Tough Choices for Governors

Tough Choice for Governors

Given the economic downturn, and requirement that states have to balance their budgets, the next 4 years of state budgets across the country will feature belt tightening, program reductions (and outright elimination) and challenging labor negotiations.

Here are the areas of debate, beginning with “what is the appropriate role of government in the first place?”    The big four pillars in state government are education (usually biggest slice of budget), health services, transportation and corrections.    And underlying all of these is state worker labor costs (direct pay, retirement and benefits), which are increasing much faster that state government revenues.   

The debate in Wisconsin on state and local employees and their public union representation is just the tip of the iceberg, as all 50 states and countless municipalities are struggling with their labor costs.     Should the Governor (of any given state) reduce the burden and cost of state employees (their compensation & benefits) by adjusting benefits and retirement costs or just lay state workers off (and not change benefits)?    In the example of Camden, NJ, the public employees wouldn’t negotiate a less pay and benefit package and set the stage for a 50% layoff.   

Other Governors are looking to sell state assets, privatize highways (convert to toll roads), privatize higher education (reduce subsidies and convert to enterprises).  Some Governors of deep blue states (such as Illinois) decided to raise taxes during an economic downturn.    It is unclear how increasing taxes will actually generate additional revenues, if the overall business climate and tax base is adversely impacted.   Many companies are moving their headquarters and manufacturing locations from high tax states (Michigan, New York, California and Illinois) to lower tax states such as Texas.   Thus simply raising taxes may not work.  Now that the Federal stimulus dollars are waning and spent out (a large portion of Fed dollars were used to prop up state budget shortfalls, particularly in pro-union high labor cost states), states are having to make additional cuts in spending to balance their budgets.

By John F. Cape
Senior Fellow, the Rockefeller Institute of Government 11.2010

Against this bleak background, in most areas of the country, state government has effectively lost its pricing power. In race after race, gubernatorial candidates — Republicans and Democrats alike — have rushed to assure voters that they have no intention of raising taxes. As a result, given the inherent lag between economic recovery and state revenue growth, it is likely that many states will be mired in difficult fiscal conditions until 2013 or 2014.

So, what should state leaders do? From my experience over the past 35 years working as a state budget official and consulting for state fiscal managers across the country, I would offer new governors two simple suggestions:

1) Define fundamental goals for your major programs and revenue sources to be achieved by your fourth year in office.

             2) Have your budget staff do a “back of the envelope” calculation of the Year Four costs of those spending goals and the monies potentially generated by your Year Four tax goals, and see how closely they match. These are estimates, so they don’t have to balance perfectly — they just have to be close.

If you want to be the “tax-cutting education governor” (and who doesn’t?), this exercise should be eye-opening. Unless you’re in North Dakota (which has been spared most of the current economic pain), it will likely require you to repeat step one. Once affordable long-range strategic objectives are defined, then you should begin work on the upcoming fiscal plan. Simply put, the fiscal stress in the coming years will make state budgets very unforgiving of mistakes. Embarking on spending or tax strategies that are unsustainable can result in painful course-reversals later.  This planning will not be easy or pretty. Suffice it to say that the next few years will see a greater debate about the fundamental role of government — at all levels — than we have had in 50 years. State programs and agencies that have survived untouched for years could face elimination or consolidation. Non-core assets such as real estate or liquor stores could be put on the sales block. Surely, we will see a restructuring of state and state-subsidized employee benefit programs to realign with broader labor market norms. And the result of those debates will color state fiscal plans going forward for at least a decade.

In short, successful governors will have to make hamburger out of what have previously been sacred cows, or risk seeing their agendas trampled by the herd.   John F. Cape

See the Rockefeller Institute web site http://www.rockinst.org 

Unlike the Federal Government, the state governments must balance their budgets.  May the great debates continue in all 50 capitals of the United States.   And the great American democratic experiment will unfold and we’ll see who can figure out how to navigate some of the roughest financial seas in the past 50 years.   

© Jasper Welch, Four Corners Media, www.jasperwelch.org   

Sandmonkey: Voice of Protest in Egypt

So what is really happening in Egypt?   Listen for yourself, as Sandmonkey as he is interviewed with Roger Simon from Pajamas Media.    Sandmonkey shares his "on the ground" perspective of the protests in Egypt, and how the true protesters and the Egypt authorities are responding to the situation.   As many as 2 million Egyptians have joined the protests.  The long distance phone call interview was conducted on Wednesday February 2nd by Roger Simon with Sandmonkey from his undisclosed location in the City of Cairo.  As a blogger, Sandmonkey communicates that America needs to choose between the US ideas or the US interests.     From his perspective, Sandmonkey expressed that the only people who were supporting the Egyptian people were individuals who support democracy around the world, but not actual democratic governments (such as US or Europe).   The Egyptian government has been putting out many pieces of misinformation to support the existing government, and discourage the protesters.  

www.sandmonkey.org  or twitter.com/Sandmonkey    

To hear the interview:  http://pajamasmedia.com/rogerlsimon/2011/02/02/cairo-exclusive-interview-with-sandmonkey

(c) 2011, Jasper Welch, Four Corners Media, www.jasperwelch.org 

NM Roundhouse in Session in Santa Fe

In New Mexico, the citizen legislature meets for 30 day and 60 day sessions.     With 70 House members and 42 State Senators, the annual legislative session in Santa Fe is filled with pomp, circumstance, endless meetings, morning and evening events and plenty of deal making.    Over the past several years, the State Senate leadership has maintained a more conservative and thoughtful approach, while the House has seen it's share of debate.   For details on the NM legislature: http://www.nmlegis.gov/lcs     

And the cutting edge blog that is on top of what is happening in Santa Fe is Joe Monahan's political blog that follows the ins and out of politics in New Mexico.    While I'd disagree with his recent criticism of Farmington's own Representative Tom Taylor (whose is the House Minority Leader), Joe is pretty well connected with his sources in the state and has a bead on the breaking stories.

Since the session just started in mid January, they'll be plenty of entertainment over the next 50 more days, with the first female GOP Hispanic governor in the United States (Susana Martinez), a weakened Democrat Speaker of House (the Dems lost 8 seats to the GOP, but kept a slim majority in the Chamber), and the State Senate (which has been the stabilizing influence in Santa Fe during the crazy and corrupt days of Big Bill).

(c) 2011,  Jasper Welch, Four Corners Media, www.jasperwelch.org

Reading our US Constitution

Reading our US Constitution

What a difference a majority in the House of Representatives makes.    In the new 112th Congress, with newly elected Speaker John Boehner (R-Ohio), the people's house decided to read the sacred trust document that is the foundation of the American government.    Sounds a pretty good idea.    Except if you are the New York Times, or one of the many Democrat members who skipped the reading.

From American Thinker    by Michael Filozof
 http://www.americanthinker.com/blog/2011/01/the_constitutional_hypocrisy_o.html

The fact is that the Democratic Party and the political Left in this country use the Constitution as nothing less than an instrument of pure demagoguery. When it suits them to cite it, they do; when it suits them to ignore it, they do; and when neither alternative suits them, they invent phrases out of whole cloth (e.g., "separation of church and state," "jury of one's peers," "freedom of expression," "right to privacy") that exist nowhere in the Constitution and invest these phrases with constitutional authority.

The reading of the Constitution on the House floor is neither a stunt nor a political trick. The Constitution is nothing less than the "supreme Law of the Land." Its purpose, as Madison wrote in Federalist #51, is to "oblige [the government] to control itself."

The great question of our time is this: will the public demand that government adhere to the Constitution and "control itself," or will the public not give a damn what the Constitution says as long as government provides bread and circuses?

US Population Shifting from Blue to Red States

US Population Shifting from Blue to Red states

The 2010 U.S. Census Bureau reported their official numbers, and the subsequent impact on population shifts from the slow growing northeast and Midwest to the faster growing South and Western United States.   According to www.realclearpolitics.com 

Overall, this represents a continued shift in the Electoral College from blue-leaning states to red-leaning states.  The U.S. Census Bureau today announced its long-awaited final population and reapportionment numbers. The official population of the U.S. as of April 1, 2010 was 308,745,538, up from 281,421,906 in 2000. The Northeast grew 3.2 percent, the Midwest grew 3.9 percent, the South grew 14.3 percent and the West grew by 13.8 percent. Overall, it was the slowest growth in the country since the 1930s.

The apportionment winners were: Texas (4 seats), Florida (2 seats), Arizona (1 seat), Georgia (1 seat), Nevada (1 seat), South Carolina (1 seat), Utah (1 seat), Washington (1 seat). The losers were: New York (2 seats), Ohio (2 seats), Illinois (1 seat), Iowa (1 seat), Louisiana (1 seat), Massachusetts (1 seat), Michigan (1 seat), Missouri (1 seat), New Jersey (1 seat), Pennsylvania (1 seat).  The rest of the states are holding their own, including Colorado, New Mexico and Oregon.    For the first time since 1920, California did not gain a Congressional seat.

The last time California did not gain seats was in 1920, when rural congressmen refused to reapportion seats, and the power that went with them, to urban states.  The new numbers reflect a generational shift of population and political power from the Northeast and Midwest to the South and West. In the Congress that’s seated in January 2013 the largest House delegations will be from California, Texas (36 members), New York and Florida (27 each). To put those numbers in perspective, since 1970 when the Sunbelt began to grow, Texas and Florida have each gained 12 seats while California has gained 10. The biggest losers over that 40-year span have been New York, which has now lost 12 seats, Ohio and Pennsylvania (seven seats each) and Illinois (six seats). http://totalbuzz.ocregister.com 

Political pundits and campaign strategists can see the impact of the this 2010 population shift, as the big northeast states of New York, Ohio, Pennsylvania and Illinois have lost a combined 32 Congressional seats since 1970, while Texas, Florida and California have gained 34 seats.     The Rustbelt is declining and the Sunbelt continues to grow.   And blue states (Democrats) are flat to declining while the red states (Republican) are growing.   The new Census will impact the 2012 Presidential election by favoring the growing red states at the expense of the flat or declining (in population, votes and political power) blue states.

© 2010, Jasper Welch, Four Corners Media, www.jasperwelch.org

Current Events and Newsmaker on Video

Do You Want to Watch a Current Political Video?

In this day of sound bites, 30 second spots, talking points, spin and Twitter, we often miss the full context of statements by an elected politician, an appointed official or even the President of the United States (POTUS).   Rather than trying to understand political decisions and what is happening from bits and pieces, you can click through to the Video sections of some key web sites and actually watch the full press coverage, or interview or debate that you are interested in.    Politico, YouTube, RealClear Politics all have video and multimedia resources to watch and allow you to receive a full context on news, newsmakers, politicians and elected officials.   

http://www.politico.com/multimedia     For Politico

http://www.realclearpolitics.com/video  from Real Clear Politics

 For years, we have just waited for the mainstream media (MSM) to pull together sound bites from newsmakers with commentary from news anchors to “see and hear” the news.    Or wait a day or two before the local newspaper prints the story or news article.   In fact, a 30 minute MSM news program, such as ABC, NBC or CBS, consists of about 12 minutes of news and 18 minutes of commercials.    On-line, you’ll see some 15 seconds ad clips, but mostly you can just watch the full context of what is going on, whether it is a speech, interview or debate.   In 2010, you can watch and see the newsmaker without commentary, political spin or editing.   And you can make up your own mind.

© 2010, Jasper Welch, Four Corners Media, www.jasperwelch.org  

Challenges in Funding State Government

Challenges in Funding State Governments

It is the economy…still the biggest challenges facing state and local governments.    State and local tax revenues have been declining since 4^th quarter 2008, and corporate income taxes have been declining since 3^rd quarter 2007.   The recession impact was felt at the state and local government tax receipts for 5 quarters (4^th Qtr 2008 through 4^th Qtr 2009).    Year over year for 2010 inched up at about 2% rate (1^st and 2^nd quarter 2010 compared to 2009) state tax revenues.     This according to the Rockefeller Institute recent report on state and local government finances.   www.rockinst.org   

             However, state revenues took a major hit as tax collections were off about 20% below expectations over a 2-year period of economic slowdown (late 2008 through early 2009).   Planning for FY 2011 budgets will be a challenge, as all of the stopgap measures have been exhausted and some real budget cuts will still be required to balance state budgets.    In Colorado, the FY 2011 budget shortfall is estimated to be $1.5 billion, as compared to a $19 billion state budget.   In New Mexico, another $250 to $400 million needs to be cut from this FY budget, and it is likely that more reductions will be needed for FY 2012 (that starts July 1, 2011).

The Southeast and Rocky Mountain regions reported the largest declines in personal income tax collections at 9.6 and 6.3 percent, respectively. In fact, each single state in both regions reported declines in personal income tax collections.    In Colorado, personal income tax withholding was down about 4% in late 2009, but had slightly increased to about 3% (increase) in 2^nd Quarter 2010.   According to the Rockefeller Institute, Colorado and New Mexico were experiencing declining economic activity in August 2010, as compared to the rest of the United States.   Texas continued to maintain economic growth, although is has slipped from 7^th in FY06 to 13^th in FY11 on the Tax Foundation state business tax climate index.   www.taxfoundation.org 

The Rocky Mountain States are slipping on the Tax Foundation index, with New Mexico falling 10 slots from FY10 (#23) to FY11 (#33).   Under 4 years of a Democrat majority in both legislative assemblies and a Democrat Governor in Colorado, the state fell from FY08 (#10) to FY11 (#15) in the Tax Climate index.    Whereas the state of Utah as steadily moved from FY06 (#15) into the top ten FY11 (#9) in the Tax Climate index.  Arizona dropped one notch below New Mexico to FY11 (#34) after several years in the high 20’s in the Index.

Bring up the rear in FY11 are New York (#50), California (#49), New Jersey (#48), Connecticut (#47) and Ohio (#46).     Each of these state are characterized by high tax rates, significant public labor unions, and significant taxes on capital (such as California with almost 10% state tax on capital gains).

As various states struggle with a weak economy, it is likely that those states that reduce public spending and reduce dependence on government programs (and thus are able to reduce tax rates), but at the same time create a business friendly environment, are more likely to succeed economically going forward.   Clearly, as California and New York have experienced, their model is not working.  Whereas the Texas model and the Florida model are enhancing economic growth due to a better tax climate and business friendly state policies.     In the United States we have 50 models of state level democracy and free market capitalism underway.    The high tax, high regulation and high public union states are not competitive (nor financially sound), whereas the lower tax, lower regulation and less public union states are more competitive and fiscally sound.

© 2010, Jasper Welch, Four Corners Media, www.jasperwelch.org