Score one for Brady: The Mayoral Candidates and the Leaf Fee

Roger Jensen/The Oregonian

I have been underwhelmed by the current crop of candidates for the Mayor of Portland: Hales has come across as a crass opportunist; Smith seems far to eager to be a politician and thus do stuff to make a name for himself regardless of whether stuff needs to be done; and Brady has played the businessperson card which always makes me suspicious that they don't get the difference between markets and market failures.

What I mean by that last statement is that running a business that operates in a private goods markets is all about understanding how free markets work, appreciating the discipline of the market and so on.  And, indeed, early on Brady made a statement about understanding the hard realities of the market as an attribute that would make her a good Mayor.  But government is all about what economics calls market failures: instances in which the free market does not reach an efficient outcome because of things like public goods, asymmetric information and externalities.  In these situations government has a role to play so that efficiency can be achieved, think providing police for example.

So it is not at all clear to me why having been a businessperson is such a positive trait for a Mayoral candidate in my view.  It also seems there are as many examples of businesspeople-turned-politicians failing as succeeding.  Though I will say that Portland's crazy system of government with the stove-piped bureaus causes residents and businesses fits and any reform would probably be a positive thing. And it may be that a former businessperson would be more likely to push for reform.  Though the other crazy thing about the governance of Portland is that the Mayor has almost no power to achieve meaningful reform.  Still I would rather a Mayor pined for reform than embraced the current system.

When asked recently by The Oregonian about Portland's new leaf removal fee, however, Brady nailed it and in so doing revealed an understanding of market failures and incentives that trumped the other candidates:

"Leaf collection is a basic city service that should be funded through existing revenue streams," Brady wrote in an email. "And frankly, I want citizens to have incentives - not disincentives - for planting trees. As mayor, I will put an end to the leaf collection fee."

Wow, I couldn't have said it much better myself. In fact, I did. City streets are a public good and the maintenance of them is, rightly, a public problem. Once you start to carve out private responsibility you distort incentives and cause new problems.

Disappointingly, Hales responded thusly:

"The goal is to have storm drains free from clogs, not filling the city's coffers from homeowners who already pay a lot in property taxes. That being said, I think that the city has done a good job in trying to work the kinks out as they gear up for this year's collections. A streamlined opt-out system and the new addition of being able to rake all your leaves into the street seem like a good thing to try. Again, the goal is a public safety one, not a revenue-production one -- if this new system doesn't work then we need to explore other options."

Yes the goal is to have safe and navigable city streets: a public good.  But no, the proper response is not to make the provision of such streets a private responsibility. Economics 101.

The worst response is Smith's non-response.  This gives the impression at least that he wanted to know what the best political answer was before responding.  Boo.

And good call by the O, by the way, for getting a response to this specific policy.  It is in the details that we begin to really learn about candidates.  Just reporting on their campaign rhetoric does no one any good.

Public Policy Gone Bad

UPADTE: Willamette Week is reporting that $335,000 has been collected so far...

Jack Bog (who has blacklisted me for having the temerity to question his economics acumen) posts on some inside info about how goes the leaf removal fee.  There is no way to verify the accuracy of the information, but it is in a blog so it has to be correct.  Anyway, predictably the leaf fee program is costing more than it is bringing in. From Jack's blog:

Through December 31, the reader says, less than $50,000 was collected, whereas the city's revenue bureau was reporting costs of about $49,000 in administering the collections. Over in the transportation bureau, around another $35,000 of expense was reported for printing, copying, postage, even special delivery charges. That's $34,000 in the hole before counting what it cost to send the equipment out to do the work (which the reader estimates was about $600,000).

Hopefully this will be the death knell for the leaf fee, but if there is one rule about bad public policy it is that it tends to be near impossible to expurgate.  Which is why I still waste 10 minutes every time I have to put gas in the car.

Oh and I suppose I should come clean.  I was about to pay the fee - the sweeper came and collected the leaves in front of my house - but then I started contemplating the opt-out language: "I would have managed the street leaves in front of my property myself if I had earlier notification about the fee and the opt-out process." This is a very difficult philosophical question. Had I known well in advance would I have acted differently? Yes, probably: it would have been easy for me to bag it up and have my garbage hauler take it for much less money. But I also want this program to fail so there is a clear strategic reason for me to opt-out. Nonetheless, I convinced myself that I would have come up with an alternate plan, and so I opted out.

Dumb and Dumber Public Policy: Portland's Leaf Fee

Roger Jensen/The Oregonian

In this recessed economy municipalities are struggling with diminished revenue in the same way states are. It is becoming harder and harder for them to provide the same services in this new economic reality. So many cities are looking for new ways to impose fees for services that were once funded with general revenues. Portland is no different.

And so the mayor saw the big wad of money spent on fall feaf removal as an opportunity to raise new revenue by imposing a leaf cleanup fee for the neighborhoods where the cleanup occurs. The problem with this tactic is twofold: charging specific fees for public goods is dumb public policy, and ironically, allowing households to opt-out actually makes it dumber.

To properly frame the policy we should begin by discussing public goods and to properly discuss public goods we can start by asking the question: why does government provide things like roads, parks and fire departments?  The answer should be clear to anyone who has had even the most basic economics education: these things are public goods - they have elements of non-rivalry (one persons's consumption does not leave less for another) and non-excludability (you cannot prevent people from consuming).  City parks are a clear example, you cannot prevent people from using them and if I stroll through a park, there is plenty left for the next person.  The moral of public goods is that given these two elements, private provision of them is always going to be inadequate relative to what is optional and so government steps in to correct this market failure.   

Roads are also public goods - especially city roads.  Yes, I use the road on which my house is situated more than the average Portland resident, but I rely on the entire network of Portland's roads to walk, bike and drive and to keep traffic evenly spread throughout the city.  This is why the network of safe and well-maintained roads is the city government's responsibility and a big part of what my taxes pay for.  So while the leaves that my and my neighbors trees deposit on the street may seem like and obvious thing to charge us for, the benefit of clearing them from the street accrues to everyone.  Streets free from leaves are safer for anyone who travels on them and also prevents clogging up the city's sewer system that we are all responsible for.

The logic of why we don't leave street maintenance up to individual neighborhoods is obvious.  One neighborhood's decision to spend less and degrade their streets imposes a cost to local residents in terms of bad roads to traverse to get to and from home, but it also imposes a cost to the the rest of the city. Of course a cost is imposed on those who travel through the neighborhood, but also in terms of displaced traffic from those who avoid the neighborhood and thus cause congestion and additional wear and tear on other neighborhoods' streets - a classic externality problem.

Using the same logic of the leaf fee removal program leads to plenty of other absurd policy options.  We could charge an extra police fee to residents of high-crime neighborhoods.  Or we could impose a park fee for those that live within two blocks of a park.  [As an aside, we already pay for this in the differential values of our homes though Measures 5 and 50 have de-linked taxes with market values but the historical value remains the basis of the tax assessment]  Clearly, these are absurd suggestions, crime affects us all, we all enjoy parks, etc.

So the leaf fee policy is dumb, but the opt-out actually makes it dumber.  You see, since the leaf fee can be avoided be cleaning up the street in front of your property yourself, this creates a dis-incentive to have and maintain street trees - something the city is actively promoting (the water bureau Environmental Services bureau even has, or had, a program by which they gave you a $50 credit for planting a tree).  It is also not going to be very good for neighbor relations - what if I sweep my leaves over in front of my neighbors house?  What if I have no trees, but by neighbor's trees drop tons of leaves on my part of the street? In fact, I think perhaps each block should pool and every house but one sweeps their leaves in front of one house and everyone chips in to play that house's leaf fee.  You can see how this program creates perverse incentives.   

I understand the cities desire to find new revenue to help support its services, but this policy is just plain dumb.