Ohio Economists Think School Funding Reform Will Substantially Reduce State Inequality

In a survey published by Scioto Analysis this morning, 26 of 30 Ohio economists agreed that a more equitable state school funding formula would substantially reduce inequality in the state of Ohio in the coming decades.

While the majority of respondents agreed a more equitable funding formula would substantially reduce inequality, a number of economists stated that the degree of the impact would be contingent on broader investments and smart use of funds.

Of the four economists who did not agree with the statement, three agreed more equitable school funding would reduce inequality, but were uncertain whether that reduction would be substantial, explaining that other factors will also be important in reducing inequality.

Last month, the Ohio House of Representatives passed a bipartisan bill to reform school funding in the state. The Ohio Senate has declined to take up the bill this year, but components of the bill will likely be a factor in budget negotiations next year. Advocates say House Bill 305 will make the state school funding formula more equitable.

The Ohio Economic Experts Panel is a panel of over 40 Ohio Economists from over 30 Ohio higher educational institutions conducted by Scioto Analysis. The goal of the Ohio Economic Experts Panel is to promote better policy outcomes by providing policymakers, policy influencers, and the public with the informed opinions of Ohio’s leading economists.

If you would like to suggest a question for a future Ohio Economic Experts Panel, email your ideas to panel@sciotoanalysis.com.

Should we use benefit-cost ratios or net benefits to make decisions?

If you’ve seen a cost-benefit study reported or talked about in passing, you’ve probably heard a phrase that sounds like some sort of variation of “for every dollar you put in, you get $X out.” In cost-benefit, this is what we call a “benefit-cost ratio.”

Why do we use benefit-cost ratios? Well, they are intuitive. If you get more dollars out than you put in, sounds like a good deal, no? So benefit-cost ratios help us communicate a core insight from cost-benefit analysis.

Another use for benefit-cost ratios is in trying to figure out how to allocate a limited budget. If a government has limited funds and cannot increase its revenue, benefit/cost ratios are a great way to compare programs.

For instance, if a state government is doling out money for tackling substance abuse problems and a local government is trying to figure out how to spend it, local policymakers can turn to the Washington State Institute for Public Policy’s benefit-cost tables for substance abuse and order the programs from highest benefit-cost ratio to lowest. They can then eliminate low-yield programs and use a mixture of higher-yield programs, or if funds are very limited, just choose one of the programs has a higher benefit-cost ratio.

So if benefit-cost ratios have so much value, why do cost-benefit analysis textbooks and professors emphasize a different way of communicating cost-benefit results—"net benefits”—so much?

First, let’s establish what net benefits are. While a benefit-cost ratio is calculated by dividing benefits by costs, net benefits are calculated by subtracting costs from benefits.

Benefits / Costs = Benefit-Cost Ratio 

Benefits - Costs = Net Benefits

So let’s say, for instance, that a county government was entertaining a proposal to implement a pre-k program that would generate $4 million in social benefits and $1 million in social costs. In this instance,

Benefits / Costs = $4 million / $1 million = 4 benefit-cost ratio

Benefits - Costs = $4 million - $1 million = $3 million of net benefits.

So what do people like about net benefits? Well, what matters is when net benefits diverge from benefit-cost ratios.

Let’s use an example here. Say a state legislative leader is trying to make a big impact in the world of education. She finds that a state universal early childhood education program would yield a little over $3 in benefits for every dollar invested and would help students enrolled to the tune of about $15,000 per student enrolled. Conversely, she finds that Second Step, a program for aggressive children, yields over $5 in benefits for every $1 invested but likely will impact a lot less children and will have a lower per-child impact as well at just about $500 in benefits per child. 

If the legislator wants to raise a small amount of money, Second Step might be a better program. If the legislator is willing to raise the large up-front costs for universal pre-k, the net benefits will justify that revenue, even if it is more expensive to generate those dollars.

Ultimately, both measures are beneficial. Benefit-cost ratios are easier to explain, but they also don’t paint the whole picture. Cost-benefit studies would do well to include both of these results so policymakers can utilize a more full understanding of the policy when making a decision about what to fund.

Municipalities should embrace their waste

A couple of years ago, I was at a conference at Ohio State’s Moritz School of Law on harm reduction strategies for the opioid crisis. One of the speakers was Dr. Dan Rosenblum, a health economist from Dalhousie University in Nova Scotia who specializes in both development economics and illicit drug markets.

At this conference in particular, Rosenblum was talking on his work analyzing overdose data from Ohio’s state crime labs, sussing out which chemicals were present in the bodies of overdose victims after death.

One thing that made my ears perk up as a policy analyst was when Rosenblum started talking about crime lab capacity. He talked about the backlog at Ohio crime labs and how the chemicals that were in the bodies of victims often were not identified until six months after the death occurred.

According to Rosenblum, this was not a technical limitation, but a backlog due to resource constraints. He said testing like this should be something that can happen in only a day or two if the resources were in place.

After his talk, I approached him and asked him the obvious questions: What are the benefits of getting this testing speed and how much would it costs us to achieve it?

The benefit of rapid testing of overdose victims is that the public health system can get a quick read on which drugs are permeating which communities. This means PSAs about fentanyl flooding a community, law enforcement on watch for specific types of drugs, and hospitals EMTs ready to treat with that danger in mind.

The costs? Rosenblum gave me a ballpark of $10 million a year. If this system of rapid testing could save one life a year, it would be well worth it under standard benefit-cost analysis assumptions.

This logic doesn’t stop with the opioid crisis. Today, we find ourselves in an even more massive public health crisis running alongside Ohio’s still-existent opioid epidemic. And we have a tool for rapid testing a detection of COVID-19: wastewater testing.

Yep, that’s right: by monitoring sewage wastewater, coronavirus outbreaks can be detected anywhere from a few days to a week before cases and hospitalizations increase in a local area. This means the public health system can get the jump on the virus by issuing public alerts, shifting staffing, and trying to lessen the load on strained hospitals to avoid the worst stages of triage protocol.

The costs of this program are even lower than the opioid crime lab, being funded by a $2 million federal CARES Act grant. It also has the potential to save more lives due to the massive scale of COVID-19.

In Ohio, there are currently 60 wastewater treatment plants taking part in the program, but some local governments have declined for one reason or another. What we know is that knowing quickly where COVID-19 is popping up could be the difference between life and death for edge cases in a health system that is currently hitting peak hospital bed strain. Rapid wastewater testing could be a low-cost, high-benefit intervention just at the time that we desperately need it.

This commentary first appeared in the Ohio Capital Journal.

How Policymakers Think About Expertise

What does it mean to be an “expert?” Expertise is a squishy concept and one that is not well-defined, but that nonetheless we rely on in order to make decisions. After all, everyone can’t know everything. We rely on experts in order to help us understand the world so we don’t have to do all that work on our own. 

Ultimately, expertise is an economic proposition. If I had to go out and prove to myself that every car was safe, I’d spend all my life doing it. I economize my time by trusting regulators (experts in car safety) to recall dangerous cars and only allow cars at a certain safety threshold or higher on the road.

In an individualistic, democratic society like our own, we don’t always turn to experts to help us make decisions. This is as true in our everyday life as it is in the policymaking world. Because we elect our representatives, our representatives are usually reasonably educated generalists, often people who have careers of their own separate from policymaking with no special expertise on how policy works.

So how do policymakers assess expertise? As a firm that lends its expertise to policymakers, we spend a lot of time trying to understand the needs of policymakers and the type of expertise they seek. Below are some examples of how policymakers assess expertise when trying to get good policy information.

Possibly the most important source of expertise is recommendation. Policymakers assign expertise to those who others they know have assigned expertise to. This is likely the reason that, for instance, ALEC has gained so much credibility as an organization for legislative expertise. By having legislators recommend other legislators, ALEC was able to use networks of trust to build their reputation. Unfortunately, in this case many legislators end up feeling duped as they found the organization did not offer the sort of expertise they originally wished it had.

Another source of information about expertise is credentialing. This often means academic degrees, but can also mean affiliation with major universities or respected organizations. For example, someone with a degree as a doctor is signaled to have expertise on medical issues. Sometimes these credentials are good signals and sometimes they are faulty ones, but credentials that confer dispassionate expertise are likely to get more attention from policymakers than people who come in without these credentials.

A third source of conferral of expertise is experience. You all have seen people list how many years of experience they have in a field. Time can be a signal for experience, but also breadth of depth of work such as working with people in a certain community for a number of years or working with a range of clients across a wide geographical area. Policymakers are more likely to confer expertise on people who have been doing something for a long time in a certain area or across a number of different client groups.

Finally, there is the “x-factor.” These can be more subtle hints at expertise, and may often be the most faulty signals for good information. Does this person dress like an expert? Does she speak like an expert? Does she fit my mental model of what an expert looks like? Is she old enough to be an expert? All of these, fair or unfair, are factored in when a policy makes a decision whether to trust someone as an expert.

Expertise is, to say the least, an imperfect concept. But it is necessary. It’s a tool we use to economize our paths towards good information, but because of that we often create a lot of mental shortcuts that don’t always make sense. At its best, expertise saves gobs of time and gives people better information they can use to make better decisions. At its worst, the shortcuts lead people astray. In a healthy democracy that favors citizen leadership, our task is to make these signals as helpful as possible for policymakers to gain good information about policy decisions rather than information tainted by special interests.

Is a new stay-at-home order on the docket for Ohio this winter?

Last week, Franklin County became the first in the state to receive the highest “purple” designation in the Ohio Department of Health’s public health advisory system, indicating “severe exposure and spread” in the county.

When the public health advisory system debuted at the end of June, purple “severe exposure” was designated for counties that met six of the seven indicators for increased spread. When counties started hitting this threshold, though, the state created a new “watch list” designation and eventually changed the purple designation to two consecutive weeks of meeting the indicator criteria, which is the designation as it stands today.

The quick change in criteria off-the-bat and creation of the “watch list” in July to keep counties off the list of “severe exposure” deflated my hopes for this advisory system. I still haven’t seen any explanation for why this change happened, so I can only surmise that they rolled out the system too quickly and were not willing to hold themselves to the standards they put in place when we hit the second reopening wave in July.

The public health advisory system was used in July to justify county-by-county rules around mask-wearing before the governor decided to mandate mask-wearing in public statewide. The governor’s strategy in the current wave, which has seen hospitalizations spike to their highest levels, has been to institute a statewide curfew.

This curfew may have an impact on spread on the margin, but enforcement will be difficult. Outside of shutting down ragers on Indianola, law enforcement will have few options outside of this. It will be difficult and unacceptably intrusive, after all, to investigate whether a few friends are over at a house for a movie or a family is visiting their aunt’s house for a board game night.

So what option does the Ohio Department of Health have at this point? The most obvious would be a renewed stay-at-home order. Political considerations make this a difficult choice for DeWine right now.

My hunch is that part of the reason the state was wary to elevate counties to purple “severe exposure” levels in July was that it was leaving room for more county-by-county interventions. Stay-at-home orders targeted in counties could be more politically palatable than a statewide stay-at-home order, especially if these counties happen to be urban and Democratic, where opposition to such orders would be tamer and compliance would be wider.

Sticking to those designated in the system, though, could be tricky. Any county could become purple soon, and they will by necessity be more conservative and rural than Franklin County, one of the most liberal and urban counties in the state. Another option would be for the Governor to enforce stay-at-home on a county-by-county basis with consultation of local officials, though the politics of this approach could become cumbersome as well.

At this point, no states have issued stay-at-home orders; they have instead stuck to optional advisories. If community spread continues to grow at the pace it is growing, states will start looking back at stay-at-home as a way to quell the virus in the coldest months. It seems that at some point the state would have to have a threshold at which it would find community spread unacceptable and have to reinstitute stay-at-home. What that threshold is remains to be seen. While Ohio was on the leading edge of response to COVID-19 in March, we will have to wait to see where it will land in this long winter ahead.

This commentary originally appeared in the Ohio Capital Journal.

Ohio Economists Say Payments to Firms Will Speed Recovery from Recession

In a survey published by Scioto Analysis this morning, 23 of 32 Ohio economists said state payments to firms to keep employees on payroll is an effective way to speed the state's recovery from recession.

Those who agreed with the statement stressed the importance of federal funds to support such a program, saying that cuts to other state programs could end up undoing any of the benefit of such a program. Respondents also stressed the importance of targeting, transparency, and workplace safety in the payment scheme.

Of the nine economists who were uncertain or disagreed with the statement, reservations ranged from the importance of federal funding due to Ohio’s balanced budget amendment to the nature of the current recession compared to other recessions and inefficiencies wrought by discouraging “creative destruction.”

The Ohio Economic Experts Panel is a panel of over 40 Ohio Economists from over 30 Ohio higher educational institutions conducted by Scioto Analysis. The goal of the Ohio Economic Experts Panel is to promote better policy outcomes by providing policymakers, policy influencers, and the public with the informed opinions of Ohio’s leading economists.

If you would like to suggest a question for a future Ohio Economic Experts Panel, email your ideas to panel@sciotoanalysis.com.

Federal election results could mean new challenges under the dome

As the dust settles for election 2020, not much is going to change for the state of Ohio. It looks like Republicans are poised to pick up seats in the Ohio House and maybe even the Ohio Senate and of course the Governor’s office will stay in their hands with no election this year. Heck, even ousted Ohio House Speaker Larry Householder won reelection — while facing felony criminal conspiracy charges from the FBI!

Despite the stasis at the state level, the likely change in federal administration may present new issues for the state to address.

For one, a Biden administration may revive regulations such as the Obama-era “clean power plan” which require states to reduce carbon emissions from power plants over time. If this happens, state leaders will likely not be lucky enough to be bailed out by technological change to hit these benchmarks. 

This means they will have to create a plan to reduce carbon emissions through an old-fashioned renewable portfolio standard, requiring power companies to adopt clean technology, or through more market-oriented strategies such as carbon pricing or cap-and-trade. 

If Democrats win two special Senate elections in Georgia — an unlikely scenario at least at the moment — Congress may even get in on the fun with new requirements. A slim one-vote lead would probably not result in “Green New Deal” level regulations, but more modest regulations could be in the making under this scenario.

The more likely scenario of divided government with a Mitch McConnell-led Senate negotiating with Biden and Nancy Pelosi presents a different challenge for Ohio: fiscal stability. 

Economists don’t expect the national economy to recover to 2019 levels for over a year. This means state sales and income tax will continue to lag, which will threaten budgets for state education and health spending. McConnell has been very public with his opposition to aid for state and local government, so unless some moderates like Susan Collins are willing to break with their party to pass state aid, Ohio will have to dial back its spending for the next couple of years, which likely would mean public-sector layoffs.

If Democrats eke out a victory in the senate and pass aid to states, Ohio will face a different dilemma: spend money on state programs or dole it out directly for relief for businesses or families? There are philosophical, empirical, and political disagreements that could have such a pot of money pushed one way or the other.

A final policy area that has an outside chance of putting a new problem in front of state policymakers is health care. If Democrats picked off the last two seats in Georgia or were able to pull a Collins or a Murkowski into their camp for a popular program like a public option, they may kick it to the states to figure out what that would look like. In that case, Ohio could be in the position of designing policy to further reduce the rate of the uninsured.

So yes, the composition of Ohio’s government won’t change much in 2021. But election 2020 is likely to have an impact on the issues state policymakers will be facing nonetheless.

This commentary first appeared in the Ohio Capital Journal.

The state of the pandemic in Ohio and its neighboring states

As cold weather season sets in with a seeming inevitability of viral spread growing, the Midwest is bracing for its third wave of spread of COVID-19. The regional variation in this virus has been an interesting story over time, and at this particular moment, we have the opportunity to check in on states in our region and see how they’ve fared so far.

So how do Ohio and its neighbors stack up in October of 2020 in the midst of the worst pandemic in a century? Here’s a snapshot of the states using data from the COVID Tracking Project, the Bureau of Labor Statistics, the Bureau of Economic Analysis, and of course the US Census Bureau.

Indiana: The Epicenter

Indiana is the state in the region that is most embracing the “herd immunity” approach to the virus. While the state boasted a region-low 6.4% unemployment rate in August, it has done so at the cost of public health, with a region-high 2,200 COVID cases per 100,000 people this year and 21 people in hospitals right now per 100,000 and a high death rate of 58 people per 100,000 residents. 

Kentucky: The Headscratcher

The Bluegrass State has had nearly as many cases per capita as Indiana and is exceeded in hospitalization per capita regionally only by Indiana, but has somehow been able to keep its death rate lower than any state regionally besides West Virginia. This may be because of Kentucky’s rural population or it may be because of precautions taken in nursing homes in the state. Either way, the state has kept the death rate low while keeping unemployment manageable at 7.6% in August, which means they are doing something right despite high community spread.

Michigan: The Tragedy

That state up north was the regional center of coronavirus spread and deaths in the first wave of the outbreak leading to the highest death rate in the region, with 73 of every 100,000 residents dying from COVID-19. Its economy also took the largest hit of any state in Q2 of 2020 and it has suffered high levels of unemployment for the region. On the bright side, total cases per capita have been a moderate 1,600 per 100,000 and current hospitalizations are only 10 per 100,000 residents, signaling Michigan might be turning the corner as a state during this pandemic.

Ohio: Stunningly Mediocre

As Ohio seems to always do, the state falls middle of the pack almost every way you slice it. Cases per capita, current hospitalizations per capita, deaths per capita, and Q2 GDP hit all fall in the middle of the pack regionally. The one significant sore spot for Ohio is its nearly 9% unemployment rate, which is on the higher end for the region.

Pennsylvania: The Lockdown

The Keystone State looks a lot like Michigan with very high death rates and middling case rates, but departs in two ways: one good and one bad. On the positive side, Pennsylvania has the lowest hospitalization rate right now in the region, with only 7 out of 100,000 residents hospitalized for COVID-19. On the negative side, Pennsylvania has the highest unemployment rate in the region, with its over 10% unemployment rate topping all other states in the region by almost a percentage point and a half. In this way, Pennsylvania looks like a foil to Indiana, with its low case counts and hospital load and its high unemployment rate. What it shares with Indiana, though, is its high death rate.

West Virginia: The Overachiever

West Virginia was the last state in the country to get a COVID case and still looks best in the region looking at its current resume. Its rural makeup has given it the lowest case and death rate in the region, its hospital utilization is only moderate, and its economy took the softest hit in Q2. The sore spot for West Virginia has been its unemployment rate, where it is only outpaced by Pennsylvania

These dynamics will likely change over the next few months. Will Indiana and Kentucky continue to slide? Will Michigan and Pennsylvania complete their turnaround? Will Ohio stay stubbornly mediocre and West Virginia consistently above average? We’ll have more answers in a few months, but we can only hope that this answer will come at minimal cost in lives during a virus’s favorite time of year.

This commentary first appeared in the Ohio Capital Journal.

Ohio Economists Split on Economic Benefits of Nuclear Power Subsidies from Ratepayers

In a survey published by Scioto Analysis this morning, a majority of respondents believed nuclear subsidies paid for by ratepayers represented a transfer from a large number of households to a small number of investors and workers, but more economists were uncertain or had no opinion about overall economic effects.

While economists surveyed tended to agree that this payment system was a transfer of income, some said that it could be justified depending on whether the payments covered the fixed cost of operation of a large utility. Those who disagreed or were uncertain emphasized both fixed cost concerns and nuclear power’s potential to reduce greenhouse gas emissions.

Responses to the question about overall economic impact seemed to emphasize environmental impact, with some economists saying that environmental benefits will outweigh economic costs of the subsidy, some saying they would not, and others saying the result was uncertain. The economic efficiency of the plants was also emphasized by respondents.

The Ohio Economic Experts Panel is a panel of over 40 Ohio Economists from over 30 Ohio higher educational institutions conducted by Scioto Analysis. The goal of the Ohio Economic Experts Panel is to promote better policy outcomes by providing policymakers, policy influencers, and the public with the informed opinions of Ohio’s leading economists.

If you would like to suggest a question for a future Ohio Economic Experts Panel, email your ideas to panel@sciotoanalysis.com.

Why aren’t Ohio’s city budgets collapsing under COVID-19?

In March of this year, the Brookings Institution had a blog post that pegged four Ohio cities — Columbus, Cincinnati, Toledo, and Cleveland — in the top five “cities with the most immediate fiscal impacts from COVID-19” in the entire country.

Yet this gloom and doom about Ohio fiscal prospects did not materialize. Columbus cut its budget by 4.1% last month to accommodate for decreased funds. Cincinnati actually ended its fiscal year with $20 million more than expected. The mayor of Toledo came out early on saying that initial cuts would be less than 4% of the operating budget passed in March. As of June, the city of Cleveland was down only $4.5 million of its $1.84 billion budget, about 0.2% of the total budget.

These hits will still hurt. These adjustments represent millions of dollars in lost revenue that will mean reduced city services for residents. But it’s worth noticing that a Brookings report from two weeks ago said that total national state and local revenues will decline by 5.5% in 2020, meaning all four Ohio cities Brookings pegged in March as having monumental budget holes in the near future are today beating the national average.

How did this happen? Well, during a “normal” recession, unemployment goes up and people pull from their savings to spend money. You have a (relatively) slow ramp-up in joblessness and people shift their spending around to accommodate job conditions. Because of this, property taxes generally stay pretty steady, sales taxes have a slight shock due to people tightening their belts as they lose money, and income taxes are hit heavily due to the shock in unemployment. It’s easier to keep spending on credit than it is to find new work when you lose your job, so sales stay steady compared to income.

Ohio is different than most states in the ability it gives its cities to raise income tax, and its cities have used this ability to become especially dependent on income tax. So in a regular recession, Ohio cities would be most threatened fiscally since their cash cow — income — is most in danger.

The 2020 recession, like everything else this year, was different. All at once, the state shut down large portions of the economy in the form of service, travel, retail, and hospitality. While this happened, the federal government stepped in and provided enough support to prop up household incomes in the form of unemployment payments and cash support. But households didn’t spend these dollars in stores because stores weren’t open. American saved a record one out of every three of their of dollars in April, meaning that income stayed afloat while sales fell.

So Ohio cities are doing better now than people expected them to, largely because of the unique character of this recession. In the next couple years, though, Ohio might not be so lucky. While 2022 total revenues are projected to be down 4.7% compared to 2020’s 5.5%, the income tax situation is expected to get worse, declining by 4.7% in 2020 and falling by 7.7% by 2022. Ohio’s best hope is that these projections are off, too, otherwise the cities of the state have a long two years ahead of them.

This commentary originally appeared in the Ohio Capital Journal.