Ending extreme poverty in Ohio would be the state’s 16th-largest tax write-off

Often in state government, policymakers are chipping away at the margins of public policy. Legislation is usually aimed toward tweaking small technocratic problems to try to deliver services better or fighting culture war battles to score points with interest groups. Too often these policies do little to nothing to help people.

So what would it take to really help people in a state like Ohio?

One way to think about this problem is to look at the problem of extreme poverty, defined as those living on under $2 a day in the United States — an international threshold for extreme poverty.

It seems unconscionable, right? Could people in Ohio really be living on under $2 a day?

According to the Center for Community Solutions, the leading human services think tank in Ohio, they are. In 2016, the Center estimated that between 184,000 and 198,000 Ohioans — or about 1 in every 60 state residents — is living on under $2 a day.

What would it take to bring these folks above this threshold? Providing $2 a day to each of these about 200,000 Ohioans would cost a little under $150 million a year. That’s not chump change, but how does it compare to other expenditures by the state? I wrote about how Franklin County could afford such a measure in Columbus Alive in 2019: Let’s see what that would look like to do something like this statewide.

One way to consider the size of this sort of program is to look at the state’s Tax Expenditure Report, a report that details the cost over 100 tax exemptions to the state tax code required by law to be estimated every other year by the Ohio Department of Taxation.

In Fiscal Year 2022, Ohio will spend nearly $9.2 billion on various tax exemptions to individuals and businesses within the state. Of these tax exemptions, 15 of them are on their own larger than the $150 million needed to end extreme poverty in the state. Let’s look at some of these exemptions the state gives.

The largest are various exemptions for property used to create products. Manufacturing property is written off in Ohio to a tune of $1.8 billion. Other large expenditures are write-offs for agricultural equipment ($290 million), sales to electricity providers ($270 million), and packaging ($250 million). The goal of these write-offs is to not tax production at two different places, but these huge expenditures show a $150 million expenditure to end extreme poverty is not unreasonable.

Another is sales to churches and certain non-profits ($700 million). Theoretically, some of this money should encourage antipoverty programs. But with this money we could end extreme poverty four times over in the state. Maybe an efficient use of funds, maybe not. Definitely a large use of funds.

We also give a large write-off for building and construction materials ($300 million), one for transportation of people and property ($260 million) and for motor vehicle trade-ins ($210 million). Ohio also gives write-offs for the first $1 million in taxable gross receipts for businesses ($230 million) and for distribution center receipts (also $230 million).

I’m not going to say all of these expenditures are bad. There are perfectly reasonable economic justifications for many of these expenditures. But in order to put a little grease in the wheels of Ohio’s economy, we’re able to spend more than $150 million on industry after industry, year after year. Why is it crazy to say we could do the same to end extreme poverty?

Ohio economists say universal pre-k would be good for economy, poverty alleviation, educational attainment

In a survey published by Scioto Analysis this morning, 22 of 26 Ohio economists agreed a universal pre-k program for Ohio would grow the state economy, reduce poverty and inequality, and improve graduation rates and enrollments.

Of the 24 economists who believed a universal pre-k program would grow the economy, many emphasized the importance of pre-k as a workforce development program. They focused on the importance of training students at young ages and emphasized the strong empirical evidence in support of this claim. Respondents were also interested in the quality controls that would be a part of such a program and whether the program would be mandatory. While no economists disagreed with the statements, two were uncertain, with one bringing up some recent evidence calling into question the empirical research in favor of universal pre-k.

Economists were nearly equally in agreement that a universal pre-k program would reduce poverty and inequality, with 22 economists in agreement with the statement. The empirical research was again a focus of the comments by economists, as was workforce development and the long-term sustainability of a universal program compared to a targeted program. While no economists disagreed with the statement, four were uncertain, with one who was certain about the impact of universal pre-k on the economy maintaining that universal pre-k on its own would not be sufficient to reduce levels of poverty and inequality.

Respondents were also bullish on a universal pre-k program’s ability to improve educational outcomes, with 23 economists saying it would improve graduation rates and college enrollment. Economists who agreed believed early investment was preferable to later investment and that the economic research supported this claim. No economists disagreed with the statement, though three were uncertain about the impact on educational outcomes without additional educational investments.

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 can a policy analyst select criteria for her analysis?

The heart of policy analysis is trying to understand what happens when a certain policy is adopted. This is done by projecting how a policy will advance or detract certain policy criteria—hallmarks of good policy.

The problem is that good policy can be evaluated a number of ways. Does the policy grow the economy? Does it reduce poverty and inequality? Does it advance education and improve health? Does it make people happier? In order for a policy analysis to be manageable, a policy analyst needs to narrow this list by selecting criteria for the analysis.

Eugene Bardach details a few commonly used evaluative criteria in his book A Practical Guide for Policy Analysis: the Eightfold Path to More Effective Problem Solving. The first criteria Bardach deems “Hit the Target!” This includes goals like cutting water consumption by 5 percent for a quarter or de-leading all painted interior surfaces in a neighborhood by December 31st.

Bardarch then goes on to talk about “efficiency,” or the measure of the sum of economic welfare impacts of a policy. He also mentions “equality, equity, fairness, justice” as a criteria, which in short means how a policy will impact different groups of people. Bardach gets more abstract talking about “freedom, community, and other ideas”—criteria that help capture the type of community policymakers want to create and the types of lives that can be lived in those communities.

Lastly, Bardach mentions “process values,” a criteria that focuses on processes that keep democracy strong or give people opportunity to take part in the political process. This can be different than an efficiency or effectiveness analysis, but can nonetheless be helpful for policymakers who are interested in understanding if a policy will further participation and healthy democratic goals.

Bardach goes on to talk about how criteria relate to one another, making the claim that some evaluative criteria deserve more weight than others. The analyst can deal with this problem in a few ways. One way is for her to allow the political process to take care of it, with policymakers deciding how to weigh different criteria against one another. Another option is for the analyst to impose a solution, focusing on criteria that are overlooked in the political sphere so a new criteria and people served by that criteria are supported by good analysis. Another is to focus on the topic of “rights,” though Bardach is critical of this approach as it leaves little space for consensus to be achieved.

Beyond core criteria, practical criteria have a place in some policy analysis. One such criterion is legality, or whether a policy would conflict with a constitution or law superseding the level of the policy analysis. A second is political acceptability, or how much opposition or support a policy would attract. Another is administrative robustness: how easily will a policy be implemented with available or possible bureaucratic structure? Last, Bardach talks about political sustainability, or how long a policy is likely to survive in the long-term political climate.

Bardach also talks about criteria as logical constructs. This could mean minimizing or maximizing a criterion for policy analysis. For instance, if a policy analysis is built on the problem definition of “too many people are homeless in Cleveland, Ohio,” a criteria could be “minimization of homelessness,” with policies that minimize homelessness the most deemed fulfilling this criteria best. Another is what Bardach calls “linear programming,” or trying to maximize a criteria based on certain goals. For instance, “minimize homelessness spending no more than $2 million and weighting child homelessness at twice the level of adult homelessness.”

Analysts should also specify metrics, ideally using quantitative, specific metrics rather than qualitative, broad metrics. The goal here is to reduce confusion and philosophical argument and to shift the conversation toward empirics.

Bardach warns against confusing alternatives with criteria. Don’t let your criteria creep into your alternatives and then presuppose the effectiveness of a given alternative. Remember: alternatives are policy options someone can carry out, criteria are the values we use to assess them.

Ohio can measure ‘genuine progress’ over pandemic losses

The 2020s have been a tumultuous time for Ohio’s economy. The shock of quickly closing the economy to stave off the overcrowding of hospitals has been followed by two years of hesitancy for state residents to shop, eat out and engage in public life.

This tumult was captured in state Gross Domestic Product (GDP) numbers. According to the Bureau of Economic Analysis, state GDP dove in the first half of 2020, falling from $615 billion of annualized chained GDP at the end of 2019 to $549 billion in Q2 of 2020—an 11% decrease.

To conceptualize this, think of where you’d be if your last few paychecks came in 11% lower than the one before. And this is after you expected your pay to increase. That’s how bad things were in 2020.

Ohio’s state GDP bounced back in the second half of 2020, but didn’t recover to 2019 levels until the second half of 2021.

This is how we tend to talk about economics. GDP is useful because it totals up the sum value of the formal economy, summing personal consumption, business investment, government spending, and net exports.

The problem with GDP is that the measure gives us an incomplete picture of the economy. While it gives us an idea of how much people are paid to do things, it gives us little information of how people economize their time and resources more broadly.

For instance, according to GDP, when millions of Ohioans stopped eating out and started cooking at home, the value of food preparation completely dissipated. Suddenly, 4.7 million households were cooking at home instead of paying people to cook for them, but since dollars were no longer changing hands, GDP was blind to the new way people were creating value.

Similarly, with the onset of COVID-19, fewer people were driving to work and more people were working from home. According to GDP, this means fewer people were paying for gasoline and car maintenance, and the economy was shrinking. No accounting was done for the extra time people had on their hands due to cutting out their commutes and the value of reduced greenhouse gas emissions due to fewer cars being on the road.

In order to account for these sorts of problems, a new generation of economists have been calculating a new measure of the economy for the past twenty years called the Genuine Progress Indicator. 

The Genuine Progress Indicator (GPI) starts with personal consumption expenditures then adjusts it by supplementing it with economic indicators such as underemployment. It then subtracts out environmental damage and adds the net benefits of social indicators such as the value of unpaid housework and childrearing, the spillover benefits of higher education, and the cost of lost leisure time.

In an ideal world, the research office of Ohio’s Department of Development would publish quarterly GPI numbers and release them to the media. The Department would also report them to the Governor’s Office of Budget and Management and key legislative committees such as the House and Senate Finance and Ways and Means committees. 

With better data that captures the full picture of the state economy, we can craft better policy. Why would we want any less than that for our state?

This commentary first appeared in the Ohio Capital Journal.

How does a policy analyst construct policy options?

Construction of alternatives is in some ways the most creative step of the policy analysis process.

After a policy analyst has defined the problem the policymakers are trying to solve and assembled evidence to inform the policy analysis, the analyst needs to then decide which policy alternatives she will analyze to solve that problem.

“Alternative” is an annoying word, but it is prevalent in policy analysis literature. I prefer the phrase “policy option” because it makes it more clear what we are searching for when constructing alternatives. Basically these are the policies that we are analyzing when doing a policy analysis.

In Eugene Bardach’s A Practical Guide for Policy Analysis: The Eightfold Path to More Effective Problem Solving, Bardach has some useful tips for analysts who are constructing these policy options to analyze. 

His first tip is to beware a linguistic pitfall: just because we call policy options “alternatives” does not mean they are mutually exclusive. Any government by necessity has more than one policy they are putting into practice, so think of alternatives as options that could be compared against one another, but more for prioritization rather than exclusive choice.

I ran into this mistake in an early policy analysis, saying that one policy was the “best” at bringing about a certain outcome. A client was confused, saying that all the policies should be implemented. By admitting that all policies could be useful and worth implementing, I could have made the client understand better that one policy was particularly good at carrying this out without implying the other policies were not worthwhile.

After this aside, Bardach then goes into strategies for constructing alternatives, providing the general advice to start comprehensive, end up focused. This means first listing as many policy options as possible, then whittling them down as you go along.

Bardach suggests starting with policy options policymakers are putting forth, which is a great place to start, especially if your client is giving you policy options to analyze. Another is to look at the suite of tools governments have to bring about change. These include taxation, regulation, subsidization, service provision, budgeting, information provision, structuring of rights, setting standards for markets, education, financing and contracting, and administration.

Another path is to try more creative approaches. Bardach suggests asking yourself certain questions: “how would you solve a problem if cost were no object?” “Where else will one idea work?” “Why not?”

Bardach also pays special attention to two particular alternatives. The first is the status quo, or “let present trends continue.” Any policy analysis should first consider what the baseline is, otherwise it will not have a good comparison for new policies. Second is “learn more.” There is a cost for waiting and learning more, but sometimes present information is sufficiently murky that taking time to learn could be preferable to a more active policy option, especially if that policy option is particularly costly.

Another way to construct alternatives is by modeling the system in which the problem is located. This can be done by modeling the market a problem is located in, modeling government production processes, modeling sociological and psychological behavior, or using institutional models to understand how processes change over time. 

As the policy analysis progresses, an analyst will need to conceptualize and simplify the list of alternatives. This means taking a more abstract view of policy options and making it easier for a lay reader to understand what policy options there are at the disposal of policymakers. Keep in mind that this comports well with the advice to beware the linguistic pitfall: policymakers can always adopt multiple policies and they generally do.

Sometimes, points on a continuum are alternatives. If you are making a recommendation for a tax, subsidy, charge, or budget item, there are often many different alternatives that can be chosen. Focusing on reasonable bounds for setting a dollar amount and then choosing based on recommendations out there or goals can be a good way to narrow the scope and make options more digestible.

Bardach also says that alternatives should be detailed. Of course a policymaker can choose to adopt a policy she wishes to, but more detailed alternatives that explain who will be doing what and how much they will do them makes the conversation clearer and makes it easier for people to understand what policies will actually do and be able to evaluate them.

Lastly, Bardach addresses the inevitability of evolving policy through multistage analysis. This could be simply waiting and seeing how conditions on the ground develop, contingency planning in case of facts on the ground changing over time, making adjustments for political reasons, or intentional learning by doing.

Policy analysts have a role to play in constructing better policy. I saw this happen with the California Legislative Analyst Office’s analysis of earned income tax credit alternatives. The Office put forth an analysis that included a new design of the state earned income tax credit targeting those in deep poverty—a policy design never adopted by a state before. This ended up being what the state adopted. Only through good construction of alternatives by creative policy analysts did this new antipoverty policy come about.

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.