How To Ruin A State Economy In One Easy Step - Another Lesson

Back in May I wrote a cautionary tale about how easy it is to ruin a state's economy. The tale highlighted Michigan's efforts to drive the final nail in the coffin of their economy, raising taxes again and again to bolster falling revenues only to see revenues fall even further, widening an already horrendous budget deficit. Pro-labor/anti-business legislation didn't help things either. These things have had the effect of seeing twice as many people moving out of Michigan as are moving in, not something anyone in state government wants to see.

More than one state has fallen into that trap in the past and present. Some have done that more than once, proving Santayana right: ”Those who ignore history are doomed to repeat it.”

Connecticut is starting to feel the strain, as is Massachusetts, with incipient tax revolts brewing even as both states continue their profligate spending. Massachusetts should know better, having suffered through economic self-immolation back in the 1970's. But Governor Deval Patrick and the Massachusetts House and Senate seem bent on ensuring a return to those dire times. They've forgotten the lesson.

California is also in a mess, with a deficit measuring somewhere around $15 billion (that's “billion” with a “b”). Raising taxes will only deepen their problems, and businesses and taxpayers will soon start voting with their feet. It doesn't help that Republican Governor Arnold Schwarzenegger and the Democratic-controlled Assembly are at loggerheads, with neither side willing to budge on spending cuts and tax increases.

But the best object lesson anyone can offer is the state of New Jersey, which was once considered one of the most business friendly states because of its low tax burden. But those days are long gone. Between one of the highest tax burdens in the nation and more restrictive business laws and regulations making it more difficult for businesses to survive, is it any wonder the Garden State is turning into an economic basket case?

Jersey’s decline has been rapid and astonishing. Back in the 1960s, one study judged it among the country’s ten most business-friendly states because of its light tax burden, which allowed it to attract a steady stream of businesses and residents from New York. Though there were occasionally signs of trouble over the years—like the pension shenanigans of Governor Christie Whitman, in which government shirked its long-term obligations—the state’s real decline started with the election of Jim McGreevey and a Democratic-controlled legislature in 2001.

In the middle of a recession, McGreevey and the legislature raised taxes and fees an astonishing 33 times to raise $3.6 billion. The state also passed a heap of labor-friendly, antibusiness laws that rapidly worsened conditions. The McGreevey administration hammered an executive at one of the state’s biggest employers, Federated Department Stores, for announcing that the new taxes would force the company to reevaluate future growth plans in Jersey. In 2002, the Beacon Hill Institute rated Jersey 26th among the states in overall competitiveness, but by 2004 Jersey had plummeted to 44th, the largest decline of any state, noted the institute, which also ranked Jersey’s government performance next to last among the states—in case you were wondering what prompted the decline.

Yet Jersey’s leaders have learned little. In 2006, the state enacted several billion dollars of new taxes. And Governor Jon Corzine recently signed into law one of the most astonishingly anti-growth and simply foolish (there is really no other word for it) pieces of state legislation in memory. The new law requires towns hosting private-sector commercial or residential development to build subsidized affordable housing as well. Towns say that they will have to tax developers and raise property taxes to pay for this. If you knew nothing about New Jersey, you might assume that the state was prospering and that its developers were rolling in money. But the state’s commercial vacancy rate is a whopping 19 percent (by contrast, Manhattan’s is about 7 percent), and prospects for filling up that empty space are slim, considering that a recent national survey of corporate executives ranked Jersey as one of the least attractive places to expand. A state in desperate need of business just made doing business even more expensive.

It's always a recipe for disaster, pissing off the folks that actually create jobs by stealing even more cash from their wallets while at the same time tying their hands when it comes to how they will run their businesses. You'd think that no one in New Jersey government had ever taken (and passed) an economics course. If the state government can't get its act together, cut spending, cut taxes, and shake off the influence of organized labor and other special interests, businesses and taxpayers will leave the Garden State in droves, heading to more business and taxpayer friendly states that will gladly welcome them.

Is it a coincidence the states suffering the most from these kinds of problems are controlled by Democratic majorities in their legislatures? Is it any coincidence most of the states having the biggest problems of this type also have Democratic governors? It's something to think about as we approach Election Day this November.

These examples should be, if nothing else, a warning to New Hampshire legislators, the governor, and every working man and woman in the state. Should New Hampshire go down the same road as the others we can kiss our jobs, homes, and way of life goodbye. The Democrats in the state see the Triple Crown (majorities in the New Hampshire House and Senate, as well as the governorship) as a license to spend like there's no tomorrow. They already managed to increase state spending by 17.5% for the current state budget without figuring out a way to pay for it. Their revenue estimates were overly optimistic even before the economy softened and the housing bubble deflated. Because of that we face a $200 million deficit.

The governor has already taken steps to cut back state spending and instructed department heads to prepare two budgets, one that is zero-change from their present budget, and one that cuts back from their present funding level. The question is whether the department heads will comply, and whether the legislators will comply to the wishes of the governor (and the taxpayers). Hopefully they will be held in check and will not be able to send us down the path to economic ruination as has happened in so many other states.

If I were more cynical than I already am, I'd say this budget crisis was created solely for the purpose of forcing a broadbased tax upon the people of New Hampshire by those licking their chops at the prospect of being able to push forward their liberal agenda and all the control over people's lives it will gain them. After all, we not among the Anointed aren't smart enough to make decisions for ourselves. At least, that's what they'd like us to believe. But the rest of us know better, don't we?

Town And State Budgets Getting Tight

The upcoming budget season for towns and cities here in the Granite State is going to be a tough one. It will be no less difficult for the state, with the governor calling for department heads to draw up two budgets: one tight, and the other tighter.

The word is out across New Hampshire: money is tight and it's going to get worse. Town officials know their residents are having a tough time of it, with much higher fuel and food prices. The last thing the people need is to worry about paying higher property taxes or fees. It comes down to a choice of cutting budgets or raising taxes, and towns are looking very hard to hold the line on spending.

But even town officials are feeling the effects of higher oil prices, with the cost of heating fuel, gasoline, diesel, and asphalt going up. Even if the overall town budgets do not increase, the towns will need to change priorities, shifting funds from other programs and departments in order to cover the increased energy costs. Some towns will defer maintenance on roads or other infrastructure for a year, hoping energy prices will fall or that the economy will recover sufficiently to take the strain off of the individual taxpayer's budgets.

One challenge both the state and the towns will have to meet is declining revenues. Revenues from building permits and vehicle registrations have fallen off as the economy has tightened, meaning even more work needed for the budgeting process.

At the state level, revenue projections from the last bloated budget were woefully optimistic, with the revenue shortfall expected to be $200 million by the end of the biennium. (The State of New Hampshire runs under a two-year budget.) With the drop in revenues from the same decrease in vehicle registrations, as well as fuel taxes, cigarette taxes, and a host of other user fees and business taxes, the state must tighten its belt, too. The governor ordered some spending cuts to reduce that shortfall, but more cuts will be needed to erase the rest of the deficit even if those cuts are made for the upcoming two-year budget. At this point raising taxes would be a non-starter, particularly if state legislators want to be re-elected this November.

Some hard choices will need to be made.

At the state level, rolling back the outrageous 17.5% budget increase of the present budget would be a good start. Much of the state revenue shortfall can be blamed on the oversized budget and the unrealistic revenue estimates used to justify the increases. (The revenue projections for 2007-2008 were unrealistic even without the big boost in energy prices and softening economy, so the blame cannot be laid entirely on those two issues.)

At the town and city level, the choices will be harder. The effects of budget cuts and tax increases are felt and seen in very shortly after they take effect. When budgets are cut oft times they lead to lay offs of town employees, reduction in overtime, reduction of office hours, cutbacks in extracurricular activities at the schools, loss of tutors and teaching assistants, and so on. Tax increases, particularly during troublesome economic times, leads to loss of homes by taxpayers unable to pay their property taxes. Businesses will defer paying their property taxes in order to offset increase costs and decreasing income in other areas. This leaves the towns in the lurch because revenues fall off even more. It's a Catch-22, with everyone in town caught in between. The town budgeting process will have to balance the two needs, perhaps erring on the side of caution and making painful cuts to town spending. But it's something everyone can understand, something most of us have had to do with our own budgets when money is tight. Non-essentials, the want-to-haves, are put aside to meet needs. And so it must go with town spending.

It's going to be interesting times around here for the next few months.

Universal Broadband Needed In New Hampshire

Yes, there is broadband access throughout the Lakes Region. But the question is, is there enough? Unfortunately the answer is no.

While Metrocast, Time Warner , and Comcast offer video, data, and in some areas, phone service, too many people in the towns they serve are left without the services they offer. It isn't that they can't afford it, it's that it isn't available at all.

A few years ago I was living in Plymouth off of Fairgrounds Road. The late, un-lamented Adelphia had a cable trunk running right past the end of my road. Everyone along the Fairgrounds Rd. and most living on the side roads off of it had cable and Internet service. But not me. Even though I could see the cable from my windows, even though my next door neighbor on Fairgrounds Road had access, I did not. Nor could I get it unless I laid out thousands of dollars to Adelphia to run a line from the road to my home, a distance of 250 feet. Unlike telephone service, cable service is not required to be universal. This means the cable franchise can bypass potential customers if they deem it isn't worth their while to extend their optical fiber/coax cable to them.

FairPoint, née Verizon, must provide phone service to anyone wanting it. They are required to provide universal service (at least on the phone side of things), even if they can't yet provide anything other than dial up Internet service. But as they expand their DSL service, they will offer to a majority of their customers. But even they will bypass some of their customers in regards to broadband service.

Sadly, even as broadband service expands throughout the Lakes Region and the rest of New Hampshire, there's another question that must be asked: Will the broadband technologies being deployed today be adequate for the demands of tomorrow? While there are those groups looking into this question, there are too few of us knowledgeable about telecommunications and future demands saying the answer is “no”. This is an issue that must be addressed by business, educational institutions, and workers to ensure that our local/state economy will not be crippled by inadequate broadband access.

At the moment many of us with broadband service can expect between 1 and 6 megabits per second download speeds and 256 kilobits to 1 megabit per second upload speeds for residential cable modem service, and between 128 kilobits to 2 megabits per second upload/download speeds for residential DSL service. For business class accounts cable modem and DSL speeds may be higher and symmetric (upload and download speeds are identical). Those without broadband service are stuck with 56 kilobit per second upload/download speeds with dial up service. (My in-laws are lucky if they get 33 kilobits per second with their dial up ISP in their home town.) At best DSL service will provide between 20 and 25 megabits per second, a blazing speed for today's demand, but hardly future proof.

Even with the 'blazing' broadband speeds presently available in the area, they will be inadequate in 5 years as new services become more popular, with Internet video being one of the fastest growing and most bandwidth intensive applications at present. The demand and the required bandwidth will quickly blow past the capabilities of the present telecommunications infrastructure as more video and data services become available to users. Six megabits per second download speeds will be too slow. 10, 20, maybe 50 megabits per second will be required for such things as IPTV (Internet Protocol TV), teleconferencing, telepresence (particularly crucial for medical applications), peer-to-peer networking, and a host of other applications that have barely made it out of the media and computer labs. And as even newer services become available, even 50 megabits per second will be too slow.

The cable companies are working to increase the speed of their Internet service and they may be able to come close to what other services like FTTH (Fiber-To-The-Home) can offer, but they won't surpass it.

If the telephone companies and cable companies aren't willing to step up to the plate to provide the needed telecommunications infrastructure in New Hampshire, then perhaps it is up to us to promote it, if not find a way to provide it. There are already groups of towns in Vermont and New Hampshire forming coalitions to build out FTTH networks, making sure everyone in those towns will have access, in other words, providing universal service.

If we want to attract businesses, entrepreneurs, and telecommuters to the state, and particularly the Lakes Region, we need a 21^st Century telecommunications infrastructure. At best we have a late 20^th Century telecommunications system, and a barely adequate one. This must change.

Yankee Attitude

I stole the piece below from The Barrister over at Maggie's Farm. It pretty well explains the feelings of a lot of us Yankees up here in New Hampshire, particularly those wishing to maintain the N'Hampsha' way of life, the feeling of community that so many other places have lost and aren't likely to regain any time soon. (Note: The Barrister resides in Connecticut, but the same principals apply there as here. We've both seen seen changes in our respective towns that are not to the betterment of the townsfolk, or the town.)

Unless they happen to be in the tourist trade or the mini-mart business, the Yankee native does not tend to welcome visitors to his corners of the woods. Maybe this applies to all of small-town USA.

You get the feeling that the old families don't welcome out-of-towners, much less furriners. And whenever they see a New York license plate in town, they worry and grumble. I'm sorry, but it's just the way the folks are: "Please respect our space and our ways and we will try to tolerate yours as long as you keep them somewhere else."

City people might term it parochial, but it's actually a strong sense of proprietorship and protectiveness towards something valuable - "Our town."

I guess we like things as they are, or, preferably, as they were. The old-timers still refer to my place as "Peck's farm," even though old Amos Peck, the fourth generation on that land and a member of a founding family of the town, ascended to his reward in 1932 and his kids sold the old chicken and dairy farm to a dairy farmer down the road who was looking to expand his herd. One wonders whether there is a covert message in it: "You don't really belong there - you are just a transient with a mortgage."

It takes two to three generations at minimum, I think, to get past being a newcomer. To be an old family, I'd guess five generations minimum. (That makes sense to me. It is an indication that your family might be committed to the town, and not just passing by the way people often do these days, viewing land as real estate rather than as a place to anchor for your future generations.)

Yes, it's about different views of land and of "place". Ideally, your ancestors would have helped build our simple 1742 Meeting House/Congregational Church, which remains the only place of worship for seven miles.

That pretty well explains how it is up here in New England, and northern New England in particular.

I've lived in small towns where change comes slowly, and then only after lengthy discussions and deliberations. I've always been welcomed in every town I've resided, usually because some of the folks in town already knew me through business or other friends, and because of my reputation as a cheap...uh...frugal fellow, not wanting to spend what the town didn't have, and in some cases, didn't need. I've never been one for change for change's sake. But I've also been a proponent for change when it met the town's needs or saved the town money or made the town government or schools more efficient.

While I knew I'd never be a real 'native' in those towns, I was never seen as a “flatlander”, a title that can hang around a resident's neck like the proverbial albatross. No one takes flatlanders seriously, mainly because they bring too damn much of their city foolishness with them, wanting to fiddle with the way things are because they aren't like “back home”. That always beggers the question, “If things were so great 'back home', then why the heck did you come here?”

This gets me thinking I'm going to have to repost more of my instructional scribblings about how things are in small town America, particularly around here in northern New England (Well, more New Hampshire and Maine. Vermont has got problems of its own with all the silly New Yorkers moving in.)