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.

* * *

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.

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Posted by at 06:00 | Posted in Measure 37 | 11 Comments |Email This Post Email This Post |Print This Post Print This Post
  • John Fairplay

    Not only will the number of government employees not be reduced in response to lower tax collections, but government employment will grow as it did throughout the 9/11 recession. This is because “more people need government services [apparently meaning ‘a salary’] during a recession.” Apparently, we need more government employees during good economic times as well, as their numbers have continued to swell this entire decade, regardless of macro-economic circumstances. Folks waiting in the bread lines may take heart – their government employee neighbor – whose job is to diligently shuffle paper from one stack to another for $35,000 a year + $1000 a month in free health care insurance premiums + yooge PERS retirement – has nothing to fear but fear itself.

    • Pheobe

      We need new employees to handle the new employees. Do not forget that as well.

  • John in Oregon

    One small minor correction of facts.

    In the article Larry commented > *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.*

    This is incorrect although the legacy media has made no attempt to correct the record. In fact the $700 billion bailout bill contains the authority to buy out lost equity of individuals. Both McCain and Obama voted for the bill.

    Larrys comment that the equity buyout “was quickly embraced by the president-elect and we are likely to see it re-emerge after his inauguration” is very accurate.

    So now we have Kerry squared. It can properly be said that:

    Obama was for equity buyout before he was against equity buyout during the debate.

    And it can also be properly said that:

    Obama was against the equity buyout before he is in favor of equity buyout as President Elect.

    It would have been nice if the Legacy Media had presented the facts of the bailout bill when it passed or at least after the debate. However the use of the words Media and Fact in the same sentence is a oxymoron just like the phrase Jumbo Shrimp

    • dean

      John… the McCain proposal was to buy out mortgages at their original face value, with the government (you and me) eating the difference between that and the current market value, which is 10-40% lower depending on location. The proposal by Bernanke/Paulson was to buy mortgage bundles at reverse auction, meaning the price paid would be well below face value. These would be re-sold later when the market recovers, possibly at a net gain. McCain was proposing a give away, while Bernanke/Paulson (and what Obama supported) were proposing an investment strategy. So your characterization of what Obama was for or against is inaccurate. McCain’s proposal was really bad economics and government policy and deserved the ridicule it got.

      the “legacy media” as you like the call it has been trying to catch up, understand, and come to grips with the whole meltdown and subsequent policy proposals as well as it can under trying circumstances. Personally I think they have done quite a good job.

      In any case the ball has moved to a different place on the playing field. Bernanke/Paulson are now putting capital directly into banks in return for shares, as the British proposed. The mortgages are being handled on a separate track by Fannie, Freddie, FHA, and the banks themselves. As I understand it they will be lowering the cost of mortgages to the buyer by extending the time, lowering the interest, lowering the principal, or some combination of these. Slowly we may work our way out of this mess.

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  • Scott

    Bill Sizemore saves cities!!!

    Because of Measure 50, cities are not seeing a decrease in general fund dollars. Market Values in this economy are still higher than assessed values. If it were not for Bill Sizemore, cities would be in the same dire straights as the state. Thank you Mr. Sizemore.

  • Bob Clark

    Another discouraging bit of news is Congressional Democrats now want to throw $25 billion to the Detroit automakers. Detroit car making is a dying industry which has too high of labor costs to compete in the global car market. The problems are systemic, and these operations will burn through such federal grants within a year, setting up another plea for more. The Democrats are bought in part by stodgy old unions who have sucked basic industry dry for decades. This is an obvious political payback.

    We should be focused on investing in competitiveness, like professional skills and infrastructure, not bailing out uncompetitive businesses. We also need to stay the course on easing restrictions against oil and natural gas drilling. Every time the economy gets off the mat, soaring oil and natural gas prices will put it right back in the hole if we don’t allow for expanded domestic energy supply.

  • John in Oregon

    When I read the sentence *”[T]he McCain proposal was to buy out mortgages at their original face value, with the government eating the difference between that and the current market value,* I have to wonder;

    Which part of “[T]he $700 billion bailout bill contains the authority to buy out lost equity of individuals.” did you not understand?

    When I read that sentence and you attempt to suggest “the McCain proposal” is ”different”, I have to wonder;

    What part of “buy out mortgages at their original face value, eating the difference between that and the current market value” do you not understand is exactly the same thing as “to buy out lost equity of individuals”?

    What part of Obama voted yes, spoke of individual mortgage protection during campaign events, opposed it during the debate and supports it now do you not understand?

    Note well, that the above has Nothing to do with whether any of this is a good idea economically. The above has everything to do with politics and politicians.

    You then use the distracter *”the “legacy media” — has been trying to catch up, understand, and come to grips with the whole meltdown.”*

    Isn’t it funny how the Wall Street Journal and IBD had no problem understanding? Wasn’t it fun to watch the New York Times, et al, spin their tires trying to find the smoking gun of Republican deregulation for which were was exactly none.

    Nevertheless and not withstanding, how do you address that the legacy media has made no attempt to publish the facts of the $700 billion bailout bill, the authority to buy out lost equity, and the positions of the candidates?

    • dean

      It may or may not “contain the authority.” Implementing it the way McCain suggested would have been really bad and ver unconservative policy. It lets the lenders completely off the hook for failing their due dillegence. It deserved to be panned.

      “Individual mortgage protection” is not the same thing as paying face value for the loans. I have to ask, what part of that don’t you understand John? Individual mortgage protection was proposed by Obama as a mortorium on foreclosures to buy time for the banks themselves to re-write the loans to be affordable given the income of the borrower. And that is exactly what is now happening. It means the banks take a loss as they should, individuals take a loss as they should, but the cascading systemic collapse is halted.

      By the way…the Wall Street Journal began publication in 1889. It is published on newsprint and sent to subscribers (just like the NY Times, founded in 1851). How is this not part of the “legacy media?” Or do you base that presumed pejorative only on whether you agree or disagree with the editorial page?

  • Dave A.

    Bob Clark; You are partly right about the US auto industry. In the case of GM; for most of the past 20 years they have NEVER made their money selling cars. What kept them afloat was GMAC, which the dummies sold half of to Cerebus Capital. Now that GM only owns half of GMAC and GMAC’s mortgage unit is in trouble; the party is over. At Ford, at least they are still doing their own financing.
    A good start would be to dump all of GMs’ upper management and Board of Directors if the Federal government bails them out. I have yet to hear a word about CEO Rick Wagner or anyof GM’s top managers taking a cut in pay – or better yet taking NO PAY while the
    company is in such dire straits.

  • John in Oregon

    > * It may or may not “contain the authority.”*

    I guess the bailout bill must contain the authority as that is what is being done.

    *FDIC to Bailout Delinquent Homeowners*

    “Officials at the Federal Deposit Insurance Corp. yesterday detailed a plan to prevent 1.5 million … to sharply reduce monthly payments on mortgage loans.

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