MuniLand

The cost of the war on drugs

Memo to our new president: Federal, state and local governments face increasing challenges as they look for more revenue and try to reduce costs. Reducing public employee headcounts and postponing capital projects have been good ways to reduce budgets, but bolder approaches are needed.

Public policy approaches to the “war on drugs” have been debated over the years, but really not often enough using dollar figures. By ending the prohibition on some or all illegal drugs and taxing and regulating their distribution instead, U.S. governments at all levels could save over $50 billion per year, according to various studies.

The aggressive criminalization of drug use began under President Richard Nixon, and the momentum of the war on drugs increased rapidly with arrests that increased quickly over time, according to a report by the Beckley Foundation (page 2):

Figures show that drug arrests have more than tripled in the last 25 years, reaching a record of some 1.8 million in 2005 (Mauer & King 2007); in 1980 there were 581,000 drug law arrests, climbing to a total of 1,846,351 in 2005. 81.7% of these arrests were for possession offences, and 42.6% of arrests were for marijuana offences. Of the 450,000 increase in drug arrests during the period 1990-2002, 82% of the growth was for marijuana, with 79% for marijuana possession alone (Boyum & Reuter, 2005).

What is the cost of spending precious police resources chasing down drug users? A 2010 Harvard study says:

States don’t need to take loans from JP Morgan

Jamie Dimon, the CEO of JPMorgan Chase, made headlines this week for an interview at the Council on Foreign Relations in which he said that buying Bear Stearns in March, 2008 was a “favor” to the Federal Reserve, and that JPMorgan had lost money on the deal. But there was another part of his interview where he talked about lending to states that caught my attention:

DIMON: OK, so — (laughs) — this company, JP Morgan and Chase — (inaudible) — went through ’06, ’07, ’08, ’09, 2010, 2011, 2012, never lost money in a quarter, didn’t need TARP and was there for a lot of people when others weren’t. California, New Jersey, Illinois, hospitals, schools, businesses.

I think that Mr. Dimon is inferring that California, New Jersey and Illinois, which have had severe cash flow problems, had had to rely on JPMorgan to tide them over until they completed their next bond offerings. I remember all these financings; there was very little data available about the borrowing costs and terms. Although these loans are for public entities, the current MSRB rules exempt bank loans from disclosure. This is mind-bending when you consider that JPMorgan’s purchase of Bear Stearns required voluminous public disclosure to protect shareholders. There are no such rules to protect taxpayers.

Be dubious of opaque muniland data

A Reuters story with the headline “U.S. states’ debt tops $4 trillion — report” caught my eye because I had never seen any analysis of the debt of states that put the number so high. The report the story referred to was issued by a mysterious non-profit organization called State Budget Solutions (SBS). The group’s website lists no physical address and says that SBS is affiliated with another non-profit, Sunshine Review of Alexandria, Virginia, whose Form 990 IRS filing declares that it has one employee. Furthermore, there is a third affiliated non-profit, Sunshine Standard, which also lists no information describing its funding or management. Considering that the three groups are non-profits focused on transparency and accountability for governments, their own behavior is pretty opaque. It’s also extremely odd that they don’t ask for donations on their websites. What non-profit doesn’t need donations?

SBS describes its mission in the following way:

“The State Budget Solutions Project is non-partisan, positive, pro-reform, proactive and anchored in fundamental-systemic solutions. The goal is to successfully engage political journalists/bloggers, state officials and opinion leaders in a new way of thinking about state government and budgets, fundamental reforms, transparency and accountability.”

These are excellent goals, but the information that SBS is disseminating seems slanted for political purposes. For instance, it breaks out the liabilities of all 50 states by type of debt and shows unfunded pension liabilities for states at about three times the more commonly cited figure of the Pew Center on the States.

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