Will Lawsuit Funding Regulation Limit Access to Justice?

Some Missouri lawmakers are considering legislation to regulate lawsuit funding companies. This regulation is pitched as consumer protection, or even tort reform, but it falls short on both accounts.

For background, a civil litigation funding company helps a person pay for the costs of a lawsuit before a reward is obtained. In return, the company gets a portion of the reward if the litigant is successful. Critics say that civil litigation funding companies often take an unreasonably large portion of the eventual reward. Critics are also hopeful that regulation will reduce the number of lawsuits brought against businesses, saving businesses money.

Defenders of civil litigation funding say that without these funding arrangements, many people with legitimate claims wouldn’t be able to access our justice system. In many instances people who’ve been injured or wronged would be forced to settle with an insurance company for a fraction of the compensation necessary to make them whole again. If you make it harder for people to fund lawsuits, you won’t necessarily decrease the number of frivolous claims—but you will limit access to justice for people who can’t afford to wait for resolution of their claim.

I’m most interested in whether regulating lawsuit funding companies is consistent with a free market. Shouldn’t a plaintiff be able to sell a portion of a legal claim at any freely agreed upon price? What business does the state have in regulating how people pay for a lawyer?

Professor Jeremy Kidd, a law professor at Mercer University, addressed the Alabama State Senate Judiciary Committee opposing a bill that would regulate lawsuit funding in Alabama. In doing so, he helped answer this question:

“This issue—and so many others—requires acknowledgement of a simple truth, that there is a fundamental difference between being pro-business and being pro-market. Free markets enable tremendous human flourishing, and protecting markets is essential to growth. Importantly, however, while protecting markets protects consumers and businesses, protecting businesses typically improves the businesses’ bottom line at the expense of markets and, by extension, every consumer. Senate Bill 67 is pro-business, rather than pro-market, because it is designed to protect businesses against lawsuits without inquiring as to whether those businesses are actually at fault.”

I see a great deal of truth in this statement. Real tort reform will address the problematic aspects of our tort system. Regulation of civil litigation funding appears to ignore the merits of individual lawsuits, making it even more difficult for poor Missourians to pursue legitimate legal claims.

How Would You Pivot From the Earnings Tax? Let Me Count the Ways

The Show-Me Institute has argued again and again that earnings taxes have hurt economic growth in St. Louis and Kansas City. That most American cities don't have a earnings taxes only makes pivoting away from them all the more reasonable, and while it may be news to the Kansas City Star, we've put forward a host of plans and proposals to phase it out over the last decade.

So, what would a better taxing system—one without earnings taxes—look like? And how would we get there? To my mind, there are three main policy changes to consider.

Element 1: Curb cronyism. Kansas City takes in a bit over $200 million every year from the earnings tax, and yet each year it also gives away nearly $100 million in special breaks to City Hall's favorite special interests. Giving tax incentives to crony capitalists is an admission that taxes in the city are too high; those rates should be lowered for everyone, not just for a select group of municipal insiders in the hope that the benefits will trickle down to everyone else.

Drawing down this cronyism could be accomplished several ways, including capping and, over time, ratcheting down how much property the city can abate each year, or by making blight determinations in TIF proposals dependant on poverty levels around the property in question. Whatever the reform, if a city were to reduce tax incentives as it reduced the earnings tax, pivoting away from the earnings tax entirely would become much easier. 

Element 2: Reform city spending. Cities should reexamine how they spend money, both administratively and in their provisions of public services. That includes taking another look at how government pensions are structured and moving from defined benefit plans to defined contribution plans. Doing so would promote long-term budget predictability and employee retirement security. Spending reform also includes privatizing public departments like the water department that the city doesn't have to run and would actually profit from unloading. Getting a liability off the books would be an improvement, but turning a liability into a profitable opportunity makes more robust privatization of city services a no-brainer.

Element 3: Reorient taxes. After moving away from tax incentives and reforming city spending priorities, the rest of the earnings tax "pay for" could be made through systemic tax reforms. Income taxes are more destructive to growth than sales taxes, which are more destructive than property taxes. Moving from income taxes and toward property taxes would not only ensure that municipal tax collections are more stable, but also that they city's taxes would be less economically harmful to the city and the region as a whole.

To achieve this, however, will require fixes to the city's tax incentive practices either as a precursor or as a parallel reform. If earnings taxes fall, property taxes rise, but the cronies who don't pay the taxes now also don't pay them in the future, we'll be back where we started—with an inequitable taxing system. Kansas Citians and St. Louisans deserve better than that.

Overall, St. Louis and Kansas City have taken a wrongheaded approach to tax revenue for too many years, subsidizing cronies and passing the tax burden to everyone else through earnings taxes. Rather than shifting the burdens of bad policy, the city should pursue sound policies and stable tax revenue sources that promote growth rather than undercut it. By reforming tax incentives, adjusting spending, and readjusting taxes, Kansas City and St. Louis can help to ensure they remain the economic engines the state needs.

TIFs Fail to Meet Expectations

Steve Vockrodt over at The Pitch has an excellent column about how taxpayer subsidized development projects often underperform their goals. He writes in part:

Developers often win over politicians and the public by promising that TIF will help "create" a certain number of new jobs. But those projects often miss the mark, and at times by a wide margin.

Last month, the Missouri Department of Revenue released its annual report for all TIF projects in Missouri. The numbers were stark.

Among the 504 TIF districts across the state, developers estimated that 266,261 new jobs would be created. In fact, 89,485 were realized. That's 33 percent of the projection.

The annual report that Steve cites is here. Pages 258 and 259 show that now that the Power & Light District’s KC Live project is completed, only 1,003 of the projected 2,034 jobs have been realized. The reality, however, could be much worse than that.

Using data provided by Kansas City's Regulated Industries Division, we sought to see if there was any citywide increase in either liquor licenses issued to businesses or the liquor cards issued to individuals who work in bars and restaurants. The chart below shows that since the Power & Light District opened in 2008, these numbers have been flat.

If KC Live created jobs as the TIF report suggests, yet citywide employee liquor cards remained flat, it means that the TIF didn’t so much create jobs as just move them from elsewhere in the city such as Westport or just outside the TIF area.

Yet the financial costs to the city and other taxing jurisdictions for this storefront shuffling are very real. In addition to the cost of foregone tax revenue, the city must pay about $15 million each year to cover the underperforming investment through 2040. 

The question that responsible policymakers must consider is not merely how to move jobs and residents downtown, but at what cost? The city has shown that it can drive property development downtown by paying for it. That's hardly impressive. But it cannot show that there is any real net economic benefit citywide. Without that, we're just throwing good money after bad.

Eminent Domain and Uncertainty in North Saint Louis

The National Geospatial Intelligence Agency (NGA), currently located in South Saint Louis City, is planning to move to a new location. Saint Louis political leaders, including Mayor Francis Slay, want to keep the agency within the city limits. However, a site in Saint Clair County, Illinois, is also attempting to lure the NGA and may be a more attractive option. Meanwhile, Saint Louis may use eminent domain to remove dozens of residents from their homes in a North City neighborhood to clear land for construction of a new NGA headquarters, even though the NGA has yet to make a final decision on its new location. In this video, we hear from some area residents who want to stay in their homes, but are facing uncertainty over where they will be living a few months from now.

Pine Lawn Disbands Police Department

Last week, Pine Lawn, a small city in North Saint Louis County (population 3,425), disbanded its police department. Almost immediately, padlocks went on the police department’s doors.  Responsibility for policing in Pine Lawn will now fall to the North County Police Cooperative, which also provides service to Vinita Park, Vinita Terrace, Wellston, and Charlack.

As we’ve discussed many times before, small municipalities in Saint Louis County (and especially North Saint Louis County) have too often relied on traffic fines to run their municipalities. Residents, the press, and the federal government have all accused cities in this region of using police to generate revenue rather than focusing solely on public safety. Since the 1990s, Missouri has capped the amount to which a city can benefit from traffic fees, but lack of enforcement meant the law (known as the Macks Creek Law) was often ignored. A prime offender was Pine Lawn, which, before events in Ferguson put a spotlight on the region, collected as much as half of its general revenue from fines.

Pine Lawn’s decision to disband its police force is just the latest domino to fall following the passage of SB 5 in the Missouri legislature last year. That piece of legislation both tightens restrictions from the old Macks Creek law and provides real teeth for that law’s enforcement. Failing to keep fines and fees below 12.5% of general revenue can now lead to disincorporation in Saint Louis County. More and more cities, and now Pine Lawn, are deciding to pool resources or contract out policing.

Combining police forces offers the prospect of saving money for a city, and it can mean better service too. Larger police forces can pay officers more and attract better talent. Their training is often more extensive. And that’s something Pine Lawn can use, as their police department has had its fair share of scandal in recent years.

Pine Lawn’s decision to turn policing over to the North County Police Cooperative, rather than Saint Louis County, may be a cause for concern. The Cooperative is very new, and is unproven as of now. However, Pine Lawn’s officials say that it was the best offer they received, and if the service does not work for them, they can end the contract in six months’ time. That flexibility—the option to get rid of an entire government department in six months if it is not functioning properly—is a situation residents in other cities can only envy.  

How Healthy Is Missouri’s Charter School Movement?

The National Alliance for Public Charter Schools just released  “Health of the Public Charter School Movement,” it’s annual state-by-state analysis of several charter school markets around the country. Missouri’s rank? 10th out of the 18 states reviewed.

Tenth out of 18 doesn’t seem like much to brag about, but if we look at the criteria used for the ranking, we see that Missouri’s charters are doing some impressive work to rank as highly as they do.

What are we doing well?

  • We don’t cap the number of charter schools in the state
  • Our charter schools enjoy a high degree of autonomy
  • We’ve seen strong growth in our charter sector from 2010 to 2015; 25 new charter schools were opened during that period.
  • Missouri charter schools offer diverse programs, with 36% of the state’s charters having a special focus like international/foreign language or Montessori.
  • Best of all, students in Missouri’s charter schools achieved higher academic results in math and reading than their traditional school counterparts.

What’s holding us back?

  • Missouri doesn’t fund charters as well as it does traditional schools.
  • Missouri unique laws have limited charter schools to only operating within the Kansas City and Saint Louis school districts. As a result, 98% of charter schools are located in non-suburban areas and only 2% of students are enrolled in charters. Saint Louis and Kansas City are the only 2 communities in Missouri that had more than 10% of their students enrolled in charters.

It’s awfully hard to blame our charter schools for the factors pushing our rank down. A close look at the report shows that charter schools are simply doing more with a lot less. So why aren’t we giving them equal funding, and why are we keeping them from operating outside of Kansas City and St. Louis?

A Well Intentioned Disaster: A Presentation on the Merits of Common Core State Standards

The following is taken from a presentation given by Show-Me Institute Distinguished Fellow of Education Policy James Shuls on February 23, 2016, at a debate hosted by the Federalist Society and the Education Law and Policy Society at the University of Michigan.

In my remarks today, I hope to convince you of three things. First, the idea of the Common Core was noble, but misguided. Second, the Common Core State Standards will not significantly improve student achievement. And finally, the federal government created the controversy we have seen surrounding the Common Core over the past few years.

A Noble but Misguided Goal

The idea behind the Common Core is quite simple. Schools need standards because standards allow teachers to align the curriculum and allow teachers to see what they are to cover in each grade. I have been told many times that prior to schools adopting learning standards, it was not uncommon for students in the same grade in the same school to have radically different experiences depending on the teachers they had. Standards help alleviate that problem.

Following the infamous “A Nation at Risk Report” report of 1983, the standards movement was launched. This Reagan-administration report used alarming language to describe the nation’s education system. The authors of the report wrote:

If an unfriendly foreign power had attempted to impose on America the mediocre educational performance that exists today, we might well have viewed it as an act of war. As it stands, we have allowed this to happen to ourselves. . . . We have, in effect, been committing an act of unthinking, unilateral educational disarmament.

The report fueled a desire to improve the quality of our education system. State officials wanted to keep a watchful eye on how schools were performing. To do that they needed tests, and to have tests, they needed standards on which to base them.

Through the 1980s and 1990s, states began creating their own standards-based accountability systems. By 2000, 39 states had accountability systems in place. After the No Child Left Behind Act was passed in 2001, the remaining states were forced to follow suit. As a result, by the mid-2000s we had 50 different state standards and 50 different accountability systems.

These individual state standards created a problem. Students from families that moved from one state to another could miss entire topics if they were covered in one grade in one state and in a different grade in another. And, very importantly, the different tests did not allow us to compare one state to another because the accountability systems were different. In a state with very low standards a student might score “proficient,” but if he were in a state with very high standards he might score “basic.”

In reality, these were not problems created by having 50 state standards. They were problems that have always existed, and in many regards still exist. To be honest, these problems are relatively minor in the grand scheme of things. I mean, would you go through all of the effort that the Common Core designers went through just to improve transparency across states? I wouldn’t, especially when we have the National Assessment of Educational progress, known as the nation’s report card, which already allows us to compare one state to another. The most valid reason to support the Common Core comes from the thought that these standards could improve student achievement for all students. This is where the supporters for Common Core were misguided. This is where the logic for Common Core falters, and this is what brings me to my second point: that Common Core will not improve educational outcomes for students.

Common Core Will Not Improve Educational Outcomes

Let me ask: How might a system of new standards improve educational outcomes for all students? As far as I can tell, there are three options:

  • The standards could better align the curriculum.
  • The standards could be more rigorous.
  • Or, the standards could create a broader platform for collaboration.

Let’s examine each of these.

The standards could better align the curriculum

Remember, states have already developed standards and aligned curricula. We’d have to believe that the Common Core has somehow come up with a better way to do these things—that they have discovered the special sauce or that the designers have figured out the right progression of learning. Something tells me that is not the case. While the quality of education research is improving, there is simply not enough evidence to know if we should teach fractions in third grade or fourth, or whether we should introduce money in kindergarten or first grade. I recently sat on a committee to rewrite Missouri’s state standards. I can tell you, while the process is informed by research, it often comes down to educated guessing. The individuals making these guesses are indeed educated, but in the end, many of these decisions are completely subjective.

So what is the second option?

The standards could be simply be more rigorous

They could raise the level of expectations for students. After all, students rise to the level of expectation, don’t they? If this were true, we would expect students in states that previously had rigorous standards to perform better than students in states with weaker standards. In a study for the Brookings Institution, Tom Loveless examined this very issue. He found no relationship between the rigor of state standards and student performance on the NAEP. None. Another thing to consider is that ratings of the Common Core Standards by the Fordham Foundation, a group that has been very supportive of the effort, do not place Common Core at the top of the standards list. They are among the best according to Fordham, but in Math and Language arts, other standards were rated higher. If we believe that rigor or the quality of standards matter, then it puzzles me why supporters of national standards would be so willing to go to bat for Common Core. Why not simply adopt the superior Massachusetts standards?

The Common Core will not improve student achievement by better aligning curriculum, nor can we improve student learning simply by being more rigorous. What’s left?

A system of national standards could create a broader platform for collaboration

Before Common Core, textbook companies often designed curricula for more populous states like California and Texas. As a result, states found it difficult to get textbooks that aligned with their individual standards. Common Core helps alleviate this problem. Moreover, it allows teachers throughout the country to collaborate on lessons related to the standards. While this sounds great, planning on a substantial benefit from collaboration is misguided. If it were true that more opportunities for collaboration led to success, then we would expect to see more populous states—those that drive textbook production—to have an advantage. Not only would they have textbooks tailored to their curricula, but with a larger number of teachers, they would have greater opportunities for collaboration. Yet, we don’t see a California or Texas advantage.

In the face of the evidence, there is simply no logical model that can explain how a set of standards that simply tells teachers what to teach will improve student learning. At least not today.

To be clear: Standards are important, and evidence does show that the standards-based accountability movement has led to modest learning gains for students. It seems, however, that the low-hanging fruit has been picked. Schools have already aligned curricula, and we have already begun focusing on student outcomes. New standards may have some impact on the margins, but by themselves they cannot substantially improve student achievement.

This is not intended to be a comprehensive indictment of Common Core. I don’t believe Common Core will ruin our education system. I don’t believe it is some grand conspiracy to dumb down America. I simply believe it is bad policy.

But if Common Core is innocuous, then why are we devoting so much time to it? We are having this conversation today because promoters of Common Core oversold, and because the federal government overstepped. As is often the case, the actions of the federal government came with unintended consequences.

The Federal Government Created the Common Core Controversy

Common Core did not begin as a federal initiative. I hesitate to call this a “state-led” initiative, and it certainly wasn’t a grass roots initiative. It was instigated by the National Governors’ Association and the Council of Chief State School Officers. These two trade organizations began the process late in George W. Bush’s administration, but the idea of national standards goes back even further, to his father’s administration. Early on in the development of the Common Core standards, some thought that the standards would be adopted by a handful of states; it was hoped that other states would adopt them voluntarily over time. That changed with federal involvement.

In 2009, President Obama launched his Race to the Top initiative, a competitive grant program that was part of the stimulus plan. States could compete for $4.35 billion dollars in prize money by proposing a series of reforms. This came at a time when states were feeling the pressure of the recession and could ill afford to pass up an opportunity for additional federal funding. One of the reforms supported in Race to the Top was the adoption of learning standards that were common to a majority of states—what would become Common Core.

As part of the first round of the Race to the Top process, states had to submit their applications (including a commitment to the Common Core standards) by January 19, 2010. The second round was June 1. But the final draft of the standards was not even released until June of 2010. In other words, the federal government encouraged states to commit to common standards before those standards were even finalized. Still, states jumped at the opportunity. By 2013, 45 states had adopted the standards. President Obama took credit for this in his State of the Union address.

At the same time, the Obama administration doubled down on support of Common Core by offering to waive certain No Child Left Behind (NCLB) requirements to states that adopted Common Core. Schools and states were finding it increasingly difficult to comply with various aspects of NCLB; that is, they had failed to meet the mandated 100 percent proficiency marks. States could avoid penalties by promoting education reform policies championed by the administration, one of which was common standards.

Whether you support federal involvement or not, it is difficult to deny that the actions of the U.S. Department of Education caused or at least contributed to the controversy surrounding Common Core. What might have been a coalition of states that grew and developed over time was catapulted into the national stage as a new and radical reform that many states adopted, if not against their will, then at least under duress.

Conclusion

While the motivation behind the Common Core standards was good, the outcomes—at least in terms of liberty—are not. Common Core moves control of one of the most important aspects of education—what students learn—further from students and parents, and it concentrates power at the federal level. As Nobel-winning economist Milton Friedman once said, “Concentrated power is not rendered harmless by the good intentions of those who create it.” The Common Core standards reduce individual liberty and academic freedom for states, teachers, and students. They nullify the great advantage of individual states—the ability to act as laboratories that allow us to evaluate different systems to see what works best—in favor of a monolithic approach that stifles innovation. Ultimately, the Common Core movement is an expression of the flawed mindset that we can mandate and orchestrate improved student achievement through centralized control. 

Making Regulations Count

Recently, I found myself in the State Capitol building in Jefferson City, Missouri listening to a rousing debate about whether or not to require Missouri public schools to allocate time for the Pledge of Allegiance. I was there to testify during the hearing about another bill, but my ears perked up as the back and forth between the members of the education committee got more heated.

Now, I’m a big fan of the Pledge of Allegiance. If I had my druthers, American schoolchildren would recite the Pledge of Allegiance at the beginning of every school day. In fact, I wouldn’t mind hearing a rousing rendition of God Bless America every Monday morning, now that I think about it. But as the debate wore on, I started to question the wisdom of whether or not we should have a state law requiring it. I started to see this requirement less as a reasonable request from our elected officials and more as a part of a broader trend of regulatory creep.

Most regulations and requirements make sense when they’re looked at in isolation, but they add up. By my count, members of the Missouri legislature filed almost 300 bills related to education this session, all probably reasonable to the folks who drafted them. But if all were enacted, think of the new burdens they would place on teachers and administrators.

As my old friend Rick Hess often tells eager young policy wonks hoping to remake the American education system through new laws and regulation: Government can make schools do things, but it can’t make them do them well. At best, the state legislature can require that the Pledge be part of the schedule, and the state department of education can create a reporting form that requires all 520 of Missouri’s school districts to affirm to the appropriate functionary that they’ve provided time for it, and during audits maybe some bean counter will double check the form. But that’s about it. They certainly can’t make sure the kids hold their hands over their hearts and say the Pledge with pride.

That said, maybe saying the Pledge is so important that even with the limited power that the state legislature has to actually get schools to do what they want, they should still make the requirement and direct the state department of education to do their level best to make sure it is followed. If that is the case, though, how does it compare to all of the other things that the legislature wants schools to do? If there is some conflict between varying requirements, how should schools weigh them against each other?

Our Tory compatriots across the pond offer a way forward. In 2010, the Conservative government of the United Kingdom implemented what they called “one in, one out” (later revised to “one in, two out”) that required government to remove a regulation of equivalent compliance cost for every new regulation that they proposed. Want to require a new form to be submitted to the Department of Business, Innovation, and Skills tracking how businesses recruit new employees? Lovely, not a bother at all. You simply must find another form that takes the same amount of effort or another requirement that takes the same amount of time and eliminate it.

The same logic could be applied to government regulation of schools. If the legislature wants to require the Pledge of Allegiance, or extra time for reading, or for teachers to have CPR training, they simply have to remove a requirement that takes up the same amount of time or costs the same. The hope would be that this would make lawmakers think before adding new regulations, because for every new idea they have, they and their staff will have to dig around to find something to jettison. It would also give them the opportunity to revisit regulations that still exist in the education code but have outlived their usefulness. Rather than adding on a kludge with every new directive, new requirements that are worthwhile are made doubly so as they also help remove an unneeded requirement. It’s addition by subtraction, and a win-win.

Ultimately, a one in, one (or two) out scheme should be a part of a broader regulatory reform of public schooling in America. Looking at regulations through the lens of the burdens on time and money that they place on schools, we can remove regulations that offer little to no return and limit regulations to things that really matter. Like, perhaps, the Pledge of Allegiance.

 

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