The Public Startup Charting Bold New Waters

Water utilities are struggling to lower their operation costs and simultaneously meet stricter environmental rules. Blue Drop, the brainchild of DC Water’s former leader, wants to help.
BY  MARCH 2018
Blue Drop hopes to turn wastewater into a revenue stream. (David Kidd)

Most startups fail. Within the first four years, anywhere from 50 to 90 percent of firms go belly up. Investing in them is risky. It’s easy for things to go wrong.

But Blue Drop LLC isn’t a typical startup. To begin with, there isn’t a hoodie or open-loft office to be found in its modest headquarters in downtown Washington, D.C. And the company’s lone investor, the public utility DC Water, hails from an extremely risk-averse sector.

There’s something else unique about Blue Drop: A healthy portion of its revenue plan relies on selling truckloads of what used to be human poop.

Taxpayers Have Their Own Bill of Rights in Colorado. But Who Benefits?

The unique anti-tax tool has defined spending in the state, and it may spread to more states.
BY  OCTOBER 2017
Anti-tax advocate Douglas Bruce led the TABOR effort in 1992. "No one has had the impact on Colorado politics" that he has, according to one academic in the state. (AP Photo/Ed Andrieski)

The blue tag on the streetlight outside Robert Loevy’s Colorado Springs home in 2010 didn’t signal an upcoming utility project. It was a receipt to show he had paid the $100 to keep his light on for the year. The city was facing a decimating $40 million budget gap and, among many other cuts, it was turning off one-third of its streetlights. That is, unless residents could come up with the money themselves. “I could afford to pay it,” Loevy says today, “but I have to think that would have been a stretch for many lower-income people.”

Loevy, a retired Colorado College professor, says the lights-out incident -- which earned Colorado Springs international infamy that year -- is just one of the many instances in which Colorado’s Taxpayer Bill of Rights (TABOR) has only benefited those taxpayers who can afford to pay for services out of their own pocket. Loevy has been a vocal critic of the law. As he sees it, “TABOR has had its worst effects on poor people.”

TABOR was approved by Colorado voters 25 years ago next month. The constitutional amendment limits the state’s year-to-year revenue growth to a formula based on inflation plus the growth in population. If revenues exceed TABOR limits, the money has to be rebated to voters, unless they approve an increase in spending.

Halfway across town, the author of TABOR holds a more cynical view of Colorado Springs’ recession-era cuts, which also included shuttering pools, terminating bus service on evenings and weekends and eliminating 550 municipal jobs. The deeply conservative Colorado Springs has its own TABOR that puts even more limitations on the city’s property tax rate. To Douglas Bruce, an anti-tax advocate who spearheaded the bill of rights effort in 1992 at the state level, the cuts were nothing more than a “publicity stunt” designed to fuel resentment against TABOR. “It confirmed my belief,” Bruce says, “that the people running city government are sadistic bastards.”

The Next Big Technology to Transform Government

It's called blockchain. Some say it will have a bigger impact than the internet.
BY  SEPTEMBER 2017
(Shutterstock)

Imagine this: Homeowners no longer need to buy title insurance. The chronology of ownership and claims for every piece of property in a jurisdiction are on an unhackable, constantly updated, always current ledger.

Or this: Governments, companies and individuals can transfer funds from their banks to another bank or party instantly -- without any administrative holding period or fee.

If these sound like future projects, they’re not. They’re both here-and-now developments using an underlying technology called blockchain. Cook County, Ill., is using it to build a land records ledger. Seven of Europe’s largest banks are buying into a blockchain that IBM is putting together for financial institutions. Beyond that, in the wake of questions about the security of voting systems during the 2016 presidential election, many believe blockchain technology will be the answer to securing future elections, allowing them to be audited in real time.

Blockchain has been on a stealth course in government circles in recent months. At the 2016 conference of the National Association of State Chief Information Officers, nobody had blockchain on their priority list. This year, a NASCIO survey found that a majority of CIOs had begun investigating blockchain through informal discussions. In May, the group released a report calling it the “next big transformational technology” in government. “This is a very big deal. It’s so much more dramatic than [when the internet was launched],” says Eric Sweden, NASCIO’s program director for enterprise architecture and governance. “It’s going to have a huge impact on how we do business, accounting, auditing -- anything that has a data lineage to it.”

Legal or Not, States Forge Ahead With 401(k)-for-Everyone Plans

Congress jeopardized the future of state plans to help private employees save for retirement. States don't seem to care.
BY  AUGUST 2017
Fifty-seven million American workers don't have access to a retirement plan through their jobs. (David Kidd)

Matt Birong spent years cooking in upscale restaurants in Boston and New York City. In an industry notorious for low wages and zero benefits, he did something very unusual: He opened a retirement savings account for himself. Birong admits that if his parents hadn’t insisted he do so, he likely would have skipped the process. Even then, the notion of setting up an investment plan on his own would have been overwhelming if he didn’t have a trusted friend in the financial services industry to walk him through it.

Now, as owner and head chef of 3 Squares Café south of Burlington, Vt., Birong wishes he could do the same thing for his employees. He already offers other unusual perks for the industry to attract quality and loyal workers, such as paid time off after one year of service. But setting up a retirement savings program for his roughly 15 employees? “I’ve got my head under a sink making sure the water’s not leaking on the tenants downstairs,” he says. “I just don’t have the time; it’s not that I don’t want to.”

Birong’s situation is similar to that of many small-business owners across the country and is a big reason why half of private-sector workers don’t have an employer-sponsored retirement plan. Of those 57 million people, only a small percentage have saved on their own and those savings are generally paltry. According to the National Institute on Retirement Security, the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households.

Some states want to change that. This July, Oregon became the first to offer a retirement plan to full- and part-time private-sector workers who don’t have access to one through their employer. Eight other states -- California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, Vermont and Washington -- are implementing similar plans that should reach full rollout within the next five years. In general, the programs will run independently from the state and will be paid for through retirement account fees. When the nine state plans are up and running, they will serve roughly one-quarter of private-sector workers across the country. In California alone, the plans will cover nearly 7 million people.

Nation's Least-Funded Schools Get What They Pay For

Education funding has yet to bounce back from the recession in many states. But nowhere is the situation more dire than in Oklahoma.
BY  JUNE 2017
school hallway and lockers
Shutterstock.com

In his 17 years as a school official in Oklahoma, Robert Romines has dealt with more than his share of painful situations. In 2013, as superintendent in the town of Moore, he had to shepherd his system through the aftermath of a tornado that caused $2 billion in total damage, destroying entire neighborhoods and taking down two elementary schools. Today, he is up against a subtler but deeply corrosive attack on his schools: death by a thousand spending cuts.

No state has suffered more than Oklahoma when it comes to education funding over the past decade. As it has struggled to balance its budget in the face of declining oil revenue, spending on schools has declined further than anywhere else. Oklahoma now spends $1 billion less on K-12 education than it did a decade ago. One in five of its school districts has opted for a four-day school week; the base minimum salary for educators hasn’t been raised in nearly a decade; and emergency credentials are being awarded at a record pace to help fill teacher vacancies. Arts programs are going away. Some schools are consolidating their sports programs with other schools to save money. Funding was cut in this year’s education budget for the statewide science fair, in which students compete for awards and scholarships.

In Moore, Romines has tried to hold off as long as possible from making budget cuts that directly impact students. But in the last few years, he has had no choice.

The City Managers on a Constant Quest for New Places to Fix

BY  MAY 2017

 

In the early 2000s, Mark Scott had been working for the city of Beverly Hills for 20 years -- 14 of them as city manager. Thanks to the opulence of the town, it was the kind of place where a budding manager could learn the business minus the typical “city” problems. But eventually the absence of serious issues started to get to Scott. During his tenure, he had watched neighboring Los Angeles endure dramatic civil and social unrest. Meanwhile, in Beverly Hills, luxury merchants and developers were bending over backward to do business. In 2003, the town’s Rodeo Drive Committee announced that the glassware company Baccarat was displaying $1 million worth of crystal chandeliers along the famous road’s median. It all triggered something in Scott, and he decided he needed a change. Or, really, a challenge.

He couldn’t have picked a more opposite place for his next chapter. Scott landed in Spartanburg, S.C., a former mill town divided almost evenly between white and black residents. About one-quarter of the town lived in poverty.

John Arnold: The Most Hated Man in Pensionland

The billionaire philanthropist has vowed to secure retirement for public employees. So why do so many public employees despise him?
BY  APRIL 2017
(Photos by Brent Humphreys)

John Arnold wasn’t a pension guy.

The billionaire financier, who made a fortune in the stock market before retiring at 38, hadn’t ever really been interested in public retirement plans. But in early 2009, just months into the global financial crisis, Arnold began seeing a flurry of news articles about public pension funds collectively losing billions in the stock market crash. Assets had plummeted, causing unfunded liabilities to shoot up. Cash-strapped governments couldn’t afford to fix the shortfall, and the longer they delayed putting more money in their pensions, the worse the problem would get. In short, it was a policy nightmare.

Arnold became intrigued. “The fact that you could go in one year from having a system that was well-funded to having a major gap -- that affected me,” he says. He started digging and found a book called Plunder: How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation, by conservative writer Steven Greenhut. As the title suggests, the book is an anti-union take on public pensions that details the misdeeds of the system’s bad actors -- public employees who game the system and wind up with pensions that are equal to or better than what their working salaries had been. Reading that book, says the now-43-year-old Arnold, “just made me mad.”

The Myth vs. the Truth About Regulating Payday Lenders

When state laws drive so-called "debt traps" to shut down, the industry moves its business online. Do their low-income customers follow?
BY  MARCH 2017

In 2010, Montana voters overwhelmingly approved a 36 percent rate cap on payday loans. The industry -- the folks who run the storefronts where borrowers are charged high interest rates on small loans -- predicted a doomsday of shuttered stores and lost jobs. A little over a year later, the 100 or so payday stores in towns scattered across the state were indeed gone, as were the jobs. But the story doesn’t end there.

The immediate fallout from the cap on payday loans had a disheartening twist. While brick-and-mortar payday lenders, most of whom had been charging interest upward of 300 percent on their loans, were rendered obsolete, online payday lenders, some of whom were charging rates in excess of 600 percent, saw a big uptick in business. Eventually, complaints began to flood the Attorney General’s office. Where there was one complaint against payday lenders the year before Montana put its cap in place in 2011, by 2013 there were 101. All of these new complaints were against online lenders and many of them could be attributed to borrowers who had taken out multiple loans.

That is precisely what the payday loan industry had warned Montana officials about. The interest rates they charge are high, the lenders say, because small-dollar, short-term loans -- loans of $100 or $200 -- aren’t profitable otherwise. When these loans are capped or other limits are imposed, store-based lenders shut down and unscrupulous online lenders swoop in.

Fighting Sex Trafficking Is Harder Than It Seems

More than half the states have passed laws to protect victims, but the laws aren’t always enforced and often produce new challenges.
BY  JANUARY 2017

When a young teen named Anjelique ran away from her home near San Francisco last summer, her trauma didn’t end when police eventually found her. Instead, while her distraught mother and grandmother posted “missing child” fliers all over the East Bay area, police took Anjelique to an Alameda County social services assessment center in Hayward. Before police take troubled youths home, they often bring them there to receive counseling and services.

But 12-year-old Anjelique only stayed one night. That’s because sex traffickers were using the assessment center as a recruitment base. Anjelique befriended another teenage girl in the center, who convinced her to leave. Together, they walked just a few minutes up the seedy commercial strip in Hayward to a budget motel. Once there, Anjelique was put to work.

As a means of controlling her, her mother said, Anjelique’s traffickers got her hooked on heroin. As part of an investigation into her story, a local news crew visited the motel where Anjelique unwittingly entered the sex trafficking trade. Filmed one night this past summer, the news video shows young women arriving early in the evening while others linger in the doorways of rooms or on the balcony outside. Throughout the night, men come in and out of the rooms; other men whisk the girls away in cars, bringing them back a few hours later.

Anjelique eventually escaped, and at the time of the news story, was spending time in drug rehab for her addiction.

Anjelique’s story may sound sensational, but in the world of child sex trafficking, it’s painfully normal. Traffickers seek out vulnerable, unhappy teens -- like runaways. Juvenile detention facilities or social services centers such as the one in Hayward are prime recruiting grounds. Sometimes, young women already in the trade become recruiters themselves, approaching other vulnerable girls and offering them what seems like an exciting life. The new recruit comprehends the full reality of her new situation too late. Readily available drugs help numb the pain.

A Sneak Peek at the Seismic Shift in Corporate Tax Breaks

New rules are forcing states and localities to calculate how much revenue they’re losing to business deals -- and whether they pay off. It’s something Washington state has been doing for a decade.
BY  NOVEMBER 2016

Earlier this year, Washington state lawmakers got a wake-up call. A tax incentive package they’d approved in 2013 for aerospace giant Boeing -- largely regarded as the most expensive incentive deal in history -- was actually on pace to surpass its estimated $8.7 billion cost. According to a Department of Revenue report, the deal, which extends to 2040, had already amounted to half a billion dollars in giveaways in just the first two years alone. In other words, the state was losing out on a whole lot more money than it had planned.

And the kicker? Just months earlier, Boeing had announced plans to cut roughly 4,000 jobs in Washington. The year before, the company had transferred thousands more jobs out of the state.

Some lawmakers were livid, openly contemplating whether the state should consider revoking the tax breaks if the company didn’t add back some jobs. (Boeing, for its part, says it has continued to invest in the state, including $1 billion last year for a plant to build its new 777x aircraft.) But on the whole, response from officials and local media was measured. Most lawmakers said that in the bigger picture, the company was still good for Washington.