Tag: state privatization

More Economic Pain on the Way for States and Local Communities, Courtesy of the U.S. Congress

Michael MatheronLeave a comment

March 10, 2011

Recently, the Center on Budget and Policy Priorities issued a survey of state budget concerns.  Their comments about federal assistance to states and localities are not optimistic: “Federal assistance for states, which has been enormously helpful in allowing states to avert some of the most harmful potential budget cuts, will be largely gone by the end of fiscal year 2011, the current fiscal year. . .”

The GOP/TP fiscal jihad that is taking place in the House of Representatives, using H.R. 1 as its present vehicle, cuts valuable and critical financial resources from federal assistance to states and localities:

“The Fiscal Problems Of State And Local Governments Have Also Had National Implications, As Their Spending Cuts And Tax Increases Have Been A Headwind On The Economic Recovery.” Federal Reserve Board Chairman, Ben Bernanke Speech At The Citizens Budget Commission In New York, March 2, 2011.

Challenges For State And Local Governments

A Sampling Of H.R. 1 Cuts
Adversely Affecting States And Localities

• Community Development: H.R. 1 Would Cut The Community Development Block Grant (CDBG) Program From $4 Billion To $1.5 Billion – Nearly Two-Thirds (62 Percent).

• Head Start Early Childhood Education: Head Start Is Providing Comprehensive Early Childhood Services To Almost One Million Low-Income Children And Their Families. The Cut Of $1.1 Billion, Or 14 Percent, Below The FY2010 Appropriation . . . Causing Nearly 218,000 Children Across The Country To Be Kicked Out Of The Head Start Program This Year, A 20% Cut And Close More Than 16,000 Head Start And Early Head Start Classrooms.

• Railroads And Transit: The Bill Cancels Over $3 Billion In High Speed Rail (51 Projects In 22 States) And Surface Transportation Projects (TIGER Grants = 76 Projects In 40 States) That Were Awarded With Fiscal Year 2010 Funds. These Projects Are Estimated To Have Created More Than 100,000 New Construction Jobs.

• Public Safety: The CR Cuts Funding For Justice Department State And Local Law Enforcement Grants By Over $1 Billion, Or 27 Percent (Including COPs, The Office Of Justice Programs And The Office Of Violence Against Women).

With state governments also, by and large, cutting programs and state employee salaries, the GOP fiscal jihad is trickling down to what economists like to call Main Street. Moreover, what is not generally discussed in the media is the fact that states themselves provide assistance and grants to local governments – Main Street as a reality, not a metaphor. As federal aid to states declines greatly for the foreseeable future under GOP plans, states’ abilities to provide funds to localities also will decline, and, let’s face it, many states already are planning these cuts despite the loss of significant federal grant money. Then, of course, on Main Street, community services are cut substantially, everything from law enforcement to school teachers.  That’s trickle down economics, RepubliCut style.

And even without this huge round of federal and state budget cuts many U.S. Main Streets, for years now, have been awash in unemployment, community decline, and rising poverty. The combination of state and federal cuts coming in the remainder of 2011 and 2012 will, I fear, dampen the very mild recovery we are experiencing now, and, to carry the metaphor maybe too far, drown the national economy in another deep recession, or worse, including widespread social unrest, making Madison, Wisconsin seem tame.

A week ago, Federal Reserve Chairman Ben Bernanke, addressed the Citizens Budget Commission of New York about this growing problem.  As a leading former member of George Bush II’s economic team, Chairman Bernanke is no cheerleader for governmental spendthrifts.  Yet, below, he also appears nervous about the massive cuts in the pipeline; I don’t like our Ben nervous . . .

“The recession’s effects on state governments have been substantial. In calendar year 2009, state tax revenues were about 12 percent lower than they had been in 2008; declines in wages, salaries, capital gains, and profits reduced income tax revenues, and sales tax collections dropped along with household and business spending. Reflecting somewhat better economic conditions, state tax revenues for the first nine months of 2010 were 3 percent higher than during the comparable period a year earlier–a relatively modest improvement in comparison to the earlier decline. Meanwhile, on the spending side of the ledger, demand for publicly financed medical care and other public services soared as the economy weakened. Most notably, Medicaid caseloads rose from less than 43 million at the start of the recession in December 2007 to more than 50 million in June 2010–an increase of nearly 18 percent. . .

“In contrast to the sharp drop in state tax revenues, local tax revenues across the country have held up relatively well over the past couple of years. In part, this difference reflects localities’ greater reliance on property taxes. Changes in real estate values typically feed through to tax assessments and property tax bills with a considerable lag; some jurisdictions have also raised their property tax rates to offset weakness in assessed values. The continued softness in real estate prices, however, does not bode well for local government revenues. Moreover, many localities have been hard hit by reductions in state aid, which in 2008 accounted for about 30 percent of local revenues. Indeed, the fiscal 2011 budgets of more than 20 states contained either outright reductions in local aid, changes to revenue-sharing agreements, or cuts in funding for specific programs that are run by local governments–such as education for grades kindergarten through 12, road maintenance, and property tax relief.

“Assistance from the federal government–mainly through the stimulus grants included in the American Recovery and Reinvestment Act of 2009 (ARRA) and the additional Medicaid and education grants provided last summer–has relieved some of the fiscal pressure on states and localities. In addition, many of them have tapped financial reserves–or “rainy day” funds–and pursued asset sales and other one-time actions to satisfy balanced budget requirements.  Nonetheless, many governments have laid off or furloughed workers, frozen salaries, and cut other operating expenses. Job cuts have been especially pronounced at the local level, where payrolls have fallen roughly 350,000, or more than 2 percent, over the past 2-1/2 years; nearly half of the loss of local jobs has been in education.

“In addition, state and local governments have cut their capital expenditures. To be sure, construction of highways and transportation facilities has been well maintained over the past couple of years, partly because of the infrastructure grants and the Build America Bond program provided under the ARRA. . .

“Although the economy is recovering, it is still operating well below potential and unemployment remains high. Stimulus grants from the federal government are winding down this year and will largely have ended by 2012. Demands on Medicaid and other social service programs will likely remain elevated. Moreover, reserve funds are low, and the list of unused one-time fixes has been substantially depleted. . .

“. . . the fiscal 2011 budgets of more than 20 states contained either outright reductions in local aid, changes to revenue-sharing agreements, or cuts in funding for specific programs that are run by local governments–such as education for grades kindergarten through 12, road maintenance, and property tax relief.”

GOP/TP Cuts Have Consequences, Too. Republicans like almost any word or phrase that precedes “have consequences.” Holding them to that when they’re the punch line to “have consequences” has generally failed. But extreme budget cuts at any governmental level bode poorly for an economy only slightly on the mend. Recall that despite a mild softening of unemployment last month (and to be revised next month), the ranks of the unemployed do not, by any measure, signal a return to prosperity. The long-term jobless rate is at a record percentage of the unemployed, more than a million of whom have been out of work – and most of them still looking – for two or more years.

A Lexicon. No matter what, this is the place where the rubber meets the road for GOP/TP economic theory which basically features a number of morally and economically suspicious principles. Here are a few of the GOP’s mantras that come to mind:

  • what’s mine is mine, and what’s yours is mine too (Hosanna Ayn Rand!)
  • cut taxes savagely, particularly on the wealthiest 10%
  • cut spending savagely on everything that does not benefit the wealthiest 10%
  • privatize everything to benefit the wealthiest 10% at the expense of the dwindling middle class and the poor, and, the corollary, inevitably run privatized public services poorly with the eye primarily on the bottom line
  • steal whatever tax revenue received via the middle class and the poor and recycle it through federal contracts, privatization, and old-fashioned theft to the wealthiest 10% (this is called Kleptocracy!)
  • financial regulation gets in our way! Period. Paragraph.
  • and bringing things strangely in a full circle, almost all tax cuts increase government tax revenue (Hosanna Arthur Laffer, Peter Stockman, Ronald Reagan, John Boehner, Mitch McConnell, etc., etc., ad nasuem)

There’s more, of course, but I’m tired and need to get back on my meds. 

Egypt: Why the Next Revolution Must Be an Economic One

Michael MatheronLeave a comment

March 4, 2011

In his article The Revolution Against Neoliberalism? Dr. Walter Armbrust, University Lecturer in Modern Middle East Studies at Oxford University, speculates about the next revolution in Egypt, the economic revolution, and whether it will succeed at all. Dr. Armbrust examines Egypt’s political economy during the Mubarak era, and finds a system that relied on cronyism and a misguided and corrupt neoliberal state, one where only the well-connected were able to thrive, and thrive they did. Armbrust is highly critical of the neoliberal economy, where the so-called free market trumps all other considerations of social policy and fairness.

The following is excerpted from his article at Jadaliyya.

“. . . the real problem with the regime was not necessarily that high-ranking members of the government were thieves in an ordinary sense. They did not necessarily steal directly from the treasury. Rather they were enriched through a conflation of politics and business under the guise of privatization. This was less a violation of the system than business as usual. Mubarak’s Egypt, in a nutshell, was a quintessential neoliberal state. . .[In the neoliberal state,] guaranteeing the sanctity of markets is supposed to be the limit of legitimate state functions, and state interventions should always be subordinate to markets. All human behavior, and not just the production of goods and services, can be reduced to market transactions. And the application of utopian neoliberalism in the real world leads to deformed societies as surely as the application of utopian communism did. . .

“The only people for whom Egyptian neoliberalism worked ‘by the book’ were the most vulnerable members of society, and their experience with neoliberalism was not a pretty picture. Organised labor was fiercely suppressed. The public education and the health care systems were gutted by a combination of neglect and privatization. Much of the population suffered stagnant or falling wages relative to inflation. Official unemployment was estimated at approximately 9.4% last year (and much higher for the youth who spearheaded the January 25th Revolution), and about 20% of the population is said to live below a poverty line defined as $2 per day per person.

A Neoliberal Fix Would Be a Tragedy For the Pro-Democracy Movement

“For the wealthy, the rules were very different. Egypt did not so much shrink its public sector, as neoliberal doctrine would have it, as it reallocated public resources for the benefit of a small and already affluent elite. Privatization provided windfalls for politically well-connected individuals who could purchase state-owned assets for much less than their market value, or monopolise rents from such diverse sources as tourism and foreign aid. Huge proportions of the profits made by companies that supplied basic construction materials like steel and cement came from government contracts, a proportion of which in turn were related to aid from foreign governments. . .

“The generals [now in charge] may well prefer a new round of neoliberal witchcraft. More privatization will simply free up assets and rents that only the politically connected (including the generals) can acquire. Fixing a failed neoliberal state by more stringent applications of neoliberalism could be the surest way for them to preserve their privileges.

“A neoliberal fix would, however, be a tragedy for the pro-democracy movement. The demands of the protesters were clear and largely political: remove the regime; end the emergency law; stop state torture; hold free and fair elections. But implicit in these demands from the beginning (and decisive by the end) was an expectation of greater social and economic justice.

“. . . If the January 25th revolution results in no more than a retrenchment of neoliberalism, or even its intensification, those millions will have been cheated. The rest of the world could be cheated as well. Egypt and Tunisia are the first nations to carry out successful revolutions against neoliberal regimes. Americans could learn from Egypt. Indeed, there are signs that they already are doing so. Wisconsin teachers protesting against their governor’s attempts to remove the right to collective bargaining have carried signs equating Mubarak with their governor. Egyptians might well say to America ‘uqbalak’ (may you be the next).”

Arizona – No Taxation Without – Or With – Representation!

Michael MatheronLeave a comment

January 12, 2011

“The first thing we do, let’s kill all the taxes.”
A (mild) paraphrase of Shakespeare’s “let’s kill all the lawyers”
Henry The Sixth, Part 2 Act 4, scene 2, 71–78

Ken Silverstein’s July 2010 Harper’s Magazine article, Tea party in the Sonora: For the future of G.O.P. governance, look to Arizona, surveys the political landscape of that Tea Party dominion. It’s relevant today as the GOP has seized control of the House and maintains its unofficial “filibuster majority” in the Senate.

Below are some excerpts:

Since the days of Barry Goldwater, an axiom of Arizona politics, particularly among Republicans, has been that tax cuts generate economic growth in all circumstances. Hence total state taxation has declined during fifteen of the past seventeen years; the individual income tax has taken the biggest hit, but sales, property, and corporate-income taxes have also come down substantially. The legislature has created tax exemptions for everything from country-club memberships to pedicures to food purchases by airlines (the latter at the behest of local airline lobbyists). None of this has produced the hoped-for effect. Although tax cuts “have lowered government revenues,” they “have not had any perceptible effect on the state’s economic growth,” concluded an Arizona State University business-school study, published last November, that examined the past three decades of fiscal policy.

Instead, to raise cash, the legislature has pursued a series of wild sell-offs and budget cuts. It privatized the capitol building and leased it back from its new owner, an arrangement that brought in substantial revenue but over time will cost Arizona far more. The legislature has sold off numerous other state properties at bargain prices, and has put up future lottery revenues as collateral on a $450 million loan. Meanwhile, Arizona removed more than 300,000 adults from state health coverage and terminated one health-care program for 47,000 poor children. Funding was slashed at the agency that deals with reports of child abuse and neglect, and also at Children’s Rehabilitative Services, so that parents of children with cystic fibrosis, cerebral palsy, and a number of other conditions are now required to pay 100 percent of treatment costs. 

The anti-government attitude in Arizona is now reflexive, especially because of its entanglement with the issue of immigration. As one local resident, who didn’t want to be identified because she has a government job, told me: “People who have swimming pools don’t need state parks. If you buy your books at Borders you don’t need libraries. If your kids are in private school, you don’t need K-12. The people here, or at least those who vote, don’t see the need for government. Since a lot of the population are not citizens, the message is that government exists to help the undeserving, so we shouldn’t have it at all. People think it’s OK to cut spending, because ESL is about people who refuse to assimilate, and health care pays for illegals.”

There’s a lot to think about. And not just in Arizona . . .