Tim Cavanaugh at Reason writes of the unfortunate similarities between California and New Jersey in how they managed their pension systems. Both systematically underfunded the plans and promised benefit enhancements during the late 1990s. But I learned something else from Tim’s post. Hoboken, as a musical muse, doesn’t quite work in LA.

Little for unions  to cheer on this Labor Day

How Corrupt is the Muni Bond Business?

Illinois Economic Development Agency wasting millions

Government bondholders, beware?

Resetting state union rules

Buena Vista, Virginia, a small city near the Blue Ridge Mountains,is in default. The Wall Street Journal reports they are only the latest municipality to find themselves drowning in debt. Central Falls, Rhode Island can’t pay its debts and has handed its finances over to a receiver. Harrisburg, Pennsylvania’s incinerator project has pushed the municipality to the brink of bankruptcy.

These cities all share something in common. They raised too much debt and are now collecting too little in revenues. What is even more telling is what municipalities have been getting into debt for. In the case of Buena Vista, the city borrowied $9.2 billion million to refinance a municipal golf course. As collateral they pledged City Hall and the police station.

The graph compares spending by state and local governments to spending in the private sector by graphing each as a multiple of its 1950 level (all numbers are adjusted for inflation). The differences are startling: since 1950, private spending has increased 5-fold while state and local government spending has increased nearly 10-fold.

State and local governments, of course, receive their revenue from the private sector. In a word, this is unsustainable.

According to Bloomberg, here are the top ten laziest states:

Louisiana, Mississippi, Arkansas, North Carolina, Tennessee, Kentucky, West Virginia, South Carolina, Alabama, Delaware.

(I have no idea whether this survey method is valid).

Though it is provocative to label the good people of Louisiana “lazy,” I suspect that much of the observed difference in behavior can be traced not to inherent differences in the people but to differences in the institutions in which those people operate: the laws, the economy, the culture, etc. that constrains and shapes their actions.

A few years back, the Nobel laureate economist Ed Prescott (of Arizona State) analyzed the difference between American and European working habits. There was a time, in the early 1970s, when Europeans worked more than Americans. Now this is reversed: “Americans work 50 percent more than do the Germans, French, and Italians.” Prescott finds that differences in marginal tax rates are the predominant factor. So Europeans aren’t any lazier than we; they just face different incentives.

I wonder what institutional differences can explain differences in work effort across the U.S. states?

One can’t help but notice the over-representation of the South. Two centuries ago, Montesquieu wrote:

You will find in the climates of the north, peoples with few vices, many virtues, sincerity and truthfulness. Approach the south, you will think you are leaving morality itself, the passions become more vivacious and multiply crimes… The heat can be so excessive that the body is totally without force. The resignation passes to the spirit and leads people to be without curiosity, nor the desire for noble enterprise.

I seem to recall a similar observation from John Adams, but can’t locate it just now…or maybe I just don’t want to put in the effort to find it.

John Hood writing at National Review suggests in addition to encouraging state profligacy, federal bailouts of state governments are an “act of contempt for constitutional government.” Congress is getting ready to extend the stimulus by $26 billion. Thirty states presented balanced budgets on the expectation that Congress would extent the Medicaid FMAP provision. It’s like balancing your checkbook on the theory that your rich uncle will come through with another windfall. That analogy of course breaks down. The federal government is no ‘rich uncle’. It is sinking under $13 trillion in debt that is to be paid by taxpayers. Publicly-held debt will represent 100 percent of GDP in 2015 – in part, the courtesy of bailout fever.

Hopewell’s meeting produced some serious questions for the borough considering changing its government from a municipality to a non-profit. For an update, read more here.

Tonight at 7:30 p.m. a meeting will be held in Hopewell Borough, N.J. to discuss the possibility of dissolving the town’s municipal charter and incorporating as a non-profit entity.

What gave Mayor Paul Anzano this idea? He cites the cost of state-wide mandates on the small municipality’s budget. State-mandated full-time animal control and health awareness programming alone cost the borough of 2000 residents $40,000 a year. Residents don’t want to merge with neighboring Hopewell Township, which the Mayor argues will not only lead to the town’s loss of community identity, but will also raise taxes on residents.

In the non-profit entity model residents would be charged for basic services. Students would still attend public schools and residents would be taxed, as they are currently, for the schools.

The big issues discussed tonight will include how to organize elections, the treatment of revenue, aid and tax benefits, the future of municipal employees, and the potential need to close the municipal court.

It’s a fascinating development that points to one of the most misunderstood features of New Jersey’s political and fiscal history. New Jersey’s 566 municipal governments, and 600 + school districts are a perennial target of policymakers in search of solutions for the state’s high property taxes and government inefficiency. An often-offered remedy: centralize. Consolidate municipalities and “rationalize” the map of New Jersey. Bigger governmental units are better.

But it’s a remedy that fails to ask a basic question. What’s causing the inefficiency and high property taxes to begin with?

New Jersey’s municipal map is silent on the last half century of interplay between the state, federal, and local govenrments in forming New Jersey’s current fiscal landscape.  It only shows the boundaries that formed between the 17th and 20th centuries, set since 1956, of a state that grew prosperous in a period marked by institutional diversity and decentralization.

Most states know they have big problems and that today’s budget gaps were created over a long period by policy and budgeting choices.

In my latest Mercatus Center Working Paper “Fiscal Evasion in State Budgeting” I discuss how states got into this situation, in part, by (legally) concealing and avoiding the full costs of policies. Some of these tactics, such as deferring pension payments, have gotten alot of attention. And others are harder to tease out.

For example, see this video at the Yankee Institute for Public Policy on how Connecticut used state university tuition to balance its budget.

In addition to collecting a pension, most public employees also participate in Social Security. A few states, such as Maine, never integrated with the program, which means their public sector workers don’t collect Social Security, nor are they subject to the 6.2% payroll tax.

Mary Williams Walsh reports that in an effort to solve their pension underfunding Maine is considering changing its Social Security holdout status. Maine’s state employees would begin paying into and collecting Social Security without having contributed to the system over their working lives. While reducing Maine’s risk of paying for large losses, the move doesn’t address the $4.1 billion hole in Maine’s pension plan (a hole already underestimated since assumes a 7.75% return on assets). And there is the instability of the Social Security program which is projected to begin running a deficit in 2017.

However, integrating with Social Security could be part of a transition to an improved state retirement system. Joshua Rauh explains at the New York Times‘ Room for Debate how the federal government might step in to head off the state pension crisis.

Faced with declining property and sales taxes and a police department slapped with $19 million in claims against officers (which caused the city to lose its insurance), led Mayor Ana Rosa Rizo of Maywood, California to do the unthinkable. She fired everyone. “It was either this or bankruptcy.” What is remarkable in this small, but densely populated, blue-collar city south of L.A. is that nobody really noticed the difference.

Anarchy did not follow. Public safety duties were handed over to the Los Angeles County Sheriff’s Department. The Mayor’s husband got a parking ticket from enforcement officials contracted by the city a few hours after the municipal employees were let go.

While the city is not trying to present itself as a model for other municipalities facing bankruptcy civic leader Hector Alvarado says the firings sent the right message to a dysfunctional public workforce, “Remember the Soviet Union? They had a lot of bureaucracy, and they lost. Maywood was like that. Now people know if they don’t work, they will be laid off. Much better this way.”

In New York City, urban planners are considering new rules which would make it more difficult for developers to construct parking garages, the Wall Street Journal reports.  Currently, parking garages are prohibited if they are expected to increase congestion:

The current process requires developers to show that their garage won’t adversely affect traffic congestion in the immediate neighborhood. Some transportation advocates want the city to take a broader view when considering the issue of congestion, which could make it harder for developers to get permits.

Parking is a complex issue in planing regulation.  On the one hand, some urban critics argue that subsidized parking facilitates urban sprawl by allowing people to easily rely on cars for transportation without bearing the full cost of driving and parking.  On the other, privately-managed, unsubsidized parking garages offer a relatively efficient way for commuters to park in high-density areas while better internalizing the cost of this behavior.

As New York City may move toward limiting parking garages, others are celebrating their contributions to city life.  Baltimore author Shannon McDonald has recently written The Parking Garage: Design and Evolution of a Modern Form, exploring the architectural and utilitarian contributions of American garages.  She points out that in addition to serving the need for storing vehicles in high-density places, entrepreneurs have recently developed new uses for garage roofs including green roof parks, swimming pools, and solar energy plants.

On the Diane Rehm Show with McDonald, Robert Puentes of the Metropolitan Policy Project at the Brookings Institute points out the if municipalities broadened the role of the private sector in parking garage provisions, they could unleash incentives for entrepreneurs to improve the mix of uses of existing garages.

Last summer I had the experience of learning how cost-prohibitive it is to obtain local budget records for Woodbridge, New Jersey.

Only the current year budget is online. Previous year budgets were not available electronically. So I went to City Hall expecting they would be available to the public. Instead, I was asked to file an Open Public Records Act (OPRA) request with no guarantee the request would be fulfilled.

The costs were jaw-dropping. The first 10 pages cost 75 cents. Pages 11-20 dropped to 50 cents a page. And for each page thereafter the cost was 25 cents.

For 10 years of municipal budgets I would be charged roughly $242.50.

Undeterred, I went across the street to the Woodbridge Public Library. The librarians were incredibly helpful. They carted forty years of  budgets to my table. And, told me if I called ahead they would have them ready should I want to do future  research.

I spent about an hour copying at fifteen cents a page. Turns out, I only needed five pages from each document. (Something I could not have specified through an OPRA. In order to know what pages I needed I had to look at the documents first.)

I spent $30 for 40 years of specific budget data.

A New Jersey court has ruled that the state should reduce copying fees at state agencies. It seems my complaint is shared by good government groups and many New Jersey residents.

While reducing copying fees grants greater accessibility to public records, why not go a step further and put more online? Is it that costly for New Jersey’s local governments to keep a record of budget data on their websites? In the time it took to photocopy 40 years of budgets the pages could have been scanned into a computer.

Granted my fiscal history of Woodbridge is incomplete. I could not find the school district’s budgets at the library. But it is a start which you can check out at Sunshine Review.

Governor Christie unveils merit pay plan for N.J. teachers

DOJ charges 94 people with Medicaid/Medicare fraud

WSJ: Senate VIP loans mount

Non-unionized workers picket on behalf of unions to protest nonunion hiring practices

IMF tells US to reduce deficit

NYT op-ed: Treasury should pour (more) money into state budgets

WSJ: Unemployment Benefits Aren’t Stimulus

American Dream Eludes the Next Generation

Prohibition Redux?

The New York Times reports that Illinois has taken the place of California for the state with the biggest troubles. Downgraded by every ratings agency, Illinois’ pension system is likely to run out of money to pay retirees in the next few years. And the state has hasn’t figured out how to close its $12 billion deficit, representing about half of its budget.

Illinois has avoided program cuts and tax hikes by borrowing. Those bond issues are now another budget line item for interest rate payments. Last year Illinois paid $55.3 million for two short-term borrowings it issued to pay for operating expenses. Former Govenor Rod Blagojevich, pushed the state to issue $10 billion in Pension Obligation Bonds, and Governor Quinn is currently considering issuing more pension bonds to make the state’s payment. The POBs haven’t helped. Today Illinois officially reports $70 to $80 billion in unfunded liabilities, a figure that vastly understates the systems’ true unfunded liability which is likely closer to $219 billion or about one-third of the state’s GDP.

A key component of Governor Chris Christie’s spending and tax reduction plan is his proposal to place a hard cap of 2.5% on property tax increases, based on Massachusetts’ Prop 2 and 1/2. A compromise was reached with the Legislature this weekend to create a 2% cap with several exceptions for pensions, health care, and debt.

The Asbury Park Press covers how the cap evolved this weekend.

My reservations over the property tax cap boil down to a basic theoretical observation. Capping one source of revenue only shifts the bill. The problem in New Jersey does not lie with the property tax, per se, but in the evolution of an intergovernmental aid system, and state spending mandates that have eroded Home Rule.

Local budget watchers will want to keep an eye on how local governments choose to navigate the cap this year. Pension costs and health care are set to consume the state’s budget in the coming decade. Cap or no cap, as the Governor knows,  New Jersey has plenty left to cut.

The Economist offers a special report on the rising debts of nations. The piece is an interesting read. Covering economic, financial and moral concepts of debt finance, the report also contains a world map of debt.

Forbes has put together a nifty interactive map of nationwide county-by-county migrations patters. See Tiebout sorting at work! The map shows inward and outward migration numbers, and the income of the households doing the moving. To take one example, here’s what it looks like for Arizona’s Maricopa County:

Via Radley Balko.

Stimulus Part II dies in the Senate

Alabama fire chief risks jail to stop Gulf oil spill

Newark’s red light cameras nab 20,000 drivers

New York City’s public sector unions protest budget cuts

Will Chicago teachers forgo a pay raise?