Tuesday, February 24, 2015

More on TIFs, Schools and Streetcars

A recent Politifact undertook to fact check Alderman Joe Davis' statement that the use of Tax Increment District revenue to fund the Milwaukee streetcar would cost the Milwaukee Public Schools revenue. The newspapers' verdict is that Davis got it "mostly wrong." That's not a fair evaluation. My colleague Mike Fisher wrote to the author, James B. Nelson, explaining what he got wrong. Mr. Nelson did not respond, so I'll share Mike's critique at the conclusion of this post.

At Urban Milwaukee, MPS teacher Jay Bullock says that MPS can't be hurt by the loss of tax base that would be caused by TIF financing of the street car. Purple Wisconsin blogger Cindy Kilkenny, who initially didn't think so, says Jay is right. She shouldn't have given up so easily. There is more to be said here too.

Let's start with Jay. Under most scenarios, it would be city taxpayers and not MPS itself that would be are hurt by the street car financing. This is because, as he points out, school districts are subject to revenue limits. If MPS had more tax base available to it, the revenue limits - in any given year - would remain the same. Assuming that it is already spending the maximum amount that it can (and it is), then it would be normally be unable to collect more in taxes and spend more money. It might be able to reduce tax rates, but the reduction would , to some degree, be offset by a loss in state equalization aid because the district is now richer. State equalization aid works by trying to "equalize" school districts' tax base per member. How much the offset would be depends on a whole host of factors that would differ from year to year. Jay's argument is that the district would still have the same amount of money. (Of course, schools are only part of the property taxes paid by city residents.)

So assuming that we don't care about the taxpayer, all else equal, you might think that MPS should be indifferent to an increase in its tax base. But there are problems with the notion that a loss in tax base cannot hurt MPS. Everything else does not stay equal. First, it is possible for school districts to exceed their revenue limits through referenda. That's hard to do, but it happens. Second, state aid doesn't stay the same in relation to revenue limits. Indeed, after a substantial increase, state aid as a percentage of the cost of k-12 education in Wisconsin has been declining. When that happens, school districts have to pick up the difference and it is easier to do that if you have a robust tax base. If I'm MPS and I care about the future, I should not be indifferent to my community's tax base. Equalization aid notwithstanding, its better for a school district to be rich than it is to be poor.

Jay then channels developers in arguing that TIF districts don't cost taxpayers - or any other taxing entity - any money. That is sometimes true and sometimes false. The conceit of tax increment financing is that the city needs to spend money to support particular development or the development won't happen. The story is that using the additional tax revenue to generate that development to "repay" the city for this support doesn't hurt taxpayers because, without the support, there would have been no development and no additional taxes.

This is why - before a TID can be formed - the relevant municipal authorities must make a finding that the development would not occur "but for" the municipal subsidy. In reality, this "finding" is often untrue.

But in the case of TID funds being used for the Milwaukee streetcar, we know that it is untrue. We know that the development generating the tax funds to be used for the project would, for the most part, be generated in the absence of the streetcar because they are already being generated. The TID revenue to be diverted to the streetcar comes from an existing TID, No. 56, and a newly created TID, No. 82. Here are the facts as explained to Mr. Nelson by my colleague:

1) TIF 56:  The development that this TIF was created to support has already taken place.  The property in the TIF consists of the Marine Terminal Condominium and the two Harbor Front condominiums.  They are built.  The improvements made by the city, consisting mostly of extensions of the Riverwalk along these properties and street and lighting improvements, have been almost completely paid off.  In the ordinary course these properties would revert to the normal tax rolls and the property taxes paid on them, which are substantial, would be used for general municipal purposes including MPS.  By extending the TIF, the Mayor is excluding these already developed and valuable properties from the tax rolls for another 15 or 20 years.  There will be no new development in this TIF district as a result of the streetcar.

(2) TIF 82: Consists of two parcels, one that will be the Couture and one that will be the 633 office building.  The 633 building is already under construction.  In the normal course the increased tax revenue from this building when completed would roll into the normal city tax rolls and could be used for general purposes including schools.  Instead, by including the 633 Building in TIF 82, the taxes relating to this new and expensive office building will go to support the streetcar.  The Couture is the only development within either of the two TIFs that even arguably fits the template of a building that would not be built if not for the TIF financing.  Of course, it was planned long before the TIF was created but it may be true, as developer Barrett says, that he will abandon this project without the streetcar.  So it is possible that the incremental tax revenue that will accrue from the Couture project would actually fit the TIF paradigm.
Bottom line:  no TIFS, the tax revenue from the three condominiums and the 633 building become part of the City’s normal tax base.  As noted, TIF financing for the streetcar has absolutely nothing to do with the development of these buildings as the condos are already there and the 633 project is financed and already underway.

So the TIFs really just remove these four properties from the normal tax rolls for 15 or 20 years and the general revenue for the City that they would otherwise produce goes to streetcar construction instead of other city needs including the schools.
Now it may well be that spending more on schools won't happen because MPS would have "taxed to the max" anyway and doesn't want to - or can't - get voter approval to spend more. Maybe the money gets spent of police protection or community centers. Maybe city taxpayers get a break. The point is that the City of Milwaukee taxpayer is footing the bill for this streetcar just as much as if the Mayor had raised tax rates to get the money.

Now, of course, if you believe that human beings have changed so that what was once a failed technology will now miraculously cause millions - even billions ! -  in new development, that reality won't bother you. If you're a developer that likes the idea of the city manipulating transit to dump customers on your front step, it's all good. But it's wrong to pretend that you aren't making city taxpayers foot the bill.

Cross posted at Purple Wisconsin.

Another performance of Much Ado About Nothing

We talk a lot about civility in public discourse and, of course, there's a certain amount of judgment in what is civil and what is not. I, for one, would hate to see writers lose their distinctive voice through fear of offending. In my mind, civility is more an art than a science; more a collection of principles than a set of rules.

One of the principles ought to be a strong presumption that people who disagree with you aren't dishonest or evil. They usually will have a reason for thinking the way that they do even if you disagree with that reason.

This principle was recently violated - strongly and pervasively - by the reaction to School Choice Wisconsin's request for student directory data from certain school districts outside of Milwaukee and Racine. (Full disclosure: I and my colleagues at WILL represent and work with SCW on a variety of matters. It is one of the most professional policy and advocacy shops to be found.)

Some of our friends on the left lost their composure and behaved as if SCW had done something heretofore unknown and legally questionable. Some argued - the lack of grammatical prose and logical rigor made it hard to tell - that SCW or schools participating in the choice program or some other folks would or could use the information for a variety of criminal purposes.

First, it is absolutely clear that school directory data is not confidential. If you doubt this, let's read the law. Sec. 118.125 says that "directory data may be disclosed to any person" provided that parents or guardians or are aware of the type of information that has been designated as directory data and told them that they have fourteen days to object to its disclosure. Second, this is not some scary or nefarious or unknown provision of the law. It allows basic student information to be made available to people who might offer opportunities and services of potential interest to students and their parents. Camps, sports programs, colleges - all have legitimate reasons to contact families and families may well have an interest in hearing from them. Third, what SCW wanted to do - and will be doing - is perfectly consistent with the law and that purpose. It wants to make parents aware that the school choice program has been expanded to their area and tell parents how, if they are interested, to learn more. This is about as threatening as a letter from a drum and bugle corp or a local college.

This is why SCW was willing to amend its request at the request of the Green Bay School District. It didn't have to (and wasn't necessary to do so), but it could because all it wanted to do is send postcards to parents directing them to its website if they wanted to learn more about the program. SCW was not interested in a fight, it was interested in providing families with information and, to its credit, the Green Bay district agreed.

Could someone abuse a request for directory data? It's possible but this is not a new provision in the law. It was there in 1985 when, as  a young lawyer representing the West Allis-West Milwaukee school district, I supervised the production of district records in a school desegregation case. If anyone has ever misused the law, I am not aware of it.

So the "story" was a nothing burger. It should have been easy to see that, but when you begin, as some people do, with the assumption that people you disagree with - say proponents of educational choice - are bad people, it's easy to miss the obvious and end up in the fever swamp.


Sunday, February 22, 2015

The UW will live

Recently, I wrote a piece at Right Wisconsin on the flap over the "Wisconsin Idea" at Right Wisconsin. Short version: the Wisconsin Idea is a common place generality that, at least in 2015, distinguishes the University of Wisconsin from nobody. No one has suggested that UW become a trade school or abandon research.

Are the proposed cuts to the UW budget "slashing" and "crippling" and "decimating?" Will they cause the UW to grind to a "halt?' I've read read repeated claims, in the Journal Sentinel and elsewhere, that they are and will.

Most of the media has elided the true nature of the proposed reduction by emphasizing that the cuts are roughly a 13% reduction in state aid. So they are. But most of the UW's revenue does not come from the state government. Much of the media has framed the story to imply that the UW campuses will have 13% less money to do what they do.

That is just false. The reduction in state aid amounts to 2.5% in revenue. That is how much less the UW will have to spend. I am sure that a cut of that magnitude will be felt, but it is simply not existential.

The Journal Sentinel's Politifact turned its attention to the magnitude of the cut. Some of the UW's revenue is restricted, i.e., it must be used for a particular purpose. Some of it is activity related. If, for example, you make money by selling tickets to a football game or running a basketball camp, you can't eliminate the game or the camp. It is sometimes claimed that over 60% of UW revenue falls into that category. Thus, Politifact suggested that one might argue the cut is "really" 6.5%.

I don't buy it. I am skeptical that 60% of the UW budget's is actually committed to uses that cannot be altered or delivered at a lower cost without violating some type of legal constraint. In fact to say so strikes me as facially implausible. But even if it were so, it would mean that roughly 60% of what the UW does would be untouched by the budget cuts and only the remaining 40% would see a 6.5% reduction. Unless you assume that the 60% is  being spent for extraneous purposes, that fact is significant and saying that they "system" has been cut by 6.5% is, at best, wildly misleading. In fact, it's pants on fire wrong.

Having said that, I agree that the real world impact might be a bit heavier than using the  2.5% number suggests in that some uses of funds will be more vulnerable than others.

In addition, the university has hamstrung itself. It  is bound by things like tenure and shared governance. These things make it difficult to more rationally allocate faculty. Having spent four years working full time on a law faculty, I am not persuaded that either of these things are as valuable as folks in academia commonly suppose they are. Tenure is supposed to protect the iconoclast and promote intellectual diversity, but the modern university is one of the more conformist institutions in our society. This is, in part, a product of shared governance. Faculties tend to replicate themselves. As one law professor once told me, "my colleagues' idea of diversity is to hire people who went to the same schools, worked in the same places, think the same way but look different."

I don't believe that tenure necessarily results in lazy professors. Most of my colleagues at Marquette - who generally only taught two classes each semester - contributed to the institution in additional ways, such as scholarship, development of curricula and clinical education and administration. But, regarding those few who did not, little could be done. In addition, the nature of these contributions tend to be chosen by the faculty member and not the administration. That's significant. For example, there is a presumption that all faculty should be engaged in research. This leads to a lot of dubious work. Some professors should teach more and write less, but the Dean generally cannot make that happen.

There are reasons for giving faculty some greater degree of autonomy than a corporation might, for example, give its marketing department. Moreover, the UW - and, for that matter, Marquette - couldn't possibly unilaterally move away from things like tenure, shared governance and light teaching loads. They'd bleed faculty and wouldn't attract good new professors. On this point, Chancellor Blank is correct. Our way of providing higher education is designed to be expensive.

But it is not knuckle-dragging philistinism to suggest that, when money is tight, some teachers should spend more time in the class room.

There is also a public fiction that cuts must be painless. Let's accept the fact that a cut in the UW budget will have real costs. The system won't be able to do things that, in an ideal world, we'd want it to do. It's a sad fact of life that money doesn't always stretch as far as we'd like. Wisconsin is still a high tax state. I think it is reasonable that there be a strong presumption against increasing them. (And, no, I'm not persuaded by arguments that restoring the cuts would only increase taxes a small amount. That's going to be true of any proposed reduction in government spending. All of those "small contributions" to this or that state program have resulted in a state with a relatively large tax burden.)

Here's another thing that you don't read. The UW's budget has been steadily increasing. For example, in 2002-2003, the system served approximately 140,000 students with a budget of roughly $ 3.5 billion, or a little under $ 25,000 per student. In 2011-2012, it enrolled a little over 155,000 students and had a budget of $ 5.9 billion, amounting to $ 36,000/student. That's a very large real increase. I'm sure that one can look behind these numbers in a variety of ways and it is certainly true that the increase has not come from additional state aid. But, at least at first blush, it doesn't seem like the UW is starved for money. Actually, it seems likes it has been doing quite well. Certainly much better than the taxpayers who it believes should pay more so that it will not have to make do with less.

I'm still not persuaded that the proposed UW cuts are a good idea. But I can't buy into the hair-on-fire hysteria with which they have been met.

Cross posted at Purple Wisconsin

Thursday, February 05, 2015

Thus endeth the Doe?

We've recently read that a ruling by Judge Charles Clevert has "struck down" portions of Wisconsin's campaign finance law and may have effectively killed - if it is still alive - the John Doe investigation into "coordination" between Scott Walker's campaign and certain conservative groups. Both of these things are true, but they actually happened last May.

What Judge Clevert did last week was to enter a judgment formalizing - and reducing to legally prescriptive language (i.e., "you shall not do X") - a ruling of the Seventh Circuit Court of Appeals last spring in a  case called Wisconsin Right to Life v. Barland. Most significantly, the Seventh Court held that the very scope of Wisconsin's campaign finance law was unconstitutional. As I wrote at the time, this ruling, at the very least, put the Doe inquiry on life support. Judge Clevert's recent order makes clear why this is the case.

Virtually all of Wisconsin's campaign finance laws are limited to activities undertaken for a "political purpose." The law itself defines this broadly, saying that it is anything done "for the purpose of influencing an election." While it has only sometimes admitted it, the Government Accountability Board has known for a long time that this definition is unconstitutionally vague and overbroad. The Supreme Court has made clear that not everything that might be said to have "the purpose" of influencing an election can be regulated. So the Barland court held that the state must limit its definition of "political purpose" to activities that constitute "express advocacy" - explicit calls to elect or defeat a candidate - or its "functional equivalent."

This is a pretty narrow definition. The Supreme Court has made clear, for example, that a communication (think of a campaign ad) can only be considered to be express advocacy (or its functional equivalent) if it is susceptible of no reasonable interpretation other than as a call to elect or defeat a candidate. In making this determination, it doesn't matter what the speaker "really" intended and very little consideration of the context is permitted. In other words, if it is at all possible to call something an issue ad, it's an issue ad. While the Court hasn't directly said so, it is hard to see how any ad that does not use "magic words" such as "vote for" or "defeat" can ever be considered express advocacy.

The implications for the Doe are obvious and Judge Clevert's order drives that home. It prohibits the defendants (which include the GAB and Milwaukee County District Attorney John Chisholm") from any criminal investigation that is inconsistent with this new and limited definition of "political purpose." If, as seems to be the case, those who were alleged to have coordinated with the Walker campaign did nothing but issue advocacy, then their activities could not fall within the constitutionally permissible definition of "political purposes." There would be literally nothing that can be lawfully investigated.

Some lawyers have argued that Barland's limitation of "political purpose" should not apply to coordinated communications. i.e., communications that have somehow been somehow been discussed with a candidate or someone who is deemed to be an agent of or closely related to a candidate. For reasons that I have explained elsewhere (including in briefs filed in related cases), I believe that this is wrong. People who advocate on issues frequently speak to elected officials and candidates. For example, liberal organizations who want to launch a campaign against right to work legislation will almost certainly discuss strategy and talking points with like-minded legislators - many of whom may be candidates for public office. Indeed, they have a constitutional right to do so. An overly expansive definition of "coordination" - one that does not clearly  and narrowly define the conduct that constitutes coordination and the content of communications that might be considered coordination - does not give adequate protection to speakers.

John Chisholm and the GAB should never have started this Doe investigation. It was an unseemly and unprecedented assault on freedom of expression. Sound lawyerly judgment should have caused them to end it long ago. Now, it seems, they may have no choice.

Cross posted at Purple Wisconsin.