April 2008 Archives

Patrick Fleenor, Chief Economist at the Tax Foundation, had an op-ed in the Boston Globe a few days ago which details the problem of high cigarette taxes leading to cigarette smuggling and other criminal activities. He concludes by saying, "Backers of the current hike argue that it will raise needed revenue while discouraging smoking. The first claim is myopic, since the tax imposes costs on society in terms of lawlessness. The widespread availability of cheap cigarettes via the black market also undermines the second."

More disturbing, Fox News this morning has a story about how cigarette smuggling is leading to the funding of terrorist organizations. The story is based on a report prepared for the U.S. House Committee on Homeland Security titled "Tobacco and Terror: How Cigarette Smuggling is Funding our Enemies Abroad."

Why is this an issue for Maine? Maine's high cigarette taxes are an enabler to these smuggling activities. Maine's recent increase in taxes on beer, wine and soda only serves to expand the menu of items that can be profitably trafficked by smugglers. The next time Maine legislators plan to raise these types of excise taxes again, they should keep in mind the conclusions reached by this study:

"Experts have long acknowledged that terrorist organizations such as Hezbollah 'depend on a wide variety of criminal enterprises, ranging from smuggling to fraud to drug trade to diamond trade in regions across the world,' including the United States. Terrorist organizations rely heavily on their global web of illicit enterprises to financially support their recruiting, training, arming, and operational objectives. As law enforcement agencies continue to combat terrorist and criminal fundraising schemes, these criminal groups will continue to adapt and exploit emerging vulnerabilities. The ability of these groups to engage in low-risk, cash-based schemes such as cigarette smuggling are critical to the continuation of their operations. The more than $50,000 in profits that smuggling rings can generate from one contraband load (1,500 cartons) is enough to fund as many as 10 USS Cole bombing operations. In just two months of illicit cigarette trade operations, a motivated terrorist cell could generate sufficient funds to carry out another September 11th style attack, in which operational costs were estimated to be $500,000."

In less than a week, two separate op-eds on school choice have appeared in Maine's two largest newspapers.

Last Thursday, my piece on the loss of school choice in the Bath area appeared in the Portland Press Herald. Today, an excellent op-ed by two parents in the Etna-Dixmont area appears in the Bangor Daily News.

This renewed interest in school choice is coming at exactly the right time. Now that the legislature has enacted a "fix" to the consolidation law, reorganization committees across the state are going back to work, under pressure to get consolidation plans ready for approval by the Commissioner of Education and local voters.

Supporters of school choice should be wary.

Why? Because even though choice is nominally protected by the reorganization law - under the law, those towns that have choice now will continue to have it - there is reason to fear that eliminating school choice may become a precondition imposed on those towns that have choice as they look to merge with towns that do not have choice.

The Etna-Dixmont case, about which the parents from those two towns write so passionately in today's BDN, is a good example. According to published reports, the reorganization committee there is looking to end school choice for Etna and Dixmont's MSAD 38 as a condition of its joining with neighboring MSAD 48 in Newport. Though the majority of high schoolers in MSAD 38 attend Nokomis High School In Newport, state data shows that students there attend five other high schools as well, including John Bapst, Mt. View, Bangor High, Brewer High, and Hermon High. The school board is apparently split on the issue, with some supporting keeping choice while others seem happy to force all MSAD 38 kids to attend Nokomis whether it meets their educational needs or not.

Is this legal? I'm not a lawyer, but it sure doesn't seem as though it is. The reorganization law is very clear that "if the option of attending a public school in another school administrative unit or a private school ... was available to students in the previous education unit, that option continues to be available...after the municipality’s inclusion in the regional school unit.”

Those opposing choice are apparently arguing that MSAD 38 is NOT a choice community to begin with, because the district seems to think that it has an "exclusive contract" with Nokomis that is binding on all students unless they get a waiver from the the MSAD 38 school board. This policy seems to contradict state law, which says that "Students whose parents reside in a school administrative unit which contracts for school privileges under section 2701 may attend the contract school." That is they MAY attend, but can't be forced to by either the state or the school district. Opponents of choice in the Etna-Dixmont area evidently feel otherwise.

Legal hairsplitting like this, intended to put an end to a generations-old tradition of school choice, is likely to become more common as reorganization efforts move forward. The time for supporters of school choice to organize and dig in for a fight, therefore, is now.

I received this press release today from the Small Business Administration. In a nutshell, their new study finds that energy costs matter more to small businesses than for large businesses. This is particularly important in Maine since the economy is dominated by smaller businesses. As a result, Maine's economy is more vulnerable to higher energy prices than other states.

For Release: April 22, 2008
Contact: John McDowell, (202) 205-6941
john.mcdowell@sba.gov
SBA Number: 08-09 ADVO

Small Firms Hit Hardest By Rising Energy Costs

Manufacturing And Commercial Sectors Top The List

WASHINGTON, D.C. – Small firms are hardest hit by rising energy costs, according to a study released today by the Office of Advocacy of the U.S.
Small Business Administration. The small manufacturing and small commercial sectors top the list of burdened industries, on an energy cost per value of industry shipments and an energy cost per sales basis.

“This report shows that, on a disaggregated basis, energy prices can affect different industrial sectors in different ways,�? said Dr. Chad Moutray, Chief Economist for the Office of Advocacy. “Previously, most research in this area had focused on the macro level. With this report, the spotlight turns to individual industrial sectors and the small firms within them.�?

The report finds that for 10 of 17 manufacturing sectors for which data were available, small firms spent considerably more for energy than large firms did, on a per value of industry shipments basis. For food manufacturers, leather and allied products manufacturers, and computer and electronic products manufacturers, the costs per dollar of output were more than double those of their larger counterparts.

The author also finds that in 26 of 31 commercial industries studied, small firms have higher energy expenditures on a cost per dollar of sales basis. The median commercial sector industry has a small entity energy cost per sales ratio that is 2.7 times the ratio for large entities.

The report, Characterization and Analysis of Small Business Energy Costs (http://www.sba.gov/advo/research/rs322tot.pdf), written by E.H. Pechan & Associates with funding from the Office of Advocacy, uses available data to analyze the impact of changing energy prices on various sectors of the economy.

For more information, a complete copy of the report and tables of analyzed industry sectors, visit the Office of Advocacy website at www.sba.gov/advo.

The Office of Advocacy, the “small business watchdog�? of the federal government, examines the role and status of small business in the economy and independently represents the views of small business to federal agencies, Congress, and the President. It is the source for small business statistics presented in user-friendly formats, and it funds research into small business issues.

###

The Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government. The presidentially appointed Chief Counsel for Advocacy advances the views, concerns, and interests of small business before Congress, the White House, federal agencies, federal courts, and state policy makers. For more information, visit www.sba.gov/advo, or call (202) 205-6533.

** To sign up for Advocacy updates via RSS feed, visit http://feeds.feedburner.com/sba/rAIO **

** In order to receive e-mail notices of Advocacy's press releases, monthly newsletter, small business research, statistics, and regulatory news visit http://web.sba.gov/list. **

In all the furor surrounding the legislature's $53 million tax day tax increase, it may have been overlooked that even though it took them three and half months to do so, the legislature did eventually pass a bill on school consolidation. The bill that was enacted, LD 2323, contained pieces of two other bills, the original LD 1932 and LD 2280, which was one of the Committee's own bills.

LD 1932, as everyone will recall, was the Education Committee's original bill to enact a handful of technical changes to the consolidation law. LD 2323 enacts those changes, which include:

- Allowing local cost-sharing agreements, which was seen as the major impediment to consolidation
- Allowing minimum special education subsidy receivers to remain eligible for minimum subsidy if they join a new regional school unit
- Removing the 2 mill minimum requirement, which was resulting in major cost shifts.

The new LD 2323 also includes some of the elements added to LD 1932 by the Education committee, such as:

- Allowing an exception for some units of 1,000 to 1,200 students (in isolated rural areas);
- Clarifying the roles and responsibilities of local school committees and regional school unit boards and the relationship between the two (local school committees can remain, but have limited influence and no budget authority)
- Allowing school property to remain in local hands if agreements are worked out regarding maintenance, etc.

Before being passed, LD 2323 was amended by House Amendment "G", which included language from LD 2280 and which makes largely inconsequential technical changes to the law. It does move the final deadline for voter approval of a consolidation plan from November of this year to January 30 of 2009, which now represents the final date by which voters must approve a reorganization plan before penalties take effect. It also makes some technical changes to the budget validation process, but does nothing to postpone or exempt towns from the budget referendum requirement. All Maine voters will get the chance to approve their local school with a referendum vote.

To deal with the whole "school union" issue, which sunk to original LD 1932, LD 2323 contains this provision:

"The bill authorizes the Commissioner of Education to approve plans for alternative organizational structures under the school reorganization law. To approve a plan for an alternative organizational structure, the commissioner must find that the plan will satisfy the purposes of the school reorganization law including: consolidation of system administration; consolidation of administration of special education, transportation and business functions; adoption of a core curriculum; and adoption of consistent school policies, school calendars and collective bargaining agreements."

In other words, rather than proscribe acceptable alternate consolidation arrangements, such as school unions, the law gives the commissioner the authority to approve some variation of them, as long as the plan meets with her approval. Though this vests quite a bit of authority with the commissioner, it may, at the end of the day, be the best solution given the wide variety of school structures in place all over the state.

So what to make of all this? The changes in LD 2323 do indeed make the law more workable and give it quite a bit more flexibility than was originally in put in place. The budget validation process remains in place, which is the one element of the law that many of us believe holds any hope of generating savings for taxpayers. School choice remains protected as well, though that is not stopping merging districts from making it an issue.

Voters should watch carefully what happens next. With the legislature now mercifully in adjournment, the focus returns to the local level, where the reorganization committees now head back to work. They have from now until January 30 of next year to get some kind of reorganization plan approved.

With the legislature's most recent tax-increasing outrage dominating the news from Augusta, it may have escaped the attention of the public that as of yesterday, the 17th, our intrepid legislators are getting paid $100 per day in Special Session pay.

The legislature has been in session since early January, but in the three-and- a-half months since then, the majority Democrats, who control the House and Senate and therefore set the agenda, evidently could not complete the work of making everything they touch worse. So, ever since the statutory adjournment date, which was the 16th, they have been collecting special session pay in addition to the salary, expenses, and benefits they already received for their service thus far this year.

(Special Sessions have costs far and above the extra pay for legislators - estimates are that each Special Session day sets taxpayers back $50,000.)

If they ever do decide to adjourn, we can perhaps only then make an account of what their work, or lack thereof, has cost us. I suspect we'll find that the $52 million in tax increases that they enacted on Tuesday, (tax day, appropriately enough) is only the start of it. At the very least, though, their work over the past two days has cost each and every one of us $100 per legislator, per day.

Enjoy the weekend!

The fun never stops in the State House. Apparently out of revenge for the veto of LD 1932, the Maine House last night passed a bill to repeal the consolidation law in its entirety. In its original form, the bill, LD 2281, would have substantially watered down the budget validation requirements contained in the school reorganization law. MHPC testified against the bill vehemently, and it came out of the Education committee with all three senators opposed, meaning it faced certain death when it reached the Senate.

Last night, though, the bill was amended in the House, striking out all of its original language and replacing it with language repealing the consolidation law. It passed, 73 to 59, and is now awaiting action in the Senate.

That's not all. Upon issuing his veto of LD 1932, the governor submitted a new bill, LD 2314, which contains the original elements of LD 1932 before is was literally amended to death by the legislature. That bill came to the House floor last night, as all bills do, to be assigned to a committee. Rep. Jim Schatz (D-Blue Hill), an ardent opponent of consolidation and one of the few Democrats to vote against the law last year, then made a motion to kill the new bill outright before it could even be sent to the committee. The bill was promptly tabled before a vote on his motion could be taken, and awaits further action today.

Clearly, the governor's veto of LD 1932 has not been taken lightly in the House, where tempers, on the Democrat side in particular, are running high. Democrats in the House and the Governor thus find themselves in a fascinating standoff at this point. The governor can veto any action the legislature takes and be pretty confident his veto will be upheld. They can kill any bill he puts forward, as was attempted last night, and he can make no changes to the consolidation law, which is in dire need of changes, without their support.

With only days remaining in the legislative session, what will happen next? With the November legislative elections looming over the horizon, who will give in?

Get your popcorn and stay tuned...

The long strange journey of LD 1932 came to an unceremonious end last night when the senate failed to override Governor Baldacci's veto, effectively killing a bill first put forward by the Department of Education in November of last year. At that time, school units across Maine were struggling to comply with reorganization, and a citizen's initiative to repeal the law was gaining strength.

The administration offered up LD 1932 in the hope that the slight bill, only a few pages in length, would "remove unintended barriers to consolidation" and allow districts to "move forward." It was believed that the bill's early December public hearing date would mean that it would be ready to go to the full House and Senate in early January. There was talk that it would be voted on and signed into law within the first week of the 2008 legislative session.

Now the bill is dead, and legislative leaders find themselves going back to the drawing board with about a week left in the legislative session.

What went wrong??

There is plenty of blame to go around.

First and foremost, blame goes to the legislators who voted for the unworkable bill last year. Rushed through the process, modified and amended countless times along the way, the final bill was a disorganized mess. It was passed anyway under pressure from legislative leaders on both sides who were looking to book the illusionary savings it was to have created into the state budget. A wiser move would have been for the legislature to create some kind of commission to work out the details of the bill over the summer and present a much more thoughtful alternative this spring. They did not.

Blame also goes to the Department of Education, which substantially underestimated the trouble the bill was creating and which submitted a mild fix, LD 1932, to a law with major problems. In so doing, the Department simply invited the avalanche of bills and weeks of legislative meddling that followed. The Department had an opportunity last fall to work carefully with the law's critics to create a substantive reform bill that might have withstood the legislative process better than LD 1932 did. Instead, they tried a narrow, technical fix, and thus brought on themselves all that followed.

A good deal of blame must also be laid at the feet of the Education committee, which, though well intentioned and hard working, proved repeatedly that it was simply not up to the task of dealing with the reorganization law. Both this year and last, the work of the committee was unceremoniously scrapped by the legislative leadership. Though committed to doing the right thing, the committee never developed any kind of consensus around a cohesive vision for what the reorganization of schools should look like, with the result that every bill on the subject, including LD 1932, came out of the committee in two or three different versions, each competing with one another for the attention and support of legislators. Imagine how things might have gone differently had the committee been able to overcome its own internal divisions and present a united front against the rest of the legislature and the legislative leadership.

And it is with that legislative leadership that the blame for the failure of LD 1932 ultimately rests. That same leadership crafted the flawed reorganization law in the first place, behind closed doors in the waning days of the last legislative session. They then browbeat legislators into supporting it with threats of a state government shutdown should they fail to pass the budget bill which contained the reorganization provision. When legislators returned to session this winter with dozens of bills to amend the troubled law, the leadership virtually guaranteed ongoing dissatisfaction among rank and file legislators by summarily dismissing every reform bill that was proposed. All legislative concerns were to be answered in a single bill, the leadership told them. The bill? LD 1932.

The last hope to save LD 1932 was probably lost when it came out of the Education committee in three different versions, and then a fourth if one counts the amendment drafted by committee member and Senate Majority Leader Libby Mitchell. By immediately offering a floor amendment to her own committee's bill, even an amendment with much to recommend it, Sen. Mitchell instantly undermined the committee's work and set divisions in place that lasted until the bill's final defeat yesterday. In the weeks that followed, countless amendments were offered and the bill was slowly reworked into unrecognizability. As the governor put it in the message that accompanied his veto, the bill's "original purpose was lost."

This morning, legislators awake to the challenge of doing something substantive to deal with the reorganization law with only days remaining. A moratorium on reorganization activities is most likely the best option at this point, (if not outright repeal,) accompanied by some kind of incentive package to encourage districts to pursue reorganization where their work thus far has borne fruit. The legislature may also wish to authorize the creation of a commission to rework the reorganization concept over the summer, allowing it to submit proposed changes to the next legislature.

If they do so, one hopes the next legislature will do a better job with this issue than this one did.

From an AP story today:

AUGUSTA — A coalition of health groups today urged lawmakers to increase the cigarette tax by a $1 per pack, saying the increase will encourage more people to quit smoking and generate more money for health programs.

Translation: Fewer people smoking equals more cigarette tax revenue? Someone needs a math lesson.

The budget passed by majority vote in the legislature on Monday slashed staff and funding for OPEGA but left the agency intact and, more importantly, removed language in the original majority report that merged OPEGA, which is governed by a bipartisan committee, with the legislature's Office of Fiscal and Program Review, which is governed by the highly partisan Legislative Council.

The summary for the amendment that was ultimately passed reads in part as follows:

This amendment preserves the current structure of the Office of Program Evaluation and Government Accountability and the current legislative oversight of that office, but reduces the staff by 3 positions, leaving 4 positions and some funding for contracted services in place. The amendment directs the Director of the Office of Program Evaluation and Government Accountability to work with the joint standing committee of the Legislature having jurisdiction over state and local government matters and the Government Oversight Committee to develop performance standards applicable to the Office of Program Evaluation and Government Accountability and to identify ways to collaborate with other offices and departments, including legislative offices, the State Controller and the State Auditor, to improve the effectiveness and efficiency of its oversight role.

My reading of this makes clear that opponents of OPEGA, having failed to crush it outright this time around, intend to take a more long-term approach toward weakening its investigative powers. Under the guise of making it more "efficient," they will try to limit its reach, merge it with other agencies over which they have more control, and in every other way possible make it as ineffective as they can.

What are they trying to hide?

We may learn more once The Maine Heritage Policy Center launches its new transparency initiative, being developed as we speak. In the very near future, anyone with a computer will have access to much of the same data that OPEGA has used to find waste and fraud, and I suspect that what we will find in that data will tell us a great deal about why so many people in Augusta seem intent on silencing OPEGA.