Score a hit and a miss for federal regulators.

Nearly three years ago I wrote a piece for the now-defunct New York Sun complaining about delays from New York’s Kennedy International Airport (JFK). In August 2007, nearly a third of scheduled departures were late. The average delay was an hour and many planes waited far longer. But why would a plane leave the gate only to get in a big line? As it happens, at most major U.S. airports the FAA grants permission to take off on a “first come, first served” basis—and “first come” is defined by pushing off from the gate, even if this means queuing up behind 40 or 50 other planes, burning fuel to keep the plane’s cabin temperature tolerable and roll the plane forward a few feet every couple of minutes. Thus the FAA rule guarantees a level of tarmac congestion that can spiral out of control when other factors—like weather—intervene.

Tarmac delays occasionally hit the headlines. Caught without an effective emergency plan in a February 2007 snowstorm, jetBlue left a number of planes stranded away from JFK’s gates for many hours, a few as many as 11. Yet it was an event in Rochester—Minnesota, not New York—that prompted action. A Continental flight en route to Minneapolis was diverted to Rochester, and passengers were stuck on the plane for six hours.

In response, the Airline Passengers Bill of Rights was introduced in the U.S. Senate in 2009. While still pending, many elements were incorporated as regulation by the Department of Transportation. One element is a schedule of fines. Airlines leaving passengers cooped up in a plane for more than 3 hours would pay fines of up to $27,500 per passenger per infraction.

And the fines had the desired effect. After all, profitability can be elusive for airlines. Soaring fuel prices in 2006 and 2007 were followed by the Great Recession. Airlines began counting every last pretzel (and charging for them). A possible million dollar fine for a single aircraft incident certainly got their attention. A study released a couple of weeks ago reviewed statistics for May, the first month the rule was fully in effect (see http://www.tarmaclimits.com/). Flights taking-off more than 3 hours after pushing away from the gate fell from 34 in May 2009 to only one in May 2010. Apparently the stupid airlines had to be threatened with fines to do the right thing by passengers! (High five, regulators!)

But wait a minute. Of those flights sitting on the tarmac for more than 2 hours, cancellations more than tripled (from 3.9% to 14.2%). In New York, Dallas and Chicago, cancellations under these conditions hit 20% (v. 5-8% the year previous). So here’s the question: Would you rather spend more time on the ground or have the flight cancelled? With a big fine in the offing when they mess up, flight cancellations seem to have become the airlines’ reflex. And as the Internet now allows the airlines to fill planes to near capacity, cancellations have ripple effects that may take days to resolve. Regulation is a righteous hammer—but it can have unintended consequences.

Air travel can’t be a free-for-all, of course. But regulation needn’t be so ham-handed, either. Earlier this year, JFK had to close a runway for four months, eliminating one-quarter of its capacity. Recognizing that the delays would go from aggravating to preposterous—and would force airlines to risk the new outsized fines—airport managers began assigning departure times. Airlines are now assigned departure times in 15 minute blocks by a private contractor employing former air traffic controllers. They study weather conditions, juggle airlines’ requests and match this up to historic airport performance.

Under the new system, the lines are down from 40 or 50 planes to 6 or 8. When delays occur, passengers wait in the terminal, not sealed up in aluminum tubes. The airlines can swap spots if priorities change. Fuel burn is down, saving money. And this will also contribute to improving air quality in the New York area—jet turbines are particularly dirty when run at the jet equivalent of idle. In a quote reported by the Wall Street Journal, the manager of airport operations at JFK observed that “We’re certainly seeing that there is a more efficient way to run an airport.” The FAA is considering putting the same system in place in other congested airports like Chicago O’Hare, Dallas-Fort Worth, Atlanta and Dulles. Score one for consumers.

So what took them so long? And what lesson can be learned from studying two very different solutions to related problems? The fines demonize the airlines, assuming that airline management is either stupid or indifferent to customer satisfaction. Yet in most markets—certainly New York City—the airlines face considerable competition. Both stupidity and consumer indifference will be punished in the market, as the success of upstarts like Southwest and, yes, jetBlue, demonstrate.  jetBlue’s response to its failings was to develop a “Customer Bill of Rights” that spelled out specific compensation for particular adverse events.

The second solution—assigning slots—is a systems approach that recognizes that the airlines aren’t empowered to cooperate with one another to stagger take-off slots. It is up to the regulators to impose some order on the system. In my 2007 column I urged the FAA to auction slots, a system I still support (see www.policy-wonk.org for the old column). Savvy regulation can achieve many of the benefits of an auction system.

Kent Gardner, Ph.D. President & Chief Economist
Published in the Rochester (NY) Business Journal August 13, 2010

Bloomberg called her bluff. “If you think we’re doing such a bad job, why don’t you give it a try?” So in 2006 Moskowitz founded the Success Charter Network with the first Harlem Success Academy.  The network now runs four schools in Harlem with another three approved for the fall. Moskowitz plans to increase the network to forty schools.

The network is living up to its name: When Harlem Success Academy’s first crop of third graders took the state’s math and reading tests, they did very well—a 95% pass rate in reading and “extra terrestrial” in math, beating all but seven elementary schools in NYC and every third grade in Chappaqua, Mamaroneck & Rye, tony NYC suburbs in Westchester County.

Moskowitz’s achievement is the subject of a film recently screened at The Little titled The Lottery. The film follows four families who seek to enroll their children in one of the Harlem Success Academies. The hopes and dreams of the parents and their children makes for heartbreaking drama.

The film draws also attention to the kind of opposition Moskowitz has generated. This is worth a separate essay—and I won’t attempt to approach the subject in this column.

Let’s go back to “first principles” and ask what the charter movement can and can’t be expected to accomplish. Three studies of charter schools have been released within the past year.  Taken together, they are revealing.

Stanford University’s Center for Research on Educational Outcomes (CREDO) released a study of charter schools in 15 states and the District of Columbia and reported that charters outperformed traditional public schools about 17% of the time but underperformed traditional public schools 37% of the time. Results varied by state with charter schools in Arkansas, Colorado (Denver), Illinois (Chicago), Louisiana, and Missouri outperforming comparison schools while in Arizona, Florida, Minnesota, New Mexico, Ohio, and Texas, charters underperformed traditional schools. CREDO also reports that students in poverty and English Language Learners both do better in charter schools.

A study of NYC charter schools conducted by Caroline Hoxby (also at Stanford) through the National Bureau of Economic Research (NBER) found that students enrolled for grades K through 8 in charter schools significantly outperformed both their comparison group and traditional public school peers, closing “86% of the ‘Harlem-Scarsdale achievement gap’ in math and 66% of the achievement gap in English.” The NBER study compared students who were selected for the charter lotteries with students whose names were submitted to the lotteries, but were unsuccessful and remained in traditional public schools.

Just a few weeks ago, Mathematica Policy Research (MPR) released a study of student achievement in 22 Knowledge is Power Program (KIPP) middle schools. MPR found that “For the vast majority of KIPP schools studied, impacts on students’ state assessment scores in mathematics and reading are positive, statistically significant, and educationally substantial.”

What light does this shed on the charter school question? And what is the question? The naïve question, I think, is “Do charter schools outperform traditional public schools?”—the question that the CREDO study attempted to answer. When CGR was staffing the Rochester Charter Schools Committee and local attorney Robert Brown was VP of the Rochester Board of Education, Rob asked, “Are we [the Board of Education] the problem here? Is a charter school a good idea simply because we’ve eliminated a layer of coordination and management?” His question was, of course, rhetorical. Simply eliminating a layer of management is not going perform miracles. In fact, one of the challenges to the charter school model is that each school is, in effect, a self-contained district with all of the challenges that implies.

The charter idea—first posed by the late Al Shanker when he led the American Federation of Teachers—is that charter schools are permitted to try new approaches to education, but will be closed if they fail. From this perspective, the apparently conflicting results of the CREDO study on the one hand, and the NBER and MPR studies on the other, begin to make sense. CREDO found that some states—likely those with more effective oversight or more rigorous accountability—were building networks of schools that did outperform traditional public schools. The NBER study found that charter schools in NYC—where failing charters are closed—have also been successful. And finally, the MPR study of KIPP schools is the most encouraging: Here we have an approach to public education that is replicable. KIPP’s founders figured out how to create a successful school—then repeat their success again and again. Using similar approaches, Uncommon Schools, the Success Charter Network and others have performed the same miracle.

Charter schools still enroll only a fraction of schoolchildren in our cities—3% in NYC, for example. What about the rest? The charter school will improve overall educational outcomes for America’s children only if a) charter schools serve as a proving ground for different approaches to K-12 education, AND b) what is learned in charter schools is applied to traditional public schools. In the question and answer session following the screening of The Lottery, Superintendent Brizard was asked that question—What does the Harlem Success Academy experience mean for his efforts at the Rochester City School District? While some leaders of traditional schools attempt to discredit or diminish the record of charter operators like the Success Charter Network or Uncommon Schools (operator of Rochester Prep Charter School), Brizard did not. He believes that the accomplishments of these operators are real. The challenge is applying the lessons to Rochester’s traditional public schools. Brizard’s creation of “autonomous schools,” his emphasis on empowering principals, and ideas for teacher preparation all draw from the charter school experience.

Kent Gardner, Ph.D. President & Chief Economist
Published in the Rochester (NY) Business Journal July 9, 2010

But we still wonder. As we recounted in our report (see http://goo.gl/IOKu), there is nothing inherently wrong with LDCs and they can be used for good. But they are expressly designed to circumnavigate the cumbersome rules we’ve established for public bodies, e.g. open meeting requirements, public bidding, etc. The simple fact that we were never able to compile a list of active LDCs should be enough to light a warning beacon.

A quick summary is in order: LDCs are typically created by local governments and are allowed to receive public property that the involved local government concludes is no longer needed for a traditional public purpose. Transfer to an LDC involves a public hearing but does not require a competitive bid process or independent valuation of the asset. Unlike the governments that create them, LDCs need not comply with public procurement laws requiring a competitive process for awarding contracts. Though many employ a competitive bidding process, LDCs may award contracts at will. LDCs are not specifically required to comply with open meetings and Freedom of Information laws (although court decisions have asserted that some are legally bound to do so while others are not).

Our report focused particular attention on Monroe Newpower LDC. The Monroe Newpower Corporation was established by Monroe County in 2002 to assume ownership of its Iola power plant and convert it from coal to natural gas. The LDC borrowed about $32 million by issuing bonds and purchased the plant from the county for $7 million. This allowed the county to reap $7 million for its budget in the year of the sale and to have the plant upgraded without issuing county debt. In exchange, the county purchases power from Monroe Newpower through a 32-year “take or pay” contract requiring the county to purchase power each year. Monroe Newpower, in turn, contracted with Siemens Building Technologies to build and operate the new power plant.

In 2004, Siemens successfully bid for the right to manage Monroe County’s phone and computer systems under the Upstate Telecommunications Corporation (UTC), yet another LDC. Last year, the involved Siemens employees formed a new venture, Navitech, and took the Monroe UTC contract with them.

When another LDC was formed, this time to purchase public safety communications equipment under a 20-year, $212 million contract with Monroe County, Navitech received the contract to run it.

Now here’s the problem: The Brooks administration has asserted that LDCs created by Monroe County would comply with open meetings laws and other restrictions imposed on public bodies. The selection of Navitech by the new LDC, Monroe Security and Safety Systems Inc (M3SI), may have been consistent with that requirement. Yet the contract to Navitech is for $340,000, a mere fraction of the total amount of cash at stake. Navitech, in turn, managed the bidding process (such as it was) for the real work.

Last week’s story in Rochester’s daily revealed that Navitech sought bids from only two vendors, Motorola and Harris RF Communications. After Navitech awarded a $30 million contract to Harris, Motorola cried foul, asserting that the bid lacked specific requirements and that the bid was uncompetitive in other ways.

Press and blog reports of the transaction suggest that personal ties among the County Administration and Navitech are involved. Whether allegations of “self-dealing” are true or not, by delegating the big money transaction to Navitech, M3SI appears to have violated the spirit of openness and transparency suggested by open meetings laws and the public bidding process. We accept the proposition that a private firm can operate more efficiently than a public entity. Perhaps complying with all of those laws would have resulted in higher cost. But that seems unlikely. Properly managed, a public bidding process that employs clear specifications and seeks bids from all comers will squeeze excess profit from prospective vendors, securing a better deal for the taxpayer. There is more to learn about how this bidding process was managed. But what we appear to know about the circumstances leaves open the possibility of self-dealing and corruption.

As we have stated previously, local development corporations pose significant risks. LDCs may operate almost entirely outside the view of the public. Without routine public disclosure, individuals who control these entities, both elected officials with appointment powers and board members, are not always fully accountable. As LDCs are not required in any systematic way to disclose information about their finances, operations and decisions, the potential for abuse and corruption is significant. There is nothing to stop LDC officials from awarding contracts, jobs, property or other favors to friends, relatives or campaign contributors or from spending money wastefully and inappropriately. LDCs open up the possibility of what George Washington Plunkitt called “honest graft” (see William Riordan’s 1905 Plunkitt of Tammany Hall).

No criminal charges could be filed if Harris got 5% more than they would have received from a competitive bid. But it still isn’t right and the public deserves better.

Kent Gardner, Ph.D. President & Chief Economist
Published in the Rochester (NY) Business Journal June 11, 2010

Or consider coffee. Ubiquitous in lists of lifestyle factors, it seems that coffee is found to be alternately bad for you, neutral, or good for you in each successive year. (The latest news being good, I choose to regard the matter as settled.)

How do we judge the quality of research claims? This is a difficult problem. The Food and Drug Administration deemed the research supporting pain reliever Vioxx to be persuasive enough to justify widespread use of the drug. Merck was making $2.5 billion annually off the drug before it became apparent that Vioxx increased the risk of heart attack among those taking it for extended periods. Some question whether Merck falsified results. Even under the rigorous rules of drug testing, however, it is difficult to test for every possible outcome.

The challenges of evaluation can be equally complex in the human services. From a relatively short-term and measurable outcome—e.g. “Did the pain go away?”—we move to a much less tangible and often distant outcome that that is hard to measure—e.g. “Is the child better able to cope with bullying at school?”

Why must we evaluate human service programs? Is it not sufficient that we’ve fed the hungry and clothed the poor? When funds are scarce—and when are they not—we are obligated to concentrate our resources where they will be best used. There are better and worse approaches to feeding the hungry, although we might not assess the impact of outcomes (“how much less hungry?”) as we do assess a process outcome, e.g. persons served per dollar expended.

We are tempted to apply the medical model to the human services. Yet this is not always appropriate, technically achievable, affordable, or, in some cases, even ethical.

CGR constantly struggles with this problem. As an example, consider our ongoing efforts on behalf of the Hillside Family of Agencies to evaluate the Hillside Work-Scholarship Connection (HWSC). The outcome is clear—does the child graduate or not? (Or is it? My colleague Erika Rosenberg discusses the various flavors of graduation rates in our Education Notebook at http://education.cgr.org/). Question: Do we conclude that the HWSC program is successful if students participating in HWSC graduate at a higher rate than the City School District as a whole? Answer: Only if students participating in the program are similar to the rest of the student body in all important respects. As it happens, they aren’t similar enough to adopt such a simple test of effectiveness. Good evaluation practice requires that we construct a “control group” from among RCSD students who did not participate in the program. We’re nearing the end of a new phase of evaluation that relies on a more robust procedure for selecting a control group than the procedure we’ve used in the past. Even with the more robust procedure, absolute certainty will elude us. When the new results are released later this year, skeptics (regardless of the conclusion) will be able to raise technical questions about our approach. Whether we are working to evaluate housing initiatives, programs targeting homelessness, teen pregnancy or charter school performance, these challenges persist.

How much certainty should funders require? There has been a drive within major foundations and the federal government to limit funding to programs with ample evidence of effectiveness, often termed “evidence-based” programs or practices. Do such restrictions force out new and innovative ideas as we support only the programs and practices with a body of acceptable evidence supporting their efficacy? Do we drive money away from activities that are nearly impossible to measure rigorously, either because of small treatment groups or by the nature of the intervention? Remember the story of the drunk searching for his keys under the lights in a parking lot? Asked if that was where he’d lost them, he replied, “No, but the light is better here.” If you are interested in helping us explore the challenge of evidence in the human services, join us on June 15 for a community forum (see www.cgr.org for more information).

We must do a better job measuring outcomes and rigorously assessing the evidence that supports community interventions, be they aimed at reducing violence, challenging the epidemic of childhood obesity, cutting teen pregnancy rates, improving literacy, or enhancing parenting skills among new mothers. Yet we also must recognize the limits of evaluation and recognize that certainty of impact can elude us even with the best of procedures.

Kent Gardner, Ph.D. President & Chief Economist
Published in the Rochester (NY) Business Journal May 14, 2010

We’ve had two helpful forums on the topic. After the City Administration postponed several planned public meetings, the Rochester Business Journal’s forum was the first. School Board Commissioner Van White and Rochester Teachers Association President Adam Urbanski spoke against the proposal. In addition to remarks from Mayor Duffy, panelists Margaret Raymond from Stanford, Kenneth Wong from Brown, and Dennis Walcott, NYC’s Deputy Mayor for Education, spoke in support.

Against that backdrop, I was impressed with the measured comments of Professor Joseph Viteritti of CUNY’s Hunter College during the WXXI/City Newspaper/WDKX last week. He began his remarks by noting that he suggested mayoral control of the New York City schools in 1991. Yet with this history as context, he observes that the evidence for or against mayoral control is mixed, even in New York City. Professor Viteritti stopped over at CGR the next morning for a more relaxed discussion of what makes for a successful urban school reform initiative.

First, the statistical evidence. We’ve about a dozen urban districts’ experience to study. Statistics is powered by the law of averages. Suppose 90% of a group of bunion-sufferers ate Hostess Twinkies as children. Whether you become a fan of the “Ban the Twinkie!” Facebook group depends on whether the group numbers ten or ten thousand. In this instance, we’ve too few comparable districts to form a robust conclusion. While I respect Professor Wong’s efforts, he oversells his findings.

Professor Viteritti, as head of a commission formed to explore Mike Bloomberg’s request to extend mayoral control in NYC, compiled a set of case studies instead. While a case study lacks the persuasive power of a large statistical trial, there are lessons to be learned.

He reports that NYC is not the only, nor even the best example, of the potential of mayoral control.  New York’s reform efforts under Mayor Mike Bloomberg and Chancellor Joel Klein have been colored by their forceful personalities, personalities that Viteritti suggests have not always helped their cause. Moreover, a massive increase in funding, prompted in part by a lawsuit, has clouded the picture and enabled Bloomberg and Klein to buy support from the teachers. Cities like Boston (success) or Detroit (disaster) provide more food for thought.

Boston won the Broad Prize for Urban Education in 2006, a prize awarded to the best of the 100 largest city school districts in the nation. Boston outperformed Massachusetts districts with similar demographics, raised scores on national tests faster than other urban districts nationally, and closed the achievement gap by race/ethnicity and income. It’s success is attributed to curricular improvements tied to assessment, teacher training and support, and rigorous performance goals. Boston also invested in data, making it possible to monitor performance in real time and provide timely intervention.

Viteritti singles out another important characteristic of Boston’s success: Consistent, collaborative leadership.  Since Boston moved to a “mayoral control” model in 1992, the system has been supervised by one mayor, Thomas Menino. And for the ten years preceding receipt of the Broad Prize, Boston had a single school superintendent, Tom Payzant. Nor does Viteritti discount the role of the unions. In Boston, like Rochester, the unions hold too much power to be left out of the discussion. Among other changes, Payzant negotiated more freedom for principals to choose teachers. For many years we have known that principals are the cornerstone of reform—successful reforms empower principals, while holding them accountable for results.

How might Viteritti’s insights apply to Rochester? He argues that mayoral control can create conditions for change that can be built upon by capable and steady leaders. Accountable leaders empowered to make good decisions are a key ingredient to any successful organization.

Mayoral control’s opponents suggest that the goal is to make the mayor a dictator (an image reinforced by Bloomberg’s “my way or the highway” personality). Yet we might also worry about an unproductive diffusion of power under the status quo, as power is now splintered among the federal, state and city governments, each of the district’s employees unions, parents, the voters, each of the seven members of the Board of Education, the Superintendent, administrators and individual teachers. With power so diffused, it is easy to block change, no matter how well-conceived. As an example, both teachers and administrators—protected by a collective bargaining agreement, tenure and seniority rights—have the power to engage in passive resistance, defeating by neglect new initiatives from New York State, an empowered mayor, the superintendent, division chiefs, or principals.

Finding a sensible (and politically viable) balance of power between the Mayor, City Council and some kind of advisory board is probably what’s holding up release of mayoral control legislation. No legislation will eliminate collective bargaining agreements, the laws and regulations of NYS, or federal laws and regulations. Multiple power centers will persist, reinforcing Viteritti’s point from Boston: City and District leadership, however configured, must engage in meaningful dialogue with all centers of power, from the federal government all the way to parents.

As this significant change in governance is considered, all forms of dialogue should be pursued. Informal conversations, forums and debates, polling and discussion, an advisory referendum—all should be on the table. And the conversation needs to about more than just governance—let’s use this opportunity to explore what will improve outcomes for Rochester’s students.

Kent Gardner, Ph.D. President & Chief Economist
Published in the Rochester (NY) Business Journal April 9, 2010

CGR is a Rochester-based nonprofit that empowers community decisions through objective and nonpartisan information and analysis. We support and advise both the City and the School District, as well as many other local entities. Approached by Jim Antonevich of MMI to partner in this survey, we knew the risks: One side or the other in this heated debate would find the results not to their liking and be tempted to accuse us of bias. But this is why we were founded by George Eastman 95 years ago. Ol’ George would roll over in his grave if we backed away for fear of upsetting someone! So we agreed to work with MMI and share the cost. CGR’s portion was paid out of contributions to our Fund for the Public Interest.

First planned as a telephone survey, we chose a mail survey instead. Cellphones (with numbers unlisted), voicemail/answering machines, and caller ID have complicated the business of polling. Nationally, a quarter to a third of households no longer have landlines. And we confirmed the problem—of our list of randomly selected addresses, fully 40% didn’t have listed numbers. We judged—correctly, as it turned out—that the issue was important enough to residents to guarantee a solid response rate by mail. Of 1,750 surveys mailed out, 435 were returned by the deadline for a very strong 26% response rate, high enough to confer scientific validity on the results.

Across the entire sample, 63% supported mayoral control and 23% opposed it. We were surprised by such one-sided results, as the earlier survey of parents reported the opposite finding. It reinforces a simple truth: As a community, we aren’t satisfied with the current state of affairs and believe that we must do better. Too many young lives are at risk.

Few polls are perfect; ours has its flaws. We received too few responses from some groups and more than we needed from others. As an example, only 20 respondents identified themselves as Hispanic/Latino (too few to report, as 20 can’t be considered representative). However, we did have reportable numbers from African-American households, households with school-aged children, young community members, older residents, etc. The overall finding holds up from group to group. See www.cgr.org for detailed results and a more technical version of this essay.

These results put the Board of Education (BoE) in a difficult place. While some are quick to blame the board for the status quo, we know that the board, with support from Superintendent Brizard, approved some excellent new programs and policies in recent years. Nor has the Duffy Administration’s planning been flawless: Some of the policies included in their plans are already in place, implemented by this board.

MMI & CGR set out to make a contribution to the debate that is objective, independent, and scientifically valid. We’ve done our job, to inform the community and empower continued discussion.

Kent Gardner, Ph.D. President & Chief Economist
Abbreviated Version Published in the Rochester (NY) Democrat & Chronicle April 3, 2010

The hapless Eric Massa complained over the weekend that he’d been assaulted (verbally, thank goodness) by a naked Rahm Emmanuel (Obama’s Chief of Staff) in the Congressional locker room. Don’t we get enough bad melodrama on the floor of the House? And why did he feel compelled to tell us about it? Apparently the pending ethics probe is part of a big conspiracy to prevent Massa from opposing the President’s health care plan. Politico’s report of “unwanted advances” toward a young male staffer must be part of the plot.

Yes, conspiracy is back. With problems confronting both Charlie Rangel and David Paterson, Harlem Assemblyman Keith Wright said “I don’t believe in conspiratorial theories, but it seems as though the conspiratorial gods (came down today).” I can see his point. The charges against Rangel are certainly trumped up. Four rent controlled apartments? What’s the problem? Forgetting to report a few hundred thousand in income from property in the Dominican Republic is SO American. And who could blame him for accepting free trips to the Caribbean? Hustling earmarks for projects named after you is business as usual, particularly in New York State (see the Joseph L. Bruno Stadium).

Charges that David Paterson solicited World Series tickets from the Yankees seem, well, minor league in comparison. Yet if the Governor did attempt to persuade Sherr-una Booker from testifying in court against his aide (and her ex) David Johnson, he’s guilty of extraordinarily bad judgment. Did he think that no one was watching? That’s a lesson he should have learned from former Governor Spitzer, aka Client #9.

“Chauffeurgate” drove Alan Hevesi from his post as NYS Comptroller in 2007. Using a state driver for his ailing wife was nothing compared to the level of corruption that has been revealed since—Hevesi and associates have been accused of steering investments from the state pension fund (then worth about $150 billion) in exchange for cash and favors. As the New York Daily News opined in December, Hevesi was “either a monumental fool or a big-time crook.” The Securities and Exchange Commission and Attorney General Cuomo are still investigating.

The FBI finally caught up with Joe Bruno after years of rumor. Convicted in December on corruption charges, he’s to be sentenced at the end of this month.

Then there’s Hiram Monserrate. A state senator Queens, he was convicted of assaulting his girlfriend and was expelled by his colleagues in the NYS Senate.

Aside from “winning” the mock contest with my brother, my only consolation is that democracy and a free press does work, if slowly and belatedly. Joe Bruno might yet go to prison, although he lived to a ripe old age in power before investigations into his past got serious. The facts finally caught up with Charlie Rangel. Yet while he’s lost his Ways & Means Committee chairmanship, he’s still in office. Yes, the NYS Senate had the guts to kick out Hiram Monserrate. But don’t count him out yet—he’s running in Tuesday’s special election to fill his seat. If the voters in his district want to re-elect a guy like that, they get the chance on Tuesday. The people who lived under the thumb of folks like Joseph Stalin, Mobutu Sese Seko, Papa Doc Duvalier, Pol Pot, Saddam Hussein—where to stop?—didn’t get that opportunity.

Kent Gardner, Ph.D. President & Chief Economist
Published in the Rochester (NY) Business Journal March 12, 2010

The Congressional Budget Office forecasts the federal deficit to decline from about $1.5 trillion in 2009 to $608 billion in 2014, then rise to nearly $800 billion in 2020. This is a hefty deficit, particularly when you consider that we had a surplus as recently as 2000. Then consider that the cumulative public debt, which currently stands at $7.5 trillion, is expected to nearly double by 2020 to $14 trillion.

Years ago, as a young economics professor, I was rather sanguine about the debt. “We owe it to ourselves,” I’d say. No longer. In 2009, nearly half of our debt was held by foreign interests—with China and Japan as our largest creditors at 11% and 10% of our total debt, respectively. Foreign ownership increases the risk that debt poses to our economy.

How can we live within our means? In November, The Economist summarized some of the available options. I found the list rather depressing. Does raising the retirement age under Social Security to age 70 seem a bit draconian? Sad to say, it only cuts the deficit by $4 billion. Same for raising the Medicare age to 67. That only pulls in about $3 billion.

We gain more by eliminating some deductions. Do you like deducting state and local taxes on your 1040? Or the interest on your home mortgage? The deficit falls by $65 billion for the first and $147 billion for the second. Eliminating the favored tax status of employer-provided health insurance would raise a good bit more cash—$215 billion (no wonder it has been a topic of discussion in the context of health reform).

And, of course, we can add new taxes. A 50-cent per gallon gas tax would pull in about $62 billion. A value-added tax (VAT), effectively a national tax on consumption (a kind of national sales tax), would bring in some real money. If set, for example, at 5%, a VAT would raise about $324 billion.

We face similar struggles in New York State. If spending continues on its current trajectory, the Division of the Budget projects a cumulative deficit of $61 billion over the next four years. Even after the changes proposed in Governor Paterson’s 2010-11 budget, the four-year deficit is only cut in half. That may sound like chump change compared to the federal deficit, but remember we don’t have the right to print money here in New York.

How to cut the state deficit? Remember that 53% of the budget is either Medicaid or K-12 education. You can bet that the hospitals are lobbying hard to roll back the $500 million cut recommended by the governor. Nursing homes and home care agencies are fighting the potential loss of another $600 million. Despite the fact that aid to K-12 education is up 42% since 2003-04, the public schools are lobbying aggressively to reverse Paterson’s modest $423 million cut from being imposed.

With the entire Legislature up for re-election in November and political control of the Senate within reach of both parties, candidates will be under pressure to find money for popular projects and avoid unpopular cuts, while still being able to claim to be fiscally responsible.

Is there a solution? Just as the problem is a tangled knot of politics and economics, so must the solution address both spheres. The political solution must provide cover for incumbents running for re-election, some kind of “plausible deniability” to shield them from the anger of special interests and the attack ads of challengers and their proxies. After a recent Supreme Court ruling eviscerated restrictions on campaign spending by businesses and unions, the need for political cover has never been greater.

Republican Senator Judd Gregg and Democratic Senator Kent Conrad are trying to establish a bi-partisan commission that would make recommendations to Congress that could only be voted up or down by members – modeled after the successful military base-closing commissions. This allows the “plausible deniability” incumbents seek—“Hey, you know I support your cause. But the cut to you, Mr. Special Interest, was part of the package. I just couldn’t vote down the whole thing.” Columnist George Will dubs this the “hold-hands-and-jump-off-the-cliff-together” school of government. It may be an inelegant, even cowardly, approach to balancing our budgets, but we don’t live in a perfect world.

Might a similar approach work in New York? We managed to close a number of hospitals and nursing homes using a similar model. The Berger Commission “took the heat” for legislators, letting sensible cutbacks become law without forcing state legislators to take a stand on individual facilities.

Yet we need an economic solution, too. Every one percent increase in the growth rate of the U.S. economy adds about $250 billion in revenue. It works both ways—if the growth rate falls by one percent, the deficit goes up by $250 billion instead. And the same principle applies to New York State. Whatever we do to fix the budget, remember the dictum from medicine: First, do no harm. For if, in our attempt to balance the budget, we chase business from our state or from our shores or we limit the ability of technology to improve productivity, we may fill one hole by digging ourselves another. Only economic growth truly cuts the Gordian knot.

Kent Gardner, Ph.D. President & Chief Economist
Published in the Rochester (NY) Business Journal February 19, 2010

I’m a planning skeptic. Often the process of planning is so exhausting that we declare, “It’s done!” when the ink is dry. We forget that the plan serves only to lay out the course and load the starter pistol. The plan is too-often ignored. We continue going about our tasks as though nothing had changed. To the Superintendent’s credit, many of plan’s strategies codify activities already underway. In fact, the first of the five years was 2008-09. Like all good leaders, Brizard is impatient about his plan.

The threads of empowerment and accountability are woven through the fabric of the plan. We know that the demanding standards of the 21^st century workplace can only be met by students who are empowered by a good education. District and school leaders, teachers, and staff must also be empowered and held accountable to demanding standards.

Goal 1. Brizard’s first goal is to “ensure that each of our students is academically prepared to succeed in college, life, and work in the global economy.” Plans tend to repeat the obvious and aspire to the impossible. No school has the power or the resources to make such an outcome certain—yet if this isn’t our aspiration, what would replace it?

Under Goal 1, the plan seeks to create a district-wide framework that “aligns standards, curriculum and benchmark assessments.” Accountability can only be achieved if it is first defined. But creating the framework isn’t enough—the plan asserts that the framework has to be adopted by schools. Just like the plan itself, the framework is useless if it isn’t adopted.

Goal 2. Students are not empowered to learn without a social environment that nurtures achievement. Goal 2 articulates the need for reliable security and consistent discipline. Moreover, the school must confront the social context that often impedes student success and recognize the need for comprehensive coordination with social services.

Goal 3. Schools cannot succeed without effective school leaders and leaders cannot be effective without qualified and engaged teachers. Goal 3 articulates steps to recruit, develop and empower gifted leaders; and equip and nurture outstanding teachers. Support and training is critical to the empowerment side of the equation.

Goal 4 addresses the physical environment. Great buildings cannot overcome disengaged teachers and an uncoordinated curriculum. Nor does a deficient physical infrastructure make learning impossible. Nonetheless, efficient and responsive management of buildings, transportation, and food services removes obstacles to achievement, empowering students, teachers and school leaders to focus their attention on teaching and learning.

Goal 5 articulates a strategy to create a culture of accountability. The District must be accountable to all of its “customers”—students, schools, parents, employees, taxpayers, and citizens.

Under Goal 5, Objective II, the district intends to “build [a] District dashboard to capture formative data, including benchmark assessment results, to monitor student learning in real time.” Teachers and administrators can only be held accountable if they are empowered through access to accurate and timely information. They rightly complain about assessments that are either unconnected to the curriculum or scored months too late. I’m not sure how “real time” will be defined, but it is “unreal” when the results of state assessments are available only at the end of the school year.

Accountability at the school level will be built on a budgeting system that empowers school leaders. Significant effort is going into creating a system that will allocate money according to the needs of the students attending each school. This “weighted student funding” system is a critical prerequisite to establishing the “Autonomous” schools, schools that are empowered to use funds creatively, adapting staffing and resource use to the particular needs of the school. Without a clear and fair funding formula, money is allocated directly from Central Office, not always in response to need and opportunity.

Goal 5, Objective IV addresses “Performance Management.” When expectations are clear and timely information on achievement is available, then leaders and teachers—at the district and school levels—can manage for performance. Empowerment appears again, however—the plan notes that the District must invest in building the capacity of managers, particularly principals, to manage for performance.

The plan also recognizes that the community can help. We can empower the District leadership and staff to make what may be unpopular decisions. And we can hold them accountable. We are all stakeholders in the future of Rochester’s children. Dramatic improvement will not come easily or quickly. I urge you to read the plan (see http://bit.ly/6VHeIp) to understand the scale of the work. Both the devil—and the angels—are in the details, the specific actions and initiatives laid out under each goal and objective. Improved student outcomes can only be achieved through many small, sometimes mundane, achievements.

The goal is not to plan but to do. Our role at CGR will be to support the creation of benchmarks and metrics for individual elements of the Strategic Plan, to help identify bottlenecks in the rollout, and to report to the District’s leadership and the larger community on what we see and hear. We are honored by Superintendent Brizard’s trust and openness, and we are challenged by the responsibility.

Kent Gardner, Ph.D. President & Chief Economist
Published in the Rochester (NY) Business Journal January 8, 2010

Five of us at CGR signed up for the HDHP and HSA combination. With our experience as background, nearly the entire staff selected this option for the coming year. Why?

Family A and Family B. Family A is a relatively heavy user of health care services. Over the 9 month period ending in October (CGR’s enrollment began Feb 1), this family chalked up 16 office visits (4 to specialists), 30 prescription drugs, 6 trips to the lab, 4 diagnostic imaging visits and 2 outpatient surgeries. Total payments for care came to $21,955; the family’s share was $4,758. Excellus paid $17,197. As CGR spent $4,649 on premium (again, only 9 months), the net cost to Excellus was $12,548.

Family B experienced ordinary, minor ailments. Between office visits and meds, they spent $1,215 out-of-pocket and never reached either the individual or family deductibles. Excellus spent nothing on their care and kept the entire $4,649 in premium from CGR. See Table 1 for a summary.

Compared to what? Let’s see what our families’ costs would have been under the other plan. CGR pays 70% of the cost of the “base plan.” For 2009, the base plan was a “preferred provider organization (PPO)” health insurance plan (Healthy Blue 15/25) with a 9 month cost of $8,937 ($993 per month). CGR pays $6,256 ($695 per month) and the employee pays $2,681 ($298 per month).

Ignore the health savings account and assume that CGR captured all of the savings from the cheaper plan (and paid the entire premium). If Family B had stayed in the more traditional PPO plan, it would have spent $3,041 (in premiums plus copayments).

High cost Family A would have spent $3,521 (after premium and copays) under the PPO plan.  See Table 2 for a summary.

Don’t forget the HSA. CGR’s spending for a family policy is the same, regardless of which plan is selected by the employee. The monthly premium spent on the PPO is $695, $178 more than the premium owed on the HDHP. CGR deposits the $178 per month in the employee’s HSA. Over the nine month period, both families received HSA deposits of $1,606.

With HSA contributions included, our high cost Family A spent $3,152 in the HDHP, saving $369 over the traditional plan. Family B ended up the nine month period with an HSA balance of $391, a saving over the PPO of $3,433.

Don’t forget the tax advantage. We’re almost finished. The HSA is funded with pre-tax dollars. The $1,606 HSA reduces both families’ tax liability by that total. Assuming marginal tax rates of 25% federal and 6.185% state, this is worth an additional $512. Moreover, if the families choose, they can self-fund their HSA (just as you would a flexible spending account) up to a total employer plus employee contribution of $5,950 (plus an additional $1,000 for individuals 55 and over). While you can secure the same tax benefit for out-of-pocket expenses through an FSA, any funds deposited in an FSA that aren’t spent within the year will disappear. Funds deposited in an HSA are yours and can be kept indefinitely. Family A ended the 9 month period with a total cost of $2,640 while Family B ended with a combined HSA balance and tax credit worth $903 (see Table 3).

Cash flow. Here’s the final wrinkle: Clearly, both families saved money in the HDHP. The high cost Family A, however, had to pay some substantial expenses before reaching the plan deductible. Between February 1 and March 4, Family A had spent $1,745 (largely due to an expensive drug for a single family member). The family’s $2,600 deductible was met by the end of March. At this point, the “coinsurance” period began and the family was obligated for 20% of the cost of care—which was typically at or below the copayments of the traditional plan. The HSA contributions did not keep up with actual cost. Moreover, the family can expect the same beginning-of-the-year cost burden in 2010.

Both families confirmed that paying “first dollar” for care changes your perspective. Knowing that Family B was paying the entire bill, one physician said, “Instead of ordering the whole battery of lab tests, let’s just get the three most important.” Both families report shopping for the best price on drugs. And it is more confusing. Providers are accustomed to applying a copayment and don’t know what you must pay (FYI, it works like this: The physician “bills” Excellus, which sends out a benefit statement that applies Excellus’ negotiated rate and informs the provider what he or she can charge. Then you pay the bill.) Excellus keeps track of progress toward individual and family deductibles and reports this information on each benefit statement.

The transition isn’t painless; you are now responsible for worrying about pricing as well as other considerations. But the savings are considerable and providers are becoming more accustomed to the new model.

Kent Gardner, Ph.D. President & Chief Economist
Published in the Rochester (NY) Business Journal December 11, 2009