The Connecticut business laboratory
Connecticut Governor Dannel Malloy is not waiting for the U.S. Congress to pass jobs legislation. Rather, he is moving on his own to get growth happening in his state. Although Connecticut’s output is running on par with national trends he has sent a package of growth proposals to the legislature. It’s an interesting blend of tax cuts, targeted programs for small business and skill upgrades for employees in the manufacturing sector. The Connecticut Mirror recently described the highlights:
$516 million in bonding for business and infrastructure investments, a new tax break aimed at small businesses, and a plan to streamline state regulations.
The single-largest investment in the plan involves adding $340 million to the Manufacturers’ Assistance Account, which provides various low-interest loans and grants to businesses.
The administration also is seeking to double enrollment in the Manufacturing Reinvestment Account, a program that allows manufacturers to invest pre-tax profits for a number of years — after which they must be reinvested into the company. The program currently accepts up to 50 businesses, and that would climb to 100.
Another key component of the plan has been dubbed the “Small Business Express Package,” and involves up to $50 million for loans and matching grants to help small companies create jobs.
A proposed change that requires little fiscal outlay would be making the state’s permitting process more efficient. Getting permits can be especially daunting for start-up firms with few resources. Again from the Connecticut Mirror:
Perhaps the largest area of bipartisan consensus since Malloy first announced plans in June for an October session on job growth was a need to improve what is perceived by businesses as Connecticut’s oppressive regulatory environment.
The new legislative package calls for state government to hire a consultant to streamline regulations, particularly with a focus on four large permitting departments: Administrative Services, Energy and Environmental Protection, Transportation, and Economic and Community Development.
My own personal belief is that economic stimulus efforts at the state level can be much more finely tailored and targeted than federal efforts, and efforts at the state level are likely to be more permanent. A criticism of federal efforts has been that they are aimed at temporary measures and don’t give certainty to business owners who must make long-term commitments of capital and infrastructure.
The only shortcoming of the project is that it would be paid for through a bond issue of about $500 million. The state’s budget director thinks other municipal projects can be defered and annual bond issuance can stay steady. The best solution would be to pay with current revenues.
An army of corporate lobbyists in the halls of Congress
Now that the Senate failed to pass President Obama’s jobs legislation last night, various pieces of his plan and other pet projects are likely to be introduced separately. It’s unclear whether an extension of the payroll tax reduction or additional unemployment benefits — two key planks of the President’s plan — will get floor time. But corporate interests are getting plenty of attention from members of the Senate. In particular, an army of corporate lobbyists has been vigorously promoting a tax holiday for U.S. multinationals.
Politico says the senior New York US Senator, Democrat Chuck Schumer:
has been quietly courting some Senate Republicans and Democrats to see whether there is any appetite for merging a GOP-backed idea — a tax holiday for corporations to bring home their overseas profits — with a Democratic-supported plan of creating a national infrastructure bank.
There is no evidence that giving multinational corporations a big tax break on profits earned overseas will create jobs or stimulate the economy. But some, like former director of the Congressional Budget Office Douglas Holtz-Eakin, believe that a tax holiday will actually create economic growth. Holtz-Eakin writes in Bloomberg:
Repatriation can be thought of as a private-sector approach to stimulus.
Both the left and the right have poured cold water on this idea. The Heritage Foundation, the conservative think tank, says the proposed holiday would not spur additional U.S. capital investment or jobs because corporations have plenty of profits onshore and there is easy access to financing. J.D. Foster and Curtis Dubay of the Heritage Foundation write (emphasis mine):
Absolutley NOT…this bill is not good enough. Giving the 1% any type of a tax holiday is a reward for destroying our jobs.
If the 1% wants to bring their blood money back into this country after exploiting workers overseas, why reduce their tax from 35% down to only 8%….how about down to 15 to 20%??????? Instead of getting a trillion dollars in taxes out of them at 8%, why not 2 trillion at 15%?
Obama proposes direct aid to local governments
Obama proposes direct aid to local governments
Among the proposals made by President Obama in his jobs speech last night was his call for the federal government to fund the costs of public school teachers, firemen, policemen and first responders fully. This appears to be the only direct cash subsidy for jobs in his plan.
The American Jobs Act, if enacted by Congress, would specifically allocate $30 billion in funds for teachers and $5 billion would support the hiring and retention of public safety and first responder personnel. Using 2010 Census data this would provide a subsidy of approximately 12% to local governments for their elementary and secondary educator’s expenses and 8% for police and firefighters. The 2009 Recovery Act allocated $47 billion to local governments for teacher salaries so this proposal is about 40% less.
President Obama’s plan also includes “$25 billion investment in school infrastructure that will modernize at least 35,000 public schools.” While sounding good it’s important to point out this would give each school about $715,000 in funds for renovations. It’s helpful but not really a substantial amount.
Several economists are out lauding the large impact in gross domestic product the plan will have. For muniland the proposal is helpful but not earthshaking. Of much greater fiscal importance will be the changes the President and supercommittee propose for Medicaid. Stay tuned.
State tax collections up 11% for 2Q over last year
Although the national economy continues at stall speed, state tax collections are rocketing ahead. From the Rockefeller Institute:
Must infrastructure spending shrink along with muniland?
Paul Krugman at the New York Times has a good graph that shows a substantial withdrawal of government demand from the economy. He attributed this to the decline of federal government stimulus to state and local governments as the American Recovery and Reinvestment Act winds down. There is also another factor that is reducing government demand: state and local governments are issuing less debt, which in turn creates fewer building projects and construction jobs.
Municipal bond issuance is about $108 billion less this year than the same period in 2010. Several stories today highlight how states and cities continue to face fiscal challenges that cause them to lower the amount of municipal bonds that they issue for infrastructure projects.
Does reduced state and local infrastructure spending suggest a rationale for increased national infrastructure spending as hinted at by President Obama? Will his proposal be big enough to make up the shortfall of municipal spending on infrastructure? From Bloomberg:
Municipal bond sales this week and last are set to be the lowest for the period around Labor Day in seven years as issuers curb borrowing for infrastructure work.
Shrinking revenue prompted 69 percent of U.S. cities to delay or cancel infrastructure spending in 2010, according to a National League of Cities survey of local finance officers.
Cities also lowered spending with personnel cuts, service reductions, changes to health-care benefits and public-safety curbs, the October report showed. Eighty percent of finance officers forecast their cities will be less able to meet needs in 2011 than in 2010, the survey said.
Total municipal issuance so far this year has been $144.6 billion, according to data compiled by Bloomberg, $107.8 billion less than the same period in 2010, when federally subsidized Build America Bonds encouraged borrowing.
An AP story talks a little about the rationale for decreased muni bond issuance:
“There’s no question that this year some of the decline is simply budget problems that people have,” said John White, chief executive officer of the Public Financial Management Group, a Philadelphia-based investment advisory firm. “There is an atmosphere now where taxpayers are asking more questions about anything that’s debt-related than they have in the past.”
Muniland is shrinking
Although municipal tax revenues have rebounded in the last few quarters, the declines of prior years have hit state and local employment hard. In the chart above Matt Yglesias shows the collapse of state and local revenues; with the collapse of revenues we’ve seen the loss of many muniland jobs. Now the story is pivoting to large potential job losses at the federal level.
The New York Times is reporting that:
The financially strapped U.S. Postal Service is considering cutting as many as 120,000 jobs.
Facing a second year of losses totaling $8 billion or more, the agency also wants to pull its workers out of the retirement and health benefits plans covering federal workers and set up its own benefit systems.
And as the Congress considers reducing military spending, defense contractors are preparing for job cuts too. Although I’m sorry any person would lose a job I won’t mourn military job losses. We spend way too much money on this sector. Bloomberg had a good video on the potential fallout:
Singing the passion song
Kathleen Kennedy Townsend, the former lieutenant governor of Maryland, writes passionately in The Atlantic about the need to create jobs in the United States, especially those linked to infrastructure. I welcome her opinion as we need more passionate voices drawing attention to the need to stop outsourcing American jobs. We will never recover if we make economic decisions solely on the the basis of manufacturing costs. Ms. Townsend says:
As a country we have to decide what our values are. Do we really want to be a nation that funds our spending spree through the Chinese, who then make our goods and do our work while we go into debt and remain unemployed? Work is more important than saving tax dollars. Jobs are critical. Work, not an unemployment check, is what makes people feel they are worth something.
I hope the combined forces of politicians, the unions, and the Chamber [of Commerce] will eventually overcome the resistance to the infrastructure bank. We need to create jobs, and we need to rebuild our roads, railways, sewage, and water systems. Most of all, we need to revive our sense of energy and excitement — the deep fulfillment that comes of making things we can touch and feel, things that really improve our lives.
Red-light warning
Public pension plans beware: the scrutiny of your disclosures is increasing. The Bond Buyer reports that the chairwoman of the SEC said that the agency is increasing its diligence on pension plans:
In response, Schapiro cited the SEC’s settlement with New Jersey last year of securities fraud charges stemming from the state’s failure to disclose to investors that it was underfunding its two largest defined-benefit pension plans.
The commission has “a number of others under investigations” with respect to the adequacy of disclosures, she said.
Schapiro also said discussions are underway with members of Congress about potentially enlarging the commission’s disclosure authority over municipal issuers.
Under the Tower Amendment in the Securities Exchange Act of 1934, the SEC and the Municipal Securities Rulemaking Board cannot require muni issuers to file pre-offering disclosure documents.
No more hiding the dirty laundry.
America will never recover when China builds our infrastructure
End game for America’s jobs
America will never recover if we outsource everything, including our public infrastructure. Bloomberg made the excellent video above about California outsourcing the construction of a portion of the San Francisco Bay Bridge to Shanghai Zhenhua, a Chinese firm. Shanghai Zhenhua is assembling the section and will then ship it to California for installation. The state is supposedly saving $400 million with this move. The workers at the Chinese facility are making $12 dollars a day.
In times of fiscal stress it’s easy to understand why public entities are trying hard to cut costs. But this “cost cutting” is really just off-shoring American jobs. Something has to give — we can’t recover without creating American jobs. It’s our choice, and I choose spending more and creating jobs at home.
Background on the project from Bloomberg.
Hungry market gobbles up new municipal bonds
So, if the work were to cost the state an extra $400 million, it would be spent (I am assuming here) on pay for domestic employees, who then would spend it on iPads or flat screen tvs. In essence, the money is only one step removed from China (or Vietnam or Indonesia). Until Chinese labor mobilizes to attract higher wages (with current inflation rates, probably sooner than later), or transportation costs become prohibative (carbon taxes do have some benefits, making international trade more expensive), the cash outflow will continue. I don’t see any reference to GE turbines or Boeing jets going to China, which I am certain irks the Chinese nationalists.
As for the $375,000 ave retirement plan…assuming a pensioneer lives on average for 25 years following retirement, that’s less than $20,000 a year, invested at 5% (good luck on finding that rate on a safe investment). Yeah, those unions really killed things. And why, exactly, wasn’t the pension fully funded? Because of a tax loophole that lets corporations write off future pensions from today’s taxes. Before you blame the greed of the unions, look at the rapacity of the employer. Maybe if they were non-unionized (like Enron employees), they would have no contract and the employer could walk away from the obligation?
The foolishness of Ann and Amanda
Television is my least favorite medium because pundits usually strike outlandish poses that are wholly disconnected from the facts. Case in point is the short video above from MSNBC with Chris Hayes of The Nation, author Amanda Foreman, pundit Ann Coulter and political commentator and comedian Bill Maher. What are these people talking about?
Amanda Foreman: “Government doesn’t create jobs. Ideas create jobs. Innovation creates jobs.”
Fact check: State and local governments employ approximately 19.6 million people.
Chris Hayes: “My mother works for the government. Is that not a job?”
Fact check: Chris Hayes mother definitely has a “real” job. About 20% of the U.S. economy comes governmental expenditures, and much of that is paid as salaries and wages to government employees. State and local governments are about 12% and the federal government is about 8%.
Ann Coulter: “She [Chris Hayes' mother] is a drain on society.”
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Resident Muniland expert
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