Tuesday, April 14, 2009

Cities Turn to Fees to Fill Budget Gaps; States Slashing Social Programs

While the "Main Street" economy once again (similar to 2007) no longer matters, since the parallel "Wall Street" economy seemingly can surge forward based on money printing; it shall be very interesting to see how the increased taxes / slashes social services we've been predicting (and now coming to fruition) affects the green shoots sprouting everywhere. Now with that said, I expect if the federal government can just print money to its heart content minor things like record deficits in the states can be "plugged" and all our problems go away. The printing press is indeed the most important invention of the past century.

We've been watching this story unfold for a long time [Dec 16, 2007: California in a State of Fiscal Emergency - Coming to a Theater Near You] It is funny how my sarcastic comments about printing money even BACK then, were to come true....

One point I forgot to mention in the 2008 1st half predictions piece is the role of ever decreasing housing values on state (and city) revenue. A large part of revenue inflows is based on an asset (real estate) that is decreasing throughout the country. Budgets (and benefits) are set to recent 'good times'. Like most enterprises very few government institutions will save for coming rainy day times - they just assume the good times will continue to roll. But when they don't, they are in trouble. Especially if a very large revenue source starts to shrink (property taxes). And this should be happening over the next few years throughout the country.

What's the solution? Print more money. Wait. You can only do that at the federal government level. So I guess the solution is.... well, I don't know what the solution is.

Then as the "green shoots" of spring 2008 were talked up we mentioned in [Apr 25, 2008: Shoes Beginning to Fall in the States]

This is a theme I have been promoting for a while, and it's going to hit this year, next year, and 2010. Unlike the federal government who fixes all fiscal emergencies by simply printing money out of thin air or taking hat in hand to China, Middle East, or anyone who will buy our Treasuries, the states do not have that luxury.

All in good time folks... most of the economic issues of the real economy will take quarters to play out while Wall Street wants its solutions "now" and can't forecast out more than then their next paycheck cycle.... they continues to refuse to see the impact the real economy is happening on Main Street. Today, an AP article is stating these effects we predicted are now happening.

Again, I keep repeating this: The pundits who are telling you we either have shallow recession or are coming out of recession are the same fellas who denied recession was even possible 6 months ago. How the same people who denied a recession was even possible, now have the cajones to tell us don't worry, we are going to be out of it by end of summer, is beyond me.

Sound familiar? One of these times this green shoot talk is actually going to be correct. The same talking heads who denied a recession could even happen, then claimed it would be shallow, then claimed we'd rebound in "6 months" for the better part of a year, are back to tell you - this time they mean it. At this point, even I will throw in the towel and say as long as the Federal Reserve is willing to print money at a rate unprecedented in man's history to paper over our problems - well green shoots it is! Except on Main Street.

Remember EX federal government/Federal Reserve stealing from grandchildren and/or borrowing from China this is the reality for the future - higher taxes [Jul 2: Cook County, Chicago ---> Highest Taxes in the Nation: 10.25%] [Dec 4: Bloomberg - Hoboken New Jersey Increases Taxes 47%], and reduced services. We've been saying that going on 2 years now. At some point (I don't know where) the buck stops and we cannot just print money to fill craters of our own doing forever. I'll have more on this topic in the days to come as a lot of states are finally facing the music (to some small degree)

Aside from increased taxes, you can look forward to a myriad set of new fees. Via NYTimes
  • After her sport utility vehicle sideswiped a van in early February, Shirley Kimel was amazed at how quickly a handful of police officers and firefighters in Winter Haven, Fla., showed up. But a real shock came a week later, when a letter arrived from the city billing her $316 for the cost of responding to the accident. “I always thought this sort of thing was covered by my taxes.”
  • “I’m not paying,” she said, “because it isn’t fair.” (why should you pay dear? the government now has created the nanny state where walking away from obligations is not only ok, it's rewarded! the bigger mess you make - the more federal tax dollars you get. )
  • It used to be. But last July, Winter Haven became one of a few dozen cities in the country to start charging “accident response fees.” The idea is to shift the expense of tending to and cleaning up crashes directly to at-fault drivers. Either they, or their insurers, are expected to pay.
I actually don't mind this concept myself - if I am a citizen who does not use these services often why should I pay? But that's not really the issue here - this is.
  • Such cash-per-crash ordinances tend to infuriate motorists, and they often generate bad press, but a lot of cities are finding them hard to resist. With the economy flailing and budgets strained, state and local governments are being creative about ways to raise money. And the go-to idea is to invent a fee — or simply raise one.
  • Ohio’s governor has proposed a budget with more than 150 new or increased fees, including a fivefold increase in the cost to renew a livestock license, as well as larger sums to register a car, order a birth certificate or dump trash in a landfill. Other fees take aim at landlords, cigarette sellers and hospitals, to name a few.
  • Wisconsin’s governor, James E. Doyle, has proposed a charge on slaughterhouses that would be levied on the basis of each animal slaughtered. He also wants to more than triple the application charge for an elk-hunting license to $10, an idea that has raised eyebrows because the elk population in the state is currently too small to allow an actual hunting season.
  • Washington’s mayor, Adrian M. Fenty, has proposed a “streetlight user fee” of $4.25 a month, to be added to electric bills, that would cover the cost of operating and maintaining the city’s streetlights.
  • New York City recently expanded its anti-idling law to include anyone parked near a school who leaves the engine running for more than a minute. Doing that will cost you $100.
  • n Pima County, Ariz., the County Board of Supervisors increased an assortment of fees, including the cost of AIDS testing. Florida has proposed raising medical visit co-payments for inmates in state prisons. Parking fees at the Honolulu Zoo could rise by 500 percent if a proposal there goes through.
As I stated above, CONCEPTUALLY I don't mind the idea of targeted fees for those who use specific things - it makes sense. But once it gets into the hands of politicians it will be taken into a completely bad direction - as always.
  • Politicians tend to regard fees as more palatable than taxes, and more focused too. If a state needs to finance an infrastructure to oversee fishing, why shouldn’t fishermen foot the bill? But groups like the nonpartisan Tax Foundation in Washington worry that governments are now using fees to shore up budget shortfalls rather than cover specific costs incurred by specific users.
So the fees and taxes will be on the revenue side of the ledger; on the other side are the cut in services. [Nov 24, 2008: WSJ - States Cut Services for Elderly, Disabled]

Via NYTimes
  • Battered by the recession and the deepest and most widespread budget deficits in several decades, a large majority of states are slicing into their social safety nets — often crippling preventive efforts that officials say would save money over time.
  • President Obama’s $787 billion stimulus package is helping to alleviate some of the pain, providing large amounts of money to pay for education and unemployment insurance, bolster food stamp programs and expand tax credits for low earners. But the money will offset only 40 percent of the losses in state revenues, and programs for vulnerable groups have been cut in at least 34 states.
So by borrowing from China or stealing from grandchildren we fixed 40% of the problem. If only we had done a $2 trillion stimulus program! All our problems go away. Now what happens next year when the same problems exist? Ah, nevermind - green shoots shall have sprouted into oak trees espoused in packed malls, daytrading homes, and S&P 1500. Keep going Ben, drop those dollars from the heavens - make it all go away.
  • Ohio and other states face large cutbacks in child welfare investigations, which may mean more injured children and more taken into foster care. Despite tax increases, California has ended dental coverage for adults on Medicaid, all but guaranteeing future medical problems.
  • New York State is using stimulus money and a tax increase to avoid most of the large cuts in child care, nurse visits to inexperienced mothers and other services that were originally proposed. But if revenues keep falling by the billions, “all bets are off,”
Now this statement can be a parallel for all U.S. policy
  • “There’s no question that we’re getting short-term savings that will result in greater long-term human and financial costs,” said Linda J. Blessing, interim chief of the Arizona Department of Economic Security, expressing the concerns of officials and community agencies around the country.
So let's review - full 100% payment to Goldman Sachs, and a bevy of international and domestic banks and in return cuts for the peasants. Works for me - remember we're all in this together and if we don't save the 4th homes of those executives we all go down together.
  • Reluctantly endorsing another $1 million in cuts next year to salvage a different program, Mr. Beach told legislators, “It’s like trying to decide whether to give up your first-born boy or your first-born girl.”
And as you know dear reader - once a state does a tax increase, they quickly reduce it when good times return....
  • Arizona expects a $3 billion shortfall in the next fiscal year. In a speech to legislators in March, Ms. Brewer proposed to fill the chasm with $1 billion in spending cuts, $1 billion in federal stimulus money and — in a risky idea she floated after emphasizing her conservative credentials — $1 billion raised through “a temporary tax increase.”
So to review, 1/3rd doing the right thing (spending cuts) which unfortunately is necessary due to government's being run like frat houses, 1/3rd from your grandchildren/China, and 1/3rd from "temporary tax" increases (wink wink)

[July 25, 2008: WSJ: States Slammed by Tax Shortfalls]
[Dec 6, 2008: How Bad is Minnesota's Budget Deficit? Mega-Bad]
[Dec 12, 2008: California - Missed the Budget Shortfall by THAT Much]
[Dec 19, 2008: New York Times - States' Funds for Jobless Dry Up]
[Feb 17, 2009: Kansas Joins California in Budget Woes]

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