Yet every state in the Union has one with the exception of Vermont. How about a counter intuitive fact? Well how about the fact that Vermont has balanced it's budget every year since 1991. In fact in 2007 Moody's Investors Service gave its top rating of Aaa to the state. That's counter intuitive right? Must be some crazy coincidence. Maybe some random fluke. For it would almost suggest that maybe the supposed remedy-balanced budget requirements-are the cause rather than the cure of the disease.
In financing its operations, Vermont does some other things that are counter intuitive to the conventional wisdom of most state governments.
"The state uses enterprise funds for operations that are similar to private business enterprises. The Vermont Lottery Commission, the Liquor Control Fund, and the Unemployment Compensation Trust Fund, are the largest of the State’s enterprise funds."
http://en.wikipedia.org/wiki/Government_of_Vermont
In most states and cities this too would be very controversial. Right now in Providence Rhode Island the chairman of the city's building authority resigned over a $35 million borrowing deal the city has just signed into with Class Green Capital Partners, a New York financial adviser to municipalities. Class Green has been helping cities to essentially take out mortgages on their public buildings and use many of the proceeds to plug their budget shortfalls.
(Wall Street Journal 9/9/11 pg C1)
Lloyd Granoff, who resigned in late March after 25 years on the board explains that, "I am not a boy scout but this is just ridiculous. It has nothing to do with green energy. It is simply a way to cover up a deficit."
For it's part, Class Green has been helping cities to essentially take out mortgages on their public buildings and use many of the proceeds to plug their budget shortfalls."We combine sustainability with municipal finance," says Class Green's co-founder and chief executive John Hirschfeld. The end result, he adds is "one plus one equals three."
One plus one equals three. I gotta just say: I love that whole concept! That is the kind of economic thinking that we need-obviously on a much wider scale. Can we ever imagine a time when we could have policy makers with the vision of this green entrepreneur? Well historically we have, it's just that, as Krugman laments, we are in the Dark Ages of economics. As Krugman emphasizes, to speak of a "dark ages" the meaning of the phrase is not that we are living in primitive, primeval times-that implies that we haven't yet invented the wheel. A dark age is one in which we have forgotten that we have invented the wheel not prior to having invented it. Just like in Europe's Dark Ages all the previous texts and works of Greek philosophy and science were lost and forgotten.
There was a time when we actually had economists of understanding and vision in the White House-I would argue that the great WH economic policy team ever remains Kennedy's New Economics Kensyians.
Class Green-besides helping cities with their budgets, also can help with a green part too: a portion of the bond proceeds go to improve energy efficiency in the buildings, which are meant to generate savings for the city.
Another city using Class Green: one of the best government chief executives in the country. Class Green was co founded in July 2008 by Mr. Hirschfeld who initially had pitched the green, sale-lease-backs to businesses. But due to the tremendous uncertainty just really cresting in the commercial-real-estate market at the time, "The private sector was putting sustainability on the back burner."
The idea finally got off the ground with the help of current Conneticut Governor Dannel Malloy. Gov. Malloy was a senior director at Glass Green until his election as governor in November in 2010 and helped come up with the firm's marketing strategy to municipalities.
The response of that Providence building authority chairman shows how radical and controversial anything that smacks of "deficit financing" are. Yet looking at Vermont do not the results speak for themselves? At the least they show that you can balance the budget without the straitjacket of requiring it come hell or high water-the phrase is literally true, many cities or states even if their is a flood act like the most important thing is "fiscal discipline."
As noted above, Vermont is the only state in the Union that offers no requirement to balance the budget, whether through a constitutional amendment of statue. Some of the state requirements are more-or less-flexible than others.
" Every US state other than Vermont has some form of balanced budget amendment; the precise form varies. Indiana has a state debt prohibition with an exception for "temporary and casual deficits," but no balanced budget requirement. It has around $18 billion in outstanding state debt. The governor is not legally required to submit a balance budget, the legislature is not required to approve appropriations that are within available revenue, and the state is not required to end the year in balance. [6] An unusual variant is the Oregon kicker, which bans surpluses of more than 2% of revenue by refunding the money to the taxpayers"
http://en.wikipedia.org/wiki/Balanced_Budget_Amendment
At least Indiana allows for "temporary and casual deficits" and the governor is not legally required to submit a balance budget-come hell or high water. Indeed at least Indiana says 'come what may usually except hell or high water.'
The Oregon Kicker gives us the worst of all worlds by actually showing a prejudice even against too large a surplus-much like Greenspan's surreal testimony in March 2001-where he endorsed while trying pretend like he wasn't endorsing, the Bush Tax Cuts-that the biggest threat is that the government go into a period of too large a surplus. While right now deficits are used as an excuse for cutting spending, this Greenspan-Oregon logic argues that if there is money for social spending, etc. it must be immediately doled out in-mostly upper-income-taxes.
The Oregon Kicker goes right up there with the Colorado Bill of Rights(where a 3/4 super majority is needed for any tax increase; the deleterious effect on the government sector was so bad they finally had to starrt scaling it back some)as one of the signature worse pieces of legislation at the state level-at the federal level, of course, that title remains for the Bush tax cuts.
On balance these bold and different ideas in some cities, the governor of Connecticut, this interesting company Class Green and the state of Vermont are out there but the consensus view remains for now, alas on the side of mandated balanced budgets, with it goes without saying, the preferred way of balancing the budget is spending cuts; tax cuts are discouraged largely, like here in my home state of NY where Governor Andrew Cuomo has held good on his campaign pledge to not raise property taxes for any reason-presumably including hell or high water.
If there are taxes too often they are consumption taxes, etc. which hit the non-rich hardest. There have been a few states where governors have been hired specifically to raise taxes and that is a positive development which shows that in many places at least the pubic gets it. However the idea of financing through things the kind of deals Class Green's offers-who makes "one plus one equal three" not to mention the state of Vermont's example of various enterprise funds-similar to those used in private business-is clearly an idea whose time has come. Hopefully we don't need more of this tremendous economic pain to finally begin figuring this out.
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