Policy Studies Archive - Reason Foundation https://reason.org/policy-study/ Free Minds and Free Markets Tue, 07 Mar 2023 03:33:18 +0000 en-US hourly 1 https://reason.org/wp-content/uploads/2017/11/cropped-favicon-32x32.png Policy Studies Archive - Reason Foundation https://reason.org/policy-study/ 32 32 Tolling value proposition for trucking and state departments of transportation https://reason.org/policy-study/tolling-value-proposition-for-trucking-and-state-departments-of-transportation/ Tue, 07 Mar 2023 03:33:17 +0000 https://reason.org/?post_type=policy-study&p=63145 The question addressed in this paper is whether toll-financed interstate modernization could overcome the long-standing objections of the trucking industry, as well as concerns of state DOTs about the coming decline in fuel tax revenues.

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Transportation Research Record: Journal of the Transportation Research Board
Volume 2677, Issue 2



The Interstate Highway System is critically important to the trucking industry. In a 2019 report to Congress, the Transportation Research Board found that much of the system is wearing out. It recommended a 20-year, US$1 trillion program of reconstruction and modernization. However, in its 2021 Infrastructure Investment & Jobs Act, Congress took no action on interstate reconstruction. Several states are considering toll financing for this purpose, but the trucking industry has long opposed any expansion of tolling, despite its need for a modernized interstate system. This paper considers four concerns of the trucking industry—toll roads used as cash cows, the high cost of collection compared with fuel taxes, little value-added for users, and double taxation (tolls and fuel taxes on the same roadway). The paper describes a sketch-level spreadsheet model of a customer-friendly approach to toll-financed reconstruction, using realistic data and assumptions, applied to a generic mid-size state seeking to rebuild four long-distance interstates. The assumptions built into the model respond to the four trucking industry concerns. The model also addresses concerns of state departments of transportation over giving up some of their declining fuel tax revenues. It estimates the net present value (NPV) of fuel tax rebates over 30 years to be less than 7% of the NPV of toll revenues. Toll financing of interstate reconstruction also relieves state fuel tax revenues of the large costs of rebuilding aging interstates. This paper is intended to offer transportation policymakers a set of policy changes that respond to the legitimate aspects of the trucking industry’s expressed concerns.

The Interstate Highway System is generally considered the U.S.A.’s most important multimodal infrastructure, serving personal vehicles, intercity buses, and long-distance truck freight. At the request of Congress, a Transportation Research Board (TRB) special committee carried out a detailed study of the system’s future. Its 596-page 2019 report concluded that much of the system is aging and needs to be reconstructed; it includes many urban interchanges that are bottlenecks; and some long-distance corridors (especially those that are key truck routes) need additional lanes (1). The report estimated the cost at US$57 billion per year over 20 years and proposed a repeat of the original 1956 90% federally funded program, which would require very large increases in federal fuel tax rates.

In its 2021 Infrastructure Investment & Jobs Act (IIJA), Congress did not address interstate modernization or authorize any increase in federal fuel taxes. Despite the system’s name, its corridors are owned and operated by state departments of transportation (DOTs). In the absence of congressional action, state legislatures and DOTs may have to take responsibility for interstate modernization, which raises the question of how best to pay for a project that could cost upwards of US$1 trillion and take several decades.

The TRB report discussed toll financing of interstate reconstruction, noting that up-front financing could get needed projects under way sooner, for corridors that are toll-feasible. In a paper presented at the 2014 TRB Annual Meeting, the current author carried out sketch-level tolling feasibility assessments for each of the 50 states, finding that in all but five of them, the net present value (NPV) of inflation-adjusted toll revenues exceeded the NPV of capital and operating costs (2). In recent years, four states have commissioned their own interstate tolling feasibility studies: Connecticut, Indiana, Michigan, and Wisconsin. In addition, toll-financed replacement of major interstate bridges is under consideration in Alabama and Louisiana, while toll-financed reconstruction of specific corridors has been proposed for I-40 (Arkansas), I-70 (Ohio, Indiana, Illinois, and Missouri), I-80 (Illinois, Iowa, and Wyoming), and I-95 (North Carolina, South Carolina, and Virginia).

The trucking industry is economically the most important user of the interstate system. Those portions that are tolled (e.g., Pennsylvania Turnpike, Indiana Toll Road) derive the largest part of their toll revenue from long-distance trucking. That industry’s two national organizations—the American Trucking Associations (ATA) and the Owner-Operator Independent Drivers Association (OOIDA)—are the most vocal opponents of the increased use of tolling. Yet the trucking industry would could gain important advantages from a modernized system, potentially including dedicated truck lanes in key corridors, more durable pavements requiring less frequent repairs and resurfacing, and the replacement of obsolete and undersized “bottleneck” interchanges.

The question addressed in this paper is whether toll-financed interstate modernization could overcome the long-standing objections of the trucking industry, as well as concerns of state DOTs about the coming decline in fuel tax revenues.


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The current status of Texas Central’s proposed high-speed rail line linking Dallas and Houston https://reason.org/policy-brief/the-current-status-of-texas-centrals-proposed-high-speed-rail-line-linking-dallas-and-houston/ Thu, 02 Mar 2023 14:00:00 +0000 https://reason.org/?post_type=policy-brief&p=63042 Introduction Since the 1990s, there have been several attempts to build a publicly funded or financed high-speed rail line linking Dallas and Houston. Ultimately, none of these efforts succeeded. Most recently, in 2013, Texas Central Partners proposed building a privately … Continued

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Since the 1990s, there have been several attempts to build a publicly funded or financed high-speed rail line linking Dallas and Houston. Ultimately, none of these efforts succeeded. Most recently, in 2013, Texas Central Partners proposed building a privately financed high-speed rail line between the two largest metro areas in Texas. When the project was announced, many passenger rail researchers thought it was an intriguing concept. Privately funded or financed infrastructure could be 20% cheaper than publicly funded infrastructure. In addition, Texas Central’s point-to-point system presented an alternative to California’s three-sides-of-a-square line linking Los Angeles with San Francisco via many much smaller cities.

However, Texas Central’s vision for its project did not match the realities on the ground. Cost estimates quickly swelled from $10 billion to more than $30 billion by April 2020. This author’s quantitative analysis of potential ridership projected 1.4 million passengers per year, a far cry from the 5.9 million passengers per year Texas Central claimed.

A train with such a low ridership could not come close to generating the revenue or profits that Texas Central promised. Given the hundreds of millions of dollars in annual subsidies that would be required to operate Texas Central’s project, private investors showed little to no interest.

Texas Central’s proposal also faced significant opposition. Farmers, ranchers, and other landowners objected to having their land bisected by a train traveling at 200 miles per hour over 30 times each day. Elected officials between Dallas and Houston mobilized to voice their constituents’ opposition to the project. The Texas Legislature passed a law prohibiting the state from spending any funds on the project.

The Environmental Protection Agency refused to sign off on Texas Central’s preferred station in downtown Houston, forcing the company to move its southern terminus to the western suburbs. Finally, freight rail lines objected to Texas Central’s proposed signaling system because it would interfere with existing communications technology.

Facing delay after delay and setback after setback, Texas Central appears to have finally accepted reality. By late June 2022, Texas Central’s chief executive officer and all of its board members had resigned.

Texas Central still faces legal challenges that must be addressed. Due to the company’s ongoing financial difficulties, it remained delinquent on its 2021 property taxes into 2022 and has yet to pay its homeowner association dues in several impacted counties. Despite these facts, it remains unclear whether Texas Central has abandoned the project permanently or merely placed it in hibernation.

Assuming Texas Central attempts to resuscitate the project, this brief examines four barriers to doing so: (1) the continually escalating costs of building and operating high-speed rail, (2) the limited and declining pool of potential ridership, (3) Texas Central’s status as a zombie company, and (4) the lack of federal or state support for Texas Central’s project.

Texas Central High-Speed Rail: A 2023 Update

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State policy agenda for telehealth innovation https://reason.org/policy-brief/state-policy-agenda-for-telehealth-innovation/ Wed, 15 Feb 2023 05:00:00 +0000 https://reason.org/?post_type=policy-brief&p=61763 Introduction The COVID-19 pandemic disrupted the status quo in healthcare. As we recover, lawmakers now have an opportunity to learn from our mistakes and triumphs to chart a new course. Among the most notable changes in care delivery brought about … Continued

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The COVID-19 pandemic disrupted the status quo in healthcare. As we recover, lawmakers now have an opportunity to learn from our mistakes and triumphs to chart a new course. Among the most notable changes in care delivery brought about by the pandemic is the rise of telehealth. Yet as we update this report to reflect actions taken in 2022, it is hard not to notice that states have shown a surprising lack of urgency in making comprehensive updates to their telehealth laws.

While telehealth services were available long before the pandemic, millions of Americans used telehealth for the first time over the past three years. The rapid adoption of telehealth technology was enabled by emergency regulatory reforms undertaken at the federal and state levels. For example, federal officials made select changes to the Medicare program, and governors in nearly all 50 states advanced access with flexible provider licensure for new telehealth uses by executive order.

However, most of the emergency actions taken early on in the pandemic were only temporary. When state public health emergency declarations ended, and executive orders were withdrawn, many of the new flexibilities were lost. While some states recognized the benefits of regulatory flexibility and have adopted permanent reforms, a surprising number have only made minor tweaks to their laws, and most only benefit one kind of service or provider.

States must continue to refocus their efforts to ensure clear laws and guidelines are in place for innovation to emerge so that patients and providers can benefit from this helpful tool in any care delivery toolbox. Immediate action will be needed to avoid disrupting patient access to providers they gained during COVID, as other options may not exist in their community. For many patients, cutting off remote access to care is the difference between them receiving care in this manner versus no care at all.

There are four key areas where states have an opportunity to unleash innovation and embrace the potential of telehealth for expanding patient access to high-quality care:

  1. Patients Can Access all Forms of Telehealth: State laws and regulations should define telehealth in broad terms that do not favor one mode of telehealth over others or preclude future innovation in care delivery. This is called modality neutrality.
  2. Patients Can Start a Telehealth Relationship by Any Mode: State laws and regulations should not prohibit patients from initiating a relationship with a telehealth provider via their preferred modality.
  3. Patients Face No Barriers to Across-State Line Telehealth: State laws and regulations should not prevent patients from accessing virtual care from providers licensed in other states.
  4. Patients Can See Many Kinds of Providers Over Telehealth: State laws and regulations should allow providers to practice at the top of their license to take the next step toward a more quality-oriented, affordable, and innovative health system.

This report examines all 50 states in these four key areas.

This report does not cover all telehealth-related policy changes in 2022. For example, it ignores actions taken in states to expand or adopt compacts. Many of these smaller changes are not highlighted because they have severe limits, or only tweak around the edges.

By contrast, adopting this state policy agenda for telehealth innovation would remove deleterious barriers that have historically discriminated against those in certain geographies, such as rural communities or underserved urban areas.

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K-12 open enrollment in Wisconsin: Key lessons for other states https://reason.org/policy-brief/k-12-open-enrollment-in-wisconsin-key-lessons-for-other-states/ Thu, 09 Feb 2023 15:21:19 +0000 https://reason.org/?post_type=policy-brief&p=61535 Wisconsin's public school open enrollment program serves over 70,000 students and can be a model for other states.

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Executive Summary

In recent years, providing families with more educational options has become an important policy for state legislatures around the nation. But while learning pods, charter schools and education savings accounts dominate the discussion, cross-district open enrollment as a form of school choice shouldn’t be overlooked. Wisconsin provides a best practices model for states looking to improve their student transfer policies.

This policy brief provides evidence that many of the measures incorporated in Wisconsin’s open enrollment system have been effective and have helped to make it the largest single school choice program in the state.

Among the key findings of this report:

#1 Increasing the window for program entry increases participation. Open enrollment jumped nearly 20% in one year when Wisconsin opened an alternative application procedure outside of the normal time frame.

#2 Students move to school districts with better academics. Districts with better outcomes on state tests tend to gain more students in open enrollment, while districts that perform poorly tend to lose more students.

#3 “Donor” districts initially improve. Wisconsin school districts that lost students to open enrollment initially improved on state tests, although these effects dissipated over time.

#4 Increases in the transfer funding amount are correlated with greater district participation. As the amount of funding transferred to the receiving district has increased over time, districts have taken in more students through the program.

Policymakers in other states have much they can learn from Wisconsin’s open enrollment program. Specifically, its statewide funding amount, differentiated funding for students with disabilities, and robust transparency requirements have encouraged school district participation and increased educational opportunities for families, with more than 70,000 students now participating.

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Fines and fees: Consequences and opportunities for reform https://reason.org/policy-brief/fines-and-fees-consequences-and-opportunities-for-reform/ Tue, 31 Jan 2023 15:45:06 +0000 https://reason.org/?post_type=policy-brief&p=60655 The use of fines and fees to directly fund courts, law enforcement agencies, or other government activities can result in undesirable conflicts of interest.

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In August 2014, Michael Brown, Jr., was shot and killed by police officer Darren Wilson in Ferguson, Missouri. The incident triggered several nights of protests and tense interactions between police and city residents. The U.S. Department of Justice subsequently launched a civil rights investigation into the Ferguson Police Department, the results of which were released in a report published by the DOJ in March 2015.

The Department of Justice report offered a scathing review of the Ferguson Police Department. Specifically, the investigation revealed widespread racial bias and discrimination within the police department. Moreover, the report noted that:

Ferguson’s law enforcement practices are shaped by the City’s focus on revenue rather than by public safety needs. This emphasis on revenue has compromised the institutional character of Ferguson’s police department, contributing to a pattern of unconstitutional policing, and has also shaped its municipal court, leading to procedures that raise due process concerns and inflict unnecessary harm on members of the Ferguson community.

Law enforcement officials in Ferguson delivered higher revenues through fines and fees resulting from municipal code enforcement. Between 2010 and 2015, fines and fees nearly doubled as a share of Ferguson’s general revenues—from $1.30 million (12%) to 3.09 million (23%). As noted in the DOJ report, fines and fees charged by the city were higher than those charged by neighboring municipalities. For example, the charge for “Weeds/Tall Grass” in a neighboring city was just $5. In Ferguson, the charges for the same violation were between $77 and $102.

Ferguson is a particularly stark example of a problem in jurisdictions across the country. Fines and fees are often used as a source of state and local government revenues. Fines and fees revenue is typically used to fund court operations, including salary and personnel costs. However, some governments rely on courts to generate revenue for other services as well. In some cases, this revenue is earmarked for a specific purpose related to the offense committed. In others, it goes to a government’s general fund or to purposes wholly unrelated to the justice system. The use of fines and fees as a source of revenue raises significant questions of fairness and may create poor incentives for law enforcement agencies, courts, and other government entities, which may be dependent on the revenues generated.

The primary responsibilities of the legal system are to promote public safety and to provide for justice. Pressure to raise revenue, at best, undermines—and at worst, directly conflicts with—those responsibilities.

When incentives are misaligned, police departments and court systems become more concerned with “taxation by citation” than carrying out their core functions. Such conflicts of interest also serve to undermine the legitimacy of the justice system among the public.

Lawmakers are beginning to recognize the problems presented by fines and fees, but fiscal concerns may present a barrier to reform.

The aim of this policy brief is to summarize existing research on the effects of fines and fees in the justice system and to present potential reforms that would resolve such fiscal concerns.

Full policy brief — Fines and fees: Consequences and opportunities for reform

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Public education funding without boundaries: How to get K-12 dollars to follow open enrollment students https://reason.org/policy-brief/public-education-funding-without-boundaries-how-to-get-k-12-dollars-to-follow-open-enrollment-students/ Tue, 24 Jan 2023 15:00:00 +0000 https://reason.org/?post_type=policy-brief&p=61183 How to ensure state and local education funds flow seamlessly across district boundaries.

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States are increasingly enacting open enrollment policies that give students options across school district boundaries. But this is only half the equation. Policymakers must also ensure that education dollars follow the child to the school of their choice, a concept referred to as funding portability. Without sufficient portability, school districts have weak financial incentives to enroll transfer students and may limit opportunities for families. Non-portable dollars also reinforce district boundaries, which lock families into public schools based on where they can afford to live, not what is necessarily best for their children.

The primary culprits inhibiting funding portability are districts that are entirely locally funded due to high property wealth, and both local education funding and state funding streams that aren’t sensitive to changes in enrollment.

New Hampshire provides a valuable case study that illustrates these problems. In total, 39 of the state’s 237 districts are off-formula and don’t generate additional state aid when new students enroll. Moreover, nearly two-thirds of New Hampshire’s non-federal education dollars are generated locally and aren’t portable across school district boundaries. As a result, most districts only receive a fraction of their average per-pupil spending amounts when enrolling additional students, which weakens financial incentives for an open enrollment program.

Ideally, school finance systems should “attach” dollars directly to students so that all state and local education funds flow seamlessly across district boundaries. States vary considerably with how close they are to this vision, and the first step for policymakers is to take stock of funding portability in their state. From there, states can take three different pathways to improve portability: comprehensive school finance reform, targeted solutions, and creating a distinct funding mechanism that supports open enrollment. While all solutions are worth considering, the most direct approach is to follow Wisconsin’s lead by establishing a stand-alone funding allotment for public school open enrollment. Three best practices can help policymakers craft this funding policy.

Uniform: Start with a Single Statewide Base Per-Pupil Amount

Open enrollment funding policy should center around a single per-pupil amount that follows students across school district boundaries, an approach Wisconsin has successfully employed for more than two decades. This provides robust transparency while also guaranteeing that all school districts are operating under the same set of financial incentives. There are numerous ways to set this amount, but policymakers should strive to maximize the share of overall state and local per-pupil funding attached to students.

Responsive: Account for Students’ Needs

Policymakers can attach weights or additional per-pupil amounts to students with disabilities and other categories of need. For example, Wisconsin provides a greater per-pupil amount for students with disabilities, plus reimbursement for costs that exceed this amount up to a specified limit, which is paid for by students’ home districts.

Incentivize: Tap into Local Education Dollars

Ideally, states should ensure that local dollars follow the child across school district boundaries. One way to do this is to deduct a per-pupil amount from home school districts’ state aid for each student who transfers out and allow it to follow the child across district lines. Tapping into local dollars ensures that districts’ incentives are maximized, and this approach negates the need for district-to-district billing of local dollars, which is undesirable because it reinforces the idea that dollars belong to districts, not the students.

Fundamentally, establishing portable education funding moves states closer to a boundaryless public education system—an idea first pioneered by Milton Friedman. In its purest form, this means eliminating residential assignment and funding students directly so that they can choose whatever option best fits their needs.

Download the full policy brief: Public Education Funding Without Boundaries

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Designing an optimized retirement plan for today’s state and local government employees https://reason.org/policy-study/designing-optimized-retirement-plan-for-state-local-government-employees/ Thu, 12 Jan 2023 05:04:00 +0000 https://reason.org/?post_type=policy-study&p=60425 This study presents a new retirement plan design, the Personal Retirement Optimization— or PRO Plan, which is built on a defined-contribution foundation but designed to operate more like a traditional pension.

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Executive Summary

With most private firms shifting workers to 401(k)-style defined contribution (DC) retirement plans since the 1980s, the state and local government market is effectively the last bastion of traditional defined benefit (DB) pension plans. However, even among governments, the ubiquity of traditional pension plans has been slipping. And much of the movement away from traditional DB plan designs has been caused by accumulated unfunded liabilities that are fiscally burdening both the pension plan and jurisdictions’ budgets.

Public pension reform has been seen as a binary choice: the traditional DB or a 401(k)-style DC plan, with the latter option frequently presented as a standalone retirement option. In practice, a traditional 401(k) on its own will rarely comprise a core, or primary, retirement plan. This is because this type of plan was designed, and functions best, as a supplemental, employer-sponsored, tax-deferred savings plan.

This study presents a new retirement plan design, the Personal Retirement Optimization— or PRO Plan, which is built on a DC foundation but designed to operate more like a traditional pension. The DC foundation for the PRO Plan was chosen because it allows more public employees to accrue valuable retirement benefits regardless of length of service compared to defined benefit approaches. The design uses cutting-edge financial technologies to focus on providing plan participants with a predictable and customizable retirement income. It uses a liability-driven contribution (LDC) approach, tailored to individual situations and needs, for determining necessary contribution levels. Primarily concerned with risk-managed income adequacy in retirement, it addresses wealth accumulation only as a secondary objective. The PRO Plan provides participants the flexibility to choose an asset distribution methodology but uses several types of currently available annuities as a default method. The annuity default, combined with proper financial education and advice, tailor the PRO Plan income to an individual’s unique situation.

This study illustrates the effectiveness of the PRO Plan design in meeting individual retirement needs while effectively managing employer workplace expectations. To do so, the study elaborates on various scenarios that are relevant for the public sector. This analysis compares the relative funding requirements for three separate longevity scenarios:

  • Scenario 1: Do-It-Yourself (DIY) – the individual self-insures their personal longevity for the entire period until age 95.
  • Scenario 2: QLAC (deferred annuity) – the individual purchases an IRS Qualified Longevity Annuity Contract to address longevity risk from 85 to 95.
  • Scenario 3: 100% Immediate Annuity – the individual purchases an immediate life annuity at retirement age 67 for the entire stream of payments.

Each scenario’s funding requirement is based on an actuarial analysis of net present value of a stream of inflation-adjusted payments starting at age 67 until age 95 (or death). We found that a DIY scenario was the costliest PRO Plan alternative. Our analysis shows that a typical mid-level earner at age 67 would require $1,050,000 under the DIY scenario. The QLAC scenario requires 28% less funding, or only $760,000. The 100% Immediate Annuity scenario requires 38% less funding than the DIY scenario, or $652,000, to achieve the same retirement income.

To show how the PRO Plan would work when the target benefit accumulation is greater or lesser than needed, we analyzed both a shortfall and excess $100,000 in plan accumulations at age 50. These scenarios showed that PRO Plans would better protect individuals by positioning them to adjust savings rates up or down as needed. Similar to the baseline scenarios, the QLAC and 100% Immediate Annuity options require lower additional contributions to allow participants in shortfall situations to reach the target retirement benefits.

This study serves as a hands-on tool for public fund managers willing to implement the PRO Plan option. In addition to providing the reader with various scenarios, it details all the plan features necessary for its successful implementation. The PRO Plan is an innovative way of incorporating the benefits of 401(k)-style solutions into modern-day public sector retirement plans that give their workers flexibility and predictability of their benefits.

A state or local government employer seeking to implement a new retirement plan or redesign their existing retirement plan should always begin by clearly identifying sound retirement benefit design principles and using those principles to determine and articulate the objectives of that plan. The principles and resulting design should include as the primary objective providing a share of lifetime income, attributable to the employee’s tenure, enabling the employee to maintain their standard of living in retirement. The design of the plan should provide the flexibility to meet the needs of employees in varying circumstances. Of course, other workplace objectives of the employer and financial realities for plan sponsors should also be considered.

Standard DB and 401(k)-type DC plans are often compared with little regard to the simple question of what design elements provide the greatest utility to the greatest number of employees while still serving the employer’s workforce management objectives. Many arguments have been advanced on all sides of the issue, some valid, others not so much. The real answer to the question of what type of plan most aids recruiting and retention is a plan that best meets the varying needs of most employees.

This analysis concludes that providing retirement benefits and savings solutions that adjust to meet the different and changing needs of employees is what will more likely aid employers in attracting and retaining quality employees.

The PRO Plan design is specifically crafted to be adaptable to the needs of the broadest cross-section of employees possible. The focus of the plan is on providing employees with the target retirement income replacement ratio determined by the employer. Income replacement is the primary objective, with wealth accumulation a secondary consideration. Importantly, the plan, based on employer-specific criteria, can have a longevity annuity default that can be opted out of by employees meeting certain specific criteria. The mandatory contribution rates for both employer and employee, as defined by the employer, combined with the investment design and distribution controls, are all designed to minimize risks for the employee while meeting employer workplace objectives.

The Personal Retirement Optimization Plan: An Optimized Design For State And Local Government Employees

Frequently asked questions about the Personal Optimization Retirement Plan

Webinar: The Personal Retirement Optimization Plan

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Frequently asked questions about the Personal Retirement Optimization Plan https://reason.org/faq/frequently-asked-questions-personal-retirement-optimization-plan/ Thu, 12 Jan 2023 05:00:00 +0000 https://reason.org/?post_type=faq&p=61032 The Personal Retirement Optimization Plan (or PRO Plan) is a new framework for public worker retirement benefits that delivers post-employment security in a cost-effective way.

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The Personal Retirement Optimization Plan (or PRO Plan) is a new framework for public worker retirement benefits that delivers post-employment security in a cost-effective way that is attractive for both employees and employers and provides a viable alternative to traditional public pension plan designs, which have proven vulnerable in many cases to underfunding and politicized decision making.

Built on a defined contribution foundation, the Personal Retirement Optimization Plan described fully in this new study improves on traditional designs with clear and measurable objectives on maximizing benefits for a wide range of individual situations, flexibility in both investment and benefit distribution options, and an emphasis on guaranteed lifetime income through annuities.

In short, the PRO Plan blends the risk management benefits to employers associated with DC plans with the lifetime income protections public workers value in pension plans. Executed correctly, the PRO Plan could provide a more secure DC benefit at a lower cost to governments and taxpayers.

Full Study: Designing an optimized retirement plan for today’s state and local government employees

Webinar: The Personal Retirement Optimization Plan

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Freight rail deregulation: Past experience and future reforms https://reason.org/policy-brief/freight-rail-deregulation-past-experience-and-future-reforms/ Tue, 13 Dec 2022 05:01:00 +0000 https://reason.org/?post_type=policy-brief&p=60176 The U.S. railroad industry’s regulatory experience offers an important cautionary tale for proponents of additional regulation of the economy.

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Railroads were the first industry to face national industrial regulation, beginning with the Interstate Commerce Act of 1887. In the early 20th century, the common carrier rules imposed on railroads were applied in a similar fashion to motor carriers, pipelines, and telecommunications. The stringency of these rules on freight rail gradually increased for two generations despite vast changes to the economic landscape that resulted in growing competition from less-regulated modes of transportation.

By the middle of the 20th century, economic regulation began to take its toll on the railroad industry, favoring its fast-growing competitors in highway trucking and passenger aviation. Facing the imminent collapse of rail as a viable mode of freight transportation in the U.S., Congress began reducing harmful economic regulation of the industry in the 1970s, culminating in the Staggers Rail Act of 1980.

Four decades after partial deregulation, U.S. freight railroads are now the most extensive and productive in the world, but new competitive and policy threats have appeared on the horizon. Part 2 of this report surveys the history of economic regulation of the U.S. railroad industry. Part 3 examines the results of partial freight rail deregulation. Part 4 details emerging threats and recommends reforms to ensure the long-run productivity and viability of transporting freight by rail.

The U.S. railroad industry’s regulatory experience offers an important cautionary tale for proponents of additional regulation of the economy. History and practice show that even the best-intentioned regulations—those carefully seeking to balance the interests of the parties involved—can lead to distorted markets, reduced prosperity, and a variety of other unintended consequences.

This is not to say that regulatory balance, which was explicitly addressed in the Staggers Act, is not something to be considered. But the public interest is not served when regulators acquiesce to the demands of self-interested parties overly focused on the short-run impacts on a narrow slice of economic activity. Rather, advancing the public interest demands that regulators consider the unique characteristics of the industry in question and its role in the broader economy over the long run.

Shippers and unions, as well as the U.S. as a whole, have greatly benefited from the partial deregulation that followed the enactment of the Staggers Act. Even with the COVID-19-era supply chain chaos currently plaguing carriers and shippers alike, inflation-adjusted rail freight rates remain far below the heavily regulated rates of the 1970s.

While righting market wrongs is a powerful impulse for many, the error costs of government action frequently exceed the costs of market failures. As shown by the history of railroad regulation, the costs of government failure can not only be enormous, but can persist over many decades—and difficult to undo once in place. When it comes to railroad regulation, Congress and regulators should tread lightly to avoid repeating the mistakes of the past.

Freight rail deregulation: Past experience and future reforms

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How states can implement highway public-private partnerships https://reason.org/how-to-guide/how-states-can-implement-highway-public-private-partnerships/ Fri, 09 Dec 2022 05:01:00 +0000 https://reason.org/?post_type=how-to-guide&p=60366 Public-private partnerships (P3s) are a tool to help states stretch funding and build and maintain highways.

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U.S. highways are facing a perfect storm of infrastructure nearing the end of its design life, growing travel demand, and an increasingly unreliable revenue stream. By tapping into private capital, public-private partnerships (P3s) provide one tool to stretch existing state department of transportation (DOT) resources further.

Public-private partnerships provide many additional advantages. They help shift risk from taxpayers to the private sector. In the current inflationary environment, speeding up project delivery could reduce costs as well as bring innovation and new ideas to roadway construction. Finally, P3s provide long-term asset management and performance.

This how-to guide for implementing a highway public-private partnership is designed both for states that have appropriate enabling legislation but have implemented few P3s (most states) as well as states that lack enabling legislation.

This guide has the following components:

  • An explanation of P3s, detailing what P3s are and what they are not, as well as why transportation agencies would want to use them;
  • How to set up a dedicated transportation P3 program in a state, including enabling legislation, a P3 Office, and a P3 steering committee. States with dedicated P3 Offices have more robust and successful P3 programs;
  • How to differentiate between solicited and unsolicited proposals, and to prioritize projects and implement screening;
  • Project stage development, including analyzing value for money;
  • An explanatory roadmap and useful checklist for a project procurement process;
  • An examination of a state’s responsibilities after a project reaches financial close but before it opens to the public; and
  • A P3 state review and audit process for ensuring the private party meets the terms of the contract.

Since the first U.S. highway P3 was implemented in 1995, 11 states have entered into more than two dozen design-build-finance-operate-maintain (DBFOM) P3s. While that number is not overwhelming, P3s tend to be used for the largest, most complicated projects valued at more than $500 million (termed mega-projects).

However, compared to other countries, the U.S. lags in public-private partnerships. Most of the P3 activities have occurred in a handful of states because those states have better, clearer legislation and less political interference. While overall population is a factor (with more populous states entering into more P3s), Virginia (the 12th most populous state as of this writing) has entered into more P3s than any other state. New York (the 4th most populous state) has not entered into any P3s.

With declining fuel tax revenue, growing miles traveled, and aging infrastructure, the U.S. can no longer depend on government funding alone. Similar to other countries and other types of infrastructure, the U.S. must finance highways over the long term. Public-private partnerships provide an appropriate financing vehicle for large projects, along with innovative funding sources such as tolling and financing tools, including Transportation Infrastructure Finance and Innovation Act (TIFIA) loans and private activity bonds. These tools allow DOTs to stretch existing resources further.

It can be challenging for a state to enter into its first P3. But it can also be very rewarding. States that use this how-to guide can be rewarded with infrastructure that is built sooner and remains in good condition during the life of the infrastructure.

How to Implement a Highway Public-Private Partnership

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Public schools without boundaries: Ranking every state’s K-12 open enrollment policies https://reason.org/policy-brief/public-schools-without-boundaries-a-50-state-ranking-of-k-12-open-enrollment/ Thu, 03 Nov 2022 15:00:00 +0000 https://reason.org/?post_type=policy-brief&p=59069 Only 11 states have mandatory open enrollment laws that allow students to easily transfer public schools and 26 states allow public schools to charge families tuition.

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In the United States, school assignments are determined by families’ residences, casting unseen dividing lines in communities throughout the country. These government-imposed district boundaries or catchment zones divide communities, sorting children—often by wealth or ethnicity—into schools based on where they live. Many are unaware of these divisions until they realize that access to certain public schools often comes down to where you live.

Open Enrollment Best Practices by State

For example, Kelsey Williams-Bolar—a single mom completing her degree and working as a teacher’s aide—realized that she could not continue to enroll her daughters in their assigned public school in Akron, Ohio. Not only were her daughters being bullied at school, but Akron public schools were low-performing and in poor condition.

She decided to have her children live part-time with her father in the suburbs. While there, she enrolled her children in the Copley-Fairlawn School District, where her father’s home was zoned. However, Williams-Bolar and her father were charged with felonies after a private investigator, hired by the Copley-Fairlawn School District, discovered that Williams- Bolar did not live inside the school district. Williams-Bolar received two concurrent five-year sentences (suspended to 10 days) for using her father’s address to enroll her children in a better school district. Nineteen cases, similar to Williams-Bolar’s, have been reported in eight states since 1996.

Williams-Bolar’s story illustrates how school district boundaries often serve as barriers to better education options for many families. Residential assignment can have long-term ramifications for students, even after they graduate from high school. For instance, Advanced Placement (AP) courses are a valuable tool for high school students, allowing them to receive college credit while still in high school. As of 2021, however, US News reported that nearly a quarter of high schools—mostly in rural areas—did not offer AP courses. This means that students assigned to rural public high schools could end up paying thousands of dollars more for college.

In fact, the Missouri Business Alert reported in 2020 that the difference in AP courses offered at two Missouri high schools, located less than 20 minutes from each other, could cost their respective graduates thousands of dollars. Students assigned to the rural Southern Boone High School could earn a maximum of five college credits, whereas students assigned to its more urban counterpart, Hickman High School, could earn a maximum of 18 college credits. This difference in available AP courses means that graduates from Southern Boone could end up paying nearly $4,000 more in college tuition at the University of Missouri than their peers from Hickman High.

These examples show that residential assignment locks students into their assigned schools even if they aren’t a good fit. Students need flexible education options that may not be available in their assigned district, such as specialized programming, school culture or learning philosophy, or better academic opportunities.

K-12 open enrollment provides a solution for families assigned to public schools that aren’t a good fit for their children. This policy would allow children to enroll in any public school so long as it has open seats. While 43 states have some sort of open enrollment, only 11 states have mandatory open enrollment laws.

This analysis is a roadmap for developing robust open enrollment. It explores the benefits of open enrollment, outlines the core tenets and best practices for open enrollment, examines which states have the best open enrollment policies on the books, and provides an open enrollment snapshot of all 50 states. These state snapshots show policymakers what each state is doing well, where each state falls short, and the necessary steps to establish robust open enrollment.

Reason Foundation’s Five Best Practices for Open Enrollment

  1. Mandatory Cross-District Open Enrollment: School districts are required to have a cross-district enrollment policy and are only permitted to reject transfer students for limited reasons, such as school capacity. Policies, including all applicable deadlines and application procedures, must be posted online on districts’ websites.
  2. Mandatory Within-District Open Enrollment: School districts are required to have a within-district enrollment policy that allows students to transfer schools within the school district, and are only permitted to reject transfer requests for limited reasons, such as school capacity. Policies, including all applicable deadlines and application procedures, must be posted online on districts’ websites.
  3. Transparent Reporting by the State Education Agency (SEA): The State Education Agency annually collects and publicly reports key open enrollment data by school district, including transfer students accepted, transfer applications rejected, and the reasons for rejections.
  4. Transparent School Capacity Reporting: Districts are annually required to publicly report seating capacity by school and grade level so families can easily access data on available seats.
  5. Children Have Free Access to All Public Schools: School districts should not charge families transfer tuition.

This report evaluated each state on these best practices to get a snapshot of where each state stands and provides recommendations for each state to improve open enrollment practices.

State-by-state Open Enrollment Analysis
StateTotal Best Practices (out of 5)Cross-District Open EnrollmentWithin-District Open Enrollment Transparent SEA ReportingSchool Capacity ReportingLaw Against Public School Tuition for Students
New Hampshire1XXXX✔
New Jersey0XXXXX
New Mexico0XXXXX
New York0XXXXX
North Carolina0XXXXX
North Dakota0XXXXX
Rhode Island1XXXX✔
South Carolina0XXXXX
South Dakota0XXXXX
West Virginia1XXXX✔
Total States Implementing Best Practices 9/49 7/50 3/50 7/5024/50

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How text message reminders can help reduce technical parole and probation violations https://reason.org/policy-brief/text-message-reminders-reduce-parole-probation-violations/ Thu, 03 Nov 2022 04:01:00 +0000 https://reason.org/?post_type=policy-brief&p=59092 Sending text scheduled appointments could reduce canceled and missed parole or probation appointments by as much as 21% and 29%, respectively.

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Executive Summary

High rates of incarceration in the United States have rightfully garnered significant attention from policymakers, researchers, and the public. However, community supervision programs, including parole and probation, have received comparatively little attention. This disparity is notable given the fact that the number of people under community supervision is more than twice as large as the incarcerated population.

In fact, the 3.9 million people on parole and probation in 2020 accounted for 70% of the total correctional population that year. As policymakers pursue reforms to reduce the incarcerated population, the share of correctional populations under parole and probation has increased. Supervision agencies are often under-resourced and are increasingly required to find ways of doing more with less.

Probation and parole are intended to encourage community reintegration by providing an alternative to incarceration and keeping justice-involved individuals in their communities. However, a growing body of research finds that community supervision programs may be contributing to the problem of mass incarceration in unintended ways. Individuals under community supervision are typically subject to conditions including regular check-ins, drug testing, curfews, electronic monitoring, and the payment of fines and fees. In some cases, failure to comply with these conditions can result in a revocation of community supervision and a return to jail or prison.

Of the reported 1,790,000 individuals who exited probation in 2019, only about 53% successfully completed their probation. Approximately 13% of parole exits that year were attributable to parole revocations that resulted in incarceration. Among those who were revoked and returned to incarceration, about 40% were incarcerated due to technical violations. Only 31% were incarcerated for new crimes, with the remaining 29% incarcerated for other unknown reasons.

One of the most common requirements placed on individuals under community supervision is that they have regular contact with the officers assigned to manage their cases. The nature and frequency of this contact varied depending on the specific needs and risk level of each individual under supervision. One form of contact between supervisees and officers is an in-person parole or probation meeting. These meetings often take place at an agency office and may serve a variety of purposes. Supervisees may provide updates on education and employment, receive support and treatment, and be tested for recent drug use.

Despite their importance to effective supervision, office visits are often difficult to coordinate. Supervisees frequently miss appointments due to work, education, or difficulty securing transportation. Missed appointments and time spent coordinating meetings represent opportunities to improve the use of scarce time by parole and probation officers. Eliminating these inefficiencies would allow officers to focus their time and attention on higher-risk supervisees in greater need of intensive supervision.

Moreover, failure to meet with supervising officers is among the leading forms of technical violations committed by parolees. For example, an analysis of parole violations in Michigan found that failure to report to probation officers was by far the most common type of violation, accounting for over 33% of all recorded violations.

Surprisingly, one relatively low-cost intervention that focuses on reducing the frequency of missed appointments for probation and parole supervision is supported by a growing body of evidence: sending text message reminders to supervisees regarding upcoming appointments.

To assess the potential of test-message reminders to reduce the number of missed parole and probation meetings, a randomized control trial was recently conducted among community supervision participants in Arkansas.

Our findings suggest that sending text scheduled appointments could reduce canceled and missed appointments by as much as 21% and 29%, respectively.

To be sure, there are many necessary reforms to community supervision in the United States. Policymakers should seek to ensure that community supervision is focused on rehabilitation and reintegration rather than doling out punishment. To that end, revocations and incarceration for technical violations should be limited.

Supervising officers must also have sufficient time and resources to effectively support the clients under their supervision. While certainly not a panacea, improving meeting attendance through text message alerts is a cost-effective way of reducing technical violations and improving the efficiency of community supervision programs.

Each year, more than four million Americans are under community supervision. Too often, community supervision programs like parole and probation exacerbate the problem of mass incarceration rather than diverting people away from jail and prison. Individuals on community supervision are subject to a litany of supervision conditions and, more often than not, fail to meet all of those conditions. As many as three-fourths of people under community supervision commit some form of a technical violation of their supervision conditions. These technical violations can result in incarceration, creating a supervision-to-incarceration pipeline. In fact, technical supervision violations account for approximately 23% of state prison admissions each year.

Several reforms are necessary to ensure that community supervision programs fulfill their purposes. Reforms should refocus supervision on reintegrating justice-involved individuals into society and maintaining public safety rather than punishing individuals for minor technical violations. As demonstrated in the Arkansas experiment reviewed in this policy brief, sending text message reminders is an inexpensive and effective way to improve supervision appointment attendance at a cost of just two cents per text message. Improved attendance can reduce the number of technical violations and helps make efficient use of supervising officers’ time and resources.

As the share of correctional populations under parole and probation continues to grow, making efficient use of supervision agency resources will be increasingly important. While text message reminders may only be a minor part of necessary policy reforms within community supervision, their potential impact should not be overlooked.

Full Policy Brief—

Addressing Mass Supervision In the United States: How Text Message Reminders Can Help Reduce Technical Violations of Community Supervision

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How state reforms changed federal enforcement of marijuana prohibition https://reason.org/policy-brief/how-state-reforms-changed-federal-enforcement-of-marijuana-prohibition/ Thu, 22 Sep 2022 04:01:00 +0000 https://reason.org/?post_type=policy-brief&p=57921 Sentences imposed for marijuana convictions reflect the most significant consequence of marijuana prohibition enforcement.

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The history of drug prohibitions and enforcement efforts in the United States always reflects a kind of federalism in action. Because the federal government always lacks the resources and often the political will to fully enforce drug prohibitions nationwide, state laws and local practices will inevitably shape and color the full picture of U.S. drug policy and enforcement. When alcohol prohibition was written into our nation’s Constitution, for example, state and local officials embraced an array of different approaches to enforcing temperance, which produced a patchwork of on-the-ground practices across the nation.

In modern times, marijuana prohibitions and reforms present the most salient example of national drug policies reflecting diverse and sometimes clashing federal and state laws and local practices. Though some have explored how federal marijuana prohibition has shaped state reform efforts and local enforcement realities, few have focused attention on the most tangible and arguably most consequential aspect of federal enforcement, namely federal sentences imposed for marijuana activity.

Even while formal federal marijuana law has persisted unchanged amid state-level reforms, federal marijuana enforcement on the ground has changed dramatically. Drawing on data from the U.S. Sentencing Commission (USSC), this brief notes new federal enforcement patterns that have emerged in recent years.

The impact of marijuana prohibitions and the scope of enforcement are often documented through nationwide arrest data, in part because the numbers are enormous and in part because there is little other reliable national information on marijuana enforcement.

Yearly marijuana arrest data, as collected by the Federal Bureau of Investigation (FBI), are dynamic: as arrests for all drug offenses increased during the War on Drugs acceleration in the 1980s, the total number of possession and sale of marijuana arrests actually dipped due to a more aggressive focus on cocaine and heroin. Yet, as state marijuana reforms picked up steam, so too did total marijuana federal and state arrests—peaking at over 850,000 arrests in 2007 and averaging over 750,000 arrests annually for more than a dozen years. Starting in 2014, FBI data showed declines in total marijuana arrests and they reached a (pre-pandemic) low of under 550,000 arrests in 2019, and then hit another new low of just over 350,000 in 2020.

Disconcertingly, as the American Civil Liberties Union has documented, one pernicious consistency in marijuana arrest data has been racial disparities, with Blacks many more times likely than Whites to be arrested for marijuana possession.

While national arrest patterns tell one story, sentences imposed for marijuana convictions reflect the most significant consequence of marijuana prohibition enforcement. Disappointingly, there seemingly has been no systematic collection or analysis of marijuana sentencing outcomes nationwide since the work done by Ryan King and Marc Mauer through the year 2000.

Indeed, even with growing attention on marijuana reform, there are no recent data on how many persons nationwide are incarcerated for marijuana offenses nor any detailed accountings of the types of offenders still incarcerated for marijuana activities in the states.

However, data assembled by the USSC allow a close look at how federal marijuana enforcement has cashed out since the start of state-level marijuana reforms in the form of yearly sentencing outcomes.

Full Policy Brief: How State Reforms Have Changed Federal Enforcement of Marijuana Prohibition

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How drug decriminalization affects policing https://reason.org/policy-brief/how-drug-decriminalization-affects-policing/ Thu, 22 Sep 2022 04:00:00 +0000 https://reason.org/?post_type=policy-brief&p=57914 How drug decriminalization affects policing practices.

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In November 2014, police pulled over a disabled veteran in South Carolina for a minor traffic violation. After searching the veteran’s car, the police discovered small amounts of cannabis. Officers gave the veteran an ultimatum: help them or face stiff charges. Out of fear of criminal punishment, the veteran agreed to a controlled purchase of cannabis— roughly 100 dollars’ worth—from her friend, Julian, in Myrtle Beach. As a result, the police had enough information to establish probable cause to obtain a search warrant for Julian’s home.

A few months later, 12 officers from a multi-jurisdictional Drug Enforcement Unit (DEU) prepared to enter Julian’s home as part of “Operation Jules”—the nickname DEU used for the raid on Julian’s apartment. The officers, dressed in face coverings and camouflage, forced open the apartment door with a battering ram and eventually fired 29 bullets at Julian, leaving him paralyzed from the waist down.

As the result of the shooting and subsequent eight-figure settlement against the DEU and the City of Myrtle Beach, several changes to policing practices in the area were made. Specifically, the DEU stopped executing search warrants and using routine traffic stops to turn citizens into drug informants. While such policy changes should be lauded, reducing such overly intrusive policing tactics should not have to come at such costs.

The Myrtle Beach case encapsulates many of the problems with policing practices today: pretextual stops, militarization, and the overpolicing of low-level offenses.4 Although various policing reforms considered by lawmakers to address some of these problems may yield favorable results, such reforms fail to consider an essential aspect of modern-day policing—its inseparable link to the drug war. Because policing tactics are designed to maximize drug arrests and seizures, law enforcement initiates frequent and unwarranted contact with pedestrians and motorists. Such contact results in the overpolicing of minority communities, increased prison populations and jeopardized public safety.

Despite the interwoven nature of drugs and policing, drug decriminalization is not often considered a reform of policing practices. However, one could argue that decriminalization should be understood as a vital tool in limiting intrusive policing practices. Drug decriminalization is typically defined as a law that removes criminal sanctions for acquiring, possessing, or transporting small quantities of drugs for personal use and replaces them with civil sanctions.

This paper adopts that definition with two additions. First, the definition includes only decriminalization laws that have been considered by courts to limit police investigative authority—i.e., laws that affect police ability to establish reasonable suspicion or probable cause. Thus, state decriminalization laws that permit custodial arrests for civil drug offenses are not included.

Second, the definition also includes cannabis legalization. The definition does not include removing criminal sanctions for the production, distribution, or sale of drugs.

This paper proceeds in three parts.

Part 2 discusses the substantive reform arguments and approach to the decriminalization debate.

Part 3 explores how drug decriminalization affects policing practices. Specifically, it describes how drug decriminalization affects police authority to expand stops, conduct searches, and make arrests for drug possession. To illustrate these effects, three case studies are examined: New York, Oregon, and Colorado.

Part 3 also examines how drug decriminalization affects departmental incentives to conduct pretextual stops and militarize police personnel and divisions.

Lastly, Part 4 acknowledges and addresses how implementation issues with decriminalization affect policing practices.

Proponents of drug decriminalization typically emphasize the reform’s utilitarian potential to reverse mass incarceration trends, reduce racial disparities within the justice system, and minimize the economic costs associated with drug enforcement. However, such arguments are incomplete because they miss an important benefit—decriminalization’s effect on policing.

Recent decriminalization legislation in New York, Oregon, and Colorado affects police authority to expand stops, conduct searches, and make arrests for drug possession. Such legislation also affects departmental incentives to conduct pretextual stops and militarize police personnel and divisions. With the diminished capacity and incentive to pursue drug possession arrests, police can redirect resources toward crimes with victims, crime prevention, and public safety.

More time and data are needed to assess decriminalization’s impact on policing thoroughly. Nonetheless, cannabis legalization in many states, as well as comprehensive decriminalization in Oregon, provides a natural case study for further examination of this approach.

Full Policy Brief: Drug Decriminalization as Police Reform

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Best practices for pension debt amortization https://reason.org/policy-brief/best-practices-for-pension-debt-amortization/ Wed, 21 Sep 2022 04:01:00 +0000 https://reason.org/?post_type=policy-brief&p=58180 State and local public pensions in the U.S. in 2020 faced a total unfunded actuarial liability (UAL) of about $1.4 trillion, and the average pension plan was only 73% funded. Although preliminary data suggest that the current average funded status … Continued

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State and local public pensions in the U.S. in 2020 faced a total unfunded actuarial liability (UAL) of about $1.4 trillion, and the average pension plan was only 73% funded. Although preliminary data suggest that the current average funded status is closer to 85%, thanks to the substantial investment returns in 2021, the 2022 Public Pension Forecaster finds aggregate unfunded liabilities will jump back over $1 trillion if 2022 investment results end up at or below 0%.

However, despite funding developments from year to year, public pension plans remain subject to an uncertain economic climate, and the next downturn can quickly widen the unfunded gap.

While there are several answers for resolving the enormous debt accrued by pension plans, the standard solution employs a systematic plan to pay off the debt over many years. Usually, UAL is not paid off as a lump sum but is “amortized” over some time.

While the two most common amortization methods are level-dollar and level-percent, only the level-dollar method ensures predictable amortization contributions from year to year. It requires lower payment in the initial years of the schedule because it creates a predictable path to solvency by ensuring that specific amounts are paid each year.

When it comes to open and closed amortization schedules, this analysis graphically illustrates that closed amortization schedules ensure a timely repayment of UAL. Open amortization schedules, on the contrary, run the risk of keeping the amortization payment continually below the interest expense. This leads to perpetual negative amortization and makes it impossible for the pension plan to pay out UAL.

It is also important to keep the amortization period short. For longer amortization horizons, like 25 years, the interest exceeds amortization, leading to wasteful spending. Keeping an amortization schedule at 15 years ensures the intergenerational equity principle, that is, to pay off UAL within the average remaining working lifetime of active members of a pension plan.

The analysis that goes into calculating the amortization schedule relies on an assumption about the payroll growth rate and discount rate to be realized. Notably, the level-dollar amortization does not rely on an assumption about payroll growth, highlighting another advantage of the method. The discount rate, however, plays a critical role in the amortization of pension debt regardless of the method chosen. Setting the proper discount rate reduces the chance that the annual payments will not earn enough returns to pay off the debt eventually.

After thoroughly evaluating these policies, best practices for amortizing pension debt call for several recommendations, these include using level-dollar amortization, a closed schedule that does not exceed 15 years and setting appropriate discount rates. Plan sponsors should adhere to these principles to ensure the pension plan is equipped to fulfill its promises to existing retirees, as well as to assure the future robust functioning of the plan.

When adopting a particular amortization policy for a public pension, policymakers must consider a number of factors and tradeoffs. Time preference and budgetary constraints may prove influential forces in selecting from among the amortization method choices.

However, from the perspective of plan solvency and intergenerational equity, there are best practices that a pension plan can follow in adopting the best possible amortization policy.

(1) The level-dollar method is better than the level-percent method. Using level-dollar avoids actuarial assumption sensitivity, the potential for negative amortization, and requires lower total contributions over time compared to level-percent.

(2) Closed amortization schedules are better than open schedules. Using a closed schedule ensures the unfunded liability will actually be paid off. The open amortization approach violates the basic principles of intergenerational equity because the unfunded liability is never paid off.

(3) The length of an amortization schedule should not exceed the average remaining service years of the plan. This practice adheres the closest to the intergenerational equity principle. Today’s taxpayers, not future ones, should fund the pension benefits of today’s government employees. A good rule of thumb is to adopt schedules that are 15 years or less.

(4) The shorter the amortization schedule, the better. Shorter amortization periods may mean a higher level of contribution rate volatility, but they save costs in the long run and allow the pension plan to better recover from a significant near-term negative experience.

(5) Discount rates should appropriately reflect the risk of the plan’s liabilities. If the discount rate is too high, the recognized value of liabilities will be too low; thus, the value of unfunded liabilities that are amortized will be too low, and the plan will risk not having enough assets to pay promised pensions.

Plans that choose to adopt alternative policies to this gold standard can still make choices that aim for long-term solvency. Specifically:

(6) If using the level-percent method, adopt a closed design with a schedule of 15 years or less. Amortization schedules should always be closed, and the shorter the schedule, the better the policy.

(7) To avoid contribution rate volatility, use a layering method. Seeking to avoid spikes in amortization payments is an understandable budgetary goal, but it is best pursued by layering closed amortization schedules, rather than by using an open schedule.

Full Policy Brief: Best Practices for Pension Debt Amortization

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Best practices in hybrid retirement plan design https://reason.org/policy-brief/best-practices-in-hybrid-retirement-plan-design/ Tue, 20 Sep 2022 04:22:00 +0000 https://reason.org/?post_type=policy-brief&p=58068 Intelligently designed hybrid retirement plans provide similar pension benefit accruals for employees at a much lower risk to the states and local governments who provide them.

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The hybrid retirement pension plan design, a design that typically combines a guaranteed benefit and 401(k) style individual retirement account, has seen ever-increasing interest from public sector employers in the United States since the market downturns of the late 2000s. Although hybrid retirement plans have been around for decades—notably one of the first adopters being the Federal Employee’s Retirement System—most stakeholders know relatively little about their purpose and possible structure.

A hybrid plan’s goals are no different than any other retirement benefit design’s goals: to provide adequate benefits to workers at an affordable cost to them and their employers. Yet hybrid plans are also beginning to help answer a political question in the wake of the stock market volatility in the last 20 years: What is the appropriate level of risk that employers should shoulder to provide retirement benefits to their employees? The viability of future traditional defined benefit pension plans may depend on a common outlook on this question from both employers and participants.

The recent shift toward offering hybrid plans to newly hired government employees suggests that governmental employers may be changing their perceptions of the balance of financial risk between employees and employers and whether governments should put greater risk of investment returns on employees by distancing from the traditional defined benefit pension. Employee and labor associations on the other hand, often have extreme— whether fair or not—biases against the 401(k)-style defined contribution retirement plans that are typical in the private sector.

The hybrid retirement plan offers policymakers and stakeholders a potential compromise between the two opposing viewpoints, potentially offering a “best of both worlds” blended approach.

As with the design of any pension system, the quality of a hybrid plan comes down to how it is structured. A well-designed hybrid strikes a proper balance of risk between employees and employers while putting career-long employees on a secure path to retirement and granting non-career members the flexibility they need to get the most out of their retirement contributions. Intelligently designing the defined contribution portion of the benefit is crucial, as generally half of the hybrid employee’s retirement benefits will be paid out of their accumulated assets.

When designing the DC, policymakers need to ensure proper contributions are being made by employees (and sometimes employers), grant a wide array of investment options, and offer annuities to guarantee lifetime income.
Although the path to an adequate retirement benefit may look different from a traditional pension, intelligently designed hybrids have nonetheless shown to provide relatively similar pension benefit accruals for employees—at a much lower risk to the states and local governments who provide them.

Full Policy Brief: Best Practices in Hybrid Retirement Plan Design

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Modernizing the passenger facility charge to improve aviation https://reason.org/policy-brief/modernizing-the-passenger-facility-charge/ Fri, 09 Sep 2022 04:00:00 +0000 https://reason.org/?post_type=policy-brief&p=56843 Modernizing the passenger facility charge would promote local airport self-sufficiency and reduce airfares through enhanced airline competition.

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Executive Summary

The COVID-19 pandemic hit the transportation sector hard and perhaps the aviation industry hardest. At its worst in April 2020, U.S. air passenger transportation declined by 96% year-over-year. While air travel has rebounded since that nadir, full recovery is expected to take years, particularly for international and business travel. The passenger air transportation market at the end of the decade is likely to look very different than what had been projected prior to the pandemic.

Like all segments of the aviation market, airports will need to adjust to this new normal. Both airlines and airports received tens of billions of dollars in taxpayer bailouts in the United States, and returning the aviation industry to self-sufficiency is the only fiscally sustainable path forward.

To that end, giving airports maximum operational and financing flexibility to adjust to emerging conditions is critical to minimizing the costs and disruptions associated with aviation recovery. One important way that Congress can facilitate this flexibility at no cost to the Treasury is by modernizing the airport passenger facility charge.

The passenger facility charge (PFC) is a congressionally authorized, federally regulated local airport user fee. The PFC exists alongside the Airport Improvement Program (AIP), a federal grant program funded through aviation taxes. Together, the PFC and AIP have in recent years accounted for approximately half of total airport funding available for capital projects.

AIP funds generally can be used only for airside projects, such as runways, taxiways, aprons, noise abatement, and land acquisitions. In contrast, the PFC funds can be used for AIP-eligible projects plus numerous landside projects, such as passenger terminal and ground transportation improvements, and can be used to service debt. For commercial airports with sizable passenger volumes, these differences in flexibility have led to a strong preference for the PFC over AIP funding.

The federal passenger facility charge cap was last raised by Congress in 2000. Under current law, public airports in the U.S. can charge a maximum PFC of $4.50 per boarding for the first two flight segments of a trip, with PFC collections per passenger being capped at $9 per one-way and $18 per round-trip. Thanks to inflation, the passenger facility charge has seen its purchasing power plummet by approximately half, negatively impacting airports’ ability to address their growing list of needed improvements.

Two findings support modernizing the passenger facility charge. First, evidence suggests that PFC use has a positive effect on airport efficiency while AIP use has a negative effect. Legislation introduced in previous Congresses would have uncapped the PFC while proportionately reducing AIP authorized spending, with this change in the PFC/AIP mix expected to result in greater airport productive efficiency.

Second, major non-aeronautical revenue sources, especially revenue from parking and rental car fees, were facing heightened risks and declining prospects prior to the pandemic as travelers opted for new ride-hailing ground transportation services to and from airports. Pandemic-related concerns about shared transportation may have temporarily shifted traveler preferences back to driving modes that support parking and rental car revenue, but how long this will persist is highly uncertain. Since the PFC charges airport terminal users regardless of their use of terminal concessions, it represents a lower-risk, predictable, and sustainable revenue source.

In addition to providing airports with predictable and sustainable revenue, the PFC was also designed to promote airline competition. Beginning in the 1950s, airports negotiated long-term leases with their airline customers to lock in airline payments so as to retire debt and finance airport improvements. In exchange for this financial support, incumbent airlines received long-term exclusive-use gate leases, which they used to restrict access to new and often lower-cost entrants.

In recent years, the trend has shifted. Granting long-term, exclusive-use gate leases has faded as a concern, but limited gate availability at large and medium-sized hub airports has still been estimated to raise consumer airfares by billions of dollars every year. In addition to serving as an important airport self-help tool, the PFC can increase airline competition and thereby dilute price-setting power by dominant incumbent airlines. Air travelers can thus benefit from improved airport facilities and lower airfares.

Alternatives to the passenger facility charge are inferior from both airport revenue collection and consumer welfare perspectives. Modernizing the passenger facility charge would promote local airport self-sufficiency, airport efficiency, and reduced airfares through enhanced carrier competition as the U.S. recovers from the COVID-19 pandemic. As Congress debates the FAA reauthorization due at the end of September 2023, it should eliminate the statutory passenger facility charge cap of $4.50 to promote a pro-consumer and pro-taxpayer aviation recovery.

Full Brief: Modernizing the Passenger Facility Charge for Aviation Recovery

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The impact of cash flow on public pensions https://reason.org/policy-brief/the-impact-of-cash-flow-on-public-pensions/ Wed, 31 Aug 2022 14:25:00 +0000 https://reason.org/?post_type=policy-brief&p=57275 Analyzing a public pension system's cash flow—the rates at which money is entering and leaving the fund—is one way to anticipate imbalances in pension plans that must be fixed to ensure long-term solvency.

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The defined benefit (DB) pension plans governments use across the United States rely on combining contributions from members and the state with long-term investment returns. This is because they are intended to be prefunded, which ensures that retiree pension expenses are covered fully in the long run. Prefunding benefits this way allows more benefit payments to flow out of the plan than contributions are flowing in without compromising the integrity or solvency of the system.

Analyzing a public pension system’s cash flow—the rates at which money is entering and leaving the fund—is one way to anticipate imbalances in pension plans that must be fixed to ensure long-term solvency.

This policy brief uses the Montana Public Employee Retirement System (PERS) as a case study to illustrate the principles and importance of conducting a cash flow analysis of public pension plans.

Having negative operating cash flow does not necessarily indicate an inherent problem with mature pension plans. However, it can reveal certain risks that should be properly managed. Adopting a funding policy that is responsive to unfunded liabilities would minimize insolvency risk, and using a more conservative return assumption—particularly one that is aligned with short-term market expectations—would help plans better align return assumptions with funding targets.

Full Policy Brief: The impact of cash flow on public pensions

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How to reform the FDA https://reason.org/policy-brief/how-to-reform-the-fda/ Tue, 30 Aug 2022 04:00:00 +0000 https://reason.org/?post_type=policy-brief&p=56823 Introduction Many people are born with or develop very serious medical problems that threaten to shorten their lives or severely reduce their quality of life. This tragedy can be avoided or ameliorated with innovative pharmaceutical treatments. Simply put, pharmaceuticals can … Continued

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Many people are born with or develop very serious medical problems that threaten to shorten their lives or severely reduce their quality of life. This tragedy can be avoided or ameliorated with innovative pharmaceutical treatments. Simply put, pharmaceuticals can help people lead happier, longer, and more productive lives. But pharmaceutical innovation in the United States has slowed in recent decades while pharmaceutical costs have skyrocketed, placing many vulnerable individuals beyond the hope of receiving life-changing drugs.

Between the 1970s and 2000s, the average cost of bringing a new pharmaceutical to market increased by an order of magnitude, even after adjusting for inflation. This has occurred over the same period that major technological breakthroughs have been made in the fields of computer processing, telecommunications, engineering, and even the practice of medicine more broadly. Indeed, most U.S. industries have been able to create innovative new products and push down costs since the mid-20th century.

So why has pharmaceutical development become slower and more costly? After all, big screen panel televisions are nice but not nearly as critical as health and life itself.

The U.S. government clearly understands how important pharmaceutical development and innovation are. Congress has established and financed a vast bureaucracy to oversee pharmaceutical development and passed many laws intended to spur innovation and reduce costs. Yet, it seems the more efforts Congress makes, the higher prices climb and the slower innovation becomes, imposing negative consequences on both the quantity and quality of human life. Many observers find this result understandably frustrating.

What if the way we choose to regulate pharmaceutical development contributes to these frustrating results?

Most industrialized nations have created national or supranational regulatory authorities to oversee pharmaceutical development, but not all work the same way. Comparing the U.S. Food and Drug Administration (FDA)—the agency with primary responsibility for regulating pharmaceuticals—with corresponding agencies in other countries offers key insights.

Even comparing today’s FDA to the FDA at different points in time reveals how the agency’s regulatory apparatus and relationship with industry have evolved, often with consequences for the health of private individuals. From these insights, it is possible to imagine different methods of pharmaceutical regulation that would better serve society’s needs by encouraging widespread availability of life-saving drugs at prices individuals can better afford.

This brief reviews the regulatory apparatus governing pharmaceutical development in the United States.

Part 1 examines the historical cost trends—for both time and money—of bringing an approved pharmaceutical to market.

Part 2 examines the effect of pharmaceutical regulation on human life and considers both the benefits and costs of that regulation on Americans’ health.

Part 3 explains the basic regulatory process for pharmaceutical development and examines key policy issues and economic trends that influence pharmaceutical development.

Part 4 highlights emerging special topics in pharmaceutical regulation, such as medical research into the cannabis plant and its derivatives, and the FDA’s growing scope of powers, including previous attempts to regulate common food items.

Part 5 concludes with recommendations for how best to reform the FDA’s mission to achieve the broad public goal of improving the lives and health of all Americans.

Full Brief — Focus on the FDA: Allowing the Market to Determine Effectiveness

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Frequently asked questions on public school open enrollment https://reason.org/faq/frequently-asked-questions-on-public-school-open-enrollment/ Thu, 25 Aug 2022 16:36:00 +0000 https://reason.org/?post_type=faq&p=56871 Public school open enrollment policies allow students to transfer to the public school of their choice.

The post Frequently asked questions on public school open enrollment appeared first on Reason Foundation.

What is open enrollment for public schools?

Open enrollment policies allow students to attend the public schools of their choice rather than the school they are residentially assigned to. Strong open enrollment policies empower families to transfer their students to a new school that may be outside of, or within, their assigned school districts.  

What is cross-district open enrollment?

Cross-district open enrollment policies allow students to transfer from schools in their residentially assigned school district into schools in another public school district. How cross district student transfers work

What is within-district open enrollment?

Within-district open enrollment allows students to transfer from one school in their residentially assigned school district to another school within that school district. How within district student transfers work

Is open enrollment a form of school choice?

Open enrollment is considered a form of school choice because the policy allows families to find an educational environment that works best for their students, regardless of where they live or their income. 

State policymakers could drastically expand the K-12 public education options that are available to families through open enrollment policies, which diminish the role of residentially assigned school districts and attendance zone boundaries by allowing students to transfer to any public school that has available seating.

How does open enrollment work for public schools? 

School district requirements for participating in open enrollment vary from state to state. Strong open enrollment policies require that public school districts: 

  • Allow within-district and cross-district open enrollment, only rejecting incoming students for limited reasons, such as insufficient capacity.
  • Clearly post their open enrollment policies and procedures on their public websites, including all application deadlines.
  • Publicly report the number of open seats that every school has so families know which schools have availability.
  • Do not charge transfer students tuition or fees.

These policies make it easier for families to use open enrollment and ensure that public schools are open to all students. 

In addition to the above requirements, policymakers should also ensure that state education agencies (SEAs) annually report key open enrollment data, including the number of transfer students, the number of transfer students accepted and rejected, and the reasons why any transfer applications were rejected in each school district. This transparency helps hold schools and districts accountable, ensuring that they don’t reject transfer applications for superficial reasons. It also allows state lawmakers to continually measure the success of the open enrollment program.

How do families know if a school district has open seats?

To access information on school capacity, families should look at school district websites.

States, such as Florida, Arizona, and Oklahoma, require each school district to post the number of seats that are open and available to transfer students in each school by grade level. Some states, like Delaware, provide an open enrollment portal that shows which school districts have available seats, are nearing capacity, or are operating at full capacity.

Unfortunately, most states do not currently require school districts to post their available capacity online, making it hard for families to know which school districts have open seats. Transparent open enrollment reporting is crucial to helping families find and understand their education options. 

Can a public school refuse to enroll a student?

Public schools should only be able to reject open enrollment transfer applicants for limited reasons, such as insufficient capacity.

For instance, Florida school districts, adhering to all federal desegregation requirements, can only refuse to enroll transfer applicants for limited reasons, such as an insufficient number of open seats at a school. This policy ensures that the number of students does not exceed available facilities and staff. 

However, other states allow school districts to discriminate against transfer applicants for a variety of reasons, regardless of the number of seats that are available at public schools. For example, New Hampshire lets school districts reject transfer applicants due to their previous academic performance.

At the same time, Arkansas does not allow the number of transfer applicants leaving a school district to exceed more than 3% of the assigned school district’s total enrollment of the previous year. These policies unnecessarily limit the number of transfer students. These discriminatory policies are overly deferential to school districts, letting them cherry-pick students or artificially protect their residentially assigned monopolies.

How does funding for open enrollment student transfers work?

Successful open enrollment policies ensure that education funding follows the child to their new school district. If school districts do not receive sufficient funding for transfer students, they’re less willing to participate in open enrollment programs. 

Wisconsin has one of the most successful open enrollment policies in the nation, in part because of the state’s transfer funding policy. A statewide per-pupil funding amount, which is updated each year by the legislature, follows each transfer student to his or her new school. At the same time, transfer students are still counted in their residentially assigned school districts, allowing them to still collect some education funds for each transfer student. This scenario creates a win-win situation for both the home and receiving school districts.

Research from California’s public schools also shows it’s critical to get the financial incentives right in order for school districts to accept transfer students. Reason Foundation’s Aaron Smith reported

“Because California’s Basic Aid school districts have virtually no financial incentive to enroll new students from outside of their district boundaries, the state previously provided those that participated in the District of Choice program with 70% of each transfer student’s base amount. However, this inducement was slashed to 25% in the 2017-18 school year with predictable results. By the 2019-20 school year Basic Aid districts reduced transfer enrollments by 24% and several stopped participating in the program altogether.”

Are school districts required to transport transfer students?

Many states do not require school districts to transport students across district boundaries and roughly a quarter of states explicitly prohibit districts from doing so, which can be a significant barrier to accessing open enrollment for many, especially low-income students.

At the very least, states should not prohibit transporting transfer students across school district boundaries. If it so chooses, the receiving school district should be able to create new bus routes to transport transfer students. For instance, Florida school districts can provide transportation options to transfer students.

However, more states should consider innovative proposals, such as those in Colorado and Ohio, which encourage school sectors to work together to provide transportation. Policymakers should also consider Wisconsin’s policy, which reimburses low-income families using the state’s cross-district open enrollment option up to $1,218 annually for mileage expenses for school transportation.

Are public schools allowed to charge families tuition? 

A number of states allow public schools to charge transfer students tuition. While school districts may argue these funds are necessary to cover the costs of incoming students, charging tuition often creates a mammoth barrier for transfer students, especially those from low-income families.

For instance, Texas’ Lovejoy Independent School District can charge families of transfer students up to $14,000 in tuition. Instead of letting school districts charge tuition, states should allow education funds to follow students when they transfer, as Wisconsin does. Aligning financial incentives for both the assigned and receiving school districts is a key to developing a robust open enrollment program.

How does open enrollment impact school sports? 

Questions about student eligibility to participate in sports are dealt with on a state-by-state basis but some states with open enrollment laws, like Arizona and Oklahoma, allow the state’s third-party athletic association to make decisions on student eligibility.

As such, policymakers do not need to change eligibility requirements when adopting open enrollment reforms. 

However, if state policymakers desire, they can look to Florida’s policy on athletic eligibility for transfer students. In 2016, Florida passed a controlled open enrollment law that allows students to transfer to any school in the state with few exceptions and also mandates immediate eligibility for student-athletes. This means, unlike in Arizona or Oklahoma, families in Florida don’t have to make difficult tradeoffs between academics and athletics and can instead make student transfer decisions based solely on what’s best for their circumstances, which is impossible for distant bureaucrats to assess.

On Florida’s approach, my colleague Aaron Smith wrote:

“​​A common pushback against Florida’s approach is the claim that participating in athletics is a privilege for students and shouldn’t be prioritized over academics. It’s easy for some to sympathize with this critique, but then why aren’t similar restrictions applied to other privileges such as debate club, school bands, or performing arts? 

Extracurricular activities—sports or otherwise—help develop positive skills and traits that aren’t readily taught in classrooms, and forcing families to make arbitrary choices seems to be more about adult agendas than what’s best for kids. Granting student-athletes immediate eligibility can even help with socialization and adjusting to their new environment.”

Which states have open enrollment?

Most states have some form of open enrollment or student transfer policy, but only a handful make transfer opportunities accessible to all families

Florida: An Open Enrollment Policy Standard Bearer

Florida’s open enrollment law could serve as an ideal open enrollment model for other states. All school districts in the Sunshine State are required to participate in both cross-district and within-district open enrollment. The state’s public schools must regularly report the number of available seats by grade level and cannot charge transfer students’ families tuition or fees. While not required to do so, school districts can provide transfer students with transportation options.

During the 2018-19 school year, nearly 273,500 Florida students used open enrollment. More than two-thirds of the students using cross-district open enrollment transferred to schools “with graduation rates above the state mean and more than 90% of inter-district transfer students attend A- or B-rated school districts,” Reason Foundation’s Vittorio Nastasi reported.

Wisconsin’s Model Funding Solution to Open Enrollment

Wisconsin’s open enrollment law requires all school districts to participate in mandatory cross-district open enrollment so long as they have open seats. Beginning with a mere 2,464 students in the 1998-99 school year, Wisconsin’s cross-district open enrollment program grew to 70,428 students in the 2020-21 academic year.

Like Florida, Wisconsin school districts must post about their cross-district open enrollment option on their websites. In the case of oversubscription, students are selected through a randomized lottery with a waiting list for students who aren’t selected. The Badger State also has a voluntary within-district open enrollment option. 

The Wisconsin Department of Public Instruction provides detailed reports about available capacity in each school district including the number of transfer students and the reason transfer applications were rejected. School districts cannot charge tuition to transfer students. 

The crown jewel of Wisconsin’s open enrollment program is its cutting-edge student funding mechanism allowing education dollars to follow each transfer student regardless of where they go to school. 

What does the research say about open enrollment?

Research shows open enrollment is often used by families to access better school districts and can improve outcomes at sending school districts.

For example, students using Texas’ cross-district open enrollment during the 2018-19 school year were more likely to transfer to school districts ranked as “A” under the state’s district report card accountability system and less likely to transfer to school districts with lower rankings, such as “C,” “D” or “F.” 

California’s Legislative Analyst’s Office’s 2016 and 2021 reports showed that most students participating in the state’s District of Choice program transferred to school districts with higher test scores. According to Reason’s Vittorio Nastasi, more than 90% of students using Florida’s robust cross-district open enrollment option transferred to schools rated as “A” or “B” and “over two-thirds of transfer students crossing school district boundaries enrolled in districts with graduation rates above the state mean.”

These findings show that students typically use open enrollment to access better schools outside their residentially assigned option. 

A 2017 report on Ohio’s open enrollment program found achievement benefits and increased on-time graduation rates for transfer students who consistently used open enrollment, especially for black students and those in high-poverty urban areas. 

Better academic opportunities are not the only advantage of open enrollment policies. The 2016 report from California’s LAO indicated that school districts participating in the District of Choice program attracted students who were bullied at or did not fit in at their assigned school or who wanted a shorter school commute. 

At the same time, transfer students are not the only ones who benefit from open enrollment policies. A robust education marketplace can make school districts responsive to students and families. For example, both the 2016 and 2021 California LAO reports found that many students transferred schools because their assigned school lacked educational opportunities, such as advanced placement or international baccalaureate courses, school instructional models, or courses that emphasized career preparation for students interested in particular fields.

In response, some school districts “took steps to mitigate enrollment losses including gathering feedback from families and communities, evaluating programmatic offerings, and implementing reforms that led to fewer students transferring out,” Reason’s Aaron Smith pointed out. Similarly, a 2014 report found that Colorado’s transfer students tended to come from school districts with fewer AP offerings and higher dropout rates.

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