Big City Mayors Seek Bailout
Facing budget and pension fund shortfalls of hundreds of millions of dollars, three big city mayors have requested in a letter to Treasury Secretary Paulson that some of the federal bailout money be directed to cities.
"Three big city mayors asked the federal government Friday to use a portion of the $700 billion financial bailout to assist struggling cities.
The three mayors proposed providing loans to help cities pay pension costs. They also want $50 billion in loans for investment in infrastructure, and additional one-year loans to cities unable to borrow cash because of the tight credit markets.
The mayors - Michael Nutter of Philadelphia, Shirley Franklin of Atlanta and Phil Gordon of Phoenix - made their request in a letter to Treasury Secretary Henry Paulson."
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The fish argument
I'm beginning to wonder if the constant assistance of the federal government of localalities and states, through the multitude of transportation, HUD, pension bailouts, etc, etc is actually hurting cities more than helping. Is the propect of imminent federal dollars preventing cities from raising their own funds to do anything? Perhaps if the federal government lowered their tax rates and the localities raised theirs by the same amount, cities would be able to make decisions about what they want to do long-term, not spend all their time applying for grants/funding. It's kind of like the give a fish/teach to fish argument.
Gov. Mark Sanford, SC, comments on state bailouts in WSJ, 11/15
South Carolina Gov. Mark Sanford makes some strong points in this WSJ opinion on this topic as it relates to some states going to DC requesting a bailout.
He notes that some "community banks" resent that big banks are bailed out while they, who have been responsible, must now complete against them. He takes that perspective and compares it to states, noting how some states, e.g. CA, have not kept revenues in line with expenditures, while other states have. [It's worth noting that the first thing Gov. Schwarzenegger did when elected in the 2003 'recall' election against Gov. Davis was to reduce the vehicle license fee, thereby creating what is known as a 'structural budget deficit' of $6 billion.].
Now Schwarzenegger pleads for a bailout???? What's wrong with this picture!
Irvin Dawid, Palo Alto, CA
"Greed"
Let's see if I get this right. Wall Street investment banks leverage themselves to the gills using artificially cheap short-term credit and make bad bets on the future income/value of bubble-related real estate assets while paying themselves huge bonuses and they are called by greedy (which is exactly right). But cities, as it is now coming to light, have leveraged themselves to the gills using artificially cheap short-term credit while increasing expenditures to match future income/value of bubble-related/derived revenues and economic activity while hugely increasing pay to themselves (via increased funding to special interests and employees)... where's the calls of "greed"?
Perhaps one of the cities should be left alone to fail (ala Lehman Brothers)? Then the federal government can jump in and throw money at all the other cities to prop up their bad decisions with ever increasing portions of your salary. In all seriousness, should we be using tax dollars to bail out poor performing local governments?
Spare me the morality play
1. Bailing out Wall Street just means giving a few overpaid executives money to play with.
"Bailing out" cities means protecting the core functions of government: police, fire, transportation, sewers, etc. I think that's a tiny bit more important. If there's any "industry" in the United States worth supporting, its local government.
2. The "blame the victim" argument is wrongheaded because cities' fiscal problems are in large part the result of the national recession, which in turn was caused by the federal government's decisions (e.g. inflating the money supply, inflating the national debt, etc.)
"Core Services"
The fall back on core services is always a good front for those interested in propping up local governments. Most local governments have expanded dramatically over the last decade... usually by doubling the city workforce (patronage and payback for local union support during elections) and increasing pension benefits to unsustainable levels (again, payback for local union support during elections). Most of these increases were above and beyond the rate of inflation and population growth... [admittedly, all I have to work with here is California (the state is asking for a bailout) and the Bay Area cities I know (San Jose is mentioned in the article).. but doesn't Philadelphia have a city income tax... not enough moeny there?]. Were not "core servies" in many of these places functioning extremely well a decade ago... for CA the answer is definitely a resounding yes. All a local government bailout will do is prolong the day of reckoning on the painful decisions most cities are going to have to make after expanding beyond their means. Core service cuts are always the first thing thrown up by those in charge as way to get ever more money out of the local populace to cover their past poor performance.
So, if cities are just victims of the federal government's monetary policy, are wall street firms victims as well? What does that tell us about the ability of the federal government...
(edited for spelling... although probably not very well)
actually....
State and local government employment has barely kept up with population. Nationally, state employment per 10,000 population has shrunk over the past decade. Local employment has increased but only about 3%. Even in California (which I gladly concede is not exactly the best-managed city government)state employment as a percentage of population has held steady.
http://www.census.gov/prod/2007pubs/08abstract/stlocgov.pdf (Table 452)
And for every city where employment has grown, there has been another where employment per capita has shrunk. (Id., Table 453). For example, in San Jose (which you mention) city employment per capita has shrunk.
And even if cities were as waste-ridden as you think, the "core services" argument for bailouts still makes sense. Here's why: imagine the worst possible city government- say, Marion Barry's Washington. If the city is in a fiscal crisis, do you think Mayor Barry will cut his political machine? Of course not- he'll cut essential services first, since (a) they don't help him as much and (b) the people who are most likely to be offended by such actions can afford to move to suburbs, thus cementing his political support. (In fact, that's exactly what happened in Washington in 1994- as soon as Barry was reelected, he took an ax to the police force).
Depends.
The numbers I've got show that since 2000, California's budget has increased approximately 23% above the rate of population growth and inflation (budget numbers from here: http://www.dof.ca.gov/budgeting/budget_faqs/information/documents/CHART-..., I averaged the 1999-00 and 2000-01 numbers to account for the mid-year fiscal YE, population numbers from wiki... used 2000 as it would at least one accurate census data point). I'm sure it swings several percentage points either way depending on the exact data points used, but the trend reamins the same, CA takes an ever larger slice of it's citizen's wealth every-year above and beyond a normal run-rate for inflation and growth. So, if the employees per capita stayed the same, where'd all the money go? Your data doesn't mention anything about the cost per employee to the state rising... I'll leave it at that. Especially because, correctly as you point out, many states/cities haven't succumbed to the ever-increasing take of government that CA and her cities have.
Which brings us back to the main argument. Why should individuals in states and cities, that voted in a government that managed its citizens affairs properly, have to cough up their hard earned money to bail out those that didn't? In the Marion Barry example, either way, the rest of the country is punished for Barry's incompetence (Barry gets to stay in power, or, should the bail-out money actually work, the populace of DC is rewarded for making poor leadership decisions). I say let CA and the other cities fail (even as I live in an area that would be affected), there is no need for those who have done everything right to bail out those who have done everything wrong. New York somehow managed to make it through the 70s after not being bailed out by the feds. I don't think a local government bail-out makes sense at all (nor, for the record, did I think TARP or the automaker bailouts made/make sense... just look at the folks lining up for a handout now, moral hazard exemplified).
budget vs. employees
The reason budgets increase when employees don't is because government is NOT (as you surmised) just giving away money to build political machines.
Instead, the money is actually used to pay for services- some of which are simply more expensive than they used to be. For example, take health care costs (which state and local govts. are on the hook for through Medicaid). Because health care gets more expensive every year, cities and states have to spend more just to keep up existing services. Education is more expensive because in a growing state you have to spend more on regular education to accommodate the growing population, and you have to spend more on special education since disabled students can no longer be warehoused in institutions as in the good old days. And since state governments decided over the past couple of decades that criminals actually DO belong in jail, prisons are more expensive than they used to be in the 1960s.
The "moral hazard" argument may make sense in good times, but doesn't apply in the circumstances of 2008, because cities and counties aren't suffering due to their own incomptence- they are suffering because of a once-in-a-century financial crisis. So I simply don't think its reasonable to assume that municipalities that are in fiscal trouble are by definition irresponsible. In normal times, I'd have more sympathy for these concerns- but these are pretty abnormal times.