Economists uncertain that work-from-home will hurt municipal revenues

In a survey published by Scioto Analysis this morning, 17 of 25 Ohio economists were either uncertain or disagreed that work-from-home would decrease Ohio municipal revenues.

Among the eight economists who agreed with the statement, respondents emphasized how local governments that levy income tax are likely to change their tax rules in light of this trend. Dr. Bethany Lamont of Ohio University also noted how small the impact will probably be due to the limited scope of the tax technicality. Dr. Michael Jones noted that municipal costs will decrease if less people are working in cities, though questioned if that would lead to changes in revenue policy.

Ten economists were uncertain about the changes in revenue in light of increased work-from-home. Dr. Glenn Dutcher of Ohio University mentioned that increased work-from-home may increase property tax revenues due to increases in property tax valuations for larger residences. Other economists emphasized how small a proportion of workers are likely to take advantage of the loophole, commuting patterns, and migration patterns over the next few years.

The seven economists who disagreed with the statement emphasized the small number of people who will be subject to these rules, the role of federalism in taxation, and the difficulty of skirting current tax rules.

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.

Repeal the “gym tax?”

State Rep. Sara Carruthers recently introduced House Bill 595, legislation to exempt memberships to gyms or other recreational facilities operated by 501(c)(3) organizations from state sales tax.

Tax carveouts are not particularly rare pieces of legislation: “tax” is a dirty word, so legislation that policymakers put forth to decrease taxation in one way or another can lead to nodding of heads.

What makes good tax policy, though? A bill such as this appeals to the idea that nonprofit organizations serve the public good, so we should find ways to support them. But we know that “nonprofit” is just a tax designation. Yes, a nonprofit has to follow certain rules in order to qualify for the tax breaks it receives from the federal government, but at its heart a nonprofit works much the same way as any other business: it brings in revenues and it provides goods and services.

A tax break for nonprofit gyms and recreational facilities is essentially a subsidy for the services it provides. Since that money would come from general revenue fund dollars, it means we would take money away from schools, public health, and other state spending to fund these tax expenditures for nonprofit gyms and recreation centers.

How can we justify making a decision like this? Let’s go back to the fundamentals of tax policy for some guidance.

The central rule of tax efficiency is keep taxes “broad and low.” The more carveouts for different goods, the more likely a tax is to distort spending patterns, creating incentives for people to shift their spending from their preferred goods to other goods. The higher taxes are, the greater the magnitude of these effects.

An inefficient tax or tax break can be justified by curbing “external” costs, or market failures that taxes and subsidies can help remedy. For instance, a tax on cigarettes can reduce youth smoking, thus curbing addiction and saving lives. A subsidy for schooling can grow the economy by giving people access to human capital tools that will lead to more productivity and higher wages in the future.

There are some potential public benefits to cheaper gym memberships, with better exercise to curb obesity being one example. Gyms and recreation can also be used for education about health or cultural education or even as a way to provide job training. 

Would these have better external benefits than schooling and investment in public health? I’d like to see the evidence.

Another dimension of tax analysis is equity: Who benefits from a change in the tax code? A major critique of the 501(c)(3) system is that the direct recipients of the benefits of charitable giving tax write-offs are the wealthy people who do not claim the standard exemption on their tax form. I would love to see more data on this, but it would be hard for me to believe that a majority of people who have memberships at nonprofit gyms and recreational facilities are low-income.

No matter how noble their aims may be, nonprofit gyms and recreational facilities are not likely to be efficient or equitable recipients of public funds. If we want to grow the economy or make it more fair, there are likely much better use of tax dollars.

This commentary first appeared in the Ohio Capital Journal.

Making it harder to be a substitute teacher might not do what you think

On Monday, Representatives Adam Bird and Don Jones introduced House Bill 583, legislation to tighten regulations on educator licensing for substitute teachers. The bill increases the educational threshold for substitute teachers from a more broad requirement of a “post-secondary” degree to a more specific “bachelor’s” degree while creating some exceptions to this rule.

The exceptions the bill puts forth are mainly age-related: allowing people with associate’s degrees and at least 21 years since birth to be a long-term substitute teacher, allowing people who served in the military and who have elapsed 21 years since birth to be a long-term substitute teacher, allowing people with sufficient bachelor’s degree coursework and who have spent 21 years on earth to be a substitute teacher. The bill also allows people who have spent five years as an educational assistant to be a long-term substitute.

The bill also authorizes the state board of education to create rules for issuing educator licenses for people who do not hold bachelor’s degrees that can be used for a year.

While the section that allows the state board of education to set rules for temporary licenses could result in a loosening of licensing requirements, overall the bill represents a tightening of licensing requirements for substitute teachers. Rather than just requiring a post-secondary degree, which could include associate’s or other non-bachelor’s degrees, the new bill raises the requirement for substitute teacher licensure to those who hold bachelor’s degrees then carves out specific exceptions for people without bachelor’s degrees.

Increasing requirements for substitute licensure could have a few different impacts. The central goal is likely to improve quality of education provided by substitute teachers. Presumably, someone with a bachelor’s degree can provide better quality education than someone without one, with obvious exceptions, for example people without bachelor’s degrees who are trained in education compared to people with bachelor’s degrees in other fields. 

Unfortunately, little evidence exists to confirm to us that degree attainment will lead to better teachers. While there is limited evidence that having a math or science degree may help with math or science teaching, degree attainment overall has not been definitively linked to better outcomes for students. If we can’t find this evidence for teachers, we should be even more dubious about a supposed connection between degree attainment and student outcomes for substitute teachers.

On top of this, the bill will likely have labor market impacts for educators. Tightening requirements for substitute teachers will decrease the supply of qualified substitute teachers, which will drive up the wage needed to attract them as schools vie for a shrinking pool of substitutes. This effect could be stronger than it would be for teachers since substitutes are often actively considering competing offers from different schools, thus making their options more competitive than teachers.

On top of this, making it harder to hire substitutes could create perverse incentives for schools. If substitute teachers are more scarce or expensive, it could cause administrators to limit the ability of teachers to take sick days or otherwise take time off.

While raising the bar for substitute teachers makes intuitive sense, interventions like this need to be based on evidence, and the evidence of the impact of degree attainment on substitute teachers is basically nonexistent. We can hope that if substitute teachers are required to have higher educational attainment than before, that we would at least build in funds to assess the intervention after it is implemented.

This commentary first appeared in the Ohio Capital Journal.

Majority of Ohio Economists think Facebook and Twitter are Monopolies

In a survey published by Scioto Analysis this morning, 18 of 30 Ohio economists agreed with the statement that social media platforms like Facebook, YouTube, and Twitter operate as monopolies within their specific content area.

Among those who agreed, some said these media companies were able to use their power to increase their profit margins and purchase competitors, thus narrowing the field for competition to wield greater market power. Multiple economists who agreed emphasized the importance of monopolistic power these companies hold over the flow of information in society and the impacts those can have on democracy. Others emphasized the degree of power these companies had over the advertising market due to their unique product differentiation.

Nine economists disagreed with the statement, with many arguing that these companies compete in a market for their products and services. Multiple economists pointed to the growth of TikTok as an example of how competitive the market is for social media. Other economists argued these companies have a fragile grip on their market power and are susceptible to future technological change.

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.

To keep housing affordable, look beyond Airbnb

Last week, Representatives Sarah Fowler Arthur and Ron Ferguson along with 27 cosponsors introduced HB 563 — a bill to limit the ability of local governments to regulate the operation of short-term rental services like Airbnb.

Airbnb has become a convenient scapegoat for local policymakers concerned about the price of housing in their neighborhoods. Opponents of Airbnb argue that people who rent out their homes or properties using the app fill space that could be filled by long-term housing, constricting the supply of housing and driving prices up.

These arguments are not completely wrong. A study of the impact of Airbnb on housing prices found that a 1% increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices. This means that if you are paying $1,000 a month for your apartment, you will pay an extra 18 cents per month on your rent if the Airbnb listing rate grows by 1%. If the number of Airbnbs in the area doubled, you’d have to pay an extra $18.

There are impacts, but they are tiny. But what are the costs of making it harder to use Airbnb in Ohio?

I’ve personally felt the impact of efforts to restrict the use of Airbnb here in Columbus. When I started my policy analysis practice in 2018, I was starting from scratch having never run a business of my own before. Part of my strategy to make ends meet was to rent my apartment using Airbnb and crash at my parents’ or friends’ houses a few weekends a month. It ended up being a key part of what was able to get my business off the ground.

In 2019, the City of Columbus started to passed legislation to control the use of Airbnb, partially at the behest of local hotel companies that were being undercut by the affordability and convenience of short-term rentals over their older model. One regulation Columbus put in place was to ban renters from using Airbnb without written permission from their landlords, presumably to protect the interest of landlords who wanted more control over tenants and their spaces.

This put me out of work as an Airbnb host in my home. I ended up buying a home, seeing that the ability to rent my own space with Airbnb would make up for the higher cost of owning over renting. But soon after I bought, the pandemic hit. I have yet to host through Airbnb in my new home.

Some things lined up for me to keep my head over water. The Paycheck Protection Program allowed my small business to survive a scary first few months of COVID-19. Eventually business picked up for me and the need for Airbnb abated. I got lucky.

There are certainly reasons to want to regulate Airbnb and other short-term rentals. HB 563 carves out exceptions for local governments to continue to regulate short-term rentals for public health, safety, and nuisance purposes. It makes sense for local governments to protect neighbors from the impact of Airbnb, especially in the presence of bad actors, if they are presenting a direct harm.

But ultimately, Airbnb is an edge case when it comes to housing affordability. Reforming antiquated zoning codes, property taxation, and subsidy structures will do so much more for affordability than clamping down on short-term rentals. But it’s always easier to mobilize against a scapegoat.

This commentary originally appeared in the Ohio Capital Journal.

What’s the difference between “policy analysis” and “policy evaluation?”

I still can’t believe I was in Ohio for years before I came across the Ohio Performance Evaluators’ Group.

When I attended my first OPEG event in May of 2019, I realized I was among my people. At this conference at Otterbein University, I met dozens of evaluators from across the state, people like me who thought policy and programs should be guided by evidence, not knee-jerk assumptions or ideology. People who believed that the best that social science has to offer us can help us improve lives by giving us insight into what works in the government and social sectors.

There was one strange difference I found between the work I was doing and what OPEG members did, though. While I called what I did analysis, what many of my new companions called their work was evaluation.

Analysis and evaluation are close cousins, but not synonymous with one another. Below are some of the biggest distinctions between the two approaches.

Forward vs Backward

While both analysis and evaluation are ultimately trying to help policymakers make better decisions, analysis is focused primarily on a pending decision while policy evaluation focuses on a policy or program that is already in place.

Policy analysis is often conducted on a policy that has not been implemented yet, for instance whether or not the state of Ohio should legalize sports betting. An evaluation of such a policy would have to be conducted while the policy is being implemented or retrospectively using data that was collected during the implementation of the policy.

Because of this difference, analysis often is focused on “projection”— what a layman might call “predicting the future.” Policy evaluation, on the other hand, is focused on whether a current policy is working or whether a past policy worked. 

Microeconomics vs Econometrics 

Because of this distinction, analysis and evaluation use two different toolkits. A rigorous form of policy analysis such as cost-benefit analysis is heavily rooted in microeconomic analytical techniques, such as models for supply and demand or the theory of the firm.

Evaluators, on the other hand, use data available from implementation of a policy to estimate the impact of the policy on a population. This makes evaluators focused heavily on the effectiveness criteria: how well was a policy or a program able to bring about the results it wished to bring about? Evaluators are keyed into the elements of randomization, quasiexperimental methodology, and pre/post data in a way that analysts are only interacting with secondarily.

Internal vs External Validity

Evaluators are, at their core, focused on the evaluation of a program. Thus, the internal validity of their work is very important: how can they prove they approached a program with an objective eye and designed an evaluation that did not presuppose its own results?

Analysts, on the other hand, are much more interested in external validity. They ask the question of how they can take analogous policies in other places and use their results to project what the impact of a given policy would be in a certain place.

Analysis and evaluation are cousins, but understanding the difference between them helps someone interested in the process of evidence-based policymaking and programming understand how they fit together to make better policy and programs. That being said, good analysis draws from good evaluations and good evaluations ask questions asked by past analyses. Analysts and evaluators both have an important part to play in making evidence-based policymaking a reality, which will ultimately mean a stronger economy, lower poverty and inequality, and better lives for the general population.

Expanded Amtrak coverage ball now in Ohio’s court

A few years ago, I took a trip out to the Pacific Northwest, a part of the country I had never visited before. I stayed with college friends in Portland and Seattle then bunked up in a hostel in Vancouver. On my trips between the cities, I took the train.

A lot of us have romantic attraction to the train as a mode of transportation. I recall waiting at old train stations and hearing the announcements for boarding the train. I even remember riding on the train and the conductor making a wry joke, dryly deeming every town we passed through “The Jewel of the Pacific Northwest.”

Today, Ohio has a chance to substantially expand its passenger rail service. Currently, the only rail that goes through Ohio is a Lake Erie route that passes from Chicagoland into Toledo, through Cleveland, then out to Buffalo and Pittsburgh and a Cincinnati line that goes out to Indianapolis to the West and through West Virginia in the East. Columbus has no passenger rail.

Part of the federal infrastructure bill is $100 million in rail investment to build lines between Cincinnati, Dayton, Columbus, and Cleveland. In order to get the money and the lines, though, the Ohio state government needs to agree with the feds to start splitting the operating costs with the federal government five years after the lines are in, which would cost the state about $9-10 million a year. This would be an about-face from past policy, when Governor John Kasich a decade ago turned down a deal for a high-speed rail line to connect Cincinnati, Cleveland, and Columbus.

I don’t want to diminish $10 million: you can do a lot with $10 million. But it’s worth noting that Ohio already does a lot with $10 million. The current FY 2022 budget for the state of Ohio has over 300 line items that total $10 million or more, ranging from grants for sports events to cultural facilities lease rental bond payments to the “meat processing investment program.” Overall, a $10 million operating expense would amount to one hundredth of a percentage point of the total state operating budget this year.

Another way to think about this is in the context of the massive Intel deal. The most recent reports suggest that the scope of state spending on the project puts incentives in the $2 billion range. This means that the cost of expanding Amtrak in Ohio would take over 200 years to catch up with the one-year cost of the Intel deal.

Intel purportedly will have a large impact on the state economy. But we also know that state incentives are only a fraction of the decision making criteria for a big company location like this and that somewhere from 75% to 98% of firms would decide to make location decisions without incentives at all. This stands in contrast to the clear decision the state has currently to spend $10 million a year or pass on expanded passenger rail.

I don’t know the total economic benefits of the Amtrak deal in Ohio. What I do know is that if the state is seeing its spending as a diversified investment pool for encouraging economic growth, reducing poverty and inequality, and improving lives, then expanded passenger rail seems like a prudent asset to add to its portfolio.

This commentary first appeared in the Ohio Capital Journal.

We’re about to find out what the Intel deal actually cost us

In case you have been living under a rock for the past few weeks, the big news in economic development not only locally but nationally is Intel’s plan to build a $20 billion microchip factory in New Albany, Ohio.

President Joe Biden has come out praising the new factory, talking about the national security implications of keeping microchip creation within the United States in the face of encroachment on the industry from China.

Locally, everyone is abuzz about the economic development ramifications. State boosters have been quick to crown Ohio “Silicon Heartland” in the wake of the announcement. Ohio U.S. Sen. Sherrod Brown said “today the term Rust Belt is officially buried. Dead and buried,” arguing that when it comes to Ohio losing young people, “this will turn that around.”

All this may be a bit overblown. Data from United Van Lines out earlier this month showed that 56% of Ohio migration is currently outbound, which means that more people are moving out of the state than are moving into it. One economic development project, even a large one, would have to pack a pretty big punch to reverse a trend like this.

So let’s take a look at this project under traditional terms. By that I mean let’s look at how the Intel plan currently looks using the “rules of thumb” that leading economic development economist Timothy Bartik uses to understand tax incentives. After all, an estimated 75% to 98% of business incentives have no impact on the decisions of firms to relocate, expand or retain workers. How do we know this project isn’t the same?

Something we know about the Intel project is its location. Bartik argues that areas of high unemployment will have a larger bang for public dollar buck since economic development projects will give people opportunities to work they would not have had otherwise. According to the Bureau of Labor Market Information at the Ohio Department of Job and Family Services’s Office of Workforce Development, Licking County is 72nd out of 88 Ohio counties in unemployment. This suggests Licking County is not a particularly well-targeted location for a large economic development project within the state.

Similarly, New Albany is famously one of, if not the, wealthiest cities in the state, suggesting the area is not particularly distressed or aching for employment opportunities.

Information is still coming forth about the incentives the state is providing Intel to open this factory. What we do know is that, according to Lt. Gov. John Husted, the state is spending over $1 billion on nearby infrastructure alone. Infrastructure spending is usually a better investment for a government than cash because if a business proposition does not work out, it is a lot harder for the company to uproot and run with roads and sewer lines than with cash incentives. But $1 billion is still a massive amount of money in the context of state finances.

We have much to learn about what customized business services and cash incentives the state is providing Intel. It is easy to focus on the benefits of a project such as this, but the costs are just starting to become clear. What we do know is this: Intel will likely have to be at least as transformational as everyone is saying it is in order to be worth what Ohio is spending on it.

This commentary first appeared in the Ohio Capital Journal.

Ohio economists think gas tax freeze would hurt economy

In a survey published by Scioto Analysis this morning, 26 of 32 surveyed Ohio economists disagreed with the statement that decreasing state highway spending for the next five years by repealing increases to the state gas tax would create economic benefits that outweigh the policy's economic costs.

Among those who disagreed, many commented on the efficiency of gas taxes, stating that gas taxes ensure the people who are using roads are those who pay for them. They also noted the impact of negative externalities of driving such as air pollution, congestion, and crashes, which are mitigated by the gas tax. Many also talked about the public value of strong infrastructure in the state.

Of the two economists who believed the gas tax freeze would help the economy, neither gave optional comments. Of those who were uncertain, two emphasized the importance of where highway funds were going and which specific projects were being spent on.

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.

How do I assemble evidence for my policy analysis?

Last year, I wrote an article on problem definition, the first step of Eugene Bardach’s Eightfold Path to more effective problem solving. Problem definition is the first step in a good policy analysis, but when we think of what it is that makes up policy analysis, the second step, to assemble some evidence, feels like the beginning of the project.

The heart of assembling evidence is assembling data on the topic at hand, which consists of learning facts relevant to the problem you have defined. When data has meaning, we call it information, because it informs our understanding of a problem. Information then becomes evidence when it becomes valuable to people who are trying to understand a problem. 

Bardach urges analysts to think before you collect data. He stresses that data collection can often feel productive when it is not: pulling together a bunch of data that does not inform or provide evidence for the analysis is ultimately not time well spent.

Economy is an important element of policy analysis. Since policy analysis usually occurs under a time limitation, making sure time is well spent is a valuable skill for a policy analyst. Economizing the evidence assembly step means understanding the value of data (how likely it is to become information and evidence) and understanding the utility of the data (how hard it is to collect it and how much time it will take). It also means leaning on educated guesses to guide your analysis: having good instincts to know what kind of data you may need to solve a problem can save a lot of time in this phase of analysis.

One key way data can be found is through review of the available research. Looking at professional journals, particularly policy and economics journals, can yield valuable evidence at this step. One source I go back to over and over again is the Washington Institute for Public Policy’s benefit-cost database.

Bardach also suggests analysts survey “best practices,” or look at how policymakers in other jurisdictions have solved this problem before. Note that just because a policy is being used other places does not mean it will work for your policymaker (or that it’s working at all!). Despite this, policymakers have noted in surveys that they highly value information about what other jurisdictions are doing. This comparative information can be valuable in a policy analysis on its own.

One way to deal with a unique problem is to use analogies. Bardach talks about how a policy analysis on merit pay in the public sector could use data from merit pay studies in the private sector. He also talks about how an analysis of how the state can discipline incompetent attorneys could draw from studies on how states discipline incompetent physicians. If you can’t find exactly the policy you’re trying to study, find policies like them and use them as a guide for gathering data and information.

Requests for data can be difficult. If you want data that has bureaucratic barriers, you may need time to get it. That is why you should start early when searching for evidence. The longer you wait, the less access to data you will have for your analysis.

Assembling evidence can often have a political component to it. People could be trying to protect a program or change it while you are trying to understand it. An analyst must touch base, gain credibility, broker consensus, and work with people in order to get access to the data they need and make it information and evidence that informs the policymaking process.

Lastly, don’t commit yourself to answers at the start of the analysis. Free the captive mind. Contact people you may disagree with and get data from them because they might send you in directions you don’t expect to go. 

Assembling of data can be a fuzzy step and ultimately is one of the most iterated steps in the Eightfold Path. But doing it well means being critical, openminded, and efficient with your time. A good analyst knows how to do all these things, which is why assembly of evidence is so key to good policy analysis.