A very interesting and telling paper out of the Harvard Business School and the National Bureau of Economic Research takes a closer look at how government spending affects corporate investments. The result is fairly predictable but not unimportant and should serve as a warning to those in both state and federal government (as well as those in the private sector) who think that all the economy needs to turn around is a higher level of government spending.
"Do Powerful Politicians Cause Corporate Downsizing?" is the name of the HBS/NBER paper and is worth a read. The authors use a unique approach by taking a look at congressional chairmanships and the effect upon the chairman's district in regards to government money inflows and how the corporate world reacts. The result of a new chairman!
ship often results in a "spending shock," which tends to "significantly dampen corporate sector investment and employment activity."
This may sounds counterintuitive, since committee chairmen are often expected to, and lauded for, bringing home the bacon. But what the study's authors find is that the federal money replaces private sector investment. Why would a company spend its own capital to compete with the federal government, which can simply print its own money? Or, why spend your investor's dollars when the feds will pick up the tab? In the first instance, many times the resulting action is a plateau (at best) of private activity or a decrease in the form of layoffs (at worst).
There is no doubt, as the authors point out, that some firms stand to benefit from increased government spending. But the average firm contracts during government spending shocks, and the winners often reach the winner's circle via intense Congressi!
onal lobbying instead of through market merit.
a lot of data in this surprisingly easy-to-read study, but I'll leave you with one section that sums up nicely their analysis:
"The central finding of this paper is that positive shocks to the seniority of a state's congressional delegation cause large and persistent increases in government allocated funding to the states, and significant retrenchment on the part of the corporations headquarted in the state. This retrenchment appears to be a response to the large and persistent increase in federal funding that the state receives following the shock.
Following the appointment of a senator to the chair of a powerful committee, we estimate that his state experiences, on average, a 40-50 percent increase in its share of congressional earmark spending, and a 9-10 percent increase in its share of total state-level government transfers. At the same time, firms residing in the state cut their capital expenditures by 8-15 percent, reduc!
e R&D by 7-12 percent, and increase payout by 4-13 percent. Employment and sales growth are also impacted, as corporations scale back employment growth by 3-15%, and sales growth falls by up to 15%."
There is a reason why WPC and others consistently warn about the increasing footprint of government. We simply cannot ignore the real-world consequences of increased government expenditures, and more importantly, unpredictable "spending shocks" upon the private sector.
County Executive Dow Constantine and the other Democrats governing King County want to impose a tax increase on people during a recession, imposing greater financial hardship on families to make it easier for them to balance their budget.If people don’t agree to pay higher taxes, they say they will cut back on public safety by forcing reductions on the Sheriff and the County Prosecutor’s office.
County officials are quoted today in The Seattle Times saying that, “most noncritical spending has already been trimmed.”
That’s not true.The County Executive has done little or nothing to control rising labor costs. To cite just one department, wages for bus drivers have grown at twice the rate of inflation – rising 70% in just ten years.Today some drivers make more than $100,000 a year; 243 drivers make more than $75,000 a year.
On top of that, the Executive makes taxpayers pay for 100% of employee health benefits, while in the private sector employers normally pay 75% to 85% of benefit costs:
In 2009 County officials made the deficit worse by promising to pay the cost of all health benefits “without the burden of premium share,” that is, employees make zero contribution toward the cost of their health benefits:
The County provides great benefits.Employees receive 12 paid holidays, 12 paid sick days, free bus passes, free life insurance, increased dental coverage, and a cut, from $10 to $7, in the co-pay required for filling prescriptions.The County has no problem filling open positions, indicating it pays well above market rates in salary and benefits.Executive Constantine and council Democrats want to use existing revenues to provide above-market wages and gold-plated benefits, while threatening people with cuts in public safety unless we agree to a tax increase.
This fall, voters will be deciding on Referendum 52 which asks them to approve borrowing $500 million to fund "energy retrofits" for state buildings. The claim is the program will create jobs, like the federal stimulus program, and save money by improving the energy efficiency of the buildings. These programs have a mixed record and often are not audited to see if savings actually materialize.
The Sightline Institute, however, posted their initial "analysis" of the referendum this week and there are a couple of silly errors. Sightline writes that "A study of Washington schools found that investing in energy retrofits for our school buildings not only saves schools money, but it also improves student health and test scores."
First, they confuse "green" building with energy retrofits. The study is about schools built from the ground up using "green" building standards. It does not cover energy retrofits, which are small projects that replace individual light and energy systems in existing buildings.
In 2009, I testified before the legislature when it initially considered the energy-retrofits bill. I noted that energy savings projections were often wide of the mark, citing WPC's research on "green" buildings. We noted that energy retrofits are different from green buildings, but raised the point to urge caution when it comes to counting on energy savings in financial projections. That caveat was not enough for the bill sponsor. When the bill was considered again in 2010, I was walking up to testify when the sponsor of the bill warned me not to discuss "green" buildings since the bill had nothing to do with them. I wonder if that same warning will now be offered to Sightline.
There are studies that examine the results of energy-retrofit programs. You can read our blog post on the bill that became Referendum 52 and follow the links to the studies.
Second, the study cited by Sightline is written by an architecture firm that specializes in "green" buildings and fudges many of the numbers on energy and waste. For example, in the section highlighting the reduction in construction waste from refurbished buildings, they note that in an "informal survey of 6 LEED [green] buildings" they found that between 22 and 90 percent of the building was recycled. They conclude that "Using an average of these numbers yields a value of 56% of school construction waste that can be recycled." This is a very basic math error. The way to calculate an average is to add all six numbers together and then divide by six. What the architects did instead was find the average of only the high and low numbers.
They don't provide all six numbers in the document, so the real average is a mystery. If most of the numbers are closer to the 22 percent, the actual average will be lower. Conversely, if most of the numbers are closer to the 90 percent, the average will be higher. Given the obvious bias of the report, however, I can guess what the reality probably is. In any case, this is a simple and embarrassing math error.
There are many other errors and the projections from the 2005 report have come nowhere close to the actual performance of the schools during the past five years.
Much of Washington's environmental policy is adopted with the assumption it will work, but no effort is made to compare the actual results to the promises. This betrays the reality that the real value of those policies is political, not the benefit (or harm) to the environment. If we truly care about the environment, we should audit rigorously and ensure that we are getting the environmental benefits we were promised. Sightline's first cut at Referendum 52 skips the audit in favor of wishful thinking.
Seattle School District officials are negotiating a new collective bargaining agreement with the city’s teachers’ union, the Seattle Education Association. The talks will take several months, and will determine costs for taxpayers and the quality of instruction for Seattle students for up to five years
At the center of arguments made by Mr. Dicks is the amount of pollutants entering Puget Sound via stormwater runoff. On the issue he writes:
“The days are past when we could point to a pipe coming from a factory as the source of our problems. The problem now comes from our own backyards and neighborhoods – roughly 140,000 pounds of toxic chemicals each day.”
Unfortunately, Mr. Dicks gets the numbers wrong, using amounts that have since been discredited.
The claim of “140,000 pounds per day” comes from a 2008 Department of Ecology study on toxic chemical loadings. A review, however, by an independent research firm found significant errors in Ecology’s estimates. These errors caused Ecology to recalculate and publish new figures. Based on the new findings Ecology wrote:
“…the improved hydrologic analysis method resulted in absolute toxic chemical loading estimates that are approximately 3 times lower than loading estimates provided in the Phase 3 study (EnviroVision et al. 2008).”
The key here is that Mr. Dicks has been using the same number for the past two years to promote the policies of the Partnership’s Action Agenda, despite a dramatic reduction in the total estimates of toxic loadings. If the policies being advocated for by Mr. Dicks are the same today even though the amount of measured toxics has fallen dramatically, than what is the value of citing a number in the first place?
Why would an agency that claims to rigorously follow the science use such outdated information? It is another unfortunate example of how politics, not science, seems to be guiding some of the priorities of the Puget Sound Partnership.
One of the strongest trends in environmental thought is the move toward "buying local." Environmental activists argue that buying local is better for the environment and saves energy -- which, unfortunately, is often not the case. There is, however, a strong dose of provincialism and chauvinism in these attitudes. For many, "buy local" has become a surrogate for an us-versus-them mentality.
This mentality is manifesting itself in some silly ways.
Portland police had to break up a fist-fight after a pig-cooking contest that resulted in a McMinneville chef and the event's organizer being arrested. After the Sunday event, chef Eric Bechard confronted Brady Lowe, the cook-off's organizer, denouncing the contest for giving top marks to pork raised in Iowa. Bechard, who advocates using locally raised food, told police he didn't like the contest bringing in a pig from Iowa.
It is about time someone is standing up against pigs, and people, from Iowa. They don't even have mountains or beaches in Iowa. How can they understand our values?
While it's obvious that people from other states are suspect, we shouldn't overlook the fact that people from our state's fellow counties are just as suspect. So says one of the advocates of the newly created East Jefferson PUD. Responding to a WPC piece written by Brandon Houskeeper noting that East Jefferson's startup costs were more than double what boosters of creating that government-run utility promised, one of the advocates wrote this to the Port Townsend Leader:
Clearly, Mr. Housekeeper [sic] isn’t from here and has no idea about our values. In contrast, the voters apparently believe in employing local folks, paying cost based rates and being able to meet and elect our Commissioners rather than pay an escalating ROI to a profit-based utility owned by a foreign investment firm.
How can someone from Thurston County understand the values of people in Jefferson County? Don't even get me started on the values of people in a "foreign" company.
Some people, however, aren't merely using their fists or letters-to-the-editor to address this issue. The City of Lake Elmo, Minn. has actually passed a law prohibiting farmers from selling produce grown outside the city. One farmer, who owns land both inside the city limits and just outside the city limits, must ensure he keeps track of what was grown inside and outside the city limits. Due to the needs of crop rotation, one year the city will get pumpkins, and something else the following year. This seems rather bureaucratic when it would be much more simple to just build a wall around the city.
Austrian economist Ludwig von Mises once said "Interventionism generates economic nationalism, and economic nationalism generates bellicosity." Of course, he was a foreigner.
Since President Obama took office, the federal philosophy on America's transportation policy revolved around terms such as "livability," "livable communities" and "sustainability."
Until now, no one really knew what these concepts meant. Recently, USDOT Secretary Ray LaHood clarified:
"Livability means being able to take your kids to school, go to work, see a doctor, drop by the grocery or post office, go out to dinner and a movie, and play with your kids in a park, all without having to get in your car."
Noted transportation expert, Ken Orski has more:
U.S. DOT’s Strategic
Plan Stirs Controversy With Its Emphasis on "Livability"
livable communities...is a transformative policy shift for U.S. DOT,"
announced grandiloquently the Draft U.S. DOT Strategic Plan, released for
public comment on April 15, 2010. But what exactly does the Administration
mean by "livable communities" and how does it intend to translate
this vague rhetorical abstraction into a practical reality? To get an
understanding of the Administration’s intentions one must delve into the
stilted language and bureaucratic jargon of its policy pronouncements,
notably the "HUD-DOT-EPA Interagency Partnership for Sustainable
Communities" and the above-mentioned Draft Strategic Plan. "Livable
Communities," says the latter, are "places where transportation,
housing and commercial development investments have been coordinated so that
people have access to adequate, affordable and environmentally sustainable
Interagency Partnership Agreement speaks in similar vague generalities. It
defines livability principles as including "more transportation
choices," "equitable, affordable housing" and "reliable
access to employment centers, educational opportunities and services."
Give credit to Transportation Secretary Ray LaHood for reducing these
abstract concepts to plain English. "Livability," he said, "
means being able to take your kids to school, go to work, see a doctor, drop
by the grocery or post office, go out to dinner and a movie, and play with
your kids in a park, all without having to get in your car." In other
words, "livability" in the Secretary’s mind means living in a dense
urban environment where walking, biking and transit are realistic travel
alternatives to using a car.
But this definition is too narrow to suit most Americans, whose notion of
"livability" may include living in suburban communities and
enjoying such obvious amenities as a safe neighborhood, access to good
schools, the privacy of one’s own backyard and the freedom, comfort,
convenience and flexibility of personal transportation. If "livability"
becomes a euphemism for a federal policy of favoring high density,
transit-dependent living, then we are moving closer to "newspeak"
when words mean whatever Big Brother intends them to mean.
Recently, Commissioners of the Jefferson County PUD announced the details of a tentative agreement between the PUD and Puget Sound Energy (PSE), which would allow the PUD to purchase PSE’s electrical infrastructure in East Jefferson County.
In response to our op-ed, Mr. Steve Hamm, a proponent of moving to government-owned power, criticized WPC’s “values” rather than addressing the objective facts.Following is a point-by-point rebuttal to his critique.
Claim #1: …WPC claims to be “non-partisan,” they are far from unbiased.I’ve been following WPC for years and, in my opinion, they usually assume big business is better at everything.Or, as their Mission Statement frames it, “Washington Policy Center’s mission is to improve lives through market solutions.”
Response: True, our mission is to improve lives through market solutions, but not by assuming that big business is better at everything.Our research is regularly used by elected officials, both Republicans and Democrats alike.We believe that the open, free-market is the best model for providing economic vitality and efficiency. Frequently that means supporting ideas to which “big business” is opposed, as we did with the Climate Change Accountability Act which would require businesses to put energy savings promises in state contracts so they can be held accountable.Attacking WPC for its values is nothing more than an attempt to ignore the objective facts.
Claim #2: Citizens for Local Power (C4LP), Proposition 1’s primary proponents, made no promises.C4LP only quoted estimates provided to the PUD by Hittle and Associates and never quoted any hard figure.
Response: Mr. Hamm clearly admits to using the Hittle report that was prepared for the PUD in 2008.The key focus of the Hittle report was to provide an estimate of costs to purchase PSE’s electrical infrastructure.The fact that proponents used the report to encourage voters to support the ballot measure is tantamount to making a promise.In an email to me in September 2008, Mr. Hamm acknowledged the $47.1 million cost in the Hittle report, but argued that he felt this estimate was high, noting that the State Department of Revenue and the Je!
fferson County Assessor said the cost of PSE assets in East Jefferson only totaled $30 million.Obviously, the announcement of the recent tentative agreement between the PUD and PSE for more than double the original amount, $103 million, has proponents now distancing themselves from claims made to voters.
One of the most common phrases used to support various environmental policies is "follow the science." This assumes, however, that the science is clear and that the uncertainty in the science is not being influenced by the personal politics of the scientist doing the work or by those interpreting the science. Too often that is not the case.
Due to a lengthy debate between the committee members the decision was made to form a subcommittee (made up of Sen. Adam Kline, Ramsey Ramerman and Garred) to try to come up with a conse!
Prior to forming the subcommittee, Roselyn Marcus (Office of Financial Management) reminded the members that those serving on any subcommittee would not receive travel reimbursement due to the state's financial situation.
This lead Rowland Thompson to joke that based on the severe disagreement between the committee members on the issue of attorney client privilege perhaps the Governor could declare the Sunshine Committee a disaster area (thus making it eligible for funds).
Disaster or not, the subcommittee's discussion on attorney-client privilege will be held in public meetings with times and location to be announced.
Today the Employment Security Department announced that Washington netted 5,800 jobs in the month of April, bringing the rate down from a seasonally-adjusted 9.5% to 9.2%. Despite the net gain, this still represents a year-over-year loss of 48,400 jobs from April 2009 to April 2010.
Though there was a 5,800 net job gain in April, the industry with the second-biggest gain was government. Interestingly enough, many of the 1,600 new government jobs are actually temporary census jobs. Leisure and hospitality was up 1,800; construction up 1,400; retail trade up 1,300, manufacturing up 1,200.
Industries that lost jobs this last month included financial activities, down 1,400; transportation, warehousing and utilities, down 500; other services, down 300.
ESD Commissioner Karen Lee rightly points out the importance that both construction and man!
ufacturing added jobs last month. Both of those industries have been decimated by this Great Recession.
But, as we've pointed out before, though many in the business community are starting to see the light of day, this year's Legislature just enacted hundreds of millions in tax increases on the business community and their customers.
So we will see how the B&O service-industry tax rate increase along with sales taxes on candy, gum, bottled water and more will affect future economic growth. Just take a look at what's happening in the fight over the soda pop industry and the tax exemption they "were guaranteed". Turns out they were mislead, or someone just didn't d!
o their homework, and now the soda pop industry is filing an
a href="http://seattletimes.nwsource.com/html/politicsnorthwest/2011851089_soda_wholesalers_weighing_tax-.html?syndication=rss" target="_blank">initiative to repeal the new tax. !
While this report is positive news, Washington still has a long way to go. And temporary census jobs just aren't going to cut it. It seems that policymakers often take a "get-rich quick" approach to job creation, rather than focusing on policies that will help produce long-term, sustainable jobs. The long-term approach is not sexy when there's an election in six months (with primaries in three months) but our economy can't be bailed out by anything other than year-over-year private sector economic growth.
Sound Transit and the Washington State Department of Transportation are spending $40 million on a bus stop in Mountlake Terrace. The bus stop is in the middle of I-5 and connects with an existing park and ride lot.
So why spend so muc!
h on a bus stop on I-5 when bus drivers could just exit the freeway and use the park and ride lot?
Here is WSDOT's answer:
This circuitous route would cause service delays.
Increase bus operating costs.
Increase the potential for collisions on I-5 from buses weaving between the HOV lanes and on and off-ramps.
I guess exiting the freeway and using the existing park and ride lot would add about 5 minutes to the average bus route. Shorter travel times is a public benefit but I'm having trouble justifying $40 million to save five minutes.
The second reason is my favorite. It only costs about $1.33 per minute to operate a bus in King County. If five routes use this bus stop and let's say each route makes 8 stops per day, officials are saving about $266 per day. This means it would take 412 years before this $40 million "investment" paid off.
The final reason is also unconvincing. Bus drivers are already expected and trained to safely negotiate merging across all lanes of traffic.
I like the idea of freeway transit stations, especially when combined with a Bus Rapid Transit system. But this particular project is completely duplicitous and not worth spending $40 million.
This week the Washington State Auditor released an audit, evaluating the use of public funds by the Puget Sound Partnership, the state’s lead agency on protecting the Puget Sound.
According to the audit the Auditor’s office found that:
“The Puget Sound Partnership circumvented state contracting laws, exceeded its purchasing authority and made unallowable purchases with public funds.”
“The Puget Sound Partnership failed to enforce the terms of its agreements with a foundation it created, incurring costs without clear public benefit.”
In an exchange with KUOW auditor Emily Johnson, who led the audit, stated:
“From their inception up until the date that we had finished the audit, there was just really no indication that they had ever made following state rules and regulations a priority….it is alarming and surprising. And as an auditor, in a way, you’re used to finding things like this, you’re just not used to finding this many things.”
Johnson’s right, the results of the audit are alarming, unfortunately the results are not as surprising. Reading between the lines, the audit highlights a state agency that displays lack of institutional control were politics prevail.
On Earth Day this year we released our critique on the past five years of environmental policies in our state. Included in the analysis was a review of Partnership’s work. To be fair, there are some good things coming from the Partnership, but we also noted that too often politics trumps policy. We wrote:
“However, there have been several setbacks as well as indications that politics is always nearby…. There is a dramatic, and disappointing, example of this. Announcing $92 million in funding for stormwater and toxic cleanups in the current budget, PSP also praised the allocation of $15 million toward the purchase of the Maury Island gravel mine. This is despite the fact that the project is not listed as a priority concern on any scientific list of clean water needs in the Sound. The emphasis from the PSP on this highly political project is disturbing evidence of the way politics threatens to corrupt a promising, scientific and priority-based process.”
Based on the results of the audit and the political games that have been played, it’s incumbent on the Puget Sound Partnership to prove they care as much about taxpayer green as they do being green and that they have the best interest of Washingtonians and the Puget Sound in mind.
"For three years, the UW has tried in vain to persuade lawmakers in Olympia to help it collect $150 million in public money to go toward a $300 million stadium remodel. Now, as early as Friday, it plans to ask developers to come up with a new plan that doesn't rely on any tax dollars . . .
Both Evans and Woodward said the new proposal doesn't mean the UW has given up altogether on the idea of securing at least some public financing.
However, the proposal may simply confirm to lawmakers what some have argued from the beginning — that the UW needs to find a way to pay for the renovations itself without turning !
To avoid subjecting this potentially winning touchdown to yet another taxpayer instant replay challenge, the school should take the idea of additional public funding for the stadium completely off the table.
This may help to keep the in-state civil war between the Huskies and Cougars focused on the playing field instead of who is paying for the fields.
Spokane Mayor Mary Verner today announced a budget outline for the upcoming fiscal year that trims some jobs, does not raise taxes, and asks city unions to accept more responsibility for the cost of their own health care.
The Mayor's proposal seeks to cut $10 million from the city's budget. To do that, she wants to eliminate 18.5 police positions, nine firefighter positions, and reduce some city services to just four days a week. Many of the eliminated positions don't necessarily mean job cuts, as some openings will just remain vacant.
Perhaps the most interesting part of the proposal is the mayor's request that some city workers be willing to consider changing the way the city funds their health care coverage. The mayor wants to cap taxpayers’ annual exposure to health care premium increases at 4%. That means if health care premiums in subsequent years increase 10% (which has been the case in recent years), city union workers would have to pick up the remaining 6% of the tab or pick a different health benefit. Right now, various unions in the City of Spokane pay as little as 6% or as much as 25% of their benefits. Taxpayers cover the rest.
Washington Policy Center recommends state workers also open up their contracts to pay more for their own health care costs. Right now, state workers pay nothing for their dental care and far-less than their private sector counterparts for health benefits. While the workers enjoy great benefits, taxpayers are the ones left holding the bill.