Category: Public Policy

Quality Jobs Tax Grant: Program Design Capstone

Public Policy

The Capstone Project has been a hallmark of the Fels Institute’s practical approach to public administration for many years. I was fortunate to have a mentor who had also gone through the program, and was able to guide me to an excellent candidate for a project. After a successful design process, the COVID-19 pandemic (appropriately) deprioritized the program’s funding in favor of a more immediate lifeline to small businesses. But in 2023, the City of Philadelphia officially launched the program.

Executive Summary

In general, tax incentives are expensive, poorly designed, and difficult if not impossible to
evaluate. At the same time, they are critical to the economic future of a city, state, or region
and their ability to attract or retain businesses. They are popular among politicians for their
ability to make a splash – creating jobs and scoring points with voters. The reality is there are
too many programs that don’t offer enough data on their performance. In Philadelphia alone
there are 21 separate programs that offer economic incentives – the most among major cities
included in a recent Pew Research center study. And yet, Philadelphia struggles with growing
the right kinds of jobs – those offering good wages, health insurance, and other benefits that
help families thrive. To make better use of funding dedicated to economic incentives,
Philadelphia and cities across the country must embrace transparency, evaluation, and
inclusive policies that maximize benefits for all residents. The Quality Jobs Tax Grant program
represents a design that incorporates these ideas and much more by relying on best practices,
high-quality research, and expert opinions. Improvements will be needed across the full
portfolio of economic incentives, but Quality Jobs can serve as the new standard for inclusive
growth incentives in Philadelphia.

My full capstone paper can be accessed here.

Effective Change Management in Equity Implementation

Public Policy

This white paper was a collaboration between myself and Matt Stitt, as primary writers and researchers, and Mike Nadol as editor. It was created as part of PFM’s work in the Bloomberg Results for America City Budgeting for Equity and Recovery program in 2021. Due to formatting limitations, footnotes have been excluded from this text-based version. The fully designed PDF, including all citations, can be viewed here.

Introduction

Changing practices to drive greater equity can be extremely intimidating for cities not yet substantively educated or exposed to the relevant concepts, and, for those within cities that perceive their status or authority as being threatened by the adoption of new principles. This is especially the case given today’s turbulent environment.

Creating a sense of urgency for change can be relatively easy as an executive, but significantly less so as a subordinate. Finding champions can seem impossible if cities are struggling to get stakeholders to even entertain a particular topic. Simultaneously, both proven and emerging change management practices can be deployed to help overcome these challenges and dramatically improve the probability of success.

If an individual seeking to make change lacks a traditional leadership position, active supporters for their cause, or simply does not know where to begin, this guide can help them model an approach to lead from where they sit, and effect sustainable, enduring organizational change.

As part of our ongoing work with the cohort of cities looking to make transformative change through the Bloomberg Philanthropies/What Works Cities/Results for America City

Budgeting for Equity and Recovery (CBER) Initiative, the following represents a combination of lessons learned and promising change management practices that have emerged over the duration of the Initiative.

What is Change Management?

Fundamentally, change management speaks to the process that ultimately drives a city’s culture (and, to quote the renowned Peter Drucker, “culture eats strategy for breakfast”). We are more specifically speaking to the process that drives a city’s new program, initiative, or strategic focus to gain additional, necessary buy-in from stakeholders across the entire government. This can take place at any level within the organization – from one’s mind to one’s team, and from one-on-one relationships with global institutions – and many of the critical factors will remain very similar. Some of the standard best practices include

  • Creating a sense of urgency; action must be taken quickly.
  • Finding champions to help spread the word, implement changes, and eliminate barriers.
  • Establishing working groups, committees, or task force teams (composed of champions and subject matter experts) to lead change effort(s) across government.
  • Focusing on short-term wins to build momentum on the way to long-term success.
  • Reinforcing the established change at a systems level.
  • Creating continual, evaluation and feedback loops to better inform future refinements.

While these are tried and true tactics that can support your city’s /team’s leading efforts to improve upon the existing culture, and to achieve the brighter future your city envisions, it must be acknowledged that aligning a large organization can be challenging, particularly in the public sector. To tackle this specific type of change management challenge related to equity, PFM has curated a series of promising practices from across the U.S. that can be applied to your unique opportunity to refine your department’s operations, municipal operating budget, or capital improvement plan.

Promising Practices in Change Management for Equitable Principles

Traditional change management best practices assume a certain level of power for decision-making and political capital committed by the initiative’s champion, a certain level of responsibility vested in the person or team charged with leading the change, and a general level of awareness that the existing culture must be altered or disrupted to achieve desired outcomes. The practices that follow not only recognize these dynamics, but also seek to foster and leverage them for impact.

Conduct a brief, informal environmental scan

The goal for this is to make certain you have a general understanding of how equity work has been conducted in the past and to what extent it was successful. This can include a consideration of peer organizations – however, their relative success or lack thereof is not necessarily predictive of your own experience. Keep cultural, political, and demographic realities in mind when making comparisons and avoid digging too deeply into quantitative data at this stage.

In a recent project with the City of Chula Vista, CA, the project team spoke with several departments that had previously published equity-centric documentation to ask about their process and goals. The team was able to collect equity definitions and other data points to bolster their own work. This also led them to uncover additional equity champions that could be aligned to their specific project goals.

Identify the key players, both champions and detractors

If you cannot make the final decision, who can? Who else has influence over the decision, or the ultimate implementation of the decision? Is there a way to turn our detractors into champions? If so, how should we pursue the best path to securing that buy-in?

Start by creating a rough power map as it relates to your city’s goal. A simple format to consider is an “x” and “y” axis showing more or less influence in one dimension and more or less support for your position in the other. Understanding these change management power dynamics and how they impact decision-making authority and workflows, will help you plot the most efficient course of action.

Establish a working group, steering committee, or task force comprised of champions to lead change

Establishing working groups, committees, or task forces can further support communication, coordination, and collaboration efforts across the government. If existing, effective groups are already up and running for cross-cutting initiatives or priorities, joining those committees might be an effective way to make progress and find others that support your cause. The larger and more complex the government entity, the greater the need to join or establish a formal working group or committee to lead these efforts. These teams should also include “A-Team” members, to ensure that the change remains a substantive and visible priority. Diversity of department and positions is crucial as was outlined in a recent ICMA study of the City of Evanston (IL). In this example, Evanston intentionally built their equity committees through diversity of positions, departments, and supervisory responsibilities.

When defining equity in your jurisdiction, focus on metrics, not just language

While a baseline understanding of the definition of equity (for example, how it is different from equality) is typically helpful in regards to getting your team thinking similarly, the conversation will inevitably move to “how do we measure this abstract concept?” In many places, governments are adopting place-based, third-party definitions that are often set by and monitored through federal agencies, such as the Center for Disease Control’s Social Vulnerability Index or HUD’s Qualified Census Tracts (QCT). Focusing on these types of metrics, initially, helps to alleviate pressure on any individual that may be seen as “defining equity” for an entire community (that person should be, but may not be, engaged in this process). It also generally aligns with federal and state funding streams, which can be a useful leverage point when discussing the fiscal implications of this type of focus (e.g.., if we use HUD’s definition, it is highly likely we can apply for grants that support impactful programming on this metric).

In Harris County, TX, City officials have started to use the CDC’s Social Vulnerability Index more consistently across multiple areas of their operating and capital budget processes, including flood plain project prioritization and small business relief. Using the same metric across both programs allows for a comparison of outcomes, and consistent reporting across departments.

Be aware of existing leadership priorities, as well as timing of electoral cycles

When pursuing equitable change, it is critical to understand where leadership stands in relation to your own vision of equity. If appropriate, consider ways to elevate this work to the executive themselves, or, more likely to their deputies and key support staff. If the elected official can take things a step further by issuing a jurisdiction-wide mandate, or even an executive order, it will likely  set the tone for equity work across the organization, and can also further the push for more alignment with larger organizational goals, as well.

For example, one city in the City Budgeting for Equity and Recovery cohort that is working to increase equity in its capital budget discovered that a key driver to completing more equitable work is the amount of available discretionary capital funding each year. If the Mayor, City Manager, and other city leadership can articulate the need and scale of deferred maintenance, and can make a collective, unified push for additional funding from other entities (e.g., philanthropic and state and federal government), it would be a more powerful push than coming from the budget office alone, and, should increase the chances of securing additional funding for all proposed capital projects.

If your city’s administration and leadership are coming up on the end of their term(s), consider how this kind of work may be impacted (positively or negatively) by the result of a primary or general election. While there should be urgency around equity in all cases, the timing of when to pursue certain conversations, policy or process changes – and potential presentations or reports  – must follow a logical cadence that considers the practical and feasible focus of the administration(s) at any given moment.

Understand the perspective of your key detractor(s)…

If your internal detractors are substantively reliant on key data for their work, this factor should inform how you formulate a persuasive argument, and strategically approach the conversation or meeting with these stakeholders. For example, if your city’s team is attempting to change public works’ policies, your team may need to dive deeper in regards to where the more granular data stems from, how often projects are similarly (or identically) rated, and what level of subjective prioritization comes into play at more senior levels of the organization – to offer a more relevant context or perspective.

 In San Diego, CA, street projects are prioritized based on street condition, proximity to one another, etc. This can be considered an asset quality-centric approach to budget allocation. In Oakland, CA, a similar process is used, however, Oakland also incorporates equitable factors in their prioritization criteria. For instance, individual complaints are not included as rationale for paving a particular street, and geographies considered “underserved” by the City’s definition receive preference in project funding. This additional layer of consideration can potentially counteract persistent underfunding of some community priorities.

…And, where possible, use these conversations to create champions

To further the capital budget example, perhaps your equity team meetings with this department team reveal a lack of sustainable, discretionary funding for projects that are not tied to grants, nor state or federal aid. One potential solution is to use your team’s equitable push as a starting point to request increased funding for all capital projects, and, in particular, those aligned with equitable principles. In Oakland, CA, when the city was revamping its capital improvement plan, working groups focused on getting feedback and input at multiple points along the way to ensure buy-in, and to create champions for the plan. This type of broad engagement approach allows you to aggregate feedback and frame your goals in a shared, inclusive context that can be supported by all involved.

In all cases, advocate for low-effort reporting and transparency initiatives

For example, if your  team would like to change the decision-making process for funding new programs in the local  government’s jurisdiction, that may take significant staff time

and effort to design ahead of upcoming budget cycle(s). However, if your internal  team could introduce a new variable in a shorter timeframe for reporting on budget figures, it may be possible to clearly demonstrate a need for new decision-making criteria when faced with data on the growing disparities among various communities.

In Baltimore, Mayor Brandon Scott has made a significant push towards transparency and open data on many city services, including those related to COVID-19 recovery. This includes real- time, public dashboards that show spending trends for the City and its agencies. Recall the prior recommendation on initially using metrics as definition(s) of equity – by simply including a report of spending by the CDC or HUD geographical variable, any city could display potential opportunities to increase equitable spending.

The Three Cs of Change Management

When in doubt, focus on the Three Cs: Coordination, Communication, and Collaboration

As the COVID-19 pandemic demonstrated, an increasingly unpredictable future requires new ways of thinking about government operations. When the critical moment is upon you, it is too late to plan for what you might do. Preparing for these scenarios is ideal – however, if your organization is facing a new challenge, the “three Cs” should be your default methodology for quickly establishing alignment, effectively sharing information, and working across silos to deliver critical services and save precious time and resources along the way.

  • Racial Equity and Reconciliation Initiative Team, City of Long Beach (CA) – In June 2020, City Council members in Long Beach, CA, unanimously approved a resolution to review historical inequities related to Race and other demographic factors. This cross- departmental team was responsible for engaging residents on how best to eliminate systemic racis
  • Stimulus Task Force, City of New Orleans (LA) Following the announcement of $375 million in federal funding, New Orleans Mayor LaToya Cantrell convened a 28-member task force with five sub-committees representing priorities for the City. This group was tasked to identify the best opportunities for spending, as well as explore potential funding available through subsequent rounds of ARPA guidance.13 The City adopted this strategy based on multiple prior experiences with federal relief funding, in the wake of hurricanes and associated flooding. Ultimately, this team delivered a comprehensive report and recommendations for enhancing racial equity in the City.

Conclusion

With increased federal funding to support economic recovery in the wake of COVID-19, cities are being handed the keys to allocate CARES, ARPA, and any future federal dollars toward more equitable programs and services. Resistance to equity may show up in an organization as skepticism around these funds and their purposes – however, the guidance for CARES Act, ARP Act, and (likely), any eventual Infrastructure Bill all incentivize investment in previously neglected communities. Sharing plans for this spending alongside the annual operating budget can further demonstrate a comprehensive response to constituent needs and goals, regardless of the funding source. As these federal programs pave the way, one’s change management muscles must be well-developed to take on budgeting for equity, and other equitable initiatives in additional contexts.

Ultimately, change management is about shifting the existing culture – preserving the great things about an organization while restructuring and updating its activities and service delivery to better align with its core values and priorities moving forward. In an ideal world, this might happen with the flip of a switch – however, even the best plans cannot be
developed nor successfully implemented in the real world without a receptive and supportive culture.

Equity in Capital Improvement Planning Processes

Public Policy, Strategy

This white paper was a collaboration between myself, as primary writer and researcher, and Matt Stitt and Mike Nadol as editors and contributors. It was created as part of PFM’s work in the Bloomberg Results for America City Budgeting for Equity and Recovery program in 2021. The fully designed PDF can be viewed here.

Why This Matters?

Capital budgets and improvement plans present exceptional opportunities for governments to drive equitable outcomes in municipalities, particularly when budgeting for recovery. The significant spending power authorized through capital budgets – multiple billions for some jurisdictions – can allow for increased, targeted spending on geographies that historically lacked investment from the public and private sectors. In addition, the job creation necessary to complete these projects offer workforce and economic development opportunities for residents and businesses. Because the Capital Improvement Plan (CIP) typically requires a multi-year plan and planning process, it provides a framework that can be adapted to equitable purposes rather than created from scratch. When taken together with the scale of funding available, the CIP presents a ready-made strategy for planning, implementing, and evaluating projects that achieve enduring equitable outcomes.

Introduction

Infrastructure is the fabric that enables community connection, economic opportunity, and civic life in the United States. Eighty percent of public spending on these vital projects (from roads and bridges to parks and recreation centers) is provided by state and local governments. Yet despite its importance to everything from commerce to public health, the national total deferred maintenance on infrastructure assets could be as high as $1 trillion.[1]

Additionally, most cities have no structured mechanisms to incorporate equity considerations into their capital investment planning. Equity-based approaches to funding, project selection, and community input are still evolving and imperfect at best – but such approaches are now developing rapidly for operating budget allocations. To next integrate equity into longer-term financial strategies, Finance Directors, City Managers, and senior Elected Officials must all double-down on their efforts, sharpening their focus on capital investment planning. While there is no single solution that works for most cities – when it comes to matters of equitable impact, the best option is one that is place-based and reflective of the needs of a specific community. Ultimately, the process for equitable capital budgeting must be developed collaboratively and implemented through a thoughtful change management strategy.

This resource outlines a few strategies and case examples (related to equity in capital planning), from across the country, that can be adapted to the local context.

Using Capital Improvement Planning (CIP) Process to Drive Equitable Outcomes

To approach the CIP process in a manner that creates consistent, measurable, equity-focused results, PFM recommends first mapping the current process being used (including a timeline for key milestones) and bucketing the tasks into phases. Each of the following examples can be considered as a potential improvement to one key phase (i.e., swapping a current practice for a new tactic) or as part of a more comprehensive effort across the full process. Depending on local readiness, needs, and priorities, government staff can choose an approach that is politically feasible while building toward maximized impact.

Prioritize Projects that Align with Long-Term Strategic Goals

The Government Finance Officers Association identifies “identifying, tracking, and communicating” performance measures in budgeting, including the capital budget, to be a financial best practice.[2] To make such performance measures most impactful, city staff must align these metrics to the overall goals set by city leadership. In the City of Seattle, WA, for example, equity goals have been set by the Seattle 2035 comprehensive plan – and the City’s scorecard for capital investments uses detailed, quantifiable criteria to rank projects in terms of alignment with these goals.[3] Projects that score high on these measures (and, thus, are highly aligned to the plan) receive higher priority for funding than those with relatively lower scores.

Develop a More Impactful Community Benefit Agreement Structure

If well-designed, Community Benefits Agreements (CBAs) centered on equity issues can be extremely impactful for cities. In Sacramento, CA, for example, a recent CBA developed for a multi-billion-dollar mixed use development generated $50 million in funding for affordable housing, anti-displacement investment, prioritized hiring for residents, and improved public transit infrastructure. These benefits were developed, prioritized, and supported by direct resident input. The evaluation firm highlighted dialogue with community members (versus presentations) – designing projects that not only increase revenues, but also deliver non-monetary benefits to residents and businesses. The firm also recommended reevaluating success measures (i.e., rethinking straight, or traditional, financial return-on-investment).[4]  

Formalize “% for X” Investment Goals in Major Capital Projects

The strength of the capital budget and plan as a tool to promote equity is that its spending power, especially when viewed over a multi-year time horizon, can dwarf the operating budget of a municipality. With this scale in mind, cities should consider a formal set-aside of X% in major capital projects (e.g., all projects with budgets over $2 million) – for the sole purpose of funding an equitable priority project. As an example, the City of Austin, TX, recently dedicated $300 million of a +$7 billion transit expansion program to affordable housing and anti-displacement programs for near neighbors.[5] Not only does this provide funding for an equitable priority, but also enhances the value of the transit assets themselves through potential increases in ridership.

Connect Capital Budgets and Workforce Development

All cities seek a robust, skilled workforce and a strong local economy – however, oftentimes workforce development funding is tied to imminent or even pre-existing job opportunities. By taking advantage of capital investments to drive small business growth and the development of local supply chains, municipalities that design creative programs (or partnerships) can generate a positive feedback loop of a stronger labor market, growing local firms, and increased quality and efficiency of capital projects. For example, one city in the current Bloomberg Philanthropies/What Works Cities City Budgeting for Equity and Recovery cohort is working to design a sidewalk maintenance program that would include a set amount of work conducted each year by apprentices and workers seeking employment. This helps to improve walkability and economic activity, while also training residents to work in trades that offer family-sustaining wages and add value to businesses in the City.

Seek Strategies for Co-Investment

State and federal funding can be a source of “fuel” for capital project development. Enterprising city staff can apply for grants that award funding for not-as-obvious capital investments that expand program capacity, and, in the best-case scenario, generate a return to both the city and its residents. The Philadelphia Energy Authority’s Solar Savings Grant Program, for example, leverages funding from the Commonwealth of Pennsylvania for green energy projects to offset the cost of installing solar panels on low- and moderate-income households’ roofs.[6] The grants lower the overall costs of the program, residents save money on their electric bills each month, and the city decreases its overall carbon footprint. 

Set a Future-Focused Investment Strategy

An additional way to better leverage capital budget dollars is to invest in growing service areas based on demographic trends, and strategies that can reallocate funding to more equitable priorities. For example, there are mobile crisis teams operating in at least 25 cities across the country, and many more around the world. In Eugene, OR, the CAHOOTS program, a pioneer in this space, cost approximately $2 million to operate (in 2019), and is estimated to have saved approximately $23 million in public safety and public health costs.[7] While models for service delivery vary depending on the local context, cities that choose to develop this capacity internally can leverage capital investment to establish facilities, and potentially to procure first-response vehicles and other durable goods, that contribute to the treatment process. With such support, mobile crisis programs have the ability to lower the needed capacity in public safety (e.g., police and/or EMS/EMT first responders) and public health (e.g., hospital beds and social worker FTEs) over time. Investments like these also create an equitable outcome of clinically appropriate care delivered to residents in need (i.e., instead of holding residents in prison or police custody without timely treatment) while diverting from corrections populations and overburdened emergency rooms.

Callout Features – Case Studies

Redefining Return on Investment (ROI) through an Equity Lens

Moving towards equitable formulas for funding CIPs will naturally raise questions regarding ROI (i.e., will projects generate a financial return). Evaluation is a critical component of all capital investments, and these examples provide a clear guide.

  • In Harris County, TX, officials recently moved away from the historical practice of using traditional ROI based on the financial value of property protected by its flood projects (which tilted investment heavily towards high-income neighborhoods) to using a social-vulnerability index created by the Centers for Disease Control and Prevention (CDC), which moves more funding to areas with the most at-risk populations.[8]
  • In Raleigh, NC, the city explicitly measures environmental and social, as well as economic, outcomes of projects (the “triple bottom-line”) in its 2030 Comprehensive Plan.[9]

Use Change Management Best Practices to Build Support

Our most successful clients take a strategic approach to engaging internal and external stakeholders who are considered potential champions or detractors to implementation.

  • For example, traditionally information is presented to community groups for comment and approval, but a fully equitable approach would be to engage the community up-front in a true dialogue to understand priorities, concerns, and opportunities for both sides while the program is still under design.
  • Tools to consider include using steps from Dr. John Kotter’s Model[10], adapted and customized for more effective “place-based” or local use.

Conclusion: Importance of Investments in a More Equitable Future

Many municipalities currently face a myriad of deferred maintenance and equity imperatives – all of which have been exacerbated by the COVID-19 pandemic. The path to reversing severe long-term under- and disinvestment must include large-scale, strategic capital program initiatives. Through engaging their communities, cities can address both historical disparities and identify investments that can build towards a more equitable future.

“The best time to plant a tree was 20 years ago, the second-best time is now.”

A common theme across the strategies documented here is the importance of change management to creating sustainable change. Whether starting from a top-down directive (e.g. executive order) or a bottom-up approach (e.g. employee-led, department level change), understanding the stakeholders involved and the relevant processes is critical to designing a more equitable approach. Another factor embedded in each of these strategies is the availability and monitoring of disaggregated data to ensure that all residents benefit from the changes implemented.

As equitable considerations take hold and begin to shift the balance of capital investment dollars to the previously neglected corners of the local map, municipalities should become better places to live, work, and enjoy for all residents. When combined with strong community engagement, data-driven project criteria, and thorough measurement and evaluation, funds that seemed too limited will deliver results above and beyond their scale. With the first American Rescue Plan Act (ARPA) funds arriving to cities, states, and counties in the last month, and recent, additional infrastructure spending discussed at the federal level – now is the time to prepare stakeholders to rise and meet the moment.

[1] Zhao, Jerry Zhirong, et al. The Volcker Alliance, 2019, pp. 1–40, America’s Trillion-Dollar Repair Bill.

[2] Performance Measures, http://www.gfoa.org/materials/performance-measures.

[3] City of Seattle, Office of Planning & Community Development. Community Planning: Practice + Prioritization, pp. 4–32.

[4] Hackler, Darrene. Smart Incentives, 2021, pp. 1–5, Community Benefit Agreements: An Equitable Tool for Innovation District Development.

[5] Young, Harrison. “Austin Transit Partnership OKs Anti-Displacement Funding.” Austin Monitor, 18 Mar. 2021, http://www.austinmonitor.com/stories/2021/03/austin-transit-partnership-oks-anti-displacement-funding/.

[6] Philadelphia Energy Authority, “Solar Savings Grant Program.” https://solarizephilly.org/solar-savings-grant-program/

[7] Reach out Response Network, November 2020, pp. 1-91. Final Report on Alternative Crisis Response Models for Toronto.

[8] Wallace, Don. “A Climate Plan in Texas Focuses on Minorities. Not Everyone Likes It.” The New York Times, 24 July 2020, https://www.nytimes.com/2020/07/24/climate/houston-flooding-race.html.

[9] City of Raleigh, Office of City Planning. 2030 Comprehensive Plan – Update, pp. 123-124.

[10] “The 8-Step Process for Leading Change: Dr. John Kotter.” Kotter, 7 May 2021, http://www.kotterinc.com/8-steps-process-for-leading-change/.

Strategies for Engaging Governments

Public Policy, Strategy

This post was inspired by Mr. Timothy Richards, who I had the pleasure of studying under while attending the University of Pennsylvania. His graduate-level course, “Strategic Engagement with Governments,” was among my favorite I’ve taken at any academic level.

Government is good

I don’t think Gordon Gecko would ever say it, but even he would have to admit that government and business are inseparable. There are myriad ways that the two intersect, interact, and interject in one another’s day-t0-day operations. Sometimes the relationships are pleasant partnerships meant to solve problems for people in their jurisdictions. Sometimes they are bitter battles between powerful groups who want very different – even opposite – things.

Given that government is a requirement in modern society, one would assume that businesses are investing heavily in the areas where they come in direct contact with these important stakeholders. Reader, they do not. For several years, McKinsey conducted an annual survey among executives to measure how important government involvement was to their business and industry and how well those executives feel their firms perform. What they found was fairly shocking given the conventional wisdom around this topic.

The value of engaging government

In 2013, McKinsey estimated that the value at stake from government intervention for most industries was 30% of earnings, except in banking which could be as much as 50%. This is an enormous figure – in some cases adding up to tens of millions of dollars per employee working in the government relations function. And yet fewer than 30% of executives reported that they had the government relations talent and organizational setup to succeed. Only 20% felt they were successful in influencing government policy that was critical to their business.

In the 2010 study, executives were asked to estimate how government activity in their industry would change over the next few years. Overwhelmingly they reported it would increase or at least stay the same (86%), and 52% felt government would be the stakeholder with the greatest economic impact on the firm. The story was similar as it relates to operating income – executives were mostly in agreement that there would be a change (72%), but split on the whether that would be an increase or decrease. Selected data is shown in the charts below.

Via McKinsey
Via McKinsey

While this study is from 2010, the many experienced, senior government relations officials we heard from in class confirmed it is still the case a decade later. In short, there is a gulf between where business knows it must be and where it currently sits as it relates to government relations work.

Improving government relations

Despite the data being a few years old, it would seem one doesn’t need to say much to convince leadership of the impact of government intervention. But how does one go about improving the function so that this value is not lost? Or ideally, leveraged into growth opportunity for your firm?

Start by understanding the current and likely future states of government intervention

You must map the current ways in which government impacts your business. This can be across several dimensions: government as partner, as customer, as regulator, or as policy maker. Once you understand the relationships, you can begin to evaluate the various touch points using your internal goals, metrics, and strategies.

For example, in class we learned about an American manufacturing firm that, after researching emerging tax credits for renewable energy technologies, made a strategic shift in their business to build out their green technology vertical. This would have been a missed opportunity without deliberate, proactive work by the government relations team.

Prioritize the issues that can be pursued

Using your map, rank your issues that you’ve uncovered by their relative impact on your business (high, medium, low) and the relative effort and/or cost required to influence them (high, medium, low). You can use a simple two-by-two matrix to draw this out visually. Are there obvious winners (High Impact, Low Cost) or losers (High Cost, Low Impact)? Note them as such and move to the “stickier” issues (High Impact, High Cost; etc). Which of these align most strongly with your goals internally? Asking these questions is essential, as you won’t be able to pursue all of the issues at the same time.

Create campaigns around each issue to make a dent

Once you have your top issues identified, you must think strategically about how to influence the relevant government officials and departments. Your government relations and external affairs staff should be able to organize the resources, tasks, and target stakeholders to support your goals. Be sure to build some flexibility into your strategy – tactics will be your saving grace if you experience any friction.

In another example, we learned about a potential production facility that would be built in a Southeast Asian nation by an American multinational firm. The firm planned to get a US Senator from their home state to make a personal call to the leader of the Southeast Asian nation, but when the Senator declined, they instead produced a joint letter signed by all of the Congresspeople from their state. This is an example of achieving the same goal, without following the strategy verbatim.

Conclusion

Government has a constant and likely growing role in every sector of the economy. In Macroeconomics 101, you are taught that government is the biggest consumer and usually the biggest producer in every country. It makes sense that 30% of earnings would be at stake, and likely much, much more indirectly as well. By creating strong processes internally to research, plan, and implement influence campaigns, companies can flip the script and proactively engage government in ways that benefit both parties.

Smarter Government: Why the best strategy for governing fails

Public Policy, Strategy

What is Smarter Government?

Governor Martin O’Malley wrote Smarter Government in collaboration with ESRI in November 2019 as a capstone on his political experience. In it, Mr. O’Malley outlines his career-long pursuit of more effective government through “Stat” programs. He was initially inspired by Jack Maple and his CompStat program in New York City’s Police Department. Eventually, the two would collaborate on what might soon become known as the single most effective strategy to govern a city or state.

CompStat was a revolutionary idea at the time – it was originally known as Charts of the Future and involved sticking colored pins into a paper map to display data on the intersection of crime and police activity. While it was significantly upgraded in terms of technology, the core tenets remained: timely and accurate information or intelligence, rapid deployment of resources, effective tactics, and relentless follow-up. The result was a major shift in the success of the police department to not only solve but also prevent crime by strategically deploying officers and other resources across the city.

Over the first few chapters, Mr. O’Malley tells the story of working with Mr. Maple to bring CompStat to the city of Baltimore when Mr. O’Malley became Mayor. They called the new system “CitiStat.” There are six main elements of the CitiStat strategy for performance management:

  • Performance management and data-driven processes
  • GIS technology
  • Customer service technology (like a 311 call number for city services)
  • Collaborative, informed decision-making
  • Openness and transparency
  • Getting things done by bringing people together regularly (and optimizing the meeting space and project management process)

Mr. O’Malley’s administration made extremely impressive progress during his time in office – both as Mayor of Baltimore and then as Governor of Maryland. He reduced crime and blight, reduced healthcare costs, and quite possibly saved the Chesapeake Bay Watershed from total destruction. His book includes several contributors, but it is obvious from the language and the content that Mr. O’Malley is a true expert in this area. He now teaches the concepts at Universities in the region, and consults on bringing Stat programs to the Federal Government level and beyond.

Why won’t it work in my city?

If there is a “secret sauce” for effective city and state government, why is this not the standard operating procedure for all public administrators? The truth of the matter is performance management in general, and CitiStat in particular, can be controversial and difficult to implement. Not everyone is on board with showing their peers “how” they work, and getting potentially a dozen departments aligned on a schedule and goals is challenging, which creates significant barriers to entry. I believe that it can work anywhere, but it will only work where an administration can manage these three risks.

Leadership

One thing that becomes clear through Mr. O’Malley’s war stories is his indisputable strength as a leader. This is not a boast or exaggeration by someone telling his own story. By highlighting both his wins and losses, Mr. O’Malley reveals much about the thinking behind his actions. His ability to see the opportunity that CitiStat offered, rally his colleagues to the cause, and consistently participate in the process at the appropriate level made the success of his subordinates possible.

You cannot implement one half or one third of CitiStat – you have to dive in head first and stick with it through your time in office. Not all leaders are prepared to take that plunge, but if they can believe in the fundamental value of the system, it can lead to massive successes.

Capacity

Similar to the leader’s capacity, the administration must have sufficient capacity to establish the processes needed to establish CitiStat. They must be the ones to conduct the meetings, measurement, and implementation of improvements to their service area. To be clear: any administration has the ability to choose CitiStat as a framework for performance management, but not all administrations will succeed in its total adoption.

Mr. O’Malley talks about the crucial first few months of an administration. It is here, he says, that you must move confidently and completely towards CitiStat or else you will miss the opportunity entirely. Without the buy-in and quick action taken to make these changes, too many in the administration will have the built in excuse that changing how we work will reduce velocity.

Ego

The final risk is maybe most existential to the CitiStat methodology. For an incoming administration, it is just the last politician’s shiny object. Any executive entering a political office will be most concerned with their priorities and promises from the campaign trail, as well as their own legacy that they must begin to write.

When Mr. O’Malley left Baltimore, his successor did keep CitiStat in place, but without the same zeal. Gradually the interest and urgency eroded, and eventually there were departments going months without the customary bi-weekly meetings. The succeeding Mayor did not view the CitiStat process as their own, and they did not give it the same attention or resources that they lavished on their own projects. Unfortunately, their ego kept them from embracing a strategy that may have helped them achieve exactly what they were setting out to do.

Conclusion

Despite being a very systematic and data-driven approach to management, CitiStat absolutely needs enthusiastic leadership and shared sense of responsibility to carry out. Many cities use data to make decisions, and some might even have transparency across departments. There are many fewer though that perform the rituals associated with CitiStat that cement it as the overarching framework for how governing gets done.

Cities that want to make CitiStat the standard must ensure that there is a process in place that can make it viable with or without strong executive leadership and that make it more durable than a political project would normally need to be. To achieve this, administrators might consider:

  • Establish a cabinet-level position to manage CitiStat.
  • Create administrative policies, or if possible legislation, requiring Departmental CitiStat meetings to take place regularly.
  • Limit the discussion of or praise for CitiStat in public – the more it is associated with one administration or individual, the less durable it becomes!

Restructuring business taxes in Philadelphia

Public Policy

This memo was drafted in April 2019 for informational purposes for the City of Philadelphia Department of Commerce. It does not  in any way represent the Department of Commerce’s opinion or policy on this matter. 

Introduction

Philadelphia is the only one of the thirty largest cities in America to collect both a net income and a gross receipts tax on businesses. This leads to the City imposing some of the highest business tax rates in the country. According to a recent Pew Charitable Trust report, Philly also leads the way in the number of Exemptions and Incentives to lower these same taxes. The end result is a complex set of programs that compete for attention and applications from the cities’ stock of firms. While Philly may not benefit from lowering taxes to the lowest allowable level, a restructuring of tax policy to target harder to move assets and a simplified set of taxes could allow for similar revenue collection and lessen the burden on businesses. 

What is the current state of business tax in Philly?

Pew reviewed five cities who collect only Gross Receipts tax – one element of BIRT in Philadelphia. These cities – Los Angeles; Memphis, TN; Nashville, TN; Seattle; and San Francisco – tax all of the money a business collects regardless of their profitability. Philadelphia’s rate is actually lower than all five of these cities – currently 0.1451% on all businesses regardless of size. Tennessee is a bit of a unique case as the state collects the gross receipt tax and remits to the cities. San Francisco has one static rate slightly above Philadelphia’s (SF charges 0.1625%). Both Seattle and Los Angeles have a bracketed approach to the Gross Receipts tax. Both Seattle (charges 0.150% to 0.415%) and LA (charges 0.101% to 0.507%) differentiate their tax rate by industry classification.

What would a Gross-Receipts-only model look like in Philly?

If the City were to take a similar route in their tax policy, it is possible that the city could lower taxes on certain classes of businesses while scaling up the rate to those firms who generate the most revenue in the city. If Philadelphia were to triple the current rate for those industries it deems appropriate, it would still be lower than the high-end tax rate in Los Angeles (0.4353% in Philly vs. 0.507% in LA). If one were to triple the tax revenue associated with Gross Receipts in 2016, that would mean $240 Million in revenue. This would still leave the city short in the short-term, though the simplification of the tax code and lowering of overall tax burden should make Philadelphia more attractive to expanding or relocating firms. 

What other goals should be set for Philly’s business tax policy?

In general, Philadelphia should be focused more on taxing revenue sources that are not as mobile as net income or gross receipts. In 2018, the U.S. Supreme Court ruled on Wayfair v. South Dakota, which related to the collection of sales (and use) taxes by firms, despite not having any physical presence in a state. This ruling takes away some of the “mobility” previously available to Gross Receipts tax incidence. Another policy avenue available to other cities, but not cities in Pennsylvania, is a differentiated property tax rate for commercial properties. Due to the uniformity clause in the State Constitution, Philly does not have access to the potentially potent tool. 

Conclusion

In conclusion, Philadelphia has policy tools available to it if the city wants to be more business-friendly, if not as many as other cities. Our number and type of tax policies create confusion and discourage businesses from complying with our rules. Our relatively low rate of Gross Receipt tax leaves room for the city to expand this piece of the revenue pie in line with other large cities. A general policy of moving to a simplified system which taxes revenue sources that are harder to move – like real estate, gross receipts, etc. – would make for a more stable revenue stream and limit opportunities for firms to reduce their tax burden artificially. 

Regulating Philadelphia’s Gig Economy

Public Policy

This memo was drafted in June 2019 for informational purposes for the City of Philadelphia Department of Commerce. It does not  in any way represent the Department of Commerce’s opinion or policy on this matter. 

Executive Summary

Despite huge growth over the last eight years, the gig economy is a controversial subject with supporters and detractors across the country. Those in favor say it provides flexibility and scalability for talented workers to earn income on their own schedule. Those opposed see greedy corporations placing the risk on employees while withholding some of the reward they’d receive if they were truly “independent.” Philadelphia is home to many thousands of gig economy workers, and faces a difficult challenge in balancing reform and protections for workers with preserving this vital source of income for non-traditional employees. By working closely with employee rights’ groups and freelancers of all shapes and sizes, new incentives and penalties should be developed to better manage the gig economy labor market, as opposed to banning it outright. 

What is the Gig Economy? How does it interact with the larger labor market?

The gig economy is a term used to describe a wide variety of temporary, part-time, flexible labor contracts, which can have varying degrees of complexity. For example, adjunct professors or high-skilled freelance workers are just as much gig economy members as Uber drivers and Rover dog walkers. When viewed in this more holistic way, as much as one third of Americans already have a “gig” as part of their professional life. Workers choose gigs because of the flexibility and, in some cases, to get into a new job or back to work quickly without dealing with traditional hiring processes. 

Employers also benefit in many ways from the arrangements possible in the gig economy. For example, an employer who cannot afford to continue hiring full-time employees as they scale may use gig economy workers to fill in the gaps. Another way the employer may benefit is by expanding their available talent pool. A graphic designer, for example, may not be able to move across the country to design them a logo full-time, but would gladly contract with the firm remotely using technology as a bridge. Both parties benefit a great deal in this scenario – the freelancer gets a client and the organization gets a cost effective brand identity.

What is the Gig Economy’s impact on Philadelphia?

According to a Brookings Institute report, two major elements of what most consider the gig economy – ride sharing and room sharing – are growing in Philadelphia. From 2012 to 2014, ride-sharing work grew by 6% and rooms grew by 2%. From the report: “The spread of nonemployer firms between 2010 and 2014 occurred mostly in the largest metro areas. No less than 81 percent of the four-year net growth in nonemployer firms in the rides sector took place in the 25 largest metros, while 92 percent occurred in the largest 50 metros.” Despite being significant and growing quickly, the report makes it clear that app-based employment is not displacing payroll employment. 

This data is a combination of Census Bureau’s survey measuring Nonemployer Businesses by census tract and corresponding NAICS codes – meaning with some minor manipulation, it would be easy to monitor long-term. Collection and reporting of this data should accompany any initial meetings internally, and can also be leveraged to plan an effective hearing should one be called (i.e. inviting appropriate industry representation, not just Uber). 

What does the California case study demonstrate?

In April 2018, the California Supreme Court ruled “that employers must treat workers who do work related to a company’s ‘usual course of business’ as full-fledged employees.” As an example of the standard, a plumber hired to fix a sink at a business would not be considered an employee. However, if a clothing company hired a worker to sew at their home, they would be entitled to a minimum wage, breaks, and other employment benefits. This ruling only applied to a shipping firm called Dynamex, but set a precedent that could impact many types of workers in California, including care givers, dog walkers, hair stylists, and ride-share drivers. It would make gig work illegal in the current state it exists, and require companies to take on significant costs and risks, including minimum wages, additional payroll taxes, and benefit contributions. An MIT professor estimated an increased cost per employee of between 25% to 40%.  

In May 2019, following protests by Uber drivers related to the company’s forthcoming IPO, California lawmakers passed legislation which provided stricter guidelines for worker classification. For workers to be classified as independent contractors, companies will have to prove the following three conditions: 

  1. That they don’t control or direct the person’s work
  2. That the worker’s services aren’t related to the company’s main business 
  3. And that the person is engaged in an “independently established trade, occupation, or business of the same nature” as the work performed.

These conditions would almost certainly make many popular app-based gigs classifiable as full-time employment. Examples include Lyft, Uber, AmazonFlex, GrubHub, Postmates, Care.com, and Wag. The bill seems to get these workers closer to their demands from the protests – mainly better wages, job security, and better treatment from their corporate higher-ups. It’s important to note that the demands vary from place to place depending on the local issues. 

What should regulatory goals should Philadelphia pursue?

Gig economy work can be very important and meaningful in the life of Philadelphia’s residents. There are certainly drawbacks as evidenced in the California case study – companies are effectively transferring the burden from themselves to the employee who bears much more of the risk than traditional workers. Legislation like that in CA will completely turn the tables and put the burden back on employers. However, a very basic economics model of supply and demand tells us that as the cost of these workers increases, the demand for their work will decrease as well. Large, well-funded organizations will be able to weather this storm, but small and medium-size businesses will be hit the hardest by these new regulations. 

Philadelphia should be cautious in how they regulate this transfer of burden from employee to employer, as we could lose critical, low-skill and low-barrier-to-entry jobs for vulnerable residents. According to a 2018 survey by UpWork, an online freelance marketplace, 42% of freelancers said they like gig economy arrangements because they aren’t able to work for a traditional employer. Whether it be those who recently lost jobs, have family obligations, or other hurdles to traditional employment, the gig economy provides an opportunity to be productive and earn income with little commitment or training. Another finding from their survey showed that gig economy work is valued by those who are of retirement age or older for all of the same reasons mentioned above. It would be more harmful than good if Philadelphia made this kind of work impossible. 

Conclusion/Recommendations

The gig economy is growing rapidly, but now finds itself on shakier ground that it did a year ago. While abuses of employee rights should be fought, outlawing a type of work arrangement will not necessarily solve the core issue. Organizations must be held accountable for treating employees fairly regardless of their size, scale, or employee base. Philadelphia should prioritize policy solutions that better manage this labor market, but not ban it outright. Some recommendations for how to proceed could include:

  • Holding a hearing that includes a wide variety of gig workers – not just ride-sharing, but adjunct professors, care givers, etc. – and specifically addresses how to preserve their way of working while improving their outcomes
  • Research and develop incentives for employers to provide pathways to full-time employment (for those who want it) and protections for part-time and gig economy workers
  • Host convenings of on-the-ground advocates such as the Freelancers Union, and other worker’s rights groups, to gain insight into current demands and potential solutions from around the country
  • Continue to pursue pro-worker policies such as the increased minimum wage, enforcement of worker protection laws, and social safety net programs 

An approach to marijuana legalization policy in Philadelphia

Public Policy

This memo was drafted in March 2019 for informational purposes for the City of Philadelphia Department of Commerce. It does not  in any way represent the Department of Commerce’s opinion or policy on this matter. 

Executive Summary

Medical marijuana is legal in thirty-three streets and the District of Columbia. Ten states and the District of Columbia have fully legal adult marijuana markets. Estimates show the United States marijuana approaching nearly $50 billion in sales annually. In PA alone, a fully legal market would be estimated at $1.66 billion annually, with tax revenues of roughly $600 million. The industry would create tens of thousands of new direct and indirect jobs annually, many requiring no advanced education. Innovations in policy, such as requiring diversity in leadership of marijuana businesses, preference to disadvantaged communities, and micro licenses, help ensure inclusive growth as the industry matures. 

How many states have legalized marijuana? And to what degree?

As of March 2019, thirty-three states plus Washington D.C. have legalized marijuana for medical purposes. Another ten states plus Washington D.C. have fully legalized marijuana for adult use. Several more, including New Hampshire and New Mexico, are poised to approve legalization for adult use. While it is currently an illegal drug under federal law, recent reports suggest that Congress could soon introduce legislation for fully legalizing marijuana nationwide. More locally, New York, New Jersey, and Delaware all permit the sale of medical marijuana, and all three have also introduced legislation in the last year that, if passed, would make marijuana fully legal for adult use. New York Governor Andrew Cuomo has changed his view on legalization in recent months, in part due to fears of losing sales over the border to states such as Massachusetts or Vermont.

Current State: How have Pennsylvania and Philadelphia dealt with medical marijuana?

On April 17, 2016, the state of Pennsylvania’s Medical Marijuana Program was signed into law. It established three types of permits – Growers & Processors, Dispensaries, and Clinical Research – which allow for narrow permissions within each niche. Geographically they are spread across six regions – Philadelphia County is part of Region 1 (Southeast). Philadelphia is currently home to five Dispensaries, and zero Grower/Processor facilities. There are also five Clinical Research permits in Philadelphia, associated with some of the city’s top academic institutions: Temple University, Drexel University, University of Pennsylvania, Thomas Jefferson University, and Philadelphia College of Osteopathic Medicine.

Pennsylvania requires several Diversity and Inclusion items as part of their application for permits, which are scored to aid in decision making. In our preliminary research, there does not appear to be another state offering full adult legalization with a similar requirement for diversity and inclusion. These plans cover diversity of those hired by the organization – with a requirement of at least one diverse hire on the leadership team; Diversity in contracts – applicants must provide a percentage of contracts given to diverse contract firms; and a Community Impact Score – related to the number of jobs created, site selection, etc. These are well-intentioned incentives meant to avoid a direct transfer of wealth from the marijuana black and grey markets to a wealthy group of investors. Further policy innovations in full legal markets are addressed later in this memo.

What is the economic impact of the legalized marijuana market?

A 2015 report from the Marijuana Policy Group conducted a true input-output analysis – the best practice for measuring total impact. Their research team estimated a 2.4 multiplier for the marijuana retail industry in Colorado. In other words, for every $1.00 invested, $2.40 is generated to the economy. While this measure would need to be recalculated for Philadelphia, even a conservative estimate would place it in line with the largest economic drivers in the region. Additionally, multiplier effects from production of edible products and cultivation would be generated as well.

In July 2018, Pennsylvania Auditor General Eugene DePasquale released a report on potential economic impacts of marijuana legalization in the state. Using the average adult consumption from Colorado and Washington state as the basis, his office estimates a $1.66 billion sector, leading to approximately $581 million in annual tax revenue. This does not include any additional revenues gained through payroll taxes, indirect employment, or marijuana tourism. Studies have also shown that adult use actually increased by about one-third over the first three years of legalization, while underage use falls due to limited black and grey market sales. 

How many and what kind of jobs would be created?

A recent survey by cannabis-specific recruiting firm, Vangst, shows a 690% growth in cannabis job listings between January 2017 and August 2018. Roles tracked in the survey include the full range of experience and salary levels relevant to the industry. As an example, Budtenders and Trimmers, who require the lowest level of experience, range from $11.50/hr to $16/hr. White collar work commanded a range of salaries from $45,000 on the low-end to a high of $250,000 per year. Due to significant competition for talent as the new industry blossoms, salaries measured by the survey increased 16% from 2017 to 2018. At less than half the population of Philadelphia, Colorado was able to generate over 18,000 direct and indirect jobs in 2015 alone. Examples of indirect employment created include security guards, commercial real-estate agents, construction and HVAC specialists, consulting, legal, and advisory services, and other business services.

One policy innovation being pursued in New Jersey would require a certain quantity of permits be reserved for Micro-licenses. Micro-licenses allow license holders to operate much the same way — growing, processing or selling marijuana — but at a smaller scale, which lessens the capital burden at the start. Lawmakers are also considering giving preference to license applications from areas disproportionately affected by marijuana arrests or, alternatively, to areas with high levels of unemployment. Both policies are aimed at more inclusive growth for the industry as it matures. 

Conclusions and Recommendations

In terms of public opinion and legislative results, marijuana legalization may be more popular than anytime in US history. Momentum at the local, state, and federal levels, while varying, is moving in a clear direction in favor of legal adult use. Any discussion of policy should consider both the positive and negative externalities of such a decision, including:

  • How might we address concerns about public health? While research does not show marijuana to be any more dangerous than cigarette smoke or alcohol consumption, issues such as tests for impaired driving and underage consumption must be addressed.
  • If Pennsylvania law differs from neighboring states, how might law enforcement officials coordinate to ensure successful policing of residents? 
  • How might Philadelphia build on the state’s efforts to create an inclusive marijuana industry? 

The best time to invest in education was 50 years ago, second best time is now

Public Policy

This memo was drafted in March 2019 for informational purposes for the City of Philadelphia Department of Commerce. It does not  in any way represent the Department of Commerce’s opinion or policy on this matter. 

Executive Summary

  • Relatively modest gains in educational quality lead to significant economic multiplier effects in the long-run – a modest improvement yields an additional $1 trillion in GDP over the status quo scenario. 
  • Student achievement is found to be closely linked with teacher quality, but other factors such as a healthy and productive environment are prerequisite. 
  • Reforms to education policy take time to implement, with benefits deferred for at least 10 years in terms of school quality improvement. 
  • Improvements in the labor force and broader economy peak after 50 years (10 years of reform followed by 40 years of retirement/replacement rate), however benefits are compounded over time as the average education level rises. 
  • Educational improvement is an incredibly powerful driver of economic output, but due to the deferred nature of results, cannot be the only driver of growth for a modern economy.

Does educational improvement lead to better economic outcomes?

Relatively modest gains in educational quality lead to significant multiplier effects in the long-run. It has been estimated that 13% of the growth rate of U.S. national income between 1929 and 1982 was caused by increases in the level of education obtained by U.S. residents. A commonly accepted baseline for expected GDP growth, under current education policy, is projected to be 1.5% per year by the Congressional Budget Office.

By improving Pennsylvania’s position within national rankings by only ¼ of a standard deviation over ten years, Pennsylvania and Philadelphia could see massive impact on the growth of the economy. This improvement would be the equivalent of going from the last ranked state (50th) in the country to 41st in the rankings, or from 8th best state to becoming the top ranked state (based on 2015 data). As a point of reference, Pennsylvania is 15th in terms of 8th Grade Mathematics in the 2017 rankings (via NAEP). This improvement was chosen by the authors of the study we reviewed as the authors observed at least 14 states that made a similar sized improvement over the last two decades. 

Making this modest improvement over a ten-year period in Pennsylvania would improve our expected annual growth rate from 1.5% to 5.6%. Based on Pennsylvania’s 2017 GDP of $531.1 billion, that 5.6% annual increase means adding just shy of $30 billion to the economy in an average post-reform year. When added together over the career of a student cohort (in this case estimated at 80 years), the return on this modest improvement is 2.6 times state GDP, or over $1 trillion more than the current education policy scenario.

One way to accelerate the compound benefit over time is starting with early interventions such as Pre-K programs. A study from the Pennsylvania Department of Education showed investments in quality pre-k programming return approximately $7 for every taxpayer dollar invested. And when the benefits of increased tax revenue are combined with reduced welfare spending, investment in quality pre-kindergarten programs return up to $17 for every dollar spent. Additionally, helping students be more productive early in their education will lead to compounded benefits over the life of their cohort. As shown in Figure 2 below, there is exponential return on earlier investment as improvements compound over time. 

What is the timeline for impact measurement of education policy reform?

Education policy reform is not instantaneous. One study projected improvements over a ten-year period, assuming linear growth among students that yielded the full benefit at the end of year ten. Another suggested that improving the quality of the average teacher is best achieved through hiring and retention or dismissal policies, as in-service trainings and other interventions have not been as effective. They provided an analysis assuming a 7% turnover rate combined with the average new teacher hire averaging performance in the 56th percentile, which led to significant improvement after 20 years of implementation. If the turnover rate is increased to 14% through changes in policy or perception of the profession, significant student improvement can be obtained in ten years.

This improvement is different from the improvement in the labor force, which can only improve as less educated workers retire and more educated workers begin their careers. Estimating a 2.5% retirement and replacement rate for more educated students, implying the ultimate quality of the labor force is achieved over 50 years (10 years of reform followed by 40 years of retirements).

How might we measure, and improve, school quality?

For the purposes of this memo, when quality is referenced, it is specifically defined as scores on standardized tests in mathematics and science administered by IEA (International Association for the Evaluation of Educational Achievement), an international cooperative of national research institutions, government research agencies, scholars and analysts working to evaluate, understand and improve education worldwide. Research using this data and including factors such as school resources and externalities (parental involvement, for example), showed significant differences in economic impact.

There is a lack of any consistent or systemic effect of resources on student achievement or school quality. That is not to say resources are irrelevant. In many urban school districts, such as Philadelphia, resource levels and quality of environment can vary drastically from school to school. If dangerous and unhealthy conditions exist, improvement will be hampered regardless of quality or quantity of other inputs. In these cases, whether by increasing resources or simply reallocating existing spending, addressing these issues should come first. On the other hand, there clearly are situations where small classes or added resources have an impact. It is just that no good description of when and where these situations occur is available. 

By many accounts, the quality of teachers is the key element to improving student performance. But the research evidence also suggests that many of the policies aimed at improving performance that have been pursued around the world have not been very productive. This issue can be compounded by the issues mentioned above relating to school quality. If teachers are lacking the very basic resources and safe, healthy work environments expected in any career, they will likely be less effective and/or consider leaving the school, district, or even the profession should issues persist.

According to Eric Hanushek, who has done extensive research in this area, the most feasible approach to improve teacher quality is to experiment with alternative incentive schemes. These might involve new contracts and approaches to teacher compensation, introduction of parental choice across schools, merit awards for schools, etc. The unifying theme is that each should be designed to improve student achievement directly. For example, merit awards to teachers would be directly linked to objective information about student performance. While this may be very challenging to implement in the short-term, many cities have taken up the mantel and are moving towards invaluable reform (Hanushek, et al Economic Outcomes).

What have other cities done to reform their schools? Is there a model for Philadelphia to emulate?

Boston, Chicago, Cincinnati, Minneapolis, and New York City are all examples of districts that have adopted rigorous content and performance standards and have aligned the curricula, instruction, and other aspects of their systems to those standards. They have used data, including comprehensive student information management systems, to guide their decisions and have emphasized professional development for teachers and principals. They have relied on frequent formative assessments. They have also developed a culture of learning and collaboration among teachers. But districts have taken very different routes even to making these sorts of changes—and these differences reflect marked differences in their circumstances.

Urban school districts, which frequently have high concentrations of students at risk for school failure, are at the forefront in the challenge of defining and ensuring equity, and many have also been pioneers in school reform. Low levels of achievement, struggles to recruit and retain both effective teachers and administrators, and the needs of families in high-poverty neighborhoods are among the challenges that face these districts. In short, the literature on district reform suggests that a district can be a strong agent for reform and that districts that have achieved improvements share several attributes:

  • a systemwide approach in which policies and practices are aligned;
  • strong support and professional development for both teachers and administrators;
  • clearly defined expectations for students and teachers, combined with a strong emphasis on improvement; and
  • reliance on data to support instructional decisions and for accountability.

Conclusion / Recommendations

Improving school quality will lead to significant economic impact on the city of Philadelphia. Specifically, this type of growth would be inclusive, assuming consistent policy applied to the School District of Philadelphia. Educational advance can contribute directly and indirectly to economic growth. In direct cases, by increasing the human capital and thus the productivity of the workforce. In the indirect, by increasing the rate of innovation and adoption of new technologies. Both are central to Philadelphia’s future as a world-class city.

When considering the deferred benefit timeline, education alone cannot drive our economy. Philadelphia must continue to spur business activity through proven policy measures until the multiplier of education is reached. Philadelphia would also benefit from the continued attraction of talented individuals and firms from outside the city and region.

Sources:

Golden, Claudia, and Lawrence Katz. “The Legacy of U.S. Educational Leadership: Notes on Distribution and Economic Growth in the Twentieth Century.” Scholar.harvard.edu, National Bureau of Economic Research, 2018.

Hanushek, Eric A. Economic Outcomes and School Quality. International Institute for Educational Planning, 2005.

Hanushek, Eric, et al. “Economic Gains for U.S. States from Educational Reform.” NATIONAL BUREAU OF ECONOMIC RESEARCH, 2015, doi:10.3386/w21770.

Hanushek, E. A., & Kimko, D.D. (2000). Schooling, labor force quality, and the growth of nations. American Economic Review, 90(5), 1184-1208.

Hungerford, Thomas L, and Robert W Wassmer. K-12 Education in the U.S. Economy. National Education Association, 2004, pp. 1–48, K-12 Education in the U.S. Economy.

Mitra, Dana. Pennsylvania’s Best Investment: The Social and Economic Benefits of Public Education. Education Law Center, 2011, pp. 3–31, Pennsylvania’s Best Investment: The Social and Economic Benefits of Public Education.

NAEP. “NAEP Report Cards – Home.” The Nation’s Report Card, 2017, http://www.nationsreportcard.gov/.

National Academies Press. A Plan for Evaluating the District of Columbia’s Public Schools: From Impressions to Evidence. National Academies Press, 2011.