Monthly Archives: September 2009

Governor Fortuño Privatizes Jobs, Puerto Rican Unions Strike

puertorico_demonstrations_june2009On October 15, Puerto Rico’s public sector labor unions promise “the most massive movement” in their history.  Yesterday union leaders clashed with riot police outside La Fortaleza, the governor’s mansion in San Juan.

A general strike is being called in response to Governor Luis Fortuño’s decision to layoff 17,000 government workers in order to avoid a budgetary crisis. Puerto Rico faces a budget deficit of $3.2 billion.

It’s a bold move, considering that 25 percent of all those employed in Puerto Rico work in the government sector. The move is part of a larger plan to deal with Puerto Rico’s poor economic growth, growing public sector, and the lowest credit rating in the U.S. (now at BBB-).

While the unions argue that layoffs will drive up the unemployment rate, what is striking about Puerto Rico is the long-running anemia of its private sector. Stephen Davis and Luis Rivera-Batiz find in a 2005 study that employment rates in Puerto Rico are 55 to 65 percent of US employment rates. The employment shortfall is concentrated in the private sector, in particular for labor-intensive jobs.The authors cite several causes:

  • High minimum wage requirements,
  • Tax incentives for capital-intensive activities,
  • Regulatory barriers, and
  • A business climate that rests on being able to secure favors from the government.

puerto-rico-capitolIn other words, economic policy — heavily reliant on government transfers — has discouraged private sector growth making the government sector a leading provider of jobs.

The cuts are, in a sense, unavoidable. Public sector employment is a main driver of the commonwealth’s budgetary crisis: nearly 70 percent of Puerto Rico’s budget is for payroll.

Crushed by Taxes in New Jersey

Gannett has done its homework — and the homework of New Jersey’s government(s). This week its New Jersey papers are running a week long series on the state’s property tax crisis.

Visit the Asbury Park Press‘ website and click on a municipality in any one of New Jersey’s 21 counties. Wave your cursor over the bar chart to get a tangible sense of how property taxes are crushing the state’s residents.

For example in Fort Lee, Bergen County, residents face an average tax burden of $8,510, up from $5,545 since 2000. Factor in the property tax rebates from Trenton — the average check sent out in 2008 amounted to $944 — and that’s a 41 percent increase in property taxes in eight years with the rebate. You can get property tax details for each of the state’s 566 municipalities.

Yesterday’s analysis (Day 2) featured a series on one of the major drivers of property taxes: salaries for public sector workers.

Binding arbitration rules mean that unions negotiate their benefits and salaries through a seven-member commission in Trenton with the costs passed on to localities. (For background on the evolution of public sector negotiations in New Jersey from 1968 to today, read, “PERC After 40 Years.”)

Now,  thanks to what must have been a massive amount of data work for Gannett’s reporters, you can easily discover how much police officers, municipal workers, teachers, firemen, and judges are being paid in your town.

Each of New Jersey’s 460,000 public employees enrolled in a benefits program is in this data base by name, jurisdiction, and retirement fund. You can also look inside a police contract.

The Asbury Park Press highlights some of the biggest beneficiaries:

  • A principal at Freehold Regional earns $146,316.
  • A police officer in Belmar grossed $109,975.
  • In Eatontown, a patrol officer earns $90,000.

The reporting continues through Sunday, and it’s worth exploring. It’s also worth asking why some towns were more forthcoming with their data than others.

Ancient History? State and local governments lobby D.C. for money

The Los Angeles Times reports St. Helena, California spent $150,000 on a lobbyist (more than Philadelphia or St. Louis) to help direct more federal funds to the Napa Valley city. It isn’t an isolated case, or a new story.

The incentive to petition for  federal funds  has been in place for more than a century. And since this period, it has been argued and debated, that federal grants are a means around The 10th Amendment, imposing the policy priorities of the federal government on the states.

(Indeed, this is the basis for various sovreignty amendments, Minnesota Governor Tim Pawlenty’s rejection of the health care bill, and Texas Governor Rick Perry’s opposition to the stimulus.)

As Chris Edwards writes in Downsizing the Federal Government, “Federal granting began during the late 19th century, expanded during the early 20th cenutry, and exploded during the 1960s….today there are 800 state and local aid programs ranging from Medicaid ($225 billion) to Boating Safety Financial Assistance ($120 million).”

In addition to imposing federal policies, grants, as intergovernmental aid, stimulate more spending on the state and local levels. Federal grants may feel like free money, but they come with strings and impose costs on state and local budgets.

Over the decades, states and local governments have grown addicted. The current revenue crisis in the states has only enhanced the temptation to petition Washington for more to fill shortfalls and maintain larger governments.

Opensecrets.org, shows state and local governments spent $41 million through June on D.C. lobbying. The Commonwealth of Pennsylvania put $740,000 towards lobbying over the past decade. Boone, North Carolina dedicated $40,000 in the past three years. Even the District of Columbia’s Mayors Office spent $20,000 to lobby Capitol Hill.

How do politicians feel about their constituents hiring additional manpower to direct more federal funds to local coffers? Rep. Howard McKeon (R-Calif.), a former mayor of Santa Clarita, was at first offended when his city hired a Washington lobbyist, but found they could be helpful, “It’s kind of a team effort. I’m certainly not omnipotent.”

Before putting a lobbyist on their books, local governments might want to pause and consider the full price of spending money, to ask for money, that will lead  them to need even more money in the future.

Steward Brand, Slumlord

Whole Earth Catalog founder and onetime Merry Prankster Stewart Brand is one of twelve thinkers asked this month by Wired magazine to contribute to a list of “twelve shocking ideas that could change the world.” In this brief piece, Brand praises slums as good for the environment:

Cities draw people away from subsistence farming, which is ecologically devastating, and they defuse the population bomb. In the villages, women spend their time doing agricultural stuff, for no pay, or having lots and lots of kids. When women move to town, it’s better to have fewer kids, bear down, and get them some education, some economic opportunity. Women become important, powerful creatures in the slums. They’re often the ones running the community-based organizations, and they’re considered the most reliable recipients of microfinance loans.

Here is Stewart Brand’s TED talk from earlier this year where he discusses the idea in greater depth.

Mike Davis wrote in 2007 that slums are, contra Brand, environmental tragedies. For different but related reasons, Tyler Cowen argued in 2006 that in recovering from Hurricane Katrina, New Orleans should allow shantytowns to emerge unmolested.

California Also Selling State Buildings

California has joined Arizona in selling state buildings to the private sector which they then lease back in order to inject cash into the state’s treasury today. The state believes the move will raise some $2 billion in cash:

As the California economy roared in the 1990s and tax revenues poured into a treasury overseen by Gov. Pete Wilson, the state laid plans for a series of new office buildings in Sacramento to spare itself from paying rent to other landlords.

Barely a decade later, the Schwarzenegger administration is launching a process to sell many of the same buildings that were originally touted as long-term money savers for taxpayers. The goal today is more immediate: pay off debt and steer cash into the state’s depleted general fund. It’s among a variety of short-term crisis solutions that include selling surplus state property, moves also being undertaken in cash-strapped Arizona.

In California, 11 state-owned sites with an estimated value of almost $2 billion will be listed for sale in early 2010 to pay off about $1.4 billion in bonds and net another $600 million “to support other critical state government programs,” said state Department of General Services spokesman Eric Lamoureux.

The state wouldn’t move out of the buildings; it would continue to lease them from the new owners.

Eileen Norcross previously wrote about Arizona’s plan to sell and lease back their state capitol. The Daily Show also covered it.

Can Tysons be Fixed?

Last week, Tyler Cowen wrote about planning issues in Northern Virginia on Marginal Revolution.  He compares Tysons Corner to Clarendon, demonstrating the importance of street layout in urban development. While the two areas are geographically close DC suburbs, they have very different atmospheres because Clarendon has successfully fostered pedestrian-friendly mixed use development, while Tysons has a lower residential density, fewer public transportation options, and roads that are much more difficult to traverse on foot.

Fairfax County planners are in the process of creating a redevelopment plan, promoted as a way to make the area more urban and less car-dependent. Cowen points out that simply providing incentives for higher residential density will not necessarily give Tyson’s the vibrant street life experienced in Clarendon:

The whole area is carved up by major roads, including three significant highways, one of which could be called massive.  Try crossing Rt. 123 at Tysons Corner or try crossing Rt.7. Even some of the “small” roads on this map are harder to cross than is the main Clarendon/Wilson thruway in Arlington.  It’s not just the roads and the overpasses; crossing or circumventing either major shopping center is a daunting experience.  Furthermore very little is laid out in a line and thus the presence of Metro stops (right now there aren’t any) would not cover the area nearly as well as they do in central Arlington.

Even for those not familiar with these Northern Virginia suburbs, Cowen’s description of Tysons probably conjures images of urban sprawl problems across the country. On his blog The Bellows, Ryan Avent responded to Cowen:

At any rate, it does seem odd that once again, we have a libertarian-ish figure cheering on the planners’ decision to artificially reduce density.

It has been widely asserted by writers such as Will Wilkinson that libertarians tend to support government incentives that favor roads and driving as opposed to public transit, even though both require taxing, spending, and distortions of the free market.  This larger issue may be a relevant point for debate in future developments. In existing suburbs, it remains true that existing traffic patterns that are not navigable on foot are difficult, or at any rate very costly, to redesign into bustling city neighborhoods.

For creating blocks that support high residential density and mixed use, Jane Jacobs recommends short blocks and small streets, similar to those witnessed in Clarendon, although it is easy to imagine that she would like to see much wider sidewalks even there. However, it is worth considering whether her policy recommendations would be feasible in a place like Tysons where land value is very high and the urban geography is already completely designed for transit by car.

Cowen recommends focusing on new, more urbanist developments in other parts of Northern Virginia that are currently less built up than Tysons, which may make more sense. Working within the municipal government confines that currently rule streets and zoning, cost benefit analysis must be relied upon instead of market signals.

Podcast on New Jersey’s Fiscal Problems

Eileen Norcross, the lead author on Institutions Matter: Can New Jersey Reverse Course?, recently discussed her research and findings on the Inside State and Local Policy podcast. Clocking in at under 13 minutes, the podcast hits the highlights of the paper’s findings about New Jersey’s current fiscal crisis and discusses opportunities for reform.

Click here to download the podcast as an MP3 file, or click here to subscribe to Inside State and Local Policy via iTunes.

States Fail to Save Jobs

A Long Island newspaper reports that the New York is cutting 3,722 workers from the state payroll in order to reduce its budget shortfall. These job cuts are in spite of federal stimulus funds that were intended, in part, to prevent job loss among states’ employees.

A Wall Street Journal article reminds us that this winter the administration asserted that the stimulus package would create or save 3.5 million jobs. While the situation in one state certainly does not prove that the stimulus has been ineffective, it does bring to light the difficulty of measuring whether jobs have been “created or saved.”

The enormous spread between the states and the White House reflects how difficult it is to measure job creation and attribute it to a specific cause. The result, a hodge-podge of numbers, could accelerate criticism that the stimulus isn’t doing enough to reduce unemployment.

Empirical economic claims can sound convincing in politicians’ speeches, but current federal spending provides an opportunity to evaluate the accuracy of such a statement as the stimulus policy unfolds. Obviously the unemployment situation has worsened since the stimulus package passed. But in spite of the rising ranks of the unemployed, can we say that the bill has saved or will save 3.5 million jobs? The answer is: we don’t know. Policy makers can generally make such bold assertions about the economy because there is simply no way to test their claims.

While we cannot calculate the specific effects of the stimulus, the current recession has led to the unveiling of many unsustainable government spending habits. In addition to New York state workers losing their jobs, painful spending cuts are on the table in California, Arizona, New Jersey, and Nevada. We cannot know conclusively the impact of the stimulus on state budgets, but we can observe a pattern of state spending that tends to grow until rising deficits force legislators to make difficult decisions.

Government spending cannot support long run economic growth because it relies upon the prosperity of the tax base, a base that is eroded by continually rising tax rates as companies leave for places with lower taxes and entrepreneurship declines. If states chose to provide a reliable level of public services irrespective of the business cycle, they would be able to maintain this level, facing relatively minor challenges as state revenue fluctuates with the business cycle.

In an effort to achieve steady and reliable state budgeting processes, policy makers in Maine and Washington are considering limits to their own spending. While the transition to fiscal prudence will be difficult if these states decide to undertake it, a consistent institutional environment is necessary to achieve low unemployment rates and economic growth in the long run.

Delaware’s Robber Barons

I recently drove across the Delaware Turnpike while traveling from Washington to New York.  It had been a while so I didn’t remember that the toll had risen to $4 in 2008 – this for a road 11 miles long. It amounts to 36 cents for eacdelaware-turnpikeh of those 11 miles.  This is ridiculous.

The other tolls I paid driving up Interstate 95 were $2.50 for the JFK Highway in Maryland and $9.05 for the full length of the New Jersey Turnpike. The Maryland highway is 50 miles, and I drove 122 miles in New Jersey, amounting to 5 cents and 7 cents per mile, respectively.

Other Northeast tolls are much like New Jersey and Maryland. Driving the full length of the Massachusetts turnpike covers 135 miles and costs $6.85, amounting to 5 cents per mile. The length of the New York Thruway is 376 miles, costing $17.50, also 5 cents per mile.  The $28.45 toll for driving the entire 358 miles of the Pennsylvania Turnpike comes to 8 cents per mile.

So how can Delaware get away with tolls 5 to 7 times higher than other nearby states in the Northeast?  It is said to be the highest toll per mile in the United States. It helps that the Delaware Turnpike feeds into the Delaware Memorial Bridge, one of the few ways of getting across the Delaware River. There are no good alternative routes if you are traveling up the east coast. Once on the New Jersey side of the river, by contrast, it is easy to take Interstate 295, a toll-free road which allows you to bypass at least half of the Turnpike.

Continue reading →

N.J. Attorney General to sue Stevens Institute of Technology in Hoboken

Stevens Institute of Technology in Hoboken, NJ is in the crosshairs of the New Jersey Attorney General’s office.

A lawsuit to be filed today accuses the school of misappropriation of endowment funds and excessive compensation. If successful in its case, management of the university may be ceded from the university’s nonprofit Board of Trustees to the state.

At the center of the suit are the Board’s chairman, Lawrence Babbio, and university president Harold Raveche (whose salary – in excess of $1,000,000 – is offered as evidence of overcompensation).

According to the Star-Ledger, in 2004, after a decade of aggressive expansion and growth of the university which doubled the number of students, an internal review of the school’s finances called into question the school’s financial health — including a large debt, operating losses, and a deficit of $8.5 million in 2003.

Stevens isn’t sitting quietly. The university pre-empted the state’s lawsuit, filing its own against Attorney General Anne Milgram on Wednesday accusing her of overstepping her authority and making inaccurate allegations.

The state’s claims against Stevens’ budgeting and spending practices are, in a word, ironic.  New Jersey’s fiscal and accounting practices are nothing to emulate. Debt has tripled to $45 billion since 1990. Budget shortfalls are a regular occurence (last year’s shortfall was an historic $7 billion), and recent reforms have tried to tackle the state’s long-running problem of state employees padding their salaries and pension benefits.

This doesn’t make the state a particularly convincing auditor.