The new politics of austerity
At federal, state, and local levels, 2010 will be a year of political dieting, forgoing some of the fattening programs of the recent past.
"This football team will not improve next year unless medical science perfects heart and brain transplants" — Otto Graham, coach, Washington Redskins, late 1960s.
Washington, D.C., Olympia, and Seattle public executives and legislators will need to display over the next 60 days both heart and brains if they are to meet the most difficult taxing and spending decisions of at least the past decade. If they don't deliver, our economic distress could quickly become worse than at present.
Local media have focused over the past few days on the current session of the state legislature and the tax-increase options that would help reduce a $2.6 billion budget deficit, which probably will be $3 billion before the session ends. But our state is under less pressure than many others. At national level, the challenge is overwhelming. Let's take it from the top.
The problem at national level is perilous: It now appears that economic recovery will be quite slow in 2010, with unemployment still near 10 percent by the end of the year. The federal government has undertaken historic spending, first to rescue the financial system and, then, to generally stimulate the economy and specifically to bail out the automobile and housing industries. On top of that, Congress is expected to pass within 30 days a general remake of the health sector which will increase deficits still further. Next week it will lift the federal debt ceiling by nearly $2 trillion to cover anticipated deficits by the end of the fiscal year.
The administration estimates federal budget deficits of about $1 trillion a year over the next 10 years. By 2026 U.S. public debt is projected to exceed 100 percent of Gross Domestic Product (GDP) — the highest percentage since World War II. The trust funds which pay for Medicare and Social Security will be emptied by 2017 and 2037, respectively.
So-called discretionary spending, including defense spending, can be modified year by year. But if anything serious is to be done about our growing structural deficits, that means dealing ASAP with Medicare and Social Security. The solutions to the Medicare/Social Security problems have been well known for decades: Benefits either must be reduced or related taxes increased. Some of the solutions would not be painful: raising the eligibility age, lifting the limit on income subject to payroll taxes, changing slightly the formulas determining benefit increases, or implementing some of the spending limitations contained in the current health-legislation proposals. But each would be resisted by important constituencies.
President Obama soon will deliver his State of the Union address. In that speech, he is likely to announce his intention to appoint a bipartisan Social Security/Medicare commission to recommend ways to put both systems on a sounder financial basis — probably suggesting its whole set of recommendations to be voted up or down in the Congress, rather than addressed piecemeal. That would give political cover to politicians who already know what the recommendations would be.
Obama, at the same time, may announce his intention to phase out the spending programs that have helped bolster the financial system and economy over the past year. That will be easier said than done, especially in light of the slow pace of recovery now foreseen.
Olympia's challenges are less daunting but still difficult: As you may have noticed, politicians love to bestow benefits and dislike taking them away. (Think of the slogan coined by a Franklin Roosevelt adviser: "Tax and spend; spend and elect.")
A $3 billion budget gap is chump change, compared to that at federal level and in states such as California. But it will not be easily closed. Gov. Chris Gregoire entered her first term pledging not to increase taxes and, moreover, to examine the huge number of "tax expenditures" (i.e., subsidies and loopholes) long ago extended to Boeing, Microsoft, and various other companies and sectors. Those tax breaks, at state and local level, add up to three times the size of the state's biennial budget. But Gregoire did not ask the Legislature to repeal any; in fact, she and they added some.
Moreover, as the economy perked along and tax revenues were generated, state spending increased by a stunnng 31 percent in Gregoire's first term. In 2007 the legislature passed a two-year budget increasing spending at twice the forecasted rate of revenue growth. Interest-group wish lists were implemented. (Among them, a reduction in public-school class sizes, even though national reductions in student-teacher ratios, from 22:1 to 17:1 over the past 30 years, have not been shown to affect student achievement.)
Now the economy is flat, tax revenues are projected to remain flat for at the next three years, and something must give.
Gregoire, in presenting a spending-cut budget as a starting point, has taken the usual path of suggesting cuts certain to stimulate interest-group and media outcries. Cut money for school kids or the disadvantaged? That cannot happen. Nor can the interest-group wish lists, implemented over the last four years, be seriously reduced. Instead, ideas are then floated by legislators and the governor's office for selective tax increases which would allow these worthy programs to continue.
Sunday's Seattle Times contained essays by interest-group advocates and analysts suggesting alternative ways to reduce the looming state budget gap. Paolo Maranan, executive director of the Chldren's Alliance, argued against cuts affecting children. Remy Trupin, executive director of the nominally liberal Washington State Budget and Policy Center, argued for a general sales-tax increase (even though its regressivity would further punish low- and middle-income citizens already having difficulty making ends meet), rather than cutbacks in public spending. Greg Devereaux, executive director of the Washington Federation of State Employees, said state employees already had sacrificed enough. He argued for rollbacks of "tax expenditures" for favored businesses, including those for the Seattle Seahawks and Mariners, precious metals and bullion, meat processors, and dentists. And so on.
Taxing options presently being floated in the legislature include not only a general sales-tax increase but piecemeal increases on candy and gum, bakery products, financial services, cigarettes, and bottled water. A nonresident tax exemption would be repealed.
Thus far only lip-service has been given to repeal of the tax breaks enjoyed by some state businesses and sectors. Legislators see this as just as politically dangerous as, for instance, federal legislators would regard the repeal of tax deductions for medical expenses or home-mortgage interest. There are solid arguments against the tax breaks. But those who receive them would wreak vengeance on officeholders if they were repealed. Rep. Ross Hunter, a tough-minded budgeter, is taking a lead role in the tax-break review. If he steps up, and is persistent, his colleagues may listen.
This could be a moment when not only tax-break repeal but badly needed general tax reform might be put at center stage in our state. Just as Obama is likely to propose a bipartisan commission, at federal level, to propose a Social Security/Medicare fix, so might our governor and legislators agree on a similar state-level panel to recommend steps to establish a fairer, more progressive, more job-and-investment-friendly code for Washington.
Such an exercise, however, would take at least a year. In the meantime, how about a state hiring and pay freeze and reductions in force through attrition; tolls and user fees for present and planned state transportation systems; and implementation of a budgeting system which by statute limits state spending increases to projected revenue increases?
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Comments:
Posted Tue, Jan 12, 1:35 p.m. Inappropriate
Ted,
This simply boggles the mind: "Big capital projects should be put on hold. That would mean, in Seattle, moving forward with both the deep-bore tunnel... necessary for public safety. "
Closing the existing viaduct is imperative to protect public safety.
Digging the deep-bore tunnel is a seperate matter, and one that is extremely expensive even if the state's estimate of $1.9+ billion -- based on very preliminary engineering estimates -- turns out to be correct. (And there's good reason to believe it's too optimistic.) If, as you say, this is a time for fiscal belt-tightening, the deep-bore tunnel is precisely the sort of gigantic fiscally-risky project that we should put on hold.
Let's try lower-cost and lower-tech solutions first, such as those recommended by the Viaduct Stakeholders group. Even better, those measures will allow us to close off the Viaduct sooner -- a boon for public safety and fiscal discipline at the same time.
Eric de Place
Posted Tue, Jan 12, 5 p.m. Inappropriate
Waterfront tunnel supporters were quite willing to delay, and even obstruct, action on the Alaskan Way Viaduct as long as Olympia's preferred solution was another elevated highway. Somehow the issue of public safety got trumped by the need to 'seize the opportunity' to 'open up' Seattle's downtown shoreline (i.e., to developers). Now that Olympia has finally been brought on board (through mysterious backroom deals, it seems to us non-insiders), the erstwhile procastinators cite the urgency of their pet project--in the name of 'public safety.' Give me a break! The further we get from that day back in 2001 when this slow-moving disaster was first set in motion, the more it seems like this is all much ado about nothing that a retrofit couldn't fix for a lot less budget-busting money.
Posted Tue, Jan 12, 7:57 p.m. Inappropriate
Yup, retrofit. Probably still gotta do the seawall, though.
Posted Wed, Jan 13, 9:17 a.m. Inappropriate
Why do you continue to parrot deceptive unemployment numbers, Van Dyk? The 10% routinely reported only counts those claiming unemployment. Those who exhaust their benefits no longer remain "unemployed"; instead moving to the category "persons not in the labor force"--which went up by 800,000 some odd persons in a month. The Automatic Earth dissects the statical gimmickry, remarking: "The worse the economy gets, the fewer people are counted as unemployed. It’s a lovely invention, but it's also an awfully perverted one."
http://theautomaticearth.blogspot.com/2010/01/january-9-2010-drowning-by-numbers.html
The so-called SSI Trustfund is nothing more than a pile of U.S. Treasuries; expect IRA and 401K funds to make a similar transformation.
http://market-ticker.denninger.net/archives/1830-401kIRA-Screw-Job-Coming.html
Posted Wed, Jan 13, 11:16 a.m. Inappropriate
Fly is right about the employment situation. If you include those who have stopped looking for work, or who are working only part-time, the unemployment number ranges from 17 to 20 percent. I have pointed this out several times in the past but, in this piece, mentioned only the "official" 10 percent rate.
As for those who favor a surface-only or retrofit option for Alaskan Way Viaduct replacement: I know you see the deep-bore tunnel as expensive and
would like to reopen the issue. However, this is a state highway and
both the Legislature and Seattle City Council have agreed on the tunnel option. If the project is further delayed, it is entirely possible that the Legislature will simply spend the money on backed-up transportation projects elsewhere in the state. The seawall, of course, would have to be addressed separately.
Posted Wed, Jan 13, 11:41 a.m. Inappropriate
The "structural deficit" Ted so wrings his hands about is the result of (a.) Repeated tax cuts to the wealthy; and (b.) out of control medical costs. Social Secuity does not pose any big problem in this regard. On the other hand, a 50% reduction in defense spending could make the whole thing go away.
The point is this: There is more to the long term fiscal outlook than repeatedly blaming "entitlements". To blame only SocSecuity and Medicare is frankly, blatantly dishonest, and anybody who claims "policy expertise" in this regard should know better.
Posted Wed, Jan 13, 11:52 a.m. Inappropriate
Van Dyk contorts, "Big capital projects should be put on hold. That would mean moving forward with both the deep-bore tunnel."
THE TOUGH QUESTIONS:
1). Will the Deep-bore be too close to Seattle towers and historic buildings to risk collapse in an earthquake or terrorist truck bomb?
2). Will the Deep-bore tunnel which displaces 40,000 vehicles daily onto the new Alaskan Way, produce insufferable gridlock there?
3). Will the “Mercer West” project to create a thru-corridor from Elliott to access the Deep-bore portal on Aurora (and on to I-5) be a terrible imposition on Lower Queen Anne and create a worse traffic mess on Mercer?
4). Will the 4-lane cut/cover make the strongest seawall and most stable Alaskan Way surface?
5). Is the current proposal for Alaskan Way surface boulevard a poor design for managing traffic with either tunnel option?
6). Will the construction impact of the 4-lane cut/cover tunnel on the waterfront be manageable?
Van Dyk continues, "Delay the Mercer Project, deep-six light rail to westside neighborhoods, no more streetcars beyond the Allentown trolley, and set aside the 3-county expansion of light rail."
The 3-county Link LRT expansion would be more productive than the tunnel to UW. Similarly, a simple extension of the SLU Streetcar to reach Pike Place Market can be justified to increase ridership. Van Dyk recognizes that Seattle's light rail and streetcar lines are woeful underperformers, but he doesn't understand why any more than do most Seattlers.
Posted Wed, Jan 13, 12:10 p.m. Inappropriate
Ted--
You are distorting the argument. Let's get clear: you said that the deep-bore tunnel is necessary for public safety. It is not. Closing the Alaska Way Viaduct is necessary, however, but these are different things.
Moreover, if the fiscal situation is as dire as you say, then it is hard to see why more cost-effective solutions are not in order. Your entire piece is about what policymakers *should* do: and what policymakers *should* do is reconsider their commitment to the extremely expensive project, at least pending most complete and reliable cost estimates, as well as actually identifying full funding for the project (which they have not) and agreeing about how to pay for any cost overruns (which they have not). That would be a real display of "the politics of austerity," rather than blindly forging ahead despite a worsening fiscal environment.
Finally, let's say the legislature does take the money and spend it on "backed-up transportation projects elsewhere." That would leave us finding a least-cost solution for a short stretch of state highway in Seattle, while backlogged projects elsewhere in the state get a dose of funding. But wouldn't that be a good thing?
Posted Wed, Jan 13, 3:57 p.m. Inappropriate
So Ted Van Dyk has just suggested the solution to our state budget crisis. The legislature gets brave and closes all the tax loopholes for large state “companies and sectors” adding up to “three times the size of the state's biennial budget”, and lowers proportionately the state sales tax only as a TEMPORARY measure. This tax shift would last only until the service cuts in last year’s budget have been restored and once again stabilized.
At which time voters could decide on a well-thought out tax reform package of a new, modest state income tax, and FURTHER sales tax reductions. This should certainly be referendum proof.
-- Chuck Richards
Posted Wed, Jan 13, 5:40 p.m. Inappropriate
So I hear the problem is we aren't taxing the wealthy enough. If that's so, where is the urgency in the legislature or Gregoire? Why I'm not hearing a daily drumbeat for SOAK THE RICH????
Posted Wed, Jan 13, 7:21 p.m. Inappropriate
It's truly stunning how tone deaf the anti-rail crowd is, despite vote after vote after vote in FAVOR of mass transit.
Mr Van Dyk says that light rail, "threatens to displace not only non-rail transportation but other spending for other public purposes in the decade ahead. Time for a reevaluation."
No, no, no, no. It isn't time for a re-evaluation. It's time to listen to the public votes by the taxpayers. Let's review the record. In Nov, 2007, there was a Transit AND Roads package that went before the voters. It went down in flames. In Nov, 2008, there was another public vote just for transit. It PASSED. The re-evaluation that Ted wants already took place in Nov, 2008 by the VOTERS. It's time for Seattle to finally do something other than talk, plan, vote, talk, plan, revote, talk, plan, reevaluate. It's time to build what the voters approved Ted.
Have you no respect for the voters of King county at all?
Posted Wed, Jan 13, 11:29 p.m. Inappropriate
As a general point, given Seattle Central Link Light Rail's lousy performance to date (ridership and fare collection), and given the various derailment threats looming for cross-Lake East Link, Van Dyk does a public service in keeping reconsideration of what to do with Sound Transit's tax stream on the agenda.
Van Dyk's recommendation to go slower on the voter approved light rail build out is synchronized with Sound Transit's existing, court-approved capability to stretch out its construction projects as needed to stay consistent with resources.
After all, and for example, Sound Transit's Phase 1 program approved in 1996 to build light rail from NE 45th Street in the U District to S 200th in SeaTac is going to take more than a decade beyond its original 2006 completion date. Sound Transit can go slower when it needs to.
Van Dyk is merely suggesting that Sound Transit should go slower now that its Phase 2 program passed in November 2008 is underfunded by several billion dollars. Its sales tax revenues compared to plan have fallen off the roof. Sound Transit is scrambling for additional Federal funds to juice up its coffers, competing for grants that should help fund reconstruction of failing bridges like South Park and SR 520.
However, just a sliver of Sound Transit's millions-per-month revenues would be ample to boost regional express bus service funding, a role that is well within ST's charter. Such a boost delivered to the Regional Express program would also flow downhill and provide relief to local bus service operation and maintenance. Instead, ST is squeezing for every transit dollar it can get -- passenger trains uber alles.
Sound Transit should take a more holistic view of the regional transportation environment and put more of its ample tax resources into its three express bus service partners. King County Metro, Community Transit, and Pierce Transit are raising fares and cutting service on the bus portion of transit that the PSRC 2040 Metropolitan Transportation Plan (to be released later this month) reveals as necessary to cover the complete regional urban geography. The Plan shows that buses will carry the majority of transit customers in the decades ahead. Rail fans will likely be surprised by the rail-bus mode split numbers to come out in this Plan.
The 25%-under-forecast ridership performance of the Seattle Light Rail Initial Segment shows that continuing attention needs to be paid to the buses that pick up passengers from all the many places that light rail trains don't serve. That is, our shiny trains with a premium fare are not replacing bus service. The stations are too far apart. The trains go too slow. The tracks don't go to enough places. The higher fare is not justified.
Check the disappointing light rail ridership numbers to date at http://www.bettertransport.info/pitf/ in the Lead Story. Light rail in its first six months is emerging as a high-priced luxury that costs too much and does too little.
I appreciate Ted Van Dyk hammering on the issue of a few gold-plated rail lines dragging down the affordable bus transit alternatives that serve most transit customers. In the months and years ahead, as more rail ridership numbers emerge and as people get tired of the rumbling, diesel-fed dirt-hauling from the Seattle subway big dig, the sensibility of Van Dyk's position will become crystal clear.
Posted Fri, Jan 15, 11:43 a.m. Inappropriate
Mr. Van Dyck is entitled to his own opinions but not his own facts. Contrary to his statement that the health reform bills in Congress would increase the federal budget deficit, the nonpartisan Congressional Budget Office has costed out the bills and found that over 10 years the Senate bill would reduce the deficit by $130 billion while the House bill would reduce the deficit by $138 billion.
I'm astonished by Mr. Van Dyck's statement that raising the eligibility age for Medicare and Social Security "would not be painful." He thinks it wouldn't be painful for a 65 year old who has no job and can't get health insurance due to preexisting medical conditions to have to wait several more years to qualify for Medicare coverage? I'd like to see how Mr. Van Dyck felt if he were in that position.
Entitlement cutters need to think more about how real people would be affected by their proposals, though I won't hold my breath for that to happen.
Posted Sun, Jan 17, 7:16 a.m. Inappropriate
Fly's point about those losing their unemployment entitlements dropping off the official unemployment rate is critical, though Van Dyk is not the only one to do this.
Even more glaring is his lack of awareness of the State deficit problem, on a per capita basis we are in the top ten. (not adjusted for income, which is higher in Washington) Conn is number one, go figure.
http://manyeyes.alphaworks.ibm.com/manyeyes/files/thumbnails/e8a8271c-5f64-11de-8316-000255111976.wm.png
Deficit inducing stimulus can be a good thing, so long as it is a good investment. Bad investments only delay, and worsen, the eventual reckoning. The BPA might well have been a better investment than welfare, but entitlements will be a better investment then light rail.
(and bullets a better investment than the bank bailout!)
The biggest part of recovery is the resetting of prices to their correct level, including those of the elite. Spending tax money to support asset prices, including single family homes, is a recipe for disaster.
We have been doing exactly that, building a bubble with Keynesian justification for some time, compounded by the off-budget military expenditures of the Bush years, and sub-prime loans to republican real estate speculators.
We haven't exhausted our deficit level, but if the bubble doesn't reset to the correct level we are screwed for sure. This is a bubble with culpability and, at some level, intentionality. These individuals and the corporations and governments they hide behind are our best sources of money. The cost to collect this is by far and away our best investment right now, even better than the BPA.
Posted Sun, Jan 17, 7:17 a.m. Inappropriate
That said, I'd still like to see the completion of the original Sound Transit plan completed, including the Tacoma to SeaTac link.
Posted Tue, Jan 19, 10:22 a.m. Inappropriate
So, let's see now, we still have plenty of money to lock up marijuana smokers, and a trillion a year is none too much to spend making war on the world (and calling it peace). But when it comes to old age pensions or medical care, not so much- according to Van Dyk.
Well, good luck with that.
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