Category Archives: Poverty & income gap

Running in Neutral: a K-12 and Higher Ed Scandal

If a student hasn’t graduated from college within six years, the odds of completing a degree are extremely low.

In this month’s issue of Atlantic, Nick Ehrmann writes a perceptive article, “Solving the Mystery of Underachievement: Why work hard enough to earn an A when a D will suffice for college admission?” He tells the story of an intelligent African-American lad who was groomed to attend college — and ended up dropping out after the first semester. The article goes to the heart of one of the most pressing issues in American higher education today: the high rate of college drop-outs.

Literally millions of young Americans, disproportionately minorities, borrow money, attend a few semesters, and then drop out, never acquiring the college credential that will allow them to pay off their debt. A primary goal of Virginia higher education policy today is to reduce the number of these college drop-outs, who are all-too-prevalent in the state, as elsewhere in the country. The “retention” rate is a key metric used to measure the performance of Virginia’s public colleges and universities. (See the chart above.)

In my commentaries on the subject, I have assumed that dropping out of college could be explained by one of two factors: (1) poverty, or (2) lack of academic preparedness. True enough, poor kids can qualify for tens of thousands of dollars Pell grants, federal loans and institutional financial aid. But that assistance rarely covers all costs, and students from lower-income families typically have to work part-time jobs, or even drop out for a semester or two to find the extra money. Once a student drops out, he or she is at higher risk of never re-enrolling. The other problem is that lower-income kids tend to come from lower-income neighborhoods, which tend to have poorer schools. The inadequate academic preparation makes it difficult to keep up with college-level work. Discouraged and demoralized, students question what they’re doing in college at all.

Ehrmann’s article suggests a third reason why kids drop out of college — the phenomenon of “running in neutral.” The article, I believe, is so important that I will summarize its contents in detail, highlighting what I deem to be key insights. But don’t settle for the Bacon’s Digest version — read the full essay yourself.

Enrollment in higher education is reaching record-high levels, just a hair below 70% of all high school graduates. But being “eligible” for higher education does not mean that students are academically prepared, writes Ehrmann. He knows from first-hand experience teaching kids in Washington, D.C. He mentored one young man, Travis Hill, who showed flashes of brilliance, and kept tabs on him through the years.

In the fifth grade, Travis was admitted into a scholarship program through the “I Have a Dream” Foundation, which guaranteed that any participating student who graduated from high school would receive a college scholarship. The idea was that removing financial obstacles to college enrollment would encourage students to achieve. “Travis, like many of his classmates,” writes Ehrmann, believed there was ‘no doubt’ he would graduate from high school and enroll in college. He did graduate, and he did enroll in Lincoln University, a historically black university in Pennsylvania. But he dropped out after a semester. Why?

In Ehrmann’s view, there are two schools of thought. One is the “culture of poverty” theory in which “low-effort syndrome” or cultural adaptations like a prejudice against “acting white” prevent young people from living up to their potential. The other is the “structural barriers” theory that emphasizes how poverty, institutional racism, segregation and lack of adequate health care stack the deck against poor, minority students.

Writes Ehrmann:

The problem is that neither story is completely right. Over the course of a decade … I witnessed a significant number of students develop a sophisticated logic of underachievement that challenged the popular accounts for how inequality in higher education is created and sustained. For many students, their pursuit of long-term educational success was grounded and strategic. Educated in environments that measured academic success primarily by enrolling in college — not necessarily graduating with a degree — they developed strategies to achieve that goal with minimal effort in school.

Travis made no effort to make As and Bs. To the contrary, he skated by with the minimum passing grades. “Doesn’t matter,” he said. “I work hard when I want to work hard, and that’s what a lot of people can’t do. Some people might not look at it as a skill, but to me it’s a skill.”

That message was inadvertently reinforced from other directions. During his freshman and sophomore years on overnight campus trips sponsored by his high school’s college-placement office, Travis learned that “a couple hundred” colleges and universities across the United States would offer him admission. “Everyone was telling me I could get into college with my grades,” he confided. “I don’t remember exactly how or when I heard it, but that message was seeping into my brain. If I got straight Cs, admissions would be a breeze.”

Every marking period, Travis let his grades slip, When midterm grades were sent home, his grades were typically Cs, Ds and Fs. His mother and stepfather got on his case, and he promised to get his act together. In the final weeks of the term, he approached his teachers one by one and exhibited greater effort in class. His strategem: “Just go to the teacher and act like you care.” Continue reading

Government’s War on the Poor: College Loans

Chart credit: Mercatus Center

Students graduating in recent years are defaulting on student loans at a significantly higher rate than earlier age cohorts, finds Mark J. Warshawsky, a senior research fellow with the Mercatus Center at George Mason University, in a posting on the Mercatus website.

“Some students, particularly from nontraditional backgrounds, seem to have been harmed by the increase in federal funding of student loans,” he says. “They have not seen increases in their incomes as workers, have often not completed their education, are more likely to default on their loans, and miss out on job-related income and training.

Click for more legible image.

Warshawsky does not offer an explanation of why loan default rates are climbing. But the answer is obvious: Uncle Sam has been shoveling out more and more loans without any consideration of credit risk. As the percentage of high school graduates enrolled in two- and four-year institutions of higher education has increased over the years (see chart immediately above), we have seen an increase in the number of students who (a) are not academically prepared for college-level work, (b) lack the family resources to complete college, even with loans, or (c) both.

These college drop-outs and defaulters are disproportionately poor and minorities. The federal government cannot issue loans on the basis of credit quality, for that would mean discriminating against the poor and minorities, a political impossibility. So, instead, Uncle Sam dishes out loans indiscriminately, and the poor and minorities are the ones who wind up defaulting disproportionately on student loans and suffering the adverse consequences of ruined credit scores and debt they cannot discharge.

Thus the price of misguided compassion…

Do you want stronger proof? The percentage of high school graduates attending college has ticked down slightly since 2009, while the total of state and federal grants and loans has dipped since 2010. If I my logic above is correct, and absent an economic downturn and widespread job loss, at some point we should see a reversal of the trend shown in Warshawsky’s chart and a decline in the rate of defaulting students.

How Important Is Insurance to Health Outcomes?

The variability in health insurance by city and county accounts for 30% of the difference in health outcomes. What about the other 70%?

The variability in health insurance by Virginia city and county accounts for 30% of the difference in health outcomes rank. What explains the other 70%?

A dominant strain of political rhetoric tells us that having health care insurance is absolutely vital to maintaining peoples’ health and longevity. Without health insurance, people will die! The logic makes sense if one assumes that the United States (and Virginia) have a binary health care system in which people either (a) have health insurance (including Medicaid and Medicare), giving them full access to the health care system, or (b) lack insurance and receive no medical treatment. But in the real world, there’s a big fuzzy zone. Some insurance, frankly, stinks — limited choices, high deductibles and the like. And some uninsured people enjoy at least limited access to medical care at clinics, emergency rooms and hospital care.

On a lark — I honestly had no idea what results I’d get — I created a scatter graph comparing two data sets for 132 Virginia counties and cities. One comes from the StatChat blog: Health Care Coverage Across Localities in Virginia in 2015, based on data from the U.S. Census Bureau American Community Survey. The other comes from the Robert Woods Johnson Foundation 2017 County Health Rankings, which ranks city and county health outcomes on a basket of health quality and longevity metrics.

The chart above shows the results. As one would expect, there is a significant correlation — localities with lower percentages of uninsured working-age populations tend to have better health outcomes, and vice versa, higher percentages of uninsured populations translate into worse health outcomes.

But the R² coefficient is only .3044. That’s statistics-speak for saying that the variation in the percentage of the insured population accounts for only 30% of the variation in health-outcome rankings. (Note: that’s health-outcome rankings, not actual health outcomes. I readily concede that this is a quick-and-dirty analysis.) Thirty percent is significant, but it leaves a lot unexplained. Seventy percent of the variance is due to other factors.

The debate about health care in the United States over the past half century has focused mainly on expanding access to health insurance as a way of expanding access to medical treatment. But insurance accounts for maybe 30% of the problem. What about the other 70%? The Robert Woods Johnson (RWJ) attributes the following weights to different health factors:

  • 30% — health behaviors (tobacco use, diet & exercise, alcohol & drug use, sexual activity);
  • 20% — clinical care (access to care, quality of care);
  • 40% — social & economic factors (education, employment, income, family & social support, community safety);
  • 10% – physical environment (air & water quality, housing & transit).

Here in Virginia, Democrats are obsessed with Medicaid expansion, as if the percentage of population with insurance is the be-all-and-end-all of health policy. Unfortunately, Republicans have offered few reasons to oppose Medicaid expansion other than to emphasize the stress it would impose upon state finances.

Instead perpetuating this sterile debate out of partisan loyalty or antipathy to former President Obama’s signature legislative achievement, we should ask if we can make bigger gains in health outcomes at less expense than by expanding Medicaid. The RJW report gives heavier weight to personal behavior as reflected in smoking, substance abuse, sexual activity, nutrition and exercise. Perhaps the politicians should, too.

Probing the “Insurance Coverage” Numbers

Insurance coverage broken down by state.

Insurance coverage broken down by state. Chart source: StatChat

With Governor Terry McAuliffe making another bid to expand Medicaid via a budget amendment, the publication by the StatChat blog ten days ago of data on the extent of insurance coverage in Virginia couldn’t be more timely.

The blog post is content to present the data with little commentary or explanation of what’s happening, however, so I’ll try to fill in the gaps.

The good news is that in Virginia, more than 90% of the population has some form of insurance (including Medicare and Medicaid). The bad news is that 9.1% of the population still has no insurance coverage. And, despite a lower unemployment rate and a higher median household income than the national average, the percentage of the insured population hovers just at the national average.

By eyeballing the chart above, we can see that Virginia’s uninsured population bounced around the 12% mark for several years, then jumped ahead one or two percentage points after the implementation of the Obamacare health exchanges. One also can surmise that some states leaped ahead of Virginia in the rankings by extending Medicaid to the working poor while the General Assembly rejected the option.

These data would seem to back the McAuliffe narrative on the desirability of expanding the Medicaid program, 90% of the cost of which would be paid for by the federal government. If Virginia added just 5% of the population to the Medicaid rolls, the state would have a higher rate of insurance coverage than all but five states.

But dig a little deeper, and the picture gets more complicated. The chart above breaks down those with and without health insurance by age. Roughly two-thirds of the uninsured population is below 45 years old. This younger demographic segment tends to be considerably healthier than the older age cohorts, and its medical needs correspondingly less. Indeed, thousands likely opted out of the Obamacare exchanges because they did not need or want the coverage at the price it was available. Although we can’t tell from this data how many opted out, it is worth noting that some portion of Virginia’s 10% uninsured population is voluntarily uninsured.


Finally, it’s worth studying the map above, which shows the variation in the uninsured population around the state. (I would refer you to the interactive map at StatChat for details.) The uninsured rate in the working-age 18-to-64-year-old age cohort varies from 32.3% in the city of Manassas Park to 4.6% in the nearby city of Falls Church. Clearly there is a link between income, unemployment and insurance coverage. One could argue that the best antidote to uninsurance is a strong economy and high employment; if we want more people covered by insurance, perhaps we should be investing state funds in making people more employable.

But other factors are at play, although I’m not sure what they are. Why, for example, do the Interstate 81 corridor localities of Roanoke, Botetourt and Montgomery counties — not exactly known for a booming economy — have such low percentages of working-age uninsured? Are there unique institutional forces at work? It’s worth looking into.

Bacon’s bottom line: The debate over health care has gotten hung up on the number of uninsured. But that number is almost meaningless without considering the quality of the insurance programs.

For example, thousands of Virginians are “insured” through Medicaid. But what quality of care people do people receive when low reimbursement rates discourage 22% of Virginia physicians from participating, according to a 2016 Physicians Foundation survey? What percentage of Medicaid patients, unable to find a personal physician, routinely get their health care in hospital emergency rooms? And how does the quality of care compare to that provided uninsured people who go to emergency rooms and have their expenses written off as “charity” care or “uncompensated care”?

Another example: Thousands of Virginians have coverage through Obamacare health care exchanges. But what kind of access do they enjoy? Are they restricted to certain hospitals and physicians? How high are their deductibles and co-pays? To what degree, as a practical matter, has the quality of their health care improved? Likewise, how many Virginians forced into Obamacare lost their old insurance policies, how many lost access to their physicians, and how many perceive that they have worse insurance coverage than they had before? Nobody is generating that data.

One more point: How extensive is the safety net for the uninsured in Virginia compared to that in other states? Virginia has a fairly robust system of clinics that provide primary care to the uninsured and under-insured. How many people are getting at least some of their medical needs met through these clinics? How many are  slipping between the cracks? And what happens to clinic patients when they require treatment unavailable at the clinics?

Counting the percentage of the “insured” population provides a rough measure of access to the health care system. But there’s a lot it doesn’t tell us. Before undertaking a massive expansion of Medicaid at considerable fiscal risk to the commonwealth, we need a keener understanding of how Virginia’s health care system functions. We should not blindly accept the proposition that an expanded Medicaid program will improve real-world access to the uninsured. While the StatChat data is valuable for starting a discussion, it does not purport to tell us all we need to know.

Slum Maintenance at Essex Village

Crime scene at Essex Village.

Crime scene at Essex Village. (Photo credit: WTVR)

Who needs tenement slums when we’ve got public housing projects? The supposed “market failure” of the private sector to provide the poor and working class with decent shelter provided the justification for the federal government to get into housing business in the 1930s. We all know the result. Uncle Sam turned out to be the worst slumlord of all. In desperation, the government tried outsourcing to the private sector. How’s that working out?

I’ve highlighted the disastrous Kippax Place in Hopewell in previous posts. Now, courtesy of the Richmond Times-Dispatch, we learn that Essex Village in Henrico County has similar problems. Here’s how Debbie Truong leads off the story:

Inside one apartment building in Henrico County’s largest federally subsidized housing complex, the bathroom ceiling leaked, the stove thermostat was faulty and the windows wouldn’t stay open.

Across Essex Village, stairs were in disrepair, and there were mice and leaking water heaters. In November, raw sewage bubbled to the surface of manhole covers and, in December, drains backed up in four ground-level apartments.

Since April 14, 140 cases of building code violations were either reported or discovered by the county as part of an enhanced effort to turn around what officials say has languished into the county’s most poorly maintained housing complex.

Henrico County officials have vowed to get the housing complex back up to an acceptable standard. It will continue to pursue inspections aggressively and it will pilot a “family stabilization” project that will bring health, financial literacy, social services and other resources to the 1,600-resident complex, reports Truong.

Gregory Perlman

GHC Housing Partners, which owns the 496-unit complex, said it has addressed the building code violations, which were “fairly minor” in any case. Also, CEO Gregory Perlman noted that Henrico had failed to support a proposal last year seeking federal tax credits that would have helped pay for renovations.

Who is this Perlman person? In 2012 he claimed to have invented a “new approach to affordable housing.” This comes from a GHC press release:

“We focus on our residents and provide them with the opportunity to better their lives through self-improvement programs as well as support from the non-profit Perlman Foundation.”

… GHC Housing Partners specializes in acquiring and managing primarily Section 8 housing and providing social services and amenities that go far beyond HUD requirements. Vegetable gardens, dog parks, job counseling, college scholarships and summer camps are only part of this transformation of affordable housing. GHC Housing Partners is focused on initiatives and programs that improve lives and provide bootstrap opportunities for residents to achieve a higher standard of living.

Wrapping public services around public housing is the hot concept in the non-profit world. But how has the idea fared in the real world? The building code violations speak for themselves. The T-D also quotes a Rev. Joe Ellison who previously ran a day care at Essex and served as a pastor in the community. He left in 2005 “crestfallen over the living conditions.”

He said he approached management at Essex two  years ago, hoping to establish a program that involved mentoring and job creation. After a lukewarm response, he instead turned his sights to Fairfield Court in Richmond.

GHC warrants a closer look, far closer than I can provide in this quick blog post. The company is part of a housing-industrial complex that has grown up around public housing and, some have told me, exists as much to provide a comfortable living for a vast ecosystem of for-profits, non-profits, consultants and government administrators as for the poor themselves.

On its website, the Sherman Oaks, Calif.-based GHV claims to be the ” industry’s leading affordable housing owner and developer.” Since 1993, the company has acquired 20,000 housing units across 24 states in $1.25 billion worth of projects.

I infer that the company is for-profit, as the website makes no mention of a non-profit status. The parent company, GHC Housing Partners, is affiliated with GHC Investment Holdings, which acquires, owns and manages affordable housing; GHC Development, which develops properties using tax-exempt bonds and low-income housing tax credits; PK Management, a property management arm whose mission includes providing “quality service to its residents;” and a charitable arm, the All Ways Up Foundation.

In 2014, according to its IRS 990 form, the All Ways Up Foundation provided $128,777 in grants to organizations and $123,935 to individuals — sums that work out to an average of $12 per housing unit across the GHC system — and hosted an educational summit.

PK Management, which manages 18,000 units, purports to employ 41 social service coordinators to oversee resident welfare, focusing on delivering expanded services to its residents. It also offers “educational and professional opportunities designed to break the cycle of generational poverty.” (It’s not clear from the website if PK Management serves Essex Village, nor who pays for these services.)

The federal government turned to outsourcing after it became clear that it was doing a terrible job of running public housing projects itself. Perhaps it is time to ask if the non-profits and for-profits are doing any better. Anecdotal evidence is piling up that they are not, although Essex and Kippax may not be representative of performance at other housing projects. My suspicion is that private players master the latest buzz words and throw out a lot of flash-and-dazzle to impress the bureaucrats and win big contracts but that there’s not much follow through.

Perhaps the Times-Dispatch could do a little digging. What is the precise nature of GHC’s relationship with Essex Village? Does it own the property outright? Does it have a contract with the federal government? Does it provide wrap-around social services? Does the All Ways Up Foundation provide any grants? How much revenue does the project generate, and what is the cost structure? Most pertinently, how much money does GHC devote to maintenance and upkeep? Surely, this information would be available through the Freedom of Information Act.

Related questions: Who in the federal government, if anyone, is responsible for looking over GHC’s shoulder to make sure it is maintaining basic standards — and why has Henrico been forced to step in?

A Prosecution or Persecution of Pawn Brokers?

Pawn brokers under the gun. Fredericksburg’s All-Star Pawn & Gold does a good business in pawned guns.

The Virginia Attorney General’s office has extracted settlements from two Fredericksburg-area pawnbrokers for allegedly charging illegal interest and fees. Spotsylvania Pawnking LLC and Stafford-based All-Star Pawn & Gold will provide more than $62,000 in refunds to more than 1,000 customers to resolve the allegations.

The two pawn shops also paid the Attorney General’s office a total of $12,600 reimbursement for expenses, costs and attorney’s fees.

“In recent years we have seen a rash of pawnbrokers around Virginia skirting laws and overcharging consumers,” said Attorney General Mark Herring in a press release about the settlement. “If you’re considering using a pawn shop or other small dollar loan lender, you should always closely review the terms and know your rights before signing anything that might result in even more money coming out of your pocket.”

The press release provided no details about what the pawn shops charged in interest and fees. But in a previous press release, Herring accused B&B Pawnbrokers, Inc., also of Fredericksburg, of “predatory lending.” B&B, Herring charged, had made automobile title loans without a license, charged an illegal 10% monthly “processing fee” on all pawnbroker loans, and exceeded state limits on allowable interest rates and other charges.

The settlements are part of a larger initiative in which the AG’s office has partnered with the federal Consumer Financial Protection Bureau to enforce state and federal consumer finance statutes.

Bacon’s bottom line: Let me be 100% clear about one thing up front. Pawn shops, like any other business, should not cheat their customers. They must obey their contractual commitments, and they must obey the law. If they break either, they pay the price. Very simple.

That said, I’m always a little suspicious about campaigns against “predatory” lenders. The crusade against pawn shops reminds me of the crackdown on payday lenders motivated by a misguided effort to help the poor. In the case of payday lenders, the real offense typically is not cheating customers but lending money on terms that offend the consciences of do-gooders and social justice warriors. Is that what’s happening here with Virginia’s pawn shop prosecutions? I don’t know. I’m just raising the question.

The fact that Pawnking and All Star Pawn & Gold settled the case does not inspire confidence. Maybe they’re guilty as charged — or maybe they didn’t want to fight prosecutors with deep pockets.

Pawnking’s settlement provides a restitution averaging $67.29 per client, and so does All Star’s. Yup, exactly the same amount. That makes it sound like a cookie-cutter restitution. One must ask, is there any relationship between the restitution offered and the alleged harm done? According to the press release, customers who received loans between Sept. 13, 2014, and Nov. 12, 2015, can contact the companies directly. Why isn’t the AG’s office dispensing the checks? Does the AG’s office even know the identities of the presumed victims?

Pawn shops fill an important function in the economy. Most poor people do not have checking accounts, and those who do are required to maintain minimum balances and are punished for overdrafts. For the most part, they live in a cash-only society. When they run short, they don’t have savings accounts or credit cards to fall back on. Here’s the sales pitch on the All Star website:

If you’ve found yourself needing some quick cash recently and if you’ve been turned down for a personal loan, consider heading to All-Star Pawn & Gold.

All-Star Pawn & Gold offers collateral-based loans, meaning the loan is secured by something of value. You bring in something you own, and if we are interested, we will offer you the loan. The pawnbroker, All-Star Pawn & Gold, then keeps your item until you repay the loan.

You will receive a pawn ticket. Don’t lose this! Not only is it the receipt for your loan, but it also summarizes the terms of your pawn loan: fees, expiration date, description of your item, etc. …

If you don’t return to make payments on your pawn loan All-Star Pawn & Gold keeps your item. There are no other consequences: no collection action and no [effect] on your credit report.

Continue reading

For-Profit Colleges and the Student Debt Apocalypse

Graduates from for-profit colleges account for a disproportionate share of student loan defaults.

Graduates from for-profit colleges account for a disproportionate share of student loan defaults.

Tressie McMillan Cottom worked as an enrollment officer at two for-profit technical colleges before she went on to earn a PhD., join the faculty of Virginia Commonwealth University, and write a book, “Lower Ed: The Troubling Rise of For-Profit Colleges in the New Economy.”

Cottom says that for-profit colleges get one important thing right: They invest resources in the front-end process of helping students enroll: everything from applying for financial aid to having their textbooks waiting for them on the first day of class. But she, like many other critics of for-profit education, is concerned by the high indebtedness and high default rate of students. Those who attend for-profit colleges represent only 26% of all borrowers but account for 35% of federal loan defaults.

The high default rate is a sign of the trouble graduates have finding quality, high-paying jobs, Cottom told Karin Kapsidelis, higher ed writer for the Richmond Times-Dispatch. For-profit colleges are a varied lot. While some deliver value for the students’ investment, others are marketing machines designed to enroll students and collect revenue with little heed to results. “The profit motive changes everything. It means that instead of helping students, you’re selling students.”

The industry took off when the financial sector figured out how to make money from it, Cottom says. Wall Street underwrote for-profit educational enterprises to “monetize” peoples’ aspirations and their faith in education as the way to improve their lives.

Writes Cottom in the introduction to her book:

Lower Ed refers to credential expansion created by structural changes in how we work, unequal group access to favorable higher education schemes, and the risk shift of job training, from states and companies to individuals and families, exclusively for profit. Lower Ed is the subsector of high-risk post-secondary schools and colleges that are part of the same system as the most elite institutions. In fact, Lower Ed can exist precisely because elite Higher Ed does. The latter legitimizes the education gospel while the former absorbs all manner of vulnerable groups who believe in it: single mothers, downsized workers, veterans, people of color, and people transitioning from welfare to work.

Bacon’s bottom line: No question, the high default rate is a huge problem — student indebtedness is creating a new class of Americans who have little hope of paying back their tuition and, as the law stands now, little chance of discharging their debts through loan forgiveness or bankruptcy like overextended homeowners can do. But I am concerned by how many people, including, Ms. Cottom, it seems, blame the problem on for-profit institutions and the profit motive.

As the Kapsidelis story points out, for-profit colleges account for 35% of all federal loan defaults. But 65% can be traced to non-profit colleges! The driving force behind high defaults isn’t the for-profit status of the school, I would suggest, but the socioeconomic status of the student. Students from poor families are more likely to drop out and default on their debt than students from better-off families. Historically Black Colleges and Universities (HBCUs), which are non-profit, have high default rates, too, as do institutions that cater primarily to lower-income whites and Hispanics.

For-profit institutions are motivated to accept marginal students in order to fill seats and generate revenue. But guess what, so are many non-profit institutions. They, too, have expenses to cover, salaries to pay, and bonds to finance.

The problem, I would suggest, isn’t for-profit versus non-profit, it’s the erosion in lending standards. Anyone who wants a student loan can get one. Because the repayment risk is transferred to the federal government, the college (be it for-profit or non-profit) has no skin in the game. If a college student is unprepared for college, defaults after dropping out, or fails to find a job, the institution suffers no ill consequence. Why would we expect any other result?

 

How Much in Tax Breaks Does Harvard Really Need?

Harvard, which has a $36.5 billion endowment (2015), is the biggest beneficiary of any university of the U.S. tax code.

The 281 public universities studied by the Nexus Research and Policy Center received $7,000 a year per student in state support on average over the past three years. But that sum pales in comparison to the indirect support, in the form of tax breaks for endowments, enjoyed by the larger private universities.

Gifts to university endowments are exempt from taxation as are earnings of the endowments themselves, wrote Mark Schneider and Jorge Klor de Alva in a Washington Post op-ed last week. Over the past three years 52 private universities with endowments of over $1 billion have received an average annual taxpayer subsidy per student amounting to more than $26,000 — almost four times as much.

Not only do the wealthiest private schools (and a handful of richly endowed public institutions such as the University of Virginia) receive the biggest tax boosts, the riches are far more likely to be bestowed upon the offspring of America’s highest-income families.

Write Schneider and de Lava:

Students from families in the top 1 percent of the income distribution are 77 times more likely to attend the most elite universities (the eight Ivy League colleges, plus four others) than are students from families in the bottom 20 percent of the income distribution. …

One consequence of that disproportionate flow of taxpayer dollars to the elite private universities is that last year, according to federal statistics, the billion-dollar-plus campuses were able to spend over $41,000 on instructional services for each student. In contrast, regional campuses spent only about a quarter as much ($10,700) on instruction per student.

Bacon’s bottom line: Liberals and progressives focus on the U.S. income tax code as a tool for income redistribution and economic leveling. The problem is that raising income tax rates engenders tax-avoidance behavior, creates disincentives to work, and does not result in the hoped-for gusher of tax revenue. Perhaps egalitarians should redirect their attention to the portion of the U.S. tax code that favors university foundations instead.

Because of the tight correlation between income and SAT scores, the nation’s top universities cater largely to the “one percent.” Graduates of elite institutions enjoy not only the advantage of higher family incomes than other Americans,  better high school educations, and the opportunity to forge relationships with the plutocrats of the future, they attend institutions where massive tax privileges lavish them with the richest of academic and campus experiences.

Consider this: Harvard’s $36 billion endowment (2015 numbers) has the capacity to generate $2.2 billion a year in income (assuming a modest 6% return on investment). Assuming the top corporate tax rate of 35%, that amounts to a tax subsidy of about $750 million a year. That is comparable to the $844 million in state support Virginia provides to UVa, Virginia Tech, Virginia Commonwealth University, George Mason University and Old Dominion University combined. And that doesn’t include the tax breaks — a double-dipper benefit — for the alumni and philanthropists who donate to Harvard!

As Malcom Gladwell observes in his widely downloaded “My Little Hundred Million” podcast, a handful of elite universities receive the lion’s share of donations and benefactions. Gladwell’s focus is on the philanthropists, as opposed to the tax breaks they enjoy, but the point is much the same. An extra $100 million donated to Harvard or Stanford will create a tiny incremental gain to society. But the same gift donated to a middling institution can have a tremendous impact.

Why does U.S. tax policy encourage the continued showering of benefits upon the cognitive/income 1%, while the institutions catering to the rest of America are left scrounging for  crumbs? If liberals and progressives — and conservatives, too, because we don’t like to live in an oligarchy any more than anyone else — want to even the playing field, I would suggest that it makes far more sense to target tax breaks for rich endowments.

College Graduation Rates and SAT Scores

This table shows the math and verbal SAT scores for Virginia's public universities, along with college graduation rates.

This table shows the math and verbal SAT scores for Virginia’s public universities, along with college graduation rates. Table credit: Cranky’s Blog

John Butcher, of Cranky’s Blog fame, is turning his analytical gaze from K-12 schools to higher education. In his latest post, he explores the strong correlation between a Virginia public institution’s six-year graduation rate and the average SAT scores of its student body, as seen in the table to the left and the plotted chart below of median SAT math scores. (See his post for the chart of English SAT scores.)

The commentary in his post is sparse, but he makes interesting points in his email correspondence with me:

UVa and Mary&Bill both take very smart kids and graduate nearly all. The middle-tier colleges take less bright kids and graduate fewer. VCU takes still less bright kids and graduates still fewer. All these sit pretty well on the fitted line, except that JMU under-performs on the math datum.

Why should schools taking less able students graduate a smaller proportion? If they were doing their jobs, they would adapt to their clientèle and give them degrees. Doubtless the market would discount those degrees (surely it does already as to the kids who graduate now). But we wouldn’t see the kids being sloughed off.

VSU and Longwood both over-perform, albeit not by nearly enough. But they are doing something better, if not entirely right. What is it?

Image source: Cranky’s Blog

Six-year college graduation rates are the standard performance metric for U.S. colleges and universities. Four years to graduation is the ideal. Six years contain a lot of slack and, to my mind, and represents a shamefully low hurdle. The inability of a student to graduate within six years constitutes a total failure, either on the student’s part, the university’s part or both. It represents a misallocation of resources by the higher ed system and a personal tragedy for the student, who typically accumulates thousands of dollars in loans and has no sheepskin to show for it.

We need to better understand the key variables affecting six-year graduation rates.

John gets the conversation rolling by noting that the odds are stacked in favor of smarter students (with smarts measured by SAT scores). Indeed, SAT scores account for almost 80% of the variation in the graduation rate. Smarter kids come disproportionately from well-off families that raise them in an environment that rewards educational achievement and also have the means to support them financially while in school. These students can spend more time studying and less time worrying how to pay tuition, fees, room, board and incidentals.

But the correlation is not perfect. Some institutions do better with the raw material (students) they are given than others, as can be seen by the squares above and below the plotted line. (Old Dominion University may be an outlier because its student population contains a high percentage of military personnel who leave when they rotate to an assignment in another location.)

John asks if institutions are gearing their curriculum and academic standards toward the students in their student body, as opposed, perhaps, to the students they wished they had. That hypothesis is worth pursuing.

Here’s another: Could the guidance and support given students play a role in college graduation rates?

In 2011 the University of Virginia performed slightly above expectations in six-year graduation rates, but only slightly. As part of its strategic plan (the Cornerstone Plan) instituted in 2013, UVa is pioneering the concept of “total advising,” which integrates academic advising, career advising, and coaching. One would hope that the program will show higher six-year graduation rates for the class of 2017.

Likewise, it would be interesting to see what the Virginia Military Institute, Christopher Newport University, and Mary Washington University — all of which performed above expectations — are doing differently from other universities.

One way or another, we need to figure out how to help students graduate on time and on budget.

Fighting Food Deserts One Neighborhood at a Time

Inspired by a desire to wipe out food deserts, Jim Scanlon opened this Newport News store.

Inspired by a desire to wipe out food deserts, Jim Scanlon opened this Newport News store. Photo credit: Richmond Times-Dispatch.

The Richmond Times-Dispatch ran a profile today of Jim Scanlon, a former Ukrops Super Market executive who opened a grocery store near downtown Newport News and plans another in Richmond’s East End. His mission is to eliminate Virginia’s so-called “food deserts” one neighborhood at a time. The story of how Scanlon has worked with local economic development authorities in Newport News and with the backing of philanthropist Steven Markel in Richmond creates a message of hope.

But one must ask, how will Scanlon succeed where others have failed? As the article notes, the Brooks Crossing area of Newport News, where one of Scanlon’s stores is located, had been served by an unnamed grocery store until about two years ago, when it abruptly closed. Likewise, the East End of Richmond had been served by Community Pride, which shut down in 2004 after its African-American owner-entrepreneur, Johnny Johnson, encountered major financial difficulties.

I’ve read dozens of articles about food deserts and the effort to coax grocery stores into those areas. Reporters frequently describe how the old grocery stores closed but never seem curious about why. It’s not as if their customers suddenly became penniless. Poor people get food stamps to supplement their other sources of income just the way they always have. Social critics have argued that food stamps don’t provide enough money for a nutritious diet, and perhaps that’s true, but it’s not as if food stamps were ever sufficient by themselves to support a healthy diet.

Grocery stores in poor urban areas encounter problems that stores in affluent suburban areas do not. Urban stores have a higher incidents of theft and pilferage. They also have more “slip and slide” insurance claims, as I learned from Johnson. Before expanding too aggressively and getting overextended financially, Johnson was successful because, as an African American, he had a keen understanding of the markets he was serving. He knew how to hire reliable employees. He dispatched to pick up little old ladies who couldn’t drive to his stores. The demise of his business was a tragedy for many.

Ironically, while grocery stores have failed in poor urban neighborhoods, convenience stores have flourished. In Richmond’s East End, these stores are typically owned by Koreans, Middle Easterners or other ethnic minorities not bound to conventional white, professional-class thinking. Invariably, these are small, family businesses. The owner-shopkeepers work long hours, drafting spouses, children, cousins and other relatives as employees they can trust, and I would wager they accept smaller profit margins. They develop personal relationships with their customers, often extending small sums of store credit in a way that a conventional grocery store never would. Perhaps most important, convenience stores stock what their customers are buying, which, unfortunately, is heavy on junk food and cheap sources of carbohydrates like rice and pasta.

Food products that sell in middle-class neighborhoods don’t sell as well in the inner city, where poor people don’t have the same tastes, don’t have the same disposable income, and make different trade-offs between cost and quality. Grocery-store business models built around catering to the middle class don’t work in the ‘hood unless the demographics are shifting — which happens to be the case in Richmond’s Church Hill area and is likely so in Newport News’ Brooks Crossing redevelopment as well. If Scanlon’s ventures pay off, I expect the credit to go to middle-class gentrifiers.

What worries me is that, as we see in efforts to ameliorate the housing and transportation issues of the poor, fixing the food-desert problem deals with a symptom of poverty without addressing the underlying causes. What poor people really need first are stable jobs and higher incomes so they can afford to buy better food.  Then they need to cultivate a taste for healthier cuisine. Otherwise, they’ll end up like a lot of better-off Americans, using their money to buy more expensive junk food.