Fiscal Lessons From Local Government

Last Thursday, the state’s major newspaper carried the following story:

“[The county’s] gloomy economic picture worsened Thursday when economists released figures showing [a growing] shortfall for this year, and almost double that for the next fiscal year.
“The cause: declining revenues working in tandem with the national economic downturn.
“Officials will try to balance the budget by cutting spending in most departments, dipping into emergency and contingency funds, reducing or eliminating pay raises, scaling back capital improvement projects, and probably laying off employees. Already this year, the county has eliminated staff and cut several dozen vacant positions in the Planning and Development because of the slower real-estate market.
“‘We have to downsize county government and sustain it at a lower service level for the foreseeable future, for several years.’ [a government official was quoted as saying]. “˜The economy is not going to bounce back. We’ve been told its going to be a four- or five-year recovery. We need to become more effective and efficient with less money.'” [Bracketed words supplied]

While the federal government appears to be piling on debt in the face of the economic downturn, local government may, in fact, provide the more sensible solutions — live within your means. Currently, the government actions are rapidly approaching over a trillion dollars – $1,000,000,000,000 — and with no tangible results:

ï‚· The first economic stimulus package valued at over $150 Billion dollars was primarily a redistribution of wealth. People who paid little or no taxes received the so-called “rebate.” Those who paid the most in taxes were barred from receiving any benefit. The stimulus package did nothing to stem the economic slide and, in fact, the stock market slide accelerated and the economy continued to decline.
ï‚· The $85 Billion bailout of AIG has now grown to $150 Billion and there is still no visible result other than AIG posted a nearly $25 Billion quarterly loss with more to come and the AIG executives continue to engage in reckless spending for gatherings at luxury resorts — the latest being a $343,000 weekend (Nov. 5 — 7) at the Pointe at Squaw Peak in Phoenix.
ï‚· The bailout of Fannie Mae and Freddie Mac could easily reach $20 Billion and will likely increase substantially when the full scope of the fraud and corruption is realized. Remember that Fannie Mae and Freddie Mac were the primary instruments used to do the bidding of Congressional Democrats who insisted on making loans available to people who could not afford to make the payments in an artificially inflated real estate market.
ï‚· The $700 Billion bailout passed just before the elections in an effort to claim that Congress could do something — anything — to stem the crashing economy. While the purpose of the $700 Billion was to prop up the failing credit markets, we now read each day that little of the money is being used for such purposes and more of it is being used for purposes never envisioned in the lead up to its passage — including bailing out insurance companies and automakers.
ï‚· A bone-headed proposal by Sen. John McCain to “buy up” the “lost equity” in sub-prime loans (the difference between the property value at the time of the loan and the current value) was estimated to cost $350 Billion. Although it was proposed by the presidential loser, it was quickly embraced by the president-elect and we are likely to see it re-emerge after his inauguration.
ï‚· A new “stimulus” package is now being supported by President-elect Obama and being circulated in Congress at a cost of another $150 Billion. This time it appears that some substantial portion of it will be directed towards public works projects in an effort to create jobs. While that is a laudable purpose, the history of this Congress is so laden with “pork” that you can assume that a significant portion will simply be done to buy or reward political fealty similar to the millions given to the demonstrably corrupt Democrat organization known as ACORN.

And yet despite that additional $1 Trillion of debt imposed on the next generation, there are no visible indications that any of it has changed the economic equations. We are still sliding into a recession (we have technical confirmation that last quarter was the first to show negative GDP growth), the financial markets continue to tighten and resist efforts to stimulate lending (there is some evidence that the “bailout money” is being used to finance mergers and acquisitions), and unemployment continues to rise as available jobs continue to slide.

The same politicians who “buried” the early warnings of the impending housing crises with its attendant mortgage disaster (Rep. Barney Franks and Sen. Chris Dodd at the forefront) now want an instant solution. But that is the essence of allowing politicians to force political decisions when economic decisions should be had. The quick fixes demanded by their ilk are doing little other than piling up debt. The one thing you do not hear from Congress is any attempt to reduce spending (other than spending on national security).

So it is refreshing when you read about local governments who understand the essence of the problem and are prepared to act just as you and I must act during this economic downturn. We are going to live within our means — cutting back discretionary spending, deferring capital improvements where possible, using our savings judiciously, and, finding additional work if we can. And these local governments seem prepared to live within their means — reducing programs to essential needs, eliminating positions, rolling back raises, deferring capital projects and using their contingency (savings) funds.

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Okay, you guessed it. It wasn’t the Oregonian and it wasn’t Multnomah County. And it most assuredly was not Oregon state government. Words like “cutting spending”, “reducing or eliminating pay raises”, and “laying off employees” are simply not in the lexicon of Oregon government and most assuredly not in the governments of the Portland Metro area. The concept of being “more effective and efficient with less money” is not only foreign to them but in many instances are simply fighting words.

The article was in the Arizona Republic and referred to Maricopa County (Phoenix). While common sense may not prevail in Oregon state government or the North Willamette Valley, it does prevail in the country’s fourth largest metropolitan area.