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October 30, 2019October 30, 2019

Broken Recycling Markets Part IV – Best Household Practices

As recycling commodity markets have swooned the past few years and this former source of city revenue has now become a costs item, what’s a responsible household to do?

The first response is that households can’t do this alone. Recycling involves a complex interconnected chain between raw material producer, manufacturer, transporter, retailer, consumer, and waste processor. Household consumer behavior is only one link in the chain. I’m addressing the household link in the chain here mostly because I figure I have more household consumers reading this column than I have of managers of packaging manufacturers and managers of retail operations.

So, what’s a guy and his big household recycling bin supposed to do?

Until recycling processors change their engineering methods for efficiently separating materials, “less is (probably) more” when it comes to what we put in the recycling bin. Like, if you’re not sure, probably just leave it out. Even if you are sure, try to make sure you are sure, you know? We tend to suffer from a classic behavioral finance error, when it comes to our bins. That error is overconfidence, and putting things in “just in case” they can be recycled. That’s costly.

Republic Services, the nation’s second-largest waste management company reports that 41 percent of households received a “failing grade” on knowing what is, or is not, recyclable.

Josephine Valencia, recycling manager at San Antonio’s Solid Waste Department, explained to me that when the city has surveyed people about what they think goes into the recycling bin, they find that people are vastly overly confident about the wrong things. We think we know what we can recycle, but we are frequently wrong.

Metal

With clean metal soup cans and aluminum beverage cans – these are unreservedly still good for the bin. More than that, they represent the single highest value commodity that you can put into your municipal bin. So, you’re making money for your city when you put those in there.

But what about other metals? Tin foil? Small metal pieces? Metal mixed with plastic packaging? Chances are these aren’t at all recoverable by recycling processors. You’re just raising the cost of processing when you include these in your bin.

Plastic

Plastic single-use water bottles? Those actually are fine and have a market value. Milk jugs too, and even heavier plastic bottles. Practically all other plastics though are headed for the landfill.

About two years ago San Antonio said we could gather our single-use plastic bags into bundles of 30-40 bags, in the shape of a soccer ball. I learned those are headed to the landfill as well, with plastic prices where they are now. That made me sad. Many large retailers will take back the plastic bags, but that extra layer of effort is, well, not something I currently do. I liked making the soccer balls, darnit!

Paper

Paper is more fraught than I expected. It turns out most recycling processors were not built for the volume of small Amazon-style cardboard boxes we produce in 2019. Until that gets fixed at the processing plant, most of these are not getting efficiently recycled, to my chagrin.

Mixed paper is hardly worth anything these days, and cities are currently paying processors to take it off their hands.

Glass

And then there’s glass. This is a money loser for cities. It’s mentally difficult to landfill glass because it’s quite recyclable. And yet, the finance guy in me knows I’m just raising costs when I put glass in the bin. I’m torn.

Mixed Packaging

Most all mixed-packaging, which increasingly fills our shopping carts, is not recyclable. Your favorite thin salty chips come in in that cylindrical can made up of paper but with a metal lining inside? Totally not recyclable.

The metal trays from your favorite fast food barbecue place are not recyclable.

Plastic toys are generally not recyclable.

Plasticware from your take-out restaurant is not recyclable.

Generally plastics that aren’t a water bottle, milk jug or cleaned plastic can’t be recycled.

Clothing is not recyclable. Bring it to Goodwill.

And for goodness’ sakes, diapers are not recyclable. That’s for the trash bin only.

“When in doubt, leave it out” is what the experts keep telling me. By putting iffy items into the recycling bin you are simply raising the cost of processing, which gets passed on to municipalities one way or another, which we ultimately cover in our taxes.

I’m a markets guy, so I tend to think that recycling doesn’t have a chance unless we align dollars and self-interest with best waste management practices. I’ve come to appreciate that this is

1. Super-duper complicated and

2. Sustainable financially and environmentally only if everyone in the waste production and management chain is working together. It’s so complicated that it’s far easier to come up with questions rather than solutions or answers.

Big Questions for the Future

A few fundamental questions that learning about this raised for me:

Can households be trained better to recycle only the limited number of financially viable commodities like cans, tins, water bottles, and clean plastic jugs?

Can households some day be trained to actually separate their commodities into more valuable sorted bins, as is done in Europe and Japan?

Will consumers prioritize buying recyclable packaging materials in a way that will force manufacturers and retailers to respond to market demand?

Can manufacturers be incentivized to create more recycled and recyclable packaging, rather than mixing paper, plastic and metal in a way that can’t conceivably be recovered from household waste?

Can retailers be incentivized to serve as the feedback mechanism for channeling consumer preferences to food manufacturers?

Can recycling processers adjust their collecting and sorting processes in a cost-effective way to constantly-changing packaging?

Will municipal, state, and national government policies nudge – in a sustainable way – for more efficient recovery and reuse of materials?

The recycling market is in a period of transition caused by a market slump.

An optimistic view would be that technological and engineering changes, combined with household changes, can mitigate and even solve our problems in the future.

Energy and environment expert Rachel Meidl of Rice University’s Baker Institute says she doesn’t see the China ban or current commodity slumps “as a crippling force. I see it as an opportunity to prepare and strategize for the next generation of recycling and innovation. A long-term sustainable solution would be investing in R&D and scaling up infrastructure to recycle or recover” more commodities.

That, combined with household behavior, would help over the medium and long run. I don’t know enough whether to be optimistic or pessimistic about the current crisis. I’m going to try to do better with my bin though, and leave the rest to the experts.

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

Please see related posts

Broken Recylcing Markets Part I – China Ban, market swoon

Broken Recycling Markets Part II – Commodity Markets slump

Broken Recycling Markets Part III – Hit on City Budgets

Organic Recycling – Green in Being Green

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August 2, 2019August 4, 2019

Book Review: Fifty Inventions That Shaped The Modern Economy, by Tim Harford

barbed_wire — Barbed wire…so simple, so consequential

Modern Texas owes everything to the innovation and marketing genius of John Warnes Gates. Don’t worry, I hadn’t heard of him either, until this week.

In 1876 he presented a technological marvel that would revolutionize the state, in a promotional display in Military Plaza, in the heart of downtown San Antonio. Exactly where City Hall would later be built, just 15 years later.

Gates described his innovation as “lighter than air, stronger than whiskey, cheaper than dust.” A print advertisement from the year before had dubbed it “The Greatest Discovery of the Age.”

Gates’ marketing stunt: He bet all comers that their wildest longhorns, whipped into a frenzy by his sidekick with a burning brand, couldn’t break through a flimsy-looking little wire pen he’d built in Military Plaza.

His innovation: barbed wire. It worked.

The anecdote comes from some enjoyable summer reading, Tim Harford’s 2017 book: Fifty Inventions That Shaped The Modern Economy.

In a series of 50 essays of 3-4 pages each, Harford describes the surprising results of many seemingly humble innovations.

So what revolution did barbed wire launch? Before barbed wire, the vast prairielands of Texas couldn’t be divvied up effectively into private parcels. Before barbed wire, the American prairie was effectively unbounded. Native tribes, as well as cowboy teams heading up cattle drives, thrived in this fence-less free range. Like an untame-able ocean.

Despite President Lincoln’s 1862 promise of 160 acres through the Homestead Act to anyone who could settle it and work it for 5 years – privately-held land in the state just didn’t work economically. In vast swathes of Texas it was nearly impossible to keep free-roaming cattle in – and out – of people’s property. Property lines, without an effective means of enforcement, weren’t respected.

But now with barbed wire, cheap and easy enforcement changed everything. The native tribes were doomed. The traditional cowboy-led cattle drive was doomed. Without unfenced prairie to roam – forever altering the previous regime of “the open range,” their livelihood was gone. “The devil’s rope” tamed wild Texas. Private property owners now had the cheap and effective means to invest in and develop their land.

What gives Harford’s book extra philosophical texture is his eagerness to consider technological innovations for all their consequences – for both better and worse. With new products or methods we enhance our lives in many ways, but we also suffer as well. We expand the scale at which humans can live, but we completely upend traditional ways of life. He explores who lives and who dies, who reaps astonishing benefits and who loses their livelihood.

Harford’s book is mind-expanding, easy to digest, and if you like business stories – fun. Harford raises many issues of our day that underlie conflict in our politics and society. One is the unintended consequence of disruptive technological change. From trade disputes to privacy invasions to relentless market pressure to rising inequality – it seems like every big issue of the day hinges on these unintended effects.

The invention of baby formula maybe saved millions of lives, but led us on a 100+ year detour away from the original best nutrition for babies. Birth control pills launched an education and economic revolution as a result of the first effective contraceptive that women themselves could control. The technology of music recording, and revenues from copyright, created a winner-take-all star system in entertainment, previously unimaginable just two generations ago.

Texas_prairie — Taming the Texas prairie required one simple, cheap invention

In essay after essay Harford shows how a smallish change in material conditions alters the entire way our society works.

The barbed wire example highlights our still unsettled attitudes towards private property. The transformation of Texas into an economic powerhouse required enforceable private real estate property rights. But clearly we are not all in agreement that this is a good thing. And depending on who we are or were – the native, the cowboy, the homesteader – a little innovation changed absolutely everything. At the core of some of our biggest political fights today – on taxation, student loan debt, health-care costs, to name a few – is a disagreement over the relative cost and benefit of private property rights enforcement. Should education be free? Should health care be affordable for all? Should we have to pay for music we download from the internet?

Harford explicitly makes the connection between barbed wire and musical copyrights. The technology needed to protect the private copyrights of music recordings is similar to the ‘stronger than whiskey, cheaper than dirt” barbed wire.

In a post-Napster world of illegal downloading and streaming, music copyrights nearly became completely unenforceable. The music industry went into an industry-long slump from about 2005 to 2015. One of the main things Disney and Netflix and YouTube do today is erect and maintain digital barbed wire around their private properties. Their effective digital barbed wire creates massive differences between winners and losers in music royalty payments. Is this a good thing?

By the way, as a recent amateur investor in music royalties myself, I newly applaud strict enforcement of these private property rights. It suddenly seems fair to me.

No doubt, however, effective private property enforcement renders many people worse off.

A few other notes on barbed-wire promoter John Warne Gates. Gates went on to build a fortune in steel production, his company eventually purchased by the early 20^thCentury mega-company US Steel. He was also an early major investor and then President of a business born from the original Spindletop gusher, The Texas Company – begun in Beaumont in 1902, moved to Houston in 1903, and later renamed Texaco.

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

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February 17, 2018February 17, 2018

Amarillo by Mornin’ – A Stadium Building Story

On February 1^st, the City of Amarillo, TX broke ground on their brand new downtown $45.5 million publically-funded baseball stadium, the future 2019 home of the AA-level minor league Missions baseball team, a team currently based in San Antonio.

As I wrote about last week, I dislike these public-money stadium deals, for two reasons. First, the promised “economic development” too often is an illusory sales pitch that never comes true. Second, I get mad because sports teams owners should build their own doggone stadiums rather than depending on tricks with public dollars.

Despite my distaste, it’s useful to study these things to understand how they might come about. I describe that in the second half of this post.

As the Missions baseball team hits the road to “Amarillo by morning, straight up from San Antone,” in 2019, will we be getting a new publicly-funded stadium in San Antonio to keep pace with the panhandle? (Incidentally, if I don’t have you humming that George Strait cover song by the end of this post you deserve a full refund.)

I asked San Antonio mayor Ron Nirenberg whether he was aware of any negotiations with The Elmore Group to build them a nice new AAA minor league baseball stadium, in order to welcome the Colorado SkySox team slated to move to town in 2019. Nirenberg described the silence between the city and the Elmore Group as “crickets.” DG Elmore, owner of the Missions baseball team, replied to my query that “At this time, we do not have comments or information to share about a new ballpark.” About Amarillo’s stadium, Elmore replied “it will be ready opening day 2019.”

The combination of silence and “no comment” in San Antonio does not necessarily mean nothing is happening. City Councilman Robert Trevino, whose downtown District 1 was reportedly the destination target for a new baseball stadium as recently as last year, described meetings with the Elmore Sports Group at the National League of Cities summit in Charlotte in November 2017. The Elmore Group hosted at least 5 San Antonio City Council members including Trevino, for a tour of Charlotte’s downtown minor league baseball stadium, presumably to warm them up to the opportunity in San Antonio. Trevino, a professional architect, said urban design considerations around a baseball stadium weigh heavily with him. He says his support for a future stadium would depend on whether existing downtown development plans already in place and elements such as parking and transportation coordinate well with a new stadium.

That coordination, necessary to achieve economic development, is often lacking, according to Heywood Sanders, professor of Public Administration at UT San Antonio. Sanders points to Houston’s Toyota Center – home of the NBA Rockets, as a relatively successful development on Houston’s east side of downtown.

“The city and business interests (of Houston) wanted to develop downtown. The decision was a very conscious and well thought out one,” says Sanders.

Sanders contrasts that with the San Antonio experience. “If you’re going to do it, how do you do it? Do you plan surrounding development in a coherent, well thought-out way, or do you just plop the structure down and cross your fingers?” Sanders asks rhetorically. “If ever there was an example of the latter, there are two examples in San Antonio. First, the Alamodome, and then subsequently the AT&T Center.” Those have failed to spur surrounding development, to say the least.

So I’m nervous about any promised economic development based on past history. But also, financially, what can we learn from Amarillo’s public stadium deal?

One interesting element, at least to me, is the way the $45.5 million deal patched together money from sources designed to avoid political backlash. I’ll describe those in detail as they’re clearly from a playbook that sports owners and political leaders use over and over again.

The biggest source of funds for the stadium will be a hotel occupancy tax (or “HOT” for those of you who like cool acronyms.) The HOT gets collected as a sales tax on hotel rooms booked in Amarillo. Voters narrowly approved $32 million to be used for constructing a stadium in 2016.

The HOT allows officials to say, with a straight face, that mostly non-residents – hotel visitors to Amarillo and hotel owners – pay the taxes for financing this stadium over the long run. You can probably see the political advantage of using the HOT.

The second most important source of funding for the stadium is already-collected HOT money that will be dedicated to the stadium project. Also importantly, HOT funds are specifically intended to be spent on projects to spur Amarillo’s downtown and tourism business. That’s the purpose of the HOT. Knowing all that, you might reasonably say, and many will say, that the public financing of Amarillo’s stadium is using money already set aside for this type of project and doesn’t burden residents with any new taxes.

A third source of funding will be a tax only levied on downtown commercial real estate owners.

If you were a grumpy cynic like me, however, you might think the following two things: first, the creation of a HOT is the original sin. Once you vote for a tax dedicated to downtown public development projects, you inevitably end up with things like stadium deals and downtown convention centers, whether they make long-term sense or not.

“Well, heck, we have the money already!” is a logical thought process of civic leaders, and the first step towards a badly thought-out plan.

Second, a better version of a HOT – in my imaginary ideal world – would create less restricted uses for the funds. Instead of building stadiums for privately-owned sports teams, my ideal civic leaders would use HOT money to fund other things like parks or libraries or complete streets or any number of projects that don’t direct public money toward hosting a private company’s business.

The finance term for this idea is that “money is fungible.” In other words, if you’ve got $10 million in saved up funds, or $32 million in future tax revenue, is a stadium really the best public use of public funds? Obviously hotel owners don’t support city governments that set up a HOT without restrictions to benefit them. But in my imaginary ideal world, local governments don’t only do what hotel owners, and sports team owners, want.

Please see related posts:

Super Bowl Stadium Thoughts

Raiders to SA bad idea

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September 13, 2017March 9, 2018

Bail Bonds Part II – Is The Business Doomed?

I wrote recently that what I learned about bail bonds companies made me appreciate them, at least from my capitalistic “that’s an interesting and possibly profitable way to make money” perspective.

That doesn’t mean I’m deaf to other arguments, against the industry. Those arguments have gotten louder recently, to the point that bail bonds businesses in places like Houston, and the entire state of New Jersey for that matter, face an existential threat right now. They may not survive.

If you don’t work in and around the bail bonds industry, you might not already know that a recent judge’s ruling is killing them in Houston.

At the end of April Chief District Court Judge Lee Rosenthal ruled that all defendants accused of misdemeanor offenses in Harris County (where Houston is) must be released from jail within 24 hours. The ruling went into effect this summer in Harris County, pending resolution of a lawsuit, expected in October.

The practical effect of the ruling is to make all misdemeanor defendants eligible for bail through county-supported pretrial services or a Sherriff’s bond, thus avoiding the need to pay for a more costly private bail bond.

That, plus the expansion of Harris County’s pre-trial services to respond to the ruling, has caused the elimination of 80 percent of the private bail bonds business, according to John McCluskey of Action Bail Bonds in Houston. He believes all of his fellow bail bonds competitors in Harris County have seen a similar catastrophic drop-off in their business. According to McCluskey, they’re pretty much dead.

Let me break down the arguments about bail bonds, pro and con. Proponents and opponents of commercial bail bonds cite the same three important factors, but come to completely opposite conclusions about the proper role of private bail bonds versus what we might call the ‘public option,’ made up of a nearly-free County-supported pre-trial services’ “personal bond,” or another free public-option, called a Sherriff’s bond.

Among both pro and con camps, the three agreed-upon factors to argue are:

Fairness – Is it fair that people are released from jail awaiting trial, or not, based on whether they can afford bail, or not?
Public Cost – Are taxpayer resources being used appropriately?
Public Safety – Do bail conditions adequately prevent accused criminals, awaiting trial, from re-committing crimes? And which method best guarantees that people show up in court to face justice?

What opponents and proponents don’t agree on is the data, the other side’s use of data, or the meaning of that data. As a finance guy, the second issue, public cost, caught my eye in particular.

In conversations with three different bail bonds owners in Texas, plus a fourth expert who has done consulting work for the industry, I heard them proudly represent a private-sector solution to the public-sector problem of ensuring court appearance for trial, thereby saving taxpayer dollars.

Requiring a defendant to pay for his release, bail bondsmen say, saves taxpayers from taking the financial risk of their eventual return to court. The cost of monitoring defendants falls to bail bondsmen as well, not county employees. Finally, if a defendant fails to show up for trial, bondsmen say, the cost of collecting them doesn’t hit the county taxpayers.

In a narrow sense, taxpayer costs will go up in response to the recent shift to the public pretrial option for bail, the Houston Chronicle reported, as Harris County pretrial services hired a dozen new positions.

Mike Lozito, Bexar County’s head of pretrial services, estimates that he would have to triple his current staff of 71 to completely handle all bail cases, were Bexar County to go a similar route. Partly to avoid that additional public burden, Lozito told me, he welcomes the private/public partnership between pretrial services and the commercial bail bonds industry.

Yet, opponents of status quo commercial bail system make bigger, and ultimately more profound, cost arguments.

As Matt Alsdorf of the Laura and John Arnold Foundation told me, the narrow cost issue of bail bondsmen versus pretrial services does not accurately capture the true public expense of private bail.

As Vice President of Criminal Justice at the Foundation, a think-tank at the forefront of challenging the commercial bond industry, Alsdorf argues that we need to take into account the total cost of incarcerating people. Keeping penniless defendants in jail because they can’t post bail costs the public between $75 and up to maybe $300 dollars each night per person, depending on estimates and jurisdictions, according to Alsdorf.

US Senators Rand Paul (R- KY) and Kamala Harris (D-CA), argued in a recent New York Times editorial that 450,000 people sit in jails nationwide because they cannot make bail. They estimate this failure to afford private bail costs the nation an additional $14 billion more per year in an expanded jail population.

Further, as Alsdorf point out, the impact of losing out on employment, or disrupting families, makes extra time in jail an economic catastrophe for people least able to endure that hit. That economic hit may appear justified to some people, because it “punishes arrested people,” but it also would seem to encourage an ongoing cycle of poverty, which probably costs the public far more in the long run.

Facing the right-left alliance of Senators Rand and Harris, think-tanks like the Arnold Foundation, and civil rights groups like the one that brought the Harris County lawsuit, bail bonds companies ought to be very nervous. Could the Houston-area lawsuit spread to the rest of Texas?

As Bexar County’s public defender Michael Young explained to me, not right away, but maybe over time.

“It is true that there is a federal lawsuit pending in Harris County dealing with personal bonds and misdemeanors specifically. It is my understanding that the ruling in Harris County is specific to the facts presented in that case, so therefore any ruling wouldn’t automatically be applied to another county in Texas. However, the legal reasoning of the federal judge could be applied to any county, and could result in a similar ruling, in future cases”

I’ll interpret this to say, over time, follow-up lawsuits could eliminate private bail bonds in cities and counties all over Texas. As private businesses they might be dead men walking and not yet know it.

Please see related posts:

Bail Bonds I – An Interesting Way to Make Money

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July 6, 2017July 6, 2017

Is College Worth It?

I always enjoy a good debate like “Is X worth it, financially?”

When X = College the debate seems particularly fraught.

A friend sent me a link to a blogger Erik Rood who makes a nice case for why investing in college does not pay as well as we might think, compared to competing financial opportunities.

Rood presents the thought experiment of two eighteen year-olds. One borrows the cost of college, but instead of attending college invests in the stock market for twenty-four years instead, and earns the average salary of a high school graduate beginning at age eighteen. The second borrows the same amount to pay for college, attends for four years, and then goes to work four years later, earning the average salary of a college graduate for the next twenty years. The punch line is that the “return on investment” for the 18 year-old high school graduate who invested her tuition in the stock market instead of going to college is higher under a majority of scenarios, compared to the college graduate.

Rood references Payscale.com’s data for approximately 1,250 institutions, and he adjusts for the probability of actually graduating from college when calculating investment returns. He also specifically measures the previous 24 years of stock market returns, from 1993 to 2017, a particular moment in time that yielded a 7.1 percent return. Only about 10% of institutions show a “return on investment” via graduates’ salaries that exceeds the stock market returns over that period.

One obvious caveat to Rood’s analysis is that 18 year-olds generally cannot borrow a few hundred thousand dollars to invest in the stock market for twenty-four years, leaving his analysis purely in the realm of the theoretical.

Still, his big idea compels me: There are plenty of scenarios in which getting a four year college degree hardly makes pure financial sense, versus other uses of the money.

Finance columnist Scott Burns and his co-author Laurence Kotlikoff make a related-sounding argument in their book Spend ‘Til The End

regarding the lifetime consumption power of students attending private four-year colleges, versus someone who goes to work straight out of college. According to their math – which admittedly assumes borrowing money to attend an expensive 4-year college, at full-tuition – the college graduate only enjoys a surprisingly thin 10 percent higher expected lifetime living standard compared to the average high school-only graduate.

Obviously, if an eighteen year-old’s parents can pay, and the entire cost of college doesn’t need to be borrowed, the calculation changes for the student, who can immediately enjoy average higher earnings after graduating. But while that is pleasant for the child of relatively affluent parents, it doesn’t change the economics of the choice to attend, or not to attend, a costly college. It still may not make sense from a pure economic standpoint, given the thin 10 percent advantage gained by the college graduate.

I don’t think the correct conclusion to this analysis is to urge your favorite 18 year-old student to just “turn on, tune in, drop out,” get a job, and just like chill, man. I’d summarize the correct conclusion rather as: The pure financial returns to a costly education may not be as high as you think, and the more you pay, the less likely you are making a sure-fire good-money bet.

We can admit that this type of analysis make big assumptions that weaken the practical uses we might make of the “Is college worth it, financially” analysis for our own specific lives.

First, data on earnings will show the median, or average, of earnings from graduates of college. Many will earn more, many will earn less, but the entire cohort will include people who might not need to work for a living, or include people who decide not to work outside of the home. For people planning a life as the primary breadwinner, the “average earnings” data will probably under-estimate their earning potential.

Furthermore, for people who prioritize earning money after college, we would expect certain types of engineering degrees to lead quickly to higher-paying work, while less-technical degrees have lower pay, at least in the first few years.

We also quickly note that the price of a 4 year undergraduate degree varies tremendously, not only between public institutions which tend to be more affordable than private institutions, but also between the stated “sticker price” of college and the true cost, after merit and financial aid scholarships. Clearly, any financial calculation in which the annual price of the thing being analyzed varies between zero and $65,000 per year has some wiggle room for debate.

Part of what’s unsatisfying about this particular “is X worth it, financially” debate is that we have almost an infinite variety of variables, from quality of educational institution, to course of study, to cost of education, to professional goals around making money. Averages don’t really capture all that complexity.

Of course, the most important answer to the debate is that attending college is not solely, or even primarily, a financial transaction. We are not abstract economic actors mechanically trading dollars and time units of education today for dollars in the distant future. We are also concerned with developing our capacity to understand our world, to develop our greatest human potential, and to expand the limits of our soul.

I’ll have much more to say about that topic in my new weekly philosophy column “An Expanded Soul,” shortly after I launch my weekly sex advice column tentatively titled “The Smug Married.” Juuust kidding. I’ll try to stick to finance topics, as limited as that can sometimes seem, when compared to the wider world.

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

Please see related posts:

Saving for College

529 Accounts for Grandparents

Interview With College Advisor – Part 1 – The Rising cost of College

Interview with College Advisor Part 2 – Is the Financial Model Broken?

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June 21, 2017

Need Transparency Taken To Eleven

In my last post I mentioned the terrible scores Houston and San Antonio governments received for transparency in their economic development programs, according to a report by Good Jobs First.

One reason the stakes for transparency are high is because the amounts of subsidy are so big. How big? Well, we’ll soon find out. In 2017, for the first time, cities and counties nationwide will have to disclose how much in total subsidies they provide to private businesses, due to a new accounting standard known as GASB 77.

A study by the New York Times in 2012 found that governments in Texas provided the most economic subsidies to private business of any state in the nation, at $19.1 billion.

Texas Monthly writer Erica Grieder makes the point in her book Big, Hot, Cheap and Right: What America Can Learn From the Strange Genius of Texas, that “free-market capitalism” in Texas has, ironically, long relied on strong government intervention and subsidies for private business.

But with that high subsidy comes – I would argue – a heightened duty to keep the public informed of programs and results.

The current way of reporting on economic development subsidies, officials in each of the City of Houston, City of San Antonio, and Bexar County all told me, is that, once a year, the economic development department sends a spreadsheet over to someone at the newspaper, either the Houston Chronicle or San Antonio Express News. Beyond that once-a-year data dump, either an enterprising citizen or more likely a bored reporter on a fishing expedition working on deadline would need to submit a specific request to the economic development department of the city or county.

Since the information is deemed public, this request presumably would be fulfilled with little muss or fuss. All of the officials with whom I spoke reiterated that no formal “Freedom of Information Act” request (a “FOIA” for the cool kids) needs to be filed.

But you can probably see why, although that constitutes a minimum standard of public disclosure, it falls far short of what we should reasonably expect in 2017. What if the reporter or editor at the respective paper had a full plate of stories that week and didn’t really want to make use of the information? What if – as is likely every year – no particular economic development deal jumped out as worthy of newspaper coverage? What if – as shocking as this will sound to all of you reader-types – a citizen doesn’t actually read the newspaper? How would they learn about this? For each of these reasons and more, an annual newspaper data dump isn’t the right level of transparency at this point in time.

All of the economic development officials I spoke with agreed with me in theory on this point, but obviously it will take some effort and resources in their respective departments to improve the situation.

And we can agree that improving searchable websites for ease of transparency can be difficult. Bexar County’s Executive Director of Economic Development David Marquez pointed out to me that certain (not to be named) newspaper websites can be notoriously un-searchable. That’s a fair point, my man. A fair point.

Anyway, I hope they will all take a look at Austin’s searchable database, to see what good disclosure and transparency looks like.

Beyond the amount of money involved, why else do we need a high degree of transparency with respect to economic development deals? Just this. There is nothing quite like conferring a public good – a generous tax break – to a private company that gets my spider sense tingling about potential conflicts of interest. You don’t have to be paranoid or a cynic like me (although I invite you to be) to believe that a natural symbiosis exists between public officials who need money and have the ability to award valuable subsidies and private enterprises who would happily return the favor.

We – not just writers, but also citizens – should be able bring up an online database showing, just to pick an example, political campaign contributions, and compare that database to public subsidies of private companies. Are there any connections? Does a company that contributes to a campaign show up as a beneficiary of public subsidy? That’s the very definition of conflict of interest, and we need the tools to prevent that. If there are any dots to connect, everyone should have the power and ability to connect them, from the comfort of their own laptop. If there are no dots to connect, then we all sleep better at night.

This is in no way a Republican or Democratic Party issue. But if you want to see it that way, just consider the importance of making sure officials from that other party (the one you most distrust) can’t get away with it. We need you on that wall, people, guarding against that other party’s nefarious conflicts of interest!

I believe the right volume of transparency for economic development tax breaks for private companies is a “SHOUT IT FROM THE ROOFTOPS, CONSTANTLY” level of transparency. On a scale of one to ten, I want transparency that goes to eleven. Because you see, it’s that one bit louder, isn’t it?

The next best thing to a transparency volume turned up to eleven is an online searchable database. Properly understood, that’s strongly in the interest of public officials and private corporate recipients as well. They also want and deserve the legitimacy that goes with transparent economic development plans, free from charges of influence peddling or conflicts of interest.
Please see related posts:

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

Need for Transparency in Economic Development Part 1

Economic Development Subsidies: Turtles All The Way Down

Book Review: Big Hot Cheap and Right, by Erica Greider

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