Tag Archives: White House

As the Economy Recovers, State Budgets Continue to Worsen

Present state budget crises will likely seem mild compared to what they will face in F Y2011. In order to comply with  their constitutionally mandated balanced budgets, many states relied on one-time gimmicks to pass their FY 2010 budgets and must now turn to even more drastic measures.

In California, Governor Schwarzenneger’s proposed solution to close a $19 billion dollar funding gap is to rely on $8 billion of hoped-for federal aid. This prediction was deemed overly optimistic by the state’s Legislative Analyst’s Office. However, that Gover Schwarzenneger is relying on federal funding at all should signal that the states’ “one-time” federal bailout last year has created a culture in which state legislators look to higher levels of government to fix their fiscal irresponsibility.

The current state budget problems exemplify the danger of fiscal gimmickry: one-time solutions allow states to pass their budgets when the crunch hits, but they create long run problems as the structural gaps between spending and revenue grow over time. Continue reading

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.

Overhauling Health Insurance from the Bottom Up

Over the weekend, following a town-hall meeting in Grand Junction, Colorado, President Obama broadened his rhetoric on health care reform, saying that a government insurance policy was not the only option available to lawmakers.  However, a New York Times article reports:

Speaker Nancy Pelosi said Monday that House Democrats, rather than backing down, strongly supported giving people the choice of a new government health insurance plan. “A public option is the best option to lower costs, improve the quality of health care, ensure choice and expand coverage,” said Ms. Pelosi, Democrat of California.

Grand Junction was selected as a location for one of the President’s town-hall meetings because it was recently profiled in a New Yorker article as an example of a region that successfully manages health costs. The presidential interest in Grand Junction’s system, however, seems strange, because the area’s cost-saving practices have not come about by the sort of top-down overhaul that his administration is promoting for the country. Rather, area doctors developed a grassroots solution:

Years ago the doctors agreed among themselves to a system that paid them a similar fee whether they saw Medicare, Medicaid, or private-insurance patients, so that there would be little incentive to cherry-pick patients. They also agreed, at the behest of the main health plan in town, an H.M.O., to meet regularly on small peer-review committees to go over their patient charts together. They focussed on rooting out problems like poor prevention practices, unnecessary back operations, and unusual hospital-complication rates. Problems went down. Quality went up. Then, in 2004, the doctors’ group and the local H.M.O. jointly created a regional information network—a community-wide electronic-record system that shared office notes, test results, and hospital data for patients across the area. Again, problems went down. Quality went up. And costs ended up lower than just about anywhere else in the United States.

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Conflicting Trends in Urban Development

In 1970, the first Business Improvement Area was instituted in Toronto, Ontario, and the concept has since  spread throughout North America and the world. In the United States, these organizations are most commonly known as Business Improvement Districts (BIDs), and they are collectives of neighboring business people who work together to maintain their public spaces at a higher level than their municipalities would.

BIDs have been highly successful in many areas of the United States, including New York, Los Angeles, and Washington, because they allow businesses to pay for specific services that are beneficial to their immediate vicinities rather than providing these services through an unpopular and inefficient tax levied at the city or state level. Business owners may elect to use allocate this funding to market their neighborhoods, provide street clean-up or security beyond the level offered by their municipality, or enact improvements to storefronts and building facades.

In parts of the Midwest, the trend is developing into organizations known as Special Improvement Districts, allowing both residents and businesses to participate in neighborhood governance. A Crain’s Cleveland Business article explains:

These groups are encouraged by the success of the downtown Cleveland SID, which was created in 2005. The SID, which is operated by the Downtown Cleveland Alliance, has gotten high marks for a program it calls “Clean & Safe” that has put a team of “ambassadors” in yellow shirts on downtown streets. They scour sidewalks, water plants, provide directions to pedestrians and keep an eye out for any bad behavior.

The downtown group also sponsors special events designed to bring people downtown and markets downtown as a tourist destination.

Property owners agreed to a special assessment that raises about $3 million a year for the program.

The SID concept is effective because the taxing authority is devolved to the lowest possible level, the neighborhood. This direct democracy allows for the fees collected to be spent as desired by those who pay them. Obviously the demand for various services varies across different neighborhoods’ organizations. Additionally, those who pay SID fees are likely to closely monitor how they are spent, rendering it unlikely that the money will be spent wastefully or lost to corruption.

As this grassroots concept is gaining momentum at the local level, a new White House initiative, the Office of Urban Affairs, is taking a top-down approach to urban issues. The purpose of this new office is to promote the administration’s urban policy agenda, heavily influenced by the ideas promoted by the Brookings Institution’s Metropolitan Policy Program, in municipalities across the country.

A Washington Post article explains that some critics of the program believe that urban issues should be handled at the local level, varying with the diverse challenges and opportunities that face different cities across the country:

“Cities improved dramatically in periods when the federal government backed off the most,” said Fred Siegel, a history professor at the Cooper Union who served as an adviser to former New York mayor Rudolph W. Giuliani (R).

Undoubtedly, research institutions have valuable insights to offer neighborhood and municipal leaders in the fields of transportation, land use, and community development. However, a one-size-fits-all approach to implementing these ideas in urbanities across the country is impractical and will be weighted down with many layers of bureaucratic inefficiencies. Rather, BIDs, SIDs, and city governments should have the freedom to select the policies that are most practical and efficient for their localities.