Framing Net Neutrality Standards We Can Agree Upon

By now, you’ve probably heard about net neutrality, the principle that Internet Service Providers (ISPs) should not favor some online traffic and data over others.

It shouldn’t really be a controversial matter because virtually everyone agrees on the basics, and it is fundamentally just common sense—there should be a level playing field online. So, if you are a small-business owner, your customers ought to be able to access your site as easily as a larger corporate retailer; likewise, a user should be able to load content from their favorite independent blogger just as quickly as content from a major media outlet.  It makes good business sense for providers to practice net neutrality with or without federal regulations.

But from a public policy standpoint, the question is how do we best ensure that net neutrality is adhered to? There are at least two possible paths forward.

The first is to treat the internet as if it were a public utility like electric or telephone service; but this is highly problematic. In 2015, the Federal Communications Commission (FCC) under President Obama chose this approach even though the decision flew in the face of decades of the internet flourishing under cautious federal regulation. And although it managed to apply utility regulations to the internet, the measures have little to do with net neutrality as the regulations were, of course, never intended to address internet networks when they were conceived some 80 years ago.

The second path is for Congress to pass legislation that would establish how much oversight the government has on the internet once and for all. This is preferable from my perspective as it would incorporate many bipartisan voices and would finally provide certainty for the business community by preventing successive administrations from constantly changing the rules. The legislative route would also be ideal because it could be written with the internet specifically in mind in order to ensure it includes net neutrality principles that are reasonable and enforceable.  

Any such legislation should provide minimal government oversight, somehow limit the ability of the FCC or other government entity from formulating regulations that don’t represent the will of Congress and the American people, establish a level playing field for all involved, and assure transparency so that the consumer understands what he/she is experiencing and why.  And any legislation should be fully debated in Congress and in all media venues so that the pros and cons of what is being suggested is understood by the majority of our citizens.

In the meantime, the FCC, led by its new chairman tapped by the Trump Administration, can review and reverse the most detrimental aspects of the utility regulations imposed in 2015. But without lasting legislation in place, the back and forth policymaking is causing upheaval in the marketplace and deterring investment in new broadband infrastructure.

There is data and anecdotal proof that this is more than just speculation: the public utility model is costing us real opportunities for innovation, economic growth and job creation. In Southwest Virginia, for example, a rural internet provider argued it was forced to stop investing in its rural broadband service in 2015 due to the FCC’s decision and the new legal fees associated with it.

A study by the Phoenix Center for Advanced Legal and Economic Public Policy Studies found that the sheer threat of utility regulation decreased investment over a five year period by an average of $35 billion a year. This is money kept away from internet expansion and development.  This shows how just the suggestion of government regulation can depress business investment.

The majority of Americans just want the issue settled so lawmakers can focus on the real work of strengthening the economy. The bottom line is Congress seems to have clear constitutional authority to enact permanent, strong net neutrality protections—and now is the time to do it. The right legislative vehicle could secure an open Internet, spur more technological advances, and create jobs through the virtuous cycle that follows.

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Autonomy and Accountability in Higher Education – Part 2

In 2005, when leaders of Virginia’s most prestigious universities were angling for more autonomy from state control, they complained about the bureaucratic hoops they had to jump through. State regulators made the College of William & Mary install an exit sign in a picnic shelter. Whenever outdoor events were rained out, the University of Virginia had to apply for permission to erect a tent. The $300 fees were bad enough. But approval often didn’t come until the events were over.

Such nit-picking dictates were mere irritants, though, compared to other grievances. Procurement rules led to lengthy delays in capital outlay projects. Human Resources policies designed for government bureaucracies were ill suited for an academic setting. In theory, boards of visitors were free to set their institutions’ tuition and fees, but in practice lawmakers meddled frequently: capping, freezing or even rolling back tuition increases.

University presidents felt whipsawed by state cuts to higher ed. Governor Mark Warner had balanced a recession-battered budget by cutting FY 2003 higher-ed expenditures 22%, and then in 2004 had pushed through a tax increase that allowed him to restore $278 million. While the replenishment of funds was welcome, universities wearied of the “feast or famine” pattern that made a mockery of strategic planning.

While the three elite institutions — UVa, W&M and Virginia Tech — abandoned their quest for “charter” university status, which would have treated them like independent political subdivisions of the Commonwealth, they did get much of what they wanted. In the 2005 Restructuring Act, a compromise hammered out with Warner and the General Assembly, higher-ed institutions were assigned one of three levels of autonomy, depending upon their financial and administrative competence. In exchange, the state would hold them accountable to performance metrics for 12 policy goals.

“The name of the game on this thing all along was tuition, as well as regulatory relief,” David Breneman, an expert on restructuring activities and dean of the Curry School of Education at UVa, told Lara K. Couturier, whose 2006 essay, “Checks and Balances at Work: The Restructuring of Virginia’s Public Higher Education System,” remains the definitive study of the restructuring act.

Colette Sheehy vice president for management and budget at UVa, and a key player in negotiating the legislation, seconded the view. “We felt we had to get control over one of our key revenue sources: tuition.”

Virginia law already gave boards of visitors the power to set tuition and fees — but governors and legislators ignored it, arguing that they had never given up the power of oversight. The restructuring act reaffirmed the law in the hope that lawmakers would stop trying to set tuition policy… at least for a while.

“In law, in code, it’s probably no stronger than it was before,” then-Secretary of Education Peter Blake told Couturier. “[It] will last as long as the Legislature doesn’t want to override it. … In the minds of the decision makers, the balance probably shifted a little bit to give institutions a little more autonomy over their tuition.”

Twelve years later, how well has the restructuring act worked out for Virginia’s public colleges and universities?

The answer: pretty well from an operational perspective. Higher-ed institutions say they appreciate the increased flexibility and reduced red tape that comes with autonomy. The law also has worked out very well from a revenue perspective. The 2005 deal provided cover for years of relentless increases in tuition and fees.

But memories fade with time, and Warner’s grand bargain is threatening to unravel. Legislators are rebelling against a cost of college attendance that has outstripped the increase in Virginians’ household incomes and put an increasing strain on middle-class families. A bipartisan coalition of delegates and senators submitted a bevy of bills in the 2017 session that would restrict the freedom of universities and their boards to set tuition. Senior legislators fended off the bills this year, but not the resentment.

Three levels of autonomy. The 2005 Restructuring Act created three tiers of autonomy. Only institutions with advanced managerial capabilities and a minimum of AA- bond ratings qualified for Level III. UVa, Tech and W&M qualified immediately, and Virginia Commonwealth University has since made the cut. Each institution negotiated a management agreement that defined its prerogatives relating to capital outlays, leases, information technology, procurement, human resources and financing/accounting.

The law bestowed Level I autonomy, which granted colleges more flexibility in administrative matters, upon all other institutions. By 2008, George Mason University, Old Dominion University, James Madison University, Radford University, Virginia Military Institute and the Virginia Community College System graduated to Level II, which provided heightened control over IT, procurement and capital outlays.

As an incentive to meet the statewide goals enumerated in the 2005 Restructuring Act, the state dangled incentives in FY 2007 worth $53 million. These benefits included:

  • Automatic re-appropriation of unexpended year-end balances (accounting for four-fifths of the total).
  • Interest on tuition, fees and other nongeneral fund revenues deposited in the state treasury.
  • A pro-rated share of the rebate on small credit card purchases.
  • A rebate on transaction fees paid for sole-source procurement.

For institutions to get their share of the money, the State Council of Higher Education for Virginia (SCHEV) would have to certify that they met the state goals. SCHEV would devise metrics for each goal, publish periodic reports and rate each institution’s performance.

How has increased autonomy worked out?

Bacon’s Rebellion asked to interview officials at the four covered institutions — UVa, Tech, W&M, and VCU — to see how they evaluated their experience with the 2005 Restructuring Act. Virginia Tech did not respond to the request. The other three institutions submitted email answers to my questions. I summarize the highlights here.

University of Virginia. The Act provides a framework for better long-term planning, says UVa spokesman Anthony de Bruyn. Speaking generally, higher-ed institutions have more flexibility to streamline processes, implement best practices and policies, and improve recruitment, retention, and compensation of faculty and staff.

UVa is now implementing a new Human Resources initiative. UFirst, designed to eliminate “systemic inefficiencies and redundancies,” including “70+ disjointed systems that collect HR data and five different learning management systems across three entities.” So far, the university has downsized its HR staff from 270 to 240 employees, and anticipates slimming down by 40 more as it merges the HR departments of its academic and medical divisions.

“Overall the Restructuring Act has lived up to our expectations,” de Bruyn said. “We now enjoy a greater degree of autonomy, flexibility, and accountability for our business processes which has improved the way we work.”

But de Bruyn offered two caveats:

  • “We continually have to guard against retrenchment of the authority granted in our management agreement from both the executive and legislative branches of government. Often these attempts are unintentional because individuals are not aware of how we operate under the provisions of the management agreement.
  • “Despite successful outcomes on the performance standards set for us, the Commonwealth often holds back the financial incentives provided for in the Restructuring Act (i.e. interest on tuition balances, credit card rebates, and procurement fees for sole source purchases).”

College of William & Mary. “For W&M, the Act has provided us with the ability to manage our financial operations, capital outlay, personnel, procurement and information technology more efficiently while still adhering to state policies and expectations,” says W&M spokesperson Suzanne Seurattan. “The university continues to work with state leaders to look for opportunities to expand its authority under the Restructuring Act and continue to ensure that the principles and operational flexibility provided under the Act remain in place.”

Virginia Commonwealth University. “VCU has used [Level III] status to enhance opportunities in procurement, capital projects, leasing and information technology areas,” says university spokesman Michael R. Porter.

Like UVa, VCU has used its autonomy to redesign its human resources system. The Great Place H Redesign includes:

  • Visible career paths;
  • Professional development and networking opportunities;
  • Merit-based pay for outstanding service to students and faculty, and for achievements that advance university priorities;
  • Performance evaluations, with goals linked to strategic priorities; and
  • Transparency and accountability.

How much is autonomy worth? Two years after enactment of the 2005 Restructuring Act, the Joint Legislative Audit and Review Commission (JLARC) conducted a review of the law’s implementation. State agencies’ satisfaction with the Level III agreements was “mixed,” concluded the 2008 report, but none of the issues were deemed deal breakers. For their part, Level III universities were beginning to identify tangible benefits.

In addition to the nearly $53 million worth of financial incentives enumerated in the act, JLARC counted $6.9 million in capital savings and $2.5 million in administrative savings for the Level III institutions.

But the financial incentives have dwindled over the years. Since FY 2014, the state clawed back the earnings on interest and credit-card rebates. In FY 2015, according to SCHEV spokesman Greg Weatherford, the grab-bag of incentives amounted to only $12 million, 98% of which was comprised of carry-forward funds.

It is harder to estimate the benefits universities have gained from greater freedom from state regulation. A consolidation of UVa’s HR programs, for instance, will cut 70 administrative employees. The university has not put a dollar figure on the initiative, but if we assume an average savings per employee of $70,000 (salary plus benefits), the cuts could save nearly $5 million a year.

There is no basis for calculating savings, if any, from IT, procurement, capital spending, or finance.

Tuition increases. Most visibly, the restructuring act has given public higher-ed institutions a freer hand with tuition. Even the institution showing the greatest restraint, the University of Virginia-Wise campus, raised tuition & fee increases three times faster than the 18.4% rise in the Consumer Price Index between 2006-07 and 2016-27. At William & Mary, the most aggressive institution, tuition increases outpaced the CPI by a factor of more than 10.

Increase in in-state, undergraduate tuition & fees. Source: State Council of Higher Education for Virginia.

Experts disagree whether rising tuition should be blamed upon eroding state support for higher education or the institutions’ own runaway costs. The matter is not easily settled. 

In a 2014 study, “Addressing the Cost of Public Higher Education in Virginia, “the Joint Legislative Audit and Review Commission (JLARC) found that for every dollar the state had cut in support between 1998 and 2012, Virginia’s public colleges and universities had increased tuition by about $1.50. But those numbers are somewhat dated now.
In a November 2016, House Appropriations Committee fiscal analyst Tony Maggio estimated that state support per in-state student shrank by $1,634 inflation-adjusted dollars between 1996 and 2015. Over the same period, average inflation-adjusted tuition & fees increased by $3,186, almost twice as much. In effect, for every dollar the state cut, colleges and universities boosted tuition by $2. Defenders of the higher-ed system countered that Maggio had cherry-picked the starting date for his comparison, and that starting the analysis in 2001 would have shown tuition increases matching state budget support almost dollar for dollar.

Whomever’s explanation is correct, there is no escaping the fact that universities have enjoyed a long run of freedom to increase tuition and fees with little political interference. And there is no denying that, other than the 2014 JLARC report, no state entity has conducted a thorough, ongoing analysis of university costs.

The state has generated a lot of data but nothing that would allow citizens to get a definitive answer to a seemingly basic question.

(This article first ran in Bacon’s Rebellion on July 11, 2017)
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Understanding the Federal Budget: Part II

In response to the president’s budget submission in May, the House Budget Committee has produced the 2018 Budget Resolution and reported it to the full U.S. House of Representatives.  This is the second step in producing the annual budget for the federal government and it reveals not only the spending priorities of the majority party but also lays out key tax policy.

What the president submitted to Congress in May was not “the budget” but a series of recommendations and ideas that Congress is free to use or ignore, and most often Congress ignores large swaths of what the president seeks in that budget plan.  Under the Budget Act of 1974 the president is required to provide his ideas for where he would like the budget to go.  It is the start of a conversation about spending priorities for the federal government for the fiscal year ahead.  Congress produces the actual budget.  Of critical importance to the president’s agenda, the House Budget Committee’s plan includes reconciliation instructions for the tax-writing Committee on Ways and Means to change the tax laws to reduce the tax rates on individuals and businesses.  The Constitution requires all tax legislation to originate in the House of Representatives.

In most years the budget is produced under the timeline set forth in the 1974 Budget Act.  According to the law, the president is supposed to provide his submission in February.  The House then begins reviewing the president’s submission and begins holding hearings on the various provisions.  The Senate follows suit and the House usually passes its version of the Budget Resolution in mid-March.  The Senate normally follows shortly thereafter and a conference committee between the House and the Senate works out any differences. The whole process is supposed to be completed by April 15 so that the Appropriations Committees of the House and Senate, which actually produce the annual spending bills that fund a significant portion of the government, can proceed with their work within the adopted budgetary framework.

The Budget Resolution actually only covers about one-third of federal spending.  The annual budget does not set funding levels for Social Security, Medicare, Medicaid, Obamacare, or the growing interest payments on our massive federal debt, which together make up a bit more than two-thirds of federal spending.  These programs are not subject to the budget.  They are referred to as “entitlements” because the law says if one meets certain criteria, he is entitled to the benefit regardless of the annual cost.  

As is often the case of the first presidential budget submission in a new administration, this one was quite late and the Congress is far behind where the Budget Act says the work should be completed.  However, the timing of adopting the Budget Resolution is critical this year in a way it often is not.   The current Fiscal Year 2017 Budget Resolution contained reconciliation instructions dealing with the repealing and replacing of the Affordable Care Act (ACA), also known as Obamacare.  There has been some speculation about the effect it would have on those instructions if a new budget with a new and different set of reconciliation instructions was passed before Congress completes action on the old instructions.  Many voices in the media have questioned why Congress has not taken up tax reform but at least part of the answer lies in the unfinished work on the ACA-related reconciliation instructions.

In the case of tax reductions or health care reform, the reconciliation instructions are crucial to the passage of the legislation.  Under the terms of the Budget Act, legislation considered as part of budget reconciliation is not subject to filibuster and therefore can pass in the Senate with a bare majority of fifty-one votes rather than the sixty needed if the filibuster is exercised.  The timing of the 2018 Budget Resolution has been handled judiciously, at least in part, to make sure the repeal and replacement instructions under the 2017 Budget Resolution are not called into question.

This story is just beginning to unfold with action pending on the ACA, the need for Senate action on the 2018 Budget Resolution, and the end of the fiscal year, September 30, rapidly approaching, which means the need for fresh appropriations to keep the government operating.  Federal spending is also approaching the legal debt ceiling and action will have to be taken to prevent exceeding that limit.  Stay tuned, the action is just starting.

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Student Loan Defaults Increase

Household debt surpassed its 2008 recession peak in the first quarter of 2017, according to a recent report from the Federal Reserve Bank of New York.

At $12.73 trillion, household debt stood at $149 billion or 1.2 percent above the previous quarter.

Mortgage balances, which make up the largest amount of debt, rose 1.7 percent to $8.63 trillion as of March 31.

But outstanding student loans debt is growing at a faster pace – rising 2.6 percent in the first quarter to $1.34 trillion.

Student loan debt is the second largest component of household debt since exceeding the amount of credit card debt in the second quarter of 2010.

There is no question that with a growing number of people in college and rising tuition costs, more students are taking on loans and face years of paying down that debt — whether they successfully graduate or not.

In 2016, about 36 percent of student debt holders owed less than $10,000, according to the New York Fed, while 65 percent owed less than $25,000. Just 5 percent owed more than $100,000.

Eleven percent of student loans were delinquent by 90 days or more in the first quarter 2017 compared with a 3.4 percent delinquent rate for all household loans.

One leading explanation for the high student loan default rates has been the growth of “non-traditional” borrowers attending community colleges and for-profit institutions.

These borrowers, which tend to be older, and from less-wealthy families, complete programs at lower rates and have weaker labor market outcomes with jobs and earnings. All of those factors contribute to higher default rates.

Another potential explanation for part of the increase in student loan defaults relates to the drop in home prices during the Great Recession.

The falling values of home prices account for about 24 percent to 32 percent of the increase in student loan defaults, according to a recent working paper from the National Bureau of Economic Research.</span

When home prices collapsed in 2007, it triggered a drop in household consumer spending, which in turn led to large employment losses. The layoffs reduced the ability of individuals with student loans to make loan repayments, especially if they had lower earnings to begin with.

The study authors used individual-level student loan data linked to tax records and ZIP code level data on home price changes to estimate the effects. They found a strong relationship between home prices, employment losses and student loan defaults, especially among low wage jobs, which accounts for the increase in student loan defaults.

Even though a college degree often comes with student loans, an analysis by mortgage giant Fannie Mae of its National Housing Survey data concluded that the higher income associated with obtaining at least a bachelor’s degree outweighs the burden of student loans in terms of likelihood to own a home even though it may delay home ownership.

In contrast, those who started college, accumulated debt, and did not earn a degree are 32 percent less likely to own a home than high school graduates who have no student loans.

(This column first ran in the Richmond Times Dispatch on July 7, 2017)

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This is Why USDA Research Helps Everyone

Dr. Gale Buchanan, former dean of the College of Agriculture at both Auburn and Georgia, has written a stunning new book entitled Feeding the World – Agricultural Research in the Twenty-First Century.

Buchanan’s book is a must read for all of us. He quotes Daniel Webster: “When tillage begins, other arts follow. The farmers, therefore, are the founders of human civilization.”

Buchanan started out as a young person working with his father on their family farm. His father urged his son to seek answers to questions involving agriculture and as a result, he earned B.S., M.S., and PhD degrees. He spent years researching weed science. He finished his career as Under Secretary for Research Education and Economics (REE) and Chief Scientist for USDA.

Farm Bill debate

In the upcoming farm bill, the media focus will be on subsidies to “rich farmers,” crop insurance payments, and trade issues. But the most important issue of all, and one which will receive little publicity, is research.

It is disappointing the media, political leaders and even commodity groups will not place a high emphasis on agriculture research.

Buchanan’s book reviews the history of agriculture and the emergence of agricultural research. No book on research would be worth reading unless a chapter was devoted to the land grant system and its impact on agriculture research. Buchanan quotes himself, “The 1862 Morrill (Land-Grant) Act changed forever how higher education is perceived in this country. This legislation unleashed a hunger for learning by ordinary, average people that has not been fully satisfied to this day.” Other chapters deal with how difficult it is to obtain research money.

Many in the present administration, and particularly leaders in Congress, will see research budgets as easy targets for reduction of spending. This is incredibly shortsighted.

Chapter Six outlines the success of agriculture research and how it helped feed the planet, since 1950 (2.5 billion people) to 50 years later (6 billion). Today we must feed more than 7 billion individuals. Research, both public and private, has allowed our corn yields to go from 24.3 bushels per acre in 1866 (approximately 731 million bushels) to around 175 bushels per acre in 2016 (15.1 billion bushels).

Buchanan reviews the success of increasing production of soybeans, cotton, peanuts, wheat, barley and many others. These statistics are fascinating and on page 113 of his book he publishes a table on agricultural exports, imports and the balance of trade surplus compiled from USDA and the Department of Commerce.

As he points out, “Agricultural commodities are one of the few bright spots in the US balance of trade.”

Preliminary hearings are already beginning for the next farm bill.

Incredible success stories

Buchanan writes about incredible success stories created by USDA research. One involved farmers in Wisconsin in the 1930s, who found their dairy cows hemorrhaging after eating sweet clover. A dairy farmer took a dead heifer which lacked blood clotting capacity to a veterinarian who in turn urged the dairy farmer to visit the Wisconsin Agricultural Experiment Station. USDA research scientists determined that improperly cured sweet clover hay was inducing hemorrhaging due to a lack of a certain chemical in the blood. After research and collaboration with medical personnel it was determined that controlling hemorrhaging in cattle might control clotting of blood in humans. Thus, the first anti-coagulant was born and it turned out that this human medicine is now used under the popular brand name your doctor may have recommended – Coumadin.

Another great story from USDA research has its beginnings in the U.K. We all have been taught in school that Sir Alexander Fleming, a Scottish research scientist, discovered the antibiotic penicillin. What has not been widely known is that USDA’s Agricultural Research Service in Peoria, IL, determined how to mass produce the antibiotic, which the Scottish and British scientists could not. The USDA Peoria researchers discovered a strain of penicillium on a moldy cantaloupe in a Peoria garbage can. This USDA research allowed for the mass production of penicillin, which has saved millions of lives.

Buchanan has many stories about USDA research successes. The most important thing you can do after reading this story is to read USDA’s Timeline of 144 Years of Ag Research.

USDA research has changed the world. Let us hope Congress will not be shortsighted regarding agriculture research dollars for the future. Thank you, Dr. Buchanan!

(This article first ran in Farm Futures on July 17. 2017)
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