InsideSources

When people in inner-city Philadelphia cannot afford the price of a can of soda, they can thank a former Enron trader for the city’s high tax on their personal choices.

The City of Brotherly Love was the first major American city to enact a special tax on soda and other sugary beverages. The City Council-imposed fee of 1.5 cents per ounce was levied on “soda (regular and diet); non-100%-fruit drinks; sports drinks; sweetened water; energy drinks; pre-sweetened coffee or tea and non-alcoholic beverages intended to be mixed into an alcoholic drink.” The price of two-liters of soda and 32-ounce sports drinks increased by around 50 percent thanks to the 2016 measure.

Laura and John Arnold, billionaire Texans whose initial wealth came from John’s natural gas trading for the infamous Enron Corporation, promoted this tax through their Action Now Initiative — giving Philadelphians for a Fair Future $400,000 to help lobby for it. When the tax was later challenged in court as double taxation, the left-wing Laura and John Arnold Foundation funded the legal defense of the tax to the tune of $500,000. Philadelphia City Solicitor Sozi Pedro Tulante praised the Arnolds, explaining that “the Arnold Foundation’s support will go a long way towards easing the City’s financial cost of defending against this lawsuit.”

This isn’t the Arnolds’ only assault on consumer choice. They also spent a reported $3.3 million to help pass ballot initiatives in San Francisco and Oakland that imposed similar penny-per-ounce taxes on sugary beverages. They partnered in those campaigns and similar efforts in Portland, Oregon, with fellow billionaire Michael Bloomberg.

The Arnold Foundation has given out more than a billion dollars since 2011, mostly to liberal and far-left causes. The Arnolds have also personally made donations in the millions to liberal causes and political candidates while giving a small amount to conservative-leaning groups promoting non-controversial issues such as criminal justice reform in order to maintain an air of political neutrality. John has even claimed to be a libertarian, but taxes on sugary beverages do not conform to libertarian principles.

Does a soda tax even work? While John Arnold claims his crusade is cutting consumption, the taxation approach is a loser on multiple fronts.

For one thing, a tax creates a revenue stream for the government upon which it will undoubtedly become dependent. In Philadelphia — where the tax is allocated for schools, recreation centers, libraries and parks — it was budgeted to raise $47 million in its first six months. Alarms sounded when it only raised just under $40 million. And it might not have even cut consumption by that much. More than a year after the tax went into effect, it was estimated that around a third of residents were traveling out of town to buy the beverages that are taxed more within city limits.

Arnold-backed beverage taxes are also inherently unfair. Think back to those inner-city residents craving a Coca-Cola. Soda taxes are regressive, meaning poor households are spending more of their income on them. They are also less likely to be able to travel elsewhere to satisfy their cravings and to avoid Philadelphia’s punitive pricing.

In Cook County, Illinois — Chicago — another penny-per-ounce sugary beverage tax was enacted in 2017. Officials there were up-front that the primary reason for it was revenue (public health was an issue, but a secondary one). Just like Philadelphia, neighboring counties saw an increase in soda sales. Unlike Philadelphia, public outcry led to an overwhelming vote to repeal the tax within two months.

A soda tax is not a libertarian idea. Not even close. Big-government attempts to dictate choice by imposing a de facto luxury tax on common and popular beverages is instead social engineering. And that’s the kind of liberalism that actually drives rich, control-obsessed liberals like Bloomberg and the Arnolds.

High-risk opportunities with big-time payouts: That’s how John Arnold got rich as an investor, and now he’s using that same strategy to give his money away.

John and Laura Arnold may not be headline-grabbing philanthropists who’ve become household names like Bill and Melinda Gates or George Soros, but the couple is creating major impacts with their charitable giving by treating every new philanthropic venture the way John once treated his bets on Wall Street: Watching for risky opportunities that offer an outsized payoff.

In 2016 alone, according to filings, the Laura and John Arnold Foundation held $2 billion in assets and awarded grants worth $176.8 million. The result has been a philanthropic empire that, while sometimes stoking controversy, has made a clear and tangible impact on the sectors of society it has targeted.

John Arnold started his career as an oil analyst at the now-defunct Enron Corporation, where he eventually became a top trader on the company’s Natural Gas Desk. When Enron collapsed in 2002, Arnold launched his own hedge fund, Centaurus Financial, growing it and his own net worth above $1 billion. That success came thanks to some risky bets along the way. In 2006, for example, Arnold lined up his hedge fund on a high-risk position in the energy markets opposite another hedge fund. Arnold won, and the result was an overall portfolio return for investors of an astonishing 317 percent.

One year later, John Arnold was the world’s youngest billionaire.

Arnold retired in 2012 at age 38 to start the Laura and John Arnold Foundation with his wife, a former corporate lawyer. At the time, a profile published by Wired described John Arnold as a young philanthropist eager to make a concrete and substantial difference in the world, and unafraid to disrupt the world of philanthropy in the process.

The Arnolds essentially approach philanthropic ventures the way any Wall Street veteran would: they’re attracted to risky bets — as shown in their support for pretrial justice reform, increased soda tax, police surveillance support, and—despite the dangerous #MeToo-era politics—a gamble on a donation to a man accused of sexual abuse. The Arnolds are using their charitable giving to disrupt areas of society that are underserved or ignored by others.

In fact, they have had a lot to say about their fellow billionaire philanthropists. They joined with nearly 200 other philanthropists in signing the Giving Pledge (launched by Bill Gates and Warren Buffet), a promise to give most of their wealth away. But according to Wired, the Arnolds also criticized other philanthropists for being too safe in their giving.

Laura Arnold told Wired that their foundation seeks to be based on “thoughtful failure and fantastic success.”

That comment is very revealing about the choices the Arnolds have made over the past six years.

A review of the foundation’s website shows the Arnolds care deeply about data-driven solutions. Most of the issues they’ve chosen to tackle rely on their own data and research, rather than re-purposing work done by others.

For example, the foundation is currently conducting an investigation into gun violence in order to better inform policymakers. And the Arnolds seek out leading experts to drive these efforts forward. The Arnold Foundation recruited Jeremy Travis, president of the John Jay College of Criminal Justice of the City University of New York, to oversee criminal justice initiatives. Travis, who was a former clerk to then-U.S. Court of Appeals Judge Ruth Bader Ginsburg, has extensive experience in criminal justice as a former deputy commissioner of the New York Police Department and the architect of the city’s assault weapons ban.

The Arnolds practice what they describe as “evidence-based policy” and “research integrity”–two sides of the same coin, they believe.  In the Arnolds’ view data, not ideology, should drive policy and scientific research. To combat bad science and bad policy, the Arnolds have launched several “policy labs” around the country in partnership with local governments and universities in an attempt to gather more trustworthy data on local issues.

This approach is not without its critics. In the area of criminal justice reform, for example, the Arnolds have recently launched nationwide their Public Safety Assessment tool (PSA), an algorithm which uses nine factors to help evaluate whether a person accused of a crime should be released pretrial.

While using risk factors like prior violent convictions and prior failure to appear in court may help judges sift through which individuals should be detained and which should be released, civil rights advocates fear that using federal criminal justice data — which many believe is tainted by a system that engages in racial profiling — means that the PSA will only perpetuate racial discrimination. Others have pointed to those being released on the tool’s recommendation committing additional crimes while awaiting trial.

Controversy follows many of the Arnolds’ other initiatives as well.

The Arnolds are major backers of charter school initiatives and school choice, but they were criticized when that support led them to back a leader in the charter school movement who was dismissed from his own charter school program over multiple sexual abuse accusations.

Recognizing glaring inequalities and problems with pensions in the U.S., the Arnolds launched a pension reform initiative that emphasizes both fiscal responsibility and increased personal savings by retirees, which has drawn very sharp criticism from federal employees and politicians.

The Arnolds also backed the controversial soda tax in many states, most notably Pennsylvania. According to the Philadelphia Business Journal, they gave $500,000 to the City of Philadelphia’s legal defense of the soda tax in 2017, following the lawsuit from Big Soda.

The foundation has also pushed data-driven models to assess pricing for drugs, drawing ire from the pharmaceutical industry and raising questions about the use of their data model to determine what drugs are going to be most effective for a patient.

Besides giving Johns Hopkins University $450,000 to hand out free glasses to students in Baltimore, Maryland, the Arnolds also gave $360,000 to the Baltimore Police Department’s surveillance initiative, which involved camera monitoring of city residents, without telling the mayor.

Given the Arnolds’ statement to Wired, the risk and the controversy involved in their philanthropic efforts is all part of the mission. The real question is: how effective is it?

In pretrial justice reform, the Arnolds’ PSA has produced mixed results. The Arnolds are working to make the PSA available nationwide, but there is still very little data on its efficacy and whether it’s accomplishing what the Arnolds want it to accomplish — a fairer criminal justice system. This  push to take the PSA nationwide before the evidence is in doesn’t seem to align with their claim to pursue data-driven results.

Another source of criticism is the Arnold’s political partisanship.

The Arnolds were top donors to both of Barack Obama’s presidential campaigns, and they have given extensively to the Democratic National Committee and Democratic Senatorial Campaign Committee. They’ve teamed up with other liberal philanthropists like Michael Bloomberg on the soda tax, George Soros on the Brennan Center for Justice, and they back Patients for Affordable Drugs, an organization managed by former Clinton and Obama staffers.

The Arnold Foundation have also turned to Democratic politicos for guidance in their giving. Firms headed by Obama strategists Robert Gibbs, Ben LaBolt, and Joel Benenson were collectively paid $1.5 million in 2015-2016, the two most recent years for which disclosures are available.

While it’s true that, in this election cycle, they have contributed to several Republican House candidates in safe GOP districts, they’ve simultaneously given the maximum allowed donation to Democratic candidates in key races: Claire McCaskill, Heidi Heitkamp, Joe Donnelly, Beto O’Rourke, and Conor Lamb.

These liberal bona fides have not protected the Arnolds from occasional criticism by the Left, particularly when they joined the libertarian Koch Brothers as lead proponents of public pension reform. The Arnolds’ efforts on criminal justice reform have taken heat from all sides: Civil rights groups complain that the Arnold Foundation’s data-driven approach is fundamentally unfair, while law-and-order conservatives point to every incident of a defendant who commits another crime while out on bail.

The Arnolds believe that philanthropy should be “aggressive, highly goal-oriented … entrepreneurial, not institutional or bureaucratic … seek[ing] transformational change, not incremental change.”

It’s a hedge fund approach to philanthropy. The jury’s still out on whether it will work.

The Arnold Foundation declined to be interviewed for this story.

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Civil Rights Groups and Conservatives Question a Tool Backed by Left-Leaning Billionaires

Civil rights groups signed a statement late last month calling for states to ditch pretrial risk assessment tools as a means of evaluating whether an individual accused of a crime should be detained pretrial, contending such data-driven tools do little to remedy racial disparities in the criminal justice system.

Conservatives, meanwhile, have expressed deep concerns over releasing individuals based on screenings that often don’t account for likelihood of risk to family members or the individual’s possession of a firearm.

Others contest these tools have significantly reduced the number of individuals detained pretrial in the states where they are used, potentially saving states billions of dollars, though that has often not been the case in practice.

Lucas County, Ohio, which includes Toledo, for example, has seen costs rise 23 percent in the three years since it first implemented its program. (The county began using a pretrial risk assessment tool from the Laura and John Arnold Foundation in 2015.)

Using the same tool in New Jersey, however, the pretrial detention population has dropped by 38 percent over the past two years.

Pretrial risk assessment tools have been implemented in some states as a replacement for money bail methods of detaining or releasing individuals pretrial.

The algorithmic tools use predictive analytics and various data points — like past criminal or re-arrest history, whether the individual failed to appear in court before, and socioeconomic factors like income and employment stability — to determine whether an individual is likely to show up for his or her court date and whether he or she is a threat to public safety.

Depending on the tools’ conclusions, judges may decide an individual should be released instead of held in jail pretrial.

The tool implemented in many of these criminal justice systems was funded by the Laura and John Arnold Foundation. The Arnolds, left-leaning Texas billionaires who made their fortune from defunct Enron and a hedge fund launched by Mr. Arnold, have pushed for their tool to be adopted in communities across the country.

In some states, the Arnold pretrial risk assessment tool has raised concerns as violent crime and rising costs have garnered the attention of lawmakers and residents.

In New Mexico, for example, Republican Gov. Susana Martinez said rising violent crime in the state makes the tool unusable. As violent crime has been on the rise, she said, releasing the accused pretrial is a serious threat to public safety.

According to a report issued by the Cuyahoga County Bail Task Force in Cleveland, Ohio, current pretrial risk assessment tools like the Arnold Foundation’s do not take into account whether an individual released pretrial is a threat to spouses or family members. In some cases, evaluating an individual’s threat to public safety isn’t enough.

Perhaps the most incriminating case against pretrial risk assessment tools is the story of a 71-year-old man in San Francisco who was murdered by an individual who was on felony probation, had been re-arrested, then released pretrial based on a judge’s discernment after evaluating the individual’s threat to public safety via the Arnold pretrial risk assessment tool.

San Francisco has been a telling case study in the risks of implementing such a program. Of those released as a result of the assessment, more than a third were either booked on a new offense or failed to appear, according to a study.

While pretrial risk assessment tools can be modified to take into account many concerns — including racial bias — a wide variation in efficacy in early stages of implementation suggests that not all states and communities may have the conditions necessary for the tools to be successful. Further complicating the debate is the role of human discernment: ultimately a judge makes the final call, and judges make mistakes all the time.

The more common alternative, money bail, faces criticism, as well. Under the money bail method, individuals could pay their way out of pretrial detention. This method has long received criticism because it tends to favor the wealthy, leaving poorer individuals stuck in jail pretrial despite not yet being convicted.

“There’s a lot of criticisms about money bond and the fact that most people who are in jail are quite low income and might not get out of jail at all, and end up locked up longer because they’re poor,” Jesse Jannetta, senior policy fellow at the left-leaning Urban Institute told InsideSources. “You can also have the criticism on the other hand which is that if you have access to a lot of resources you could get out even if the bond amount is quite high, so there’s a lot of pressure on money bond as a release mechanism because it’s unfair.”

Furthermore, being locked up pretrial could have a significant impact on a person’s quality of life and prospects, even if that person is found to be innocent in court.

“Jail incarceration, even if it’s short, has a lot of really bad consequences,” Jannetta said. “A day or two in jail could cause you to lose a job in at-will employment situations.”

Those seeking to reform the criminal justice system have targeted pretrial detention as a way to reduce prison populations and spending. The Prison Policy Initiative, which seeks to “expose the broader harm of mass criminalization,” found in 2017 that pretrial detention costs local governments $13.6 billion each year.

The civil rights groups’ statement argues that the criminal justice system and data-collecting methods are riddled with racial bias, so these tools could exacerbate racial disparities in prison populations. According to Census Bureau and Bureau of Justice statistics, more blacks are incarcerated than whites, respective to the U.S. black population and white population.

The civil rights groups concerned about the assessments argue that “pretrial risk assessment instruments, if used at all, should only identify groups of people to be released immediately,” and calls for the elimination of money bail in all states.

“We believe that jurisdictions should not use risk assessment instruments in pretrial decision making, and instead move to end secured money bail and decarcerate most accused people pretrial,” the statement reads.

The Laura and John Arnold Foundation — which provided New Jersey with its pretrial risk assessment tool — responded to the statement released by civil rights groups, affirming the need to make these data-driven tools “transparent; designed and adopted in ways that reduce racial disparity; implemented with community input; and validated regularly by independent researchers.”

But Daniel Nagin, professor of public policy and statistics at Carnegie Mellon’s Heinz College, thinks the racial disparity issue is far more complicated than it’s often made out to be by proponents and opponents of pretrial risk assessment tools.

“There have been criticisms of these instruments for a variety of reasons. One is that in some cases [the tools are] black boxes and lack transparency for how they work and how reliable they are in these predictions,” Nagin told InsideSources. “The other set of criticisms, which I think needs more scrutiny, is that because the instruments do use information of a person’s prior record and some … argue that prior arrests are contaminated by racial bias, therefore these instruments are perpetuating that bias.”

Nagin thinks the criminal justice system is “contaminated” by racial bias, but also thinks pretrial risk assessment tools may be the best current option for sifting out that bias.

“It is devilishly difficult to measure the degree to which data are contaminated by racial bias,” Nagin said. “We really don’t have good answers to that question. Some civil rights groups are very persuaded that criminal justice statistics are contaminated very heavily by racial bias. I would say they are undoubtedly to some degree contaminated, but we don’t know how much. The issue here is, how do these instruments perform to the alternative?”

The alternative, Nagin said, is money bail or a judge deciding on his own whether an individual should be detained pretrial or not. While the former may discriminate against poorer individuals, the latter is subject to human error and potentially racial bias.

With the pretrial risk assessment tools, local governments can choose what kind of data points to evaluate and can prevent racial bias from creeping into the results.

“There is, just more generally, a lot of evidence in many different settings that very simple kinds of statistical tools do a better job at predicting how well human beings will perform than people’s judgments, and that’s been used in a whole variety of contexts,” Nagin said.

According to Jannetta, “There’s always a question here about what risk assessment is supplementing and replacing. What you’re using it to guide and make more uniform is judicial discretion. I think in most places pretrial risk assessment will be more consistent and fair than pure judicial discretion, but that’s a testable proposition.”

Specific tools may show strong biases, create risk to the population, and be costly to taxpayers, but there is the possibility that a better tool can be identified.

The success of such tools really depends on what data points are being evaluated, how the tools are designed, and who is using them and to what ends.

“Like with any tool, a lot depends on what you’re trying to do,” Jannetta said. “There are lot of people who are in jail right now who the risk assessment tool will tell you are very low risk and should not be in detention at all.”

While the New Jersey data shows that the number of pretrial detainees has dropped by 38 percent over the past two years (the pretrial risk assessment tool was deployed in 2017) the Pretrial Justice Institute (which advocates for pretrial reform), noted in its 2017 State of Pretrial Justice report that there is still insufficient data on the efficacy of pretrial risk assessment tools because they are so new and haven’t been used for very long.

For example, there’s no data from New Jersey yet detailing whether more whites or blacks have been released pretrial, so there’s no way to quantify whether the tools are exacerbating, eliminating, or leaving any instances of racial disparity unchanged.

“[The civil rights groups’ statement] is an interesting argument, it gets to why are we detaining people pretrial,” Nagin said. “I think the argument they’re trying to advance is one of values, which says in a free democratic society, pretrial detention should be the exception, not the rule, you only use it if you have a really good reason that this person is a flight risk, but it has to be a very compelling argument or a compelling reason for thinking they’re really dangerous roaming free. But that’s a value judgment on which people can disagree.”

Because there still isn’t much data on the efficacy and efficiency of the tools due to still being in the early stages of implementation, there’s potential for the tools to improve safety and justice in some states, but depending on the different crime and cultural climates in communities, the tools could exacerbate existing problems if they aren’t modified to evaluate those conditions and properly weigh the risk of releasing violent individuals.