Tag Archives: North Carolina

Job Creation at the Planning Commission

“Job creation” has become a go-to catchphrase that politicians use to promote their favored legislation. From carbon restrictions to protectionist trade policy, rules that will in fact eliminate jobs are billed to do exactly the opposite. The promise of job creation from Congress has become commonplace since the passage of the American Recovery and Reinvestment Act, but the catch phrase has begun popping up somewhere new: the local planning department.

In Escondido, North Carolina, a local headline touts, “Job creation will be focus of re-zoning proposals this spring.”

“This general plan revision is about jobs, jobs, jobs —- bringing in the high-paying jobs we’ve been focused on for years,” Councilwoman Marie Waldron said last week.

This sort of rhetoric misidentifies the role of zoning in economic growth. While restrictive density and use regulations can discourage businesses from entering a market, development policy cannot create jobs. The councilwoman most likely meant that the planning commission will work to remove existing rules that obstruct business development. City planners are understandably hesitant to admit that regulation land use necessarily limits private sector job creation.

A similar logical fallacy came from Ocean City, Maryland:

Planning Director Jesse Houston said by right, residential projects are allowed to be built on commercially zoned property. And builders took advantage of that during the last economic boom, building hundreds of condos in the resort.

“Whatever’s the most profitable at the time is what is built in those commercial districts. The problem is, once you build a condominium on a commercial zoned piece of land, it’s there forever, and you’ve lost the potential for commercial on that land,” he said.

The city’s Planning Commission is working to decrease permitted residential density in order to discourage future home building. In fact, an unregulated market allows properties to change hands freely, to be re-purposed for the uses that developers foresee to have the highest profit potential. Attempting to direct development toward a specific use, be it residential or commercial, can only misallocate jobs. Entrepreneurs in the private sector can create jobs when they see profit opportunities, but no parallel mechanism exists in government.

Using job creation lingo, city officials are taking advantage of their constituents supposed naivete. They are assuming that while residents notice new business development that the planning department permits, they will remain unaware of the jobs that do not materialize because of restrictive land use policies.

Stimulus-induced Budget Mirages

The impetus for last year’s stimulus was to save jobs and prevent states from implementing drastic budget cuts. As predicted, the stimulus has only delayed the day of reckoning for budgets. A new study by New York State’s Comptroller shows that $2.8 billion of the $31 billion in stimulus funds allocated to New York was spent on schools. The move allowed local governments to keep tax hikes to 2.1 percent. Absent the stimulus taxes would need to go up by 7.7 percent to meet that level of school funding.

The Government Accountability Office finds most states have concentrated their stimulus money in education and in particular on salaries. New Jersey, Georgia, Michigan, Florida, New York and North Carolina have used over half of their education funds for job retention.When the stimulus money is exhausted in 2011-2012 state budget gaps will reappear, in particular in education. Scott Pattison of the National Association of State Budget Officers calls it “the stimulus cliff.” If revenues do not recover states will be left with few choices. Local governments will have to raise taxes in a era with depressed housing values or undertake “massive teacher layoffs.”

The one things the stimulus has provided is the the illusion of rescue from the need for state and local government downsizing, making the case for a second stimulus all the more puzzling.

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.

Less Living for your Dollar: Cost of Living also Drives Migration

People want to live where they can maximize their standard of living.  But it’s not just the high taxes driving residents out of states like California, New York, and New Jersey.

According to Eamon Moniyhan, director of The Cost of Living Project (COLP) in New York, states with the largest population growth are those with a low cost of living, in particular the South and Mountain West states. The reverse is true in the high cost of living Northeastern states — Massacussets, Connecticut, and New Jersey.

According to the U.S. Census, New Jersey has  the second highest median income in the nation at $67,142, but once the cost of living is factored in, that shrinks to $56,147. Not coincidentally, New Jersey has been experiencing a steady loss of residents for lower tax (and lower cost of living) locales such as North Carolina.

As Rutgers economists Joseph Seneca and Richard Hughes find in  “Where Have All the Dollars Gone?”, between 2000 and 2005, over one million people left New Jersey. Among the top ten destination states, some are high tax and high cost of living (New York, California, and Massachusetts). Others are low-tax and/or low cost of living states in the South and West (North Carolina, Virginia, Texas, Georgia, and Florida).

What drives the high cost of living? According to COLP, excessive regulations. This is why the average metro New Yorker’s income doesn’t stretch that far. A person earning $50,789 in Chicago has the same standard of living of someone earning of $100,000 in New York City. For more, read here.

Disparities in Stimulus Funding

The Wall Street Journal reports on significant disparities in the amount of stimulus funding that different states are receiving:

Some of the states worst hit by the recession are getting far less federal economic-stimulus money per person than states faring better.

Nevada, where unemployment stood at about 10% when the plan was passed, is getting $541 for each resident from the stimulus money allocated so far, a Wall Street Journal analysis found. Wyoming, where the 3.9% jobless rate was the lowest in the country in February, is getting $1,074 per person.

Florida, North Carolina and Oregon are among the other states with relatively low per-capita payouts, despite battling double-digit unemployment. North Dakota and South Dakota, meanwhile, are also receiving large quantities of stimulus money relative to their small populations — even while unemployment remains about half the national average.

A Blizzard of Fees

Taxes are being raised in many corners of state and local government to help fill shortfalls. Many states look to raise taxes on the politically low-cost: “vices”, like cigarettes and alcohol, or goods and services used by tourists – hotels, rental cars, other little-noticed items. In addition to the largest ever hike in federal cigarette taxes (from 39 cents per pack to $1.01 per pack) a few weeks ago. Over 20 states are considering similar hikes this year, including New York with the highest state cigarette tax in the nation. Alcohol tax hikes are proposed in Oregon,  New Jersey,  California, Hawaii, Massachusetts, Michigan, Nevada, and North Carolina, car rentals in Colorado, and  cell phone ringtones in Kentucky, “we’re seeing a blizzard of new fees to help states balance their budgets,” reports Sujit CanagaRetna, a senior fiscal analyst with the Southern Legislative Conference of the Council of State Governments.

And it may become even harder for consumers to avoid. West Virginia is talking about taxing internet, catalog and telephone sales.They make a novel argument.  Internet sales are undertaken by wealthier consumers – those with computers and credit cards – and thus represent a “loophole…benefiting those who are more well off.”  Of course, this argument gets weaker when one extends it to catalog and telephone sales. Brick and Mortar shops like the idea.  eBay doesn’t.

The state is part of a consortium that has been pushing for a Streamlined Sales and Use Tax, as it is known,  for several years.  The consortium and federal supporters argue that the expansion of Internet sales has eroded sales tax collections, which are an important source of revenue for states.  But technology taxes are also a huge temptation for governments that have shown little fiscal restraint or responsible budgeting. Once such a tax is levied, creeping increases will be impossible for legislators to resist.

Desperately Seeking Revenues

Dwindling revenues and budget deficits are leading lots of municipalities in search of revenue enhancements – i.e. tickets, fees and fines. California’s “fix-it” ticket has tripled: It will cost you $100 for a broken headlight.

Thomas Garrett and Gary Wagner, looking at North Carolina data, find that the number of citations issued go up in years following a drop in revenues. The bad news seems to be that governments get hooked: Garrett and Wagner find that the rate of ticket issuance does not decline when revenues rebound.

Elsewhere, my colleague Thomas Stratmann and Michael Makowsky of Towson University have a forthcoming paper in the American Economic Review that shows that when it comes to traffic tickets, the incentives faced by officers really matter:

The farther the residence of a driver from the municipality where the ticket could be contested, the higher is the likelihood of a fine and the larger its amount. The probability of a fine issued by a local officer is higher in towns when constraints on increasing property taxes are binding, the property tax base is lower, and the town is less dependent on revenues from tourism. For state troopers, who are not employed by the local, but rather the state government, we do not find evidence that the likelihood of traffic fines varies with town characteristics. Finally, personal characteristics, such as gender and race, are among the determinants of traffic fines.

Putting these two papers together suggests that states and municipalities will be looking to increase revenue collections from out-of-area motorists. Interestingly, this is the opposite approach taken by Virginia, which in 2007 enacted (and then rapidly backpeddaled on) an “abusive driver fee” that would increase the costs to in-state drivers for certain offenses but leave the cost for out-of-state drivers the same.