of trading, and a price approaching $1 per share all tend to further depress interest in a stock among professional investors. 

Non-Apollo shares are mostly owned by Small Capitalization Index Mutual funds. My strong belief is that this particular fact is the absolute key to understanding the one-way price movement of RXT over the past months.

Russell_2000

The top mutual fund holders of RXT are all ETFs and index funds, from Vanguard, iShares Russell, and Fidelity. RXT shares are also held in some “technology,” and “total market” index funds. 

A major technical problem for RXT of this ownership is that each of these indexes is “market-weighted.” This means that as the market capitalization of the company drops, the automatic weighting of the company within that index drops. That makes the indexes forced sellers of the company’s shares as prices decline, in a self-reinforcing vicious cycle. 

In theory, and as often happens with other stocks, institutional value investors (non-index investor) sometimes jump in to purchase shares in this scenario, which helps to break the vicious cycle. But for most value investors RXT’s float is too small, the trading volume is too small, and most importantly, value investors don’t love annual losses larger than the market capitalization of the company. So far they’ve stayed away.

But I suspect the biggest problem with RXT is the specifics of the Russell 2000 index that happened last month, which determines ownership of small capitalization index funds.

The Russell 2000 index is comprised of US small-capitalization companies, in particular those ranked numbers 1,000 through 3,000 on the list of US companies, by size.

As of 2022, the literally smallest Russell 2000 index company – the 3,000th ranked company on the list – had a total market cap of $240.1 million. Interestingly, RXT breached that bottom floor of market capitalization last month.

Russell 2000 Index Over 5 Years

The Russell 2000 index makers set April 28th 2023 as the annual cut-off date for determining who is in or out of the index. On that date, RXT had an approximate market capitalization of $320 million. This put RXT on the bubble of being dropped by the Russell 2000 index. The result of that would be further forced selling by the index holders.

New IPOs allow companies to be added quarterly. Other additions or subtractions due to growth, merger, or shrinkage happen just once a year. Companies are subtracted from the Russell 2000 index on an annual basis, and May 19th was the announcement date for whether RXT would remain in the index.

Let me not hold you in further suspense. Despite being on the bubble, RXT did not get dropped from the Russell 2000. The size of the smallest company to remain on the Russell 2000 list dropped to $159.5 million in 2023, 33 percent below the previous floor. RXT was saved in a sense because the standards for inclusion got easier!

RXT actually got added to the Russell Microcap Index for the first time on May 19 2023, the index for even smaller companies with a market capitalization going all the way down to $30 million.  

But even though they were not removed from the Russell 2000 list this year, the risk of subtraction from the index, plus the vicious cycle of lower prices leading to lower market weighting, could explain much of the past few months’ price action in RXT. 

Getting put on the Russell Microcap Index is somewhat analogous to relegation to a single-A baseball league down from the triple-A league where it had previously played. The stock may take a long time to ever attract major league investors. Or it may never again attract them.

Languishing in obscurity is ok for profitable companies that can put together a good fundamental track record of profit over time. It could get back on the list and in that sense be eligible again for the majors. For a company with $3 billion in debt due in 5 years, and a string of annual losses, it may be a harder slog. Time will tell.

A version of this ran in the San Antonio Express News and the Houston Chronicle

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Higher Education Philanthropy Priorities

Hollis-Hall-Harvard-Yard

April’s big higher education philanthropy news left me grumpy. I mean, yes, it’s nice that financier Ken Griffin has pledged a gift of $300 million to Harvard University. In exchange Harvard will rename its Graduate School the “Kenneth C. Griffin Graduate School of Arts and Sciences.” Higher education is good, philanthropy is good, and Harvard is good. It should be all good.

Hollis-Hall-Harvard-Yard
Hollis Hall, Harvard Yard

Still, here’s why I’m grumpy. Harvard is the least worthy use of hundreds of millions of philanthropic education dollars I can possibly think of. They need it the least.

Among universities, Harvard already boasts the largest endowment of any university. With $50 billion under management, cynics (like me) have long quipped that Harvard is a world-class hedge fund with a fine educational institution attached to it. 

Harvard does not really elevate learning in our larger society, except in the most extreme trickle-down kind of way. The profile of a student actually boosted by Griffin’s donation is extremely narrowly selected. A $300 million gift seems like a bizarre over-allocation of resources to people for whom resources are truly not scarce.

Among 4-year colleges, Harvard is already quite generous with families of demonstrated financial need. But these students admitted from low socioeconomic strata are extremely few. The path into Harvard is so narrow that only rarely does a student from a lower-income family gain admittance. Second, these narrowly selected students – rich, poor, or middle class – probably would thrive wherever they went. Third, most of Harvard is made up of students from relatively privileged backgrounds, making the institution far less impactful on society as a whole, when considering it as a recipient of philanthropy.

Griffin giving $300 million to Harvard helps an organization that doesn’t need it, which in turn serves mostly students who largely don’t need it, or students who would succeed without it.    

Ken-Griffin
Ken Griffin

What Ken Griffin mostly bought for his $300 million was naming-rights as a monument to himself in perpetuity, burnishing his own reputation as a “success,” via brand-affiliation with Harvard. A personal monument and a name brand. It’s Griffin’s money and he gets to prioritize what he wants. But the gift just struck me as the worst kind of higher-education philanthropy. 

Meanwhile, the contrast with the very best in higher education philanthropy is very stark. 

In the midst of the pandemic in 2020 and 2021 MacKenzie Scott – author, philanthropist and via divorce from Jeff Bezos a 4 percent owner of Amazon – set a new and better standard for higher education philanthropy. Scott’s lessons were ones that Griffin either didn’t notice or chose to not learn.

She gave billions in total to organizations vetted for accomplishing great work but that suffer from insufficient resources. The opposite of Harvard in terms of need. She gave to hundreds of organizations that actually needed the money.

She thoughtfully targeted institutions – like Big Brother Big Sister, or community colleges, that serve a broad and inclusive swath of people who themselves had insufficient resources. Again, the opposite of Harvard. People who actually needed the support.

Because social and economic class is self-reinforcing (in contrast to our national myth of social mobility) higher status and more selective higher education institutions matriculate students from higher income families, on average. Also, higher status and more selective institutions generally cost more. As a result, if you want to help social mobility through increasing educational opportunity, the place to focus is regional and community colleges. So that’s what Scott did. That’s where the transformation in people’s lives and in society is likely to take place.

At Harvard, less than 12 percent of students come from the bottom 40 percent of households by income. A larger cohort at Harvard, 15 percent of students, come from the top 1 percent of households by income. All of this is according to research done by Harvard’s own Raj Chetty and a team of economists.

At UT Austin, 15 percent of students come from the bottom 40 percent of households by income. Which itself is a result of its highly selective status. At UT San Antonio, 26 percent of students come from the bottom 40 percent of households by income.

In Bexar County’s Alamo Colleges, 43 percent of students come from the bottom 40 percent of households by income. So that’s where Scott gave. Where the students with the most financial need are actually studying.

The socioeconomic origin of families of students is just one measure – but an important one – of the role higher education does, or does not play, in creating pathways to social mobility. 

For all of Harvard’s successes in championing lower socioeconomic access to higher education – a pitch made with just about every alumni solicitation for donations that it sends out – a much more effective way to support this cause would be to donate to higher education institutions that truly serve middle and lower-income families. Like community colleges, or public universities that serve a region or state.

In San Antonio, Scott gave $20 million to San Antonio College, and $15 million to Palo Alto College, both part of the Alamo Colleges District. 

Mike-Flores
Dr. Mike Flores

Dr. Mike Flores, Chancellor of the Alamo Colleges District, admires Scott’s philosophy of giving to under-resourced communities. Further, Scott allows the recipient institutions full discretion in how to best spend her gifts. 

Scott’s donations went into programs such as $4 million to support students in high-demand degrees in tech or nursing that will likely transform their lifetime economic prospects for the better. $5 million went toward the $75 million endowment for AlamoPROMISE, which provides scholarships to make an Associates degree affordable for most area high school students. 

I think what MacKenzie Scott got for her $25 million to Alamo Colleges was life-transforming social mobility among people who need it most. And they didn’t name anything after her. She doesn’t really get bragging rights through brand affiliation with a community college. Instead she just gets to make a difference. 

A huge priority for Alamo Colleges is to make sure any area high school graduate can get free or greatly subsidized tuition, with wrap-around services, on the way to getting an Associates degree, what Dr. Flores deems the “moonshot” program known as AlamoPROMISE.

Dr. Flores, when asked how he thinks about transformational gifts in higher education, “Just imagine, an $80 million dollar gift could guarantee graduating high school seniors access to AlamoPROMISE in perpetuity for Bexar County graduates for decades.”

Scott didn’t build a monument to herself when she gave her gifts, but she demonstrated a far better philanthropic model than the old one Griffin followed this month.

Harvard is not a bad institution. It represents greatness in many fields and is a cool place for a fortunate few. As a destination for philanthropic dollars, I just would personally place it last on my list.

Disclosure: In 2022 I offered consulting services – online personal finance lessons – for employees of the Alamo Colleges District.

A version of this ran in the San Antonio Express News and the Houston Chronicle

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On Ukraine Philanthropy 1

On Philanthropy 1

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USAA Wobbles

Tell me: do you want the good news first, or the bad news? Fine, we’ll start with the bad news. 

In 2022, USAA reported its first yearly “net income” loss since 1923 – the first loss in one hundred years! – of $1.3 billion. 

Next, the CFO reported that the company’s own measure of its “net worth,” the difference basically between what it owns and what it owes, dropped dramatically from $40.1 billion to $27.4 billion from 2021 to 2022. 

That’s a $12.7 billion drop in net worth, or a 31.6 percent drop year-over-year. Not great.

USAA

Finally, USAA had reported a line in its consolidated statements called “Other comprehensive income (loss), net of tax,” a loss of $10.5 billion. Since that was 8 times bigger than its “net income” loss, and roughly the size of its reported drop in “net worth” over the year, I reached out to the company to tell me what the heck “other comprehensive income (loss), net of tax” actually means. It’s not an accounting term with which I was previously familiar.

Brett Seybold, Corporate Treasurer, responded to my query. “The ‘other comprehensive income loss’ was due to unrealized losses in our investment portfolio across all lines of business, about half of which is in our bank. This is the result of lower market valuations from rising interest rates, which impacted the full financial services industry last year. It’s important to note that this accounting value change is temporary and has already improved in 2023 – and any undervalued securities can simply be held to maturity.”

This makes sense (in fact this was my best guess before Seybold confirmed it). It is also worth contextualizing his response with what’s happened lately with other banks.

The larger US banking context

The recent failure and seizures of First Republic Bank, SVB, and Signature Bank by the FDIC (the 2nd, 3rd, and 4th largest bank failures in US history, respectively) have bank customers (and regulators!) on edge a bit these days. 

Listed as the largest Texas-headquartered bank by both assets and deposits, USAA carries a sort of flag for the industry in the state. 

Unlike past eras of finance wobble, recent bank failures haven’t happened because of crazy risk-taking or irregular accounting or any number of traditionally morally questionable actions for which we might judge bank executives harshly. 

Instead, a simple and simplified model of recent bank failures is this. 

bank_failure

Step one is that banks like SVB held lots of super-safe assets like US Treasurys which lost their current market value when interest rates rose rapidly throughout 2022. Fixed income assets – the finance term for bonds and similar investments – drop in price as interest rates go up. As long as a bank still holds these super-safe assets and doesn’t sell them, the losses aren’t necessarily locked in. That’s what USAA’s Seybold confirmed made up what happened at USAA with the $10.5 billion loss under the line item “other comprehensive income (loss).” Roughly half the number for the bank portfolio, and half for the insurance portfolio.

The not-necessarily-market-value generally is not a problem because depositors don’t all ask for their money at once. These super-safe bonds will all pay out in full eventually. Regulators are cool with it too. Usually.

Step two with SVB, Signature, and First Republic Banks, however, was that they catered to customers who held large deposits, with a (now we understand to be an overly) large proportion above the FDIC-guaranteed $250 thousand threshold. Those large and relatively sophisticated depositors moved their accounts too rapidly for the banks to sell their assets in an orderly way. Because a significant portion of bank assets were actually worth less than their value on the books of the banks, and the withdrawals happened fast, the market value of the banks – roughly their “net worth” was wiped out just as they faced a liquidity crunch. So, we got FDIC receiverships and forced sales over a weekend for the 2nd, 3rd, and 4th largest bank failures in US history.

There were things these failed banks could have and should have done better, we now know in hindsight. Financial institutions can use interest rate swaps to hedge their declining bond values. They can underwrite or hold shorter-maturity assets that allow them to pivot more nimbly when interest rates rise. They can diversify away from an over-concentration on high-deposit customers, although that last move takes time, and for bank executives is probably counter-intuitive. (Banks generally love and want to attract high-deposit value customers!)  But that’s all in hindsight for those particular banks. 

What we should concentrate on are banks today. Specifically today, what should we think about  USAA’s 2022 performance?

The Good News, or Why I’m Not Worried About USAA

Without insider insight into their fixed-income hedging strategies (although again in hindsight they maybe did not hedge rising rates enough in 2022) two things about USAA seem true, and comforting. 

First, USAA is not simply a bank but a diversified financial services company. They are foremost a property and casualty insurance company, and also a life insurance company, and then also a bank. Insurance had its own specific 2022 problems like higher loss claims due to inflation and supply-chain bottlenecks. But in general, with 77 percent of annual revenues coming from insurance premiums, they operate in a different category than traditional banks. Insurance companies always run and manage risks, but bank runs aren’t really their main worry.

More broadly, their banking customer base is not primarily high-net worth individuals, but rather active or retired military personnel and their families. As Seybond confirmed, “Our bank is consumer based, 93% of deposits are within the applicable FDIC insurance limits, and we have access to excess liquidity to serve the needs of our members.”

I’m not at all worried about USAA personally as my bank, since I (sadly for me) do not have balances larger than the FDIC-guaranteed $250 thousand. Mo’ money, mo’ problems as the saying goes, and the inverse is also true when it comes to this specific consumer-banking risk: less money, less problems. Alas for me.

Maybe I should have mentioned, I bank with USAA. My checking, savings, credit card, home mortgage accounts, plus my kids’ bank accounts, are all with the company.

I insure with USAA as well: auto insurance, home insurance, and term life insurance.

I live in the hometown of their headquarters, and have many friends and acquaintances who work for USAA. I wish the company tremendous success but also I am self-interestedly curious about their setback years as well.

People are nervous right now about financial institutions. A once-in-a-hundred-year loss naturally prompts a question of whether it is anomalous bad luck or a trend. As the largest bank headquartered in Texas, USAA enhances public trust by explaining even the bad years when they occur. And even the obscure accounting lines when asked. I appreciate their letting me dig in a bit. Ninety-nine years before hitting a loss year is a pretty good track record.

A version of this post ran in the San Antonio Express News and Houston Chronicle.

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How’s Inflation Going These Days?

How’s inflation going these days?

It was the talk of the town 6 months ago and 10 months ago. The most recently published April 2023 Consumer Price Index rise (the most commonly quoted inflation rate) was 4.9 percent annual, down from the peak 9.1 percent annual rate in June 2022. 

Morgan Housel

Even as the world panicked last year about rising inflation, I will now share with you a teensy confession. I didn’t really see it. Or if I did see it, it felt fine, temporary, non-threatening. I know this is heretical and borderline obnoxious to say.

This week I came across a comment on inflation from the finance writer Morgan Housel, who is one of the very best at what he does.

“What I think is really interesting is that everyone spends their money differently. So no two people have the same inflation rate,” he said in an interview in September 2022. “There is no such thing as the inflation rate. It’s just your own individual household.”

Housel’s insight explains my reaction when compared to the collective freakout I noticed elsewhere. My experience of inflation is different from yours, and yours is different from everyone else’s.

Falling Prices

Now in the latter-half of my intended century on this planet, I could settle gently into the “kids, when I was your age, that used to cost a nickel” phase of my life. But as I look around, that story isn’t particularly true in many areas.

In July 2013 I purchased an Apple Macbook Pro laptop computer for the retail price of $2,499. This past week, the monitor died and I returned to the Apple store in the North Star mall and bought another Mac Pro laptop. In my mind, 10 years for a laptop is a good run. It lived a good long life as far as electronics go and it was time to buy a new one. I paid $1,999 retail for the new one with improved graphics, larger memory and a decade worth of incremental feature improvements compared to the 2013 version.

inflation_airline

Last week I booked a round-trip flight to New York City in June for the all-in price of $517.80 (including taxes, travel booking, and airline fees). How much was this flight to New York City 33 years ago? I can’t compare the exact flight but The Department of Transportation reports that the average domestic airline fare from Texas in 1990 was $253.41. Meanwhile the average domestic round trip fare in Texas all-in was $314.75 in 2021.

Depending on the reference years, the average domestic flight costs the same, a little more, or a little less, over the past 40 years. This is actually incredible.

This past winter the internet lost its mind over the price of eggs, which had doubled. (Avian flu had wiped out the hens.) Our collective hive mind pointed to the rising cost of a carton of eggs as if that were some sign of inflation end-times. The price for a dozen large brown cage free eggs from HEB is $2.78 as I write this in mid-May 2023. Pretty much unchanged over the past decade.

I mention computers, flights, long-distance phone calls, and eggs because we notice the rise in prices but rarely their fall. So that’s one piece of the puzzle.

Inflation that we welcome

If you are a capitalist, inflation maybe hits differently. In my own capitalist way of thinking, the rise in both stock market values in my retirement portfolio over a decade and in the value of my home over that same decade are forms of inflation. Benign forms, from my perspective, but inflation nonetheless. Future purchasers of my shares or my home are negatively impacted by that inflation. Still, I’m personally glad for it.

Bloomberg News has run stories this year about companies that engage in “excuseflation.” That means firms that use bad news, like supply-chain disruptions or shortages or war – those were the top 2022 excuses – to raise prices. Companies that can raise prices and keep them high when normalcy returns – without losing market share – then have the opportunity for higher profits. 

Investors, in turn, seek to purchase shares in companies that prove they can hike prices and expand margins. This is another way in which inflation hits differently depending on who you are. For owners of capital, price hikes by companies are a sign of strength and an incentive to invest. For homeowners, price hikes are a path to long-term wealth.

MacBook
Deflationary

Inflation I don’t notice

I’m never going on a Caribbean cruise, where prices are up 14 percent since last year. I work from home, so I am not hurt much when gas prices hike the cost of a daily car commute. I don’t rent my home, so I’ve avoided one of the most brutal rises in costs in recent years.

Now, you’ve probably noticed I have conflated three ideas. First, prices are flat or falling in many areas over the past 30 years. (televisions, computers, long distance telephone calls, plain t-shirts and socks). Second, I benefit from some price hikes (my real estate, stocks in companies that have pricing power to use inflation as an excuse to hike prices and increase their margins.) Third, some price changes I don’t stress about because they hardly affect me directly (gasoline and diesel fuel, cost of caribbean cruises, home rental prices.) 

I’m not saying inflation isn’t real. I’m saying our experience of inflation is unique to each of us. There is no objective inflation since we all buy and own different stuff.

My inflation experience is about to get worse

One of the worst areas of inflation over the past 30 years has been the rising cost of higher education. Since I will be paying for this over 8 of the next 9 years for my daughters, you can expect near-constant whining in this space about tuition inflation. It’s going to be brutal. For me to experience and for you to read about.

A version of this ran in the San Antonio Express News and Houston Chronicle.

Please see related posts:

Book Review: The Psychology of Money by Morgan Housel

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Ukraine Philanthropy Part II – Using Airline Miles

I wrote recently that helping Ukrainian people survive and resist the Russian invasion is the most philanthropically worthy project I can think of right now. But a key question remains: How can I help?

I found a surprisingly easy and satisfying way last week, through an organization called Safe Passage 4 Ukraine

They accept donations of hotel miles, credit card reward points, and airline miles. If you only have a small number of saved miles, the organization can aggregate donations from many people to purchase travel or hotel stays for refugees from the war zone.

Their online form is very easy to use.

For small amounts of miles in airlines I rarely fly, I filled out their form with my pledge, then clicked a button, and the website took me to my own airline miles account. From there, once logged in, I clicked the charity to complete the transfer of miles. The charity then sent me a confirmation email, asking me to click once more to confirm the transfer. Less than 5 minutes of “work” at my desk. Easy peasy.

SP4U

JetBlue’s minimum donation is 500 miles. I really can’t use my roughly 2,000 miles with them so I donated them. United Airlines’ minimum is 1 thousand miles. I pledged the roughly 2,500 miles I had. 

The Most Satisfying Thing

Then I did an even cooler thing. Although I only had a few JetBlue and United Airline points, I travel American Airlines more frequently. I had accumulated a little over 50 thousand miles at the beginning of last week.

Shortly after I pledged to donate at least 30 thousand of those points, a travel specialist from Safe Passage 4 Ukraine requested over email for me to stand by, as he’d be sending me further details shortly.

With at least 30 thousand American Airlines to pledge I became eligible to purchase a transatlantic flight for an individual Ukrainian refugee.

Two days later, on a Friday afternoon, my assigned travel specialist sent me an individual’s profile, just as promised. It was a Ukrainian woman’s name, her birthdate, and a specific multi-city flight plan – Warsaw to London (Heathrow) to Philadelphia to Orlando, with flight numbers and times. The specialist had already worked out that this one-way transatlantic flight could be purchased with my 30,000 miles, plus $96.15 from me. Very affordable. By the time this column goes to print, she will have arrived in Orlando.

Incidentally, I don’t know about you, but whenever I try to book my own travel with my miles I find I never have quite enough. If I have 25 thousand miles, my flight requires 50 thousand. If I have 50 thousand, my flight needs 90 thousand. I feel like it costs 50 thousand miles just to go from San Antonio to Dallas and back, whenever I search for it myself. To my delight, booking this ticket for a stranger to fly out of Warsaw to Orlando actually cost exactly what the Safe Passage 4 Ukraine travel specialist told me it would cost. Somehow, they found a 4-city transatlantic flight for 30 thousand miles, plus $96.15. 

Actually, initially I had a problem when I went to book it and I found I couldn’t get the flights for less than 79 thousand miles. Then I realized that I’d mistakenly searched for a round trip ticket. I’d forgotten to book just the one-way flight. Right. The Ukrainian refugee just needs to get away right now. She isn’t looking for the round trip yet. 

So Who Gets Safe Passage?

I spoke last week with Rachel Jamison, the founder and Director of Safe Passage 4 Ukraine. Jamison says her organization has flown 505 Ukrainians overseas, fleeing the war. They have flown or housed (with hotel points) 41 injured volunteers. They have flown 39 wounded soldiers receiving prosthetics.

Rachel_Jamison
Rachel Jamison, SP4U founder

They have aggregated 17 million airline miles and approximately 2 million hotel points. Because they mostly work with points and miles, their actual financial donations have remained small, an estimated $350 thousand to date.

By day, Jamison is a law professor working for New York University based in the United Arab Emirates. We spoke by Zoom despite the 10 hour time difference. With an all-volunteer organization, she retains her full time job. “I’ve been in a lot of tough places,” she says, “but [Ukraine] is the hardest environment.”

“I come in as an atypical person, not from Ukraine. But this is what I’m most proud of, professionally. Safe Passage 4 Ukraine is also atypical, in that it involves Ukrainians working in partnership with foreigners, and military folks working with civilians. That’s very rare.”

Because they have many more people trying to flee the war than they can serve, their partners on the ground in Ukraine asses criteria for safe passage flights, which are a combination of 

1. A safe landing destination, 

2. Legality, and

3. Need

To determine a safe destination, Jamison says the “most common thing is people have family in the US or Canada, and they need to be reunited with them.” This is especially true as most people they help are women, and women with children.

Ukraine_refugees
SP4U mostly helps women and women with children

Next, their partners on the ground in Ukraine do assessment of their legal status.

“Every person we help move to the United States or Canada has a documented legal right to move, and has a sponsor when they arrive, usually a family member,” explains Jamison.

And then finally, there’s the prioritization of the most needy. “There’s an overall needs assessment that starts with: ‘if we don’t help this person, what will happen?’ All of them have been through things that you and I have never experienced,” Jamison continued. “So we are drawing the line at who really needs our help.” 

That often means the recipients of the flights are ill and in need of treatment, or they are people traumatized by bombing or Russian occupation. In the next phase of the war – which may mean towns newly liberated from the Russian army – Jamison expects a huge uptick in people desperate for help. 

“Right after Kharkiv was liberated [in September 2022] there were suddenly many people with serious needs. We are going to need everything we can get.”

An SP4U volunteer

Chris Schools is an ex-marine with operations experience who lives north of Dallas (Celina, TX). He has known Jamison from before she went to law school. Schools deployed to Afghanistan 2010-2011 with the marines as an ordinance specialist but has been out of the military since 2011. When Russia invaded Ukraine, he knew he wanted to help, but asked himself how? 

I asked him whether he considered going to Ukraine? “It runs through your head, but with a 6 and a 3 year-old now, my life is different. I can’t be going into combat zones.”

Instead, when he heard about what Jamison was doing, he reached out online and asked he how he could help. As he told me, “nobody is more action-oriented than Rachel, in everything she does. It was very easy for me to get bought in and know we were on a worthy mission.”

In April 2022 he volunteered to work on partnership outreach, and then extended his work to helping, along with others, to set up their financial systems, managing their PayPal account for incoming donations, as well as making disbursements for example to reimburse partners inside of Ukraine. 

As a logistics guy with a background in working in a complicated war zone, Schools was effusive in praising what Jamison created in a short time. “The organization is unique in that they found a way to give back that hadn’t been done. Anybody can say they need money, but they put together a complicated system in a manageable way, to be innovative and move quickly.”

The Appeal

This charity really appeals to me. I had an extra spare resource – airline miles – that I’ve traditionally found difficult to use. Safe Passage 4 Ukraine did the hard work to find and vet the person from a war zone who most needed them. They found the exact flight on the exact day that could serve her needs. All I had to do was book it with my miles under her name and personal information. They did the rest. 

I don’t know any of the back story of the woman whose ticket I purchased with my airline miles, only that she was from Mykolaiv, a previously Russian-occupied but now Ukrainian-liberated city. That’s all I need to know. 

Without this organization as a matchmaker, I would have virtually no way to personally help an individual in the Ukrainian war zone. I found it very emotionally satisfying doing my small part to help remove one person, desperate to get out of a war, to a safer place in the United States.

Here’s the link again to pledge miles.

A version of this post ran in the San Antonio Express News and Houston Chronicle.

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Ukraine Philanthropy I – A Scrappy Group

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The Chapter 313 Monster Revives in Texas

You know how in the final minutes of your favorite horror movie, when our plucky heroes kill the beast with a desperate last ditch effort, and the beast goes down, to everyone’s surprise? And then the camera zooms in on the exhausted survivors leaning on one another, only to have a shadow of the beast rise up, unseen, behind them?

“No!” we shout at the screen. “Look up! It’s still alive!”

That’s the call I got last earlier this year from members of a left/right coalition which managed to help – to everyone’s surprise – kill a terrible corporate welfare program called Chapter 313 at the end of the last legislative session, in May 2021.

The Monster Revives!

They are sounding the alarm over proposed rule changes by the Texas Comptroller’s office which they claim will harm transparency and allow the monster – Chapter 313 tax breaks – to rise up, back from the dead.

As of now, the program is set to expire at the end of 2022. In the light of that upcoming expiration, the Texas Comptroller’s office has proposed a change in reporting requirements for the program. 

The Comptroller’s office responded to my query about the changes, asserting that rule changes are meant to respond to the sunsetting of the program, to streamline reporting, to eliminate bad tax valuation data, and that it is following an established procedure for consulting stakeholders in the program. 

So what are critics worried about?

The fiendish Chapter 313 is a tad complicated, but let’s review the basics. A private company (often an energy company, but not always) wants to build a new thing in Texas. It presents a ( fake, according to a Hearst investigation and academic studies) threat that it might build the thing in some other state, so it needs tax incentives like a break on school property taxes in order to invest in Texas.

I say fake because in 85 percent of cases, the companies would have built their thing in Texas without the incentive, according to a report by UT professor Nathan Jensen, a long-time critic of the Chapter 313 program.

So it’s a pure private giveaway to incentivize a company to do the thing it would have done anyway. And you’re paying for it.

Here’s how you’re paying. A local school board approves a 10 year property tax break to build the thing in Texas. This could be worth merely hundreds of thousands of dollars in tax breaks to the company, but for big companies it can be worth tens of millions of dollars over ten years. A database currently maintained by the Comptroller lets you see how much and for how long companies get this incentive.

The Texas Comptroller’s office needs to approve new deals, but historically has given approval in 97.5 percent of cases. So that, in practice, has not been a real check and balance on Chapter 313. 

Part of the evil genius of the program is that the state wholly reimburses the local school district for its 10-years of foregone tax revenue, so school districts almost never say no. And when I say “the state” provides reimbursement, I mean ultimately you, dear taxpayer, reimburse the private company for building the thing it was already going to build in the first place. 

This became such a successful private corporate welfare game using public dollars that by March 2021 there were over 500 active Chapter 313 agreements, and the cost of the program reached over $10 billion in state funds. 

Even with the program currently sunsetted, a gold rush of sorts is currently underway – mostly by energy companies – to apply for the sweet, sweet tax subsidies. The Comptroller’s office website shows 123 new applications submitted in 2021 alone, with more no doubt to come in the year to come.

So here’s where we are in the horror movie, in December 2021. A coalition of both left and right-oriented think tanks had worked closely with a bipartisan group of Republican and Democratic to raise awareness of the Chapter 313 problems, which helped kill it last Spring.

But Doug Greco, lead organizer for Central Texas Interfaith in Austin, said the Comptroller’s rule changes are a prelude to reviving the subsidy, by limiting the public and press’s access to data in the future. “We are under no illusions that there will be an attempt to bring Chapter 313 back in the next legislative session,” says Greco. 

Among the proposed changes would be a decreased requirement to estimate the total value of projects, the number of jobs created, and the end of a centralized database of local school district tax breaks. Each of these elements made it possible in the past for legislators to study the effectiveness of the program. 

Bob Fleming, a leader with The Metropolitan Organization in Houston, a coalition of churches, sees an intentional plan to revive the subsidy program by keeping the public less informed. “Make no mistake, Comptroller Hegar intends to subvert the will of the legislature,” claimed Fleming during a press conference on the issue.

The Comptroller’s stated reason – per its website – for changing disclosure requirements is to “bring the Chapter 313 reporting into the digital age by making access by the public simpler and reducing the burden on school districts and agreement holders.” 

Opportunities for public comment on the Comptroller’s proposed rule changes ended December 19. 

The Comptroller’s Communications Director Chris Bryan meanwhile responded that “The agency is committed to making changes in a collaborative way that provides the legislature and the public the information they need to make informed decisions regarding the manner in which tax dollars are spent.”

In the light of the current surge underway of new applications before the end of 2022 deadline, the rationale for “winding down” reporting requirements is odd. Chapter 313 subsidies continue for 10 years at a time, so reporting less information until 2032 doesn’t seem to serve the public interest. 

Personally, I was stunned to see Chapter 313 go down in the last legislative session. It was the ideal example of a concentrated private financial benefit understood by insiders (tax attorneys, energy lobbyists) with a diffuse and poorly understood burden paid by the general public (that’s you and me, baby.) Sadly, treating uninformed taxpayers like mushrooms – feed them manure, keep them in the dark – usually works. 

Let’s hope the Comptroller’s office pays attention to recent public comments. We need that office to shine a light on this monster in the dark, as it attempts to stand up after being left for dead.

A version of this post ran in the San Antonio Express News and Houston Chronicle

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