Sanford to Refuse Stimulus Funds - Example for Rendell

South Carolina Governor Mark Sanford has announced he will reject much of the federal stimulus dollars coming to his state.  Like Pennsylvania Governor Ed Rendell, he recognizes that the stimulus imposes long-term cost burdens on the state, with short-term funding.  Unlike Governor Rendell, he cares.

Instead, Sanford has asked for a waiver, in order to use the funds to pay off state debt and unfunded liability.

We know that Pennsylvania has a great deal of debt and enormous unfunded liabilities as well.  Governor Rendell would be wise to reject the stimulus, or use to pay off our liabilities, rather than using the funding to increase spending and reward political allies.

The 400 Million Dollar Question

Originally posted at the Capitol Domes, a new blog from the Central Pennsylvania Business Journal.

How will you vote on November 4?

No, I'm not talking about the race for the White House. Nor am I talking about the Congressional or state House and Senate races. I'm talking about the "Water and Sewer Improvements Bond Referendum."

I know, I know, it's not sexy election stuff, but how you vote will determine whether you will put my children into further debt.

Right now, the average citizen in Pennsylvania has a state and local government debt burden of nearly $9,000. But Harrisburg wants to add more. $400 million more.

Here's the question you'll see on the ballot:

Do you favor the incurring of indebtedness by the Commonwealth of $400,000,000 for grants and loans to municipalities and public utilities for the cost of all labor, materials, necessary operational machinery and equipment, lands, property, rights and easements, plans and specifications, surveys, estimates of costs and revenues, prefeasibility studies, engineering and legal services and all other expenses necessary or incident to the acquisition, construction, improvement, expansion, extension, repair or rehabilitation of all or part of drinking water system, storm water, nonpoint source projects, nutrient credits and wastewater treatment system projects?

Most likely, voters will overwhelmingly approve this measure, just as they have in the past. You see, Harrisburg politicians are OK with asking for your approval of more spending on questions like, "Do you want clean water?" Who can vote against that?

But Gov. Rendell and the General Assembly never ask us if we want to go into massive bonded debt to pay $45 million for a soccer stadium in Chester County, $35 million for a baseball stadium in Lackawanna County, $250 million for a cargo airport in Hazle Township, $12.5 million for a 200-room lodge in Tioga County, or a slew of other pork barrel projects. They just do it like they did last July when they borrowed more than $3 billion on the taxpayers' credit card.

My friend Eric Epstein, despite agreeing that we're already too far in debt, says he's voting "yes" on the measure. Why? Well, he doesn't trust our elected officials to redirect money away from stadiums and other pet projects to take care of these core infrastructure issues.

Personally, I'm voting "no" because I'm tired of allowing them to not take responsibility for failing to prioritize the spending of our money. I'm saying "no" to more debt and telling them to use the billions of dollars of debt they've already strapped my kids with.

So, how are you voting? Before you answer, get some more background on the measure here.

Rendellconomics 101

Morning Call piece piece by Jarrett Renshaw debates the merits of Rendell's economic policies - borrowing (to be paid by taxpayers) to give handouts to his favorite projects like Santa Claus.

While Matt Brouillette and Rep. Mike Turzai offer criticism of Rendell's scheme, the Governor offers several defenses for Pennsylvania's economic development spending (despite evidence that it doesn't work) that deserved to be responded to ... and ridiculed.

Rendell: ''If you're a high-debt state, like California for example, then borrowing is a bad idea, If you are low- to moderate-debt state like us, that needs to invest in its economy and infrastructure, then it's a good idea.''

So we should borrow more simply because we need to have more debt?

Rendell: ''There is no question that Philadelphia would not have turned around without state investment."

"Turned around"!? You mean to tell me that the city wasn't losing jobs and losing population before Rendell's economic development plan was put in place? That isn't the kind of "turn-around" we should be looking for.

Rendell: ''Name me one business that's a success that didn't borrow money to invest in its own growth. You can't."

Microsoft. But even so, generally businesses have borrowed money before becoming profitable. However, I would challenge Rendell to name one state that has borrowed its way to prosperity.

Furthermore, Governor Rendell's logic fails to justify corporate welfare. In fact, businesses should borrow money to invest their own growth. They should not depend on handouts from Governor Rendell. Only unsuccessful businesses rely on taxpayers to prop up their bottom line, not private investors.

State Budget Crises?

Cato's Chris Edwards blasts the Wall Street Journal (and other media outlets) for their uncritical coverage of state budget "shortfalls."

The Times "treats any needed spending restraint as a crisis."

Oddly, the Journal undercut its own crisis tone in places, with reporting such as: “In Minnesota, the city of Duluth plans to stop operating its Fun Wagon—a free trailer stuffed with games and cookout supplies for a neighborhood party.” Geez, what a tragic loss for the city. ...

When state budget “shortfalls” arise, state policymakers are almost always treated as innocent victims of uncontrollable events.

Are state governments in a fiscal crisis? Let’s look at a few hard facts, not reported in these two stories. Data from the U.S. Bureau of Economic Analysis show that total state and local tax revenues increased 8.4 percent in 2004, 8.9 percent in 2005, 6.6 percent in 2006, and 4.9 percent in 2007. Data for the first quarter of 2008 show that tax revenues are up 3.2 percent over the first quarter of 2007. Thus, government revenue growth has slowed from the large increases of recent years, but that is hardly a fiscal crisis. Indeed, it indicates a needed respite for overburdened state and local taxpayers.

Alternately, consider data on state government general fund spending from the National Association of State Budget Officers. Spending across the 50 states increased 6.5 percent in 2005, 8.7 percent in 2006, 9.3 percent in 2007, and 5.1 percent in 2008. Spending growth is projected to slow to 1 percent for 2009, but that is certainly no crisis after the orgy of budget expansion in recent years.

Nonetheless, there a real state fiscal crisis. But it is the longer-term problem of exploding spending on Medicaid combined with the huge growth in debt and unfunded retirement promises made to the nation’s 16 million state and local employees. Because of those problems, the real crisis in coming years might be headlined ”States Slam Taxpayers with Huge Hikes.”

What can we cut?

An anonymous poster to GrassrootsPA defends the recently enacted state budget against criticism from the Commonwealth Foundation, along with that in other comments.

The budget does not, in fact, set the stage for tax increases. WAMS are less than 1.5% of the budget. Borrowing hardly kicks the can down the road. Not fixing bridges kicks the can down the road. Welfare cash grants are less than 1% of the budget. Which of the following would you like to cut? Basic Ed funding? Medical Assistance (for the very poor and aged)? Correctional Institutions? County Child Welfare? Special Education? Mental Retardation Services? Long-Term Care (for the aged)? Together these programs represent nearly 50% of the budget. You may answer, "well cut the state workers". They already did.

For starters, the poster only notes the 50% of the state budget he thinks everyone would support. But wait, doesn't that leave 50% of the budget on programs that aren't so non-controversial? In other words, the budget could be cut in half and still preserve those program.

If only I had co-authored a study detailing waste and proposing cuts in the budget—oh wait I did. Government on a Diet finds over $4 billion in wasteful spending in state government, including $1.2 billion from the General Fund—and that doesn't even tackle the programs the poster highlights. But that is not to say we shouldn't reduce spending on those programs.

Indeed, in Edifice Complex, we detailed the dramatic growth in education spending—most dramatically for new construction—without producing academic gains. How can we save funding? How about through school choice, as charter schools, cyber schools, private schools (even we supported by tax credits like the EITC), home schooling, et. al. are far more cost effective than public schools and save taxpayers at the state and local level billions, as our policy brief The Dollars and Sense of School Choice and our website SchoolChoiceSaves.org detail.

We have also highlighted the dramatic and unsustainable growth in Medicaid (Medical Assistance), and offered suggestions for reforming that program which would not only save money, but provide better health care for recipients. Furthermore, there is plenty of bloat in correction institutions, and we testified to the efficiency and savings of competitively contracting prison operations—including specific services (health care, cafeterias), prison construction, and even total prison operations.

But what about bridges? Surely that is a proper function of government. Yet the borrowing for bridge repair is on top of past debt and current borrowing for pork projects—like soccer stadiums and ill-fated cargo airports. There are also cost savings measured needed in transportation funding, even the Governor's funding commission recommended that. How about repealing prevailing wage laws for bridge construction and repair, as I testified to. That is estimated to reduce the cost by 20%—enough to repair a lot of those bridges without new spending or borrowing. We should also be directing funding to repairing existing infrastructure, rather than directing it to politically selected projects, like roads named after lawmakers. Pennsylvania can also save money through competitively contracting mass transit operations. Lastly, we need to look to the private sector, not the taxpayer, for financing. Public private partnerships on new facilities, HOT lanes, and the like—along with leasing the Pennsylvania Turnpike—are mechanisms for improving our infrastructure while not increasing taxes or debt.

Finally, as for "cutting the workers", we should reduce the 3,000 or so legislative staffers as we move from a professional to a citizen legislature—particularly those staffers involved strictly in public relations for their bosses, such as posting anonymously on GrassrootsPA.

As Jefferson said, "The natural progress of things is for liberty to yield and government to gain ground." Reversing direction and dramatically reforming the way the state government does business is a hard task. Spending more money to keep going along the same path is easy. Unfortunately, lawmakers consistently choose the easy path.

New borrowing in budget deal

While we are still waiting to see many of the details on the budget agreement, here are the numbers on borrowing that have been revealed.

The new agreement authorizes almost $2.9 billion in new borrowing programs, for a total of $3.6 billion in total borrowing (about $2.2 to be issued in 2008-09). This total represents about $1,200 per family of four, adding to the current state and local government debt of nearly $36,000 per Pennsylvania family.

Budget Deal Reached

While taxpayers and state workers slept, lawmakers shook hands on a budget deal. John Micek has some of the details, as does the Patriot News.

• General Fund budget: $28 billion +/- $500 million, few details on specific programs
• Reported General Fund increase of 3.8% (but we're not sure over what, as budget secretary Michael Masch wrote in a email to Capitolwire: "There are additional adjustments to the 2007-08 spending numbers as well as adjustments to the 2008-09 numbers, as a result of additional supplementals we will be making to reduce the 2007-08 authorized expenditure number. We have some work to do making all the final adjustments and creating nice clean financial statements which we will be working on later today.") - higher than the Taxpayer Protection Act limit.
• Rendell reports $500 million in "cuts" from his budget, though apparently replaced by $450 million in additions.
• Energy pork: $500 million bond issue
• Capital Budget: Bonding for $365 million bridges, rail, and airports. $800 million RCAP (i.e. soccer stadiums and other corporate welfare). $850 million for water and sewer projects. There will also be another $400 million bond issue put on the November ballot. That sums to over $2.4 billion. Add in the energy borrowing, and the total comes to $2.9 billion in new debt.
• No dipping into the Rainy Day Fund.  (EDIT: The plan involves not depositing the statutory requirement of 10% of the surplus into the Rainy Day, which is in effect dipping into the fund for about $12-15 million.  Under law, this would require a 2/3 vote to do, but of course, new law supersedes old law, so they may just circumvent a vote on that).

Why the capital budget process needs to be reformed

Here is a response I posted on GrassrootsPA to the defenders of the $13 billion in capital budget projects who state essentially "It isn't that bad, because not all of the projects will be funded. Only later will we set the debt limit and decide which projects get the money"

1. Many of those projects - in fact the entire RACP program - are not proper roles for state government. Yet only two Senators stood up and said “No. I cannot vote for a bill that authorizes any taxpayer funding (if available) to go to a soccer stadium, corporate welfare, et. al."
2. The RACP program is simply borrowing for corporate welfare. Do you really think that, after adding $8 billion to a “wish list” ($6.5 billion from RACP) the Senate will vote against increasing the debt limit to fund these projects, or will vote to eliminate the RACP program?
3. A bill that actually mandated that money be spent would be better. By creating a “wish list” legislators have basically given Governor Rendell and leadership a list of how they can be bought off. Instead of requiring spending on a project decided by legislative debate, the capital budget allows Governor Rendell to spend or withhold funds in exchange for votes on other legislation, and gives him (and the leadership) far greater leverage in making deals.
   

$100 Trillion Dollars in Debt!

John Goodman analyzes the latest report of unfunded Social Security and Medicare liabilities and come up with the grand total of $102 Trillion for the "infinite horizon" (after reducing the "trust fund", which is estimated at $2 trillion, but has no actually money available, only promissory notes).

To understand $100 Trillion, imagine something you cannot afford to buy, then imagine buying a number of that product - a number so high you could not count to it in a lifetime.

More analysis on the latest report from the Heritage Foundation on Medicare and on Social Security.

Borrowing in 2008-09 Budget

Below is some more analysis of the proposed borrowing in Governor Rendell's proposed budget - $2.6 billion in debt will be issued in 2008-09. (More on PA's Total Debt Burden)

New Borrowing + New Taxes = "Avoidance of Debt"

In the Post-Gazette, Governor Rendell continues to argue that his insurance tax is a tax:

Mr. Rendell strongly denies that the surcharge is a new tax. Instead, he calls it an 'avoidance of debt,' enabling the state to pay the debt service on the bond that will be issued to raise the bulk of the money.

So we are 'avoiding debt' first by borrowing more money, then implementing "surchages" on taxpayer to pay it off?

I have nothing to add, but "Are you nuts?"

State's Debt Totals More Than $105 Billion

Evening Bulletin article on our brief analysis of state debt.

PA's Debt: $110 Billion

In response to a question from one of our readers, here is a analysis of Pennsylvania state and local government outstanding debt (the latest data for local governments from the Census Bureau is 2004-05, and undoubtedly debt has increased.

Pennsylvania taxpayers have $110 billion in outstanding debt, or about $8,800 per person ($35,000 per family of four).

More Debt for Pork?

According to reports, the House Democrats are holding up the budget negotiations for more $500 million in new bonds for "Redevelopment Assistance Capital Projects." What the heck are those, you ask?

They are debt for pork projects, not unlike WAMs and other corporate welfare programs - handouts that make politicians look good, but that taxpayers pay off, with interest, for decades.

For a list of these grants, click here.