TO THE ARIZONA LEGISLATORS

SOLVING THE ARIZONA BUDGET CRISIS

As with any problem solving set, the solution can only be achieved by a structured approach. Begin with the definition of the problem:

The state of Arizona is obligated to pay out more than the revenue amount.

Various approaches to solving this problem have been forwarded:

Spending must stay as is so we must raise the amount of revenue.
a. raise taxes
b. increase business activity and thus revenue through taxes
c. sell off assets
d. increase debt by borrowing to spend

Spending can be cut back and less revenue will be needed
entitlements take large part of revenue
constitutional amendment needed to change entitlements
cutbacks in discretionary programs
cutbacks in police and fire
cut salaries/pay

A new budget can be formed from scratch, using ‘necessary services’ as criteria earmarked for funding.
a. freedom to fund what is needed.
b. if default is declared, contracts are voided.
c. after basic needs like water, police, fire, sanitation are funded, then discretionary
spending for the remainder of the funds, if any.


The first two approaches have been melded and used. The net result was a continuing budget deficit and heavier debt load. The Constitution of Arizona is now a parody, as the debt load exceeds the stated limit. Permanent overrides are now discussed, yet nothing can be done about the mandated spending.

Bankruptcy. What will be paid first with cash? Police? Probably.
Will it ruin our credit rating? Should we worry about that? Didn’t somebody sign an agreement that our interest rates on borrowed money would go up if our credit rating slips?

Instead of wasting time trying to make taxpayers pay for what is forbidden to fund in the constitution of the state of Arizona, why not focus efforts on another referendum? How about a referendum to amend the referendum/initiative laws that requires a sunset clause of no more than 5 years of financial obligation with a specific project stated, instead of the current version of pure permanent entitlement, with no strings on the funds. A change in the law could also sunset all existing permanent entitlements.


Before voting anything budgetary, think does this add to entitlements, does this raise what we are obligated to pay out? Amending the constitution to allow for tax money to go to private religious schools will increase the educational obligation where none exists today. Not a good move. We can’t afford it and it is against the constitution. We can’t put teaching religions at the tax trough. Isn’t it against the Federal Constitution?

You can’t afford to pass legislation that increases spending. If this tax increase does not pass, more cuts must be made. A recent article in a local paper said that not passing this tax increase will result in the loss of x number jobs. This would not be necessary if all took a pay cut to allow for fellow workers to share in what funding there is. It used to be a game to see who would get the raise, it’s now not a game to actually have to cut back because the money is not there. The boom is over, the money and equity is gone and too many workers were hired then for to be paid now with the current revenue. It will work if they all take a pay cut. This will cut down on benefits costs. Should everyone’s taxes be raised in order to furnish high benefits for city workers?

Debt loads must be defined and prioritized. Water must be paid, because it is a source of revenue and a necessity. Default must be discussed.

Departments must be defined and prioritized into
a. nice to have
b. could survive without
c. necessary

Retaining those departments that bring in revenue might not be the cheapest in the long run, if ultimate social costs rise. Tax collectors never lose their jobs, I guess. It is still not obvious to me how paying more license fees, taxes and mandated insurance frees up more money to purchase inventory or spend on the open economy. Higher taxes and government fees take money out of circulation, leaving less to be spent elsewhere. The tendency of the Tucson solution set is towards higher taxes in the city, which will drive buyers elsewhere. The least mobile will be the hardest hit by higher city taxes. The net result might be less revenue. Businesses might leave Arizona if taxes go up.

As a finale, you have a huge job to do. I suggest that the bodies meet without all the hangers on. Meet among yourselves and discuss this budgetary problem the state is facing. Exclude the lobbyists, special interests, department heads and others with skin in the game. You have a huge responsibility and it is yours to handle alone.

Political Vandalism

I watch the news regularly and recent reports of violence towards congressional offices have been the subject of much comment. Apparently both political parties have been hit with vandalism.

Finger pointing has been rife since the first incidents occurred at Democrats’ offices, including house member G. Giffords of CD 8 here in Pima County and Tucson. Mr. Limbaugh and Ms. Palin use unfortunate phraseology like ‘wipe them out’ and ‘reload’, causing a spate of complaints from those who think they are inciting violence. Ms. Palin has denounced violence. I think she may have meant ‘If at first you do not succeed, try, try again’.

I have no idea who did the violence. Perpetration is difficult to prove. But I do wonder why it was so easy to stir up the violence. Ms. Palin verbally attacks the media, directly challenging their power. Bias appears to be the norm, both in the press and on the podium. With the internet, it is becoming more difficult to slant reporting, since there are so many sources of data. Perhaps perception of bias provokes violence if coupled with economic inequities. People understand bias.

The internet article in the Arizona Daily Star was blatantly biased in saying Cindy McCain was ‘lukewarm’ in her introduction of Ms. Palin. A biased interjection of opinion into what should have been a factual report of a political event, things like crowd size reported accurately, who was there, interviews with local organizers, etc. etc. I don’t really think people are interested in a reporter’s opinion disguised as fact.

So what is the source of the violence? Maybe people don’t like the attitude of the politicians, the lack of jobs, the level of public debt, mandated insurance costs, higher taxes, cuts in public services, more regulation and loss of freedom in the name of protecting us. Take your pick. We have an educated populace, phenomenal communications and an attitude of lifelong learning. A large number of people know a great deal about what is going on in the government, from the internet and a cadre of dedicated media. This educated electorate sees what before was hidden and slow to disseminate. The electorate is perceptive of a lack of accountability in our elected officials for the bailouts, tax rebates and lobbyists.

Perhaps reflection on how action creates reaction, the role of government, the constitution and the freedom of the American people should be required of our elected officials. Did any of them thoroughly survey constituents concerning the important issues of the day? Should all elected officials understand and act on voters’ interests and needs? I think so.

TAX REBATES AND HEALTH INSURANCE

So the interstate homebuilders are bailed out by refunding tax money they paid during the boom, as if these people really deserved to get this windfall? The moneylenders are bailed out in direct payments to them from tax money that had to be augmented by borrowing. Essentially our government is borrowing money from foreigners in order to rebate money to the homebuilders. Our government borrowed money to give to the banks. Convenient that the bill excludes TARP recipients from these rebates. That would be a little too over the top.

What I see here is that the same people who created the boom are still in power and will still control too much of the money supply, using machinations available to them through political campaign support and lobbying. Why should those who caused the bubble end up with more power?

The Federal Reserve is lobbying to get more power and a court order must be obtained in order to obtain information from them. This all powerful, unelected bureaucracy makes choices that benefit special interests over the economy in general. Names are concealed from the public record. Payments are concealed. Less power needed, not more here.

The interstate homebuilders get tax rebates? This is incredible. I would like to see the end of cookie cutter home construction brought in by these ‘too big to fail’ homebuilders. I can see it now. They get their taxes rebated, they hold the money until the housing market is deemed cheap enough to snap up properties at a bargain, betting that the market will upswing instead of continuing to lose value. A false bottom would relieve them of their cash with diminishing returns. Why should they have the cash? They can ride out the recession on this cash while the smaller businesses are squeezed out.

Favoring interstate firms over locals is ruining the economy. Requiring millions in contracts awarded with borrowed money in order to interest the interstate firms wastes money. Go local. Go incremental. Stop the borrowing. The moneylenders are reaping 40 cents out every tax dollar spent on borrowing here in Tucson. Incremental financing as the funds come in would give taxpayers 40 cents more for every dollar spent. Better the taxpayers have the material value increase, than the moneylenders. If a default spawns ‘poor credit ratings’, then go incremental. Live within the income.

So now the IRS is getting a $20 billion dollar makeover and a drastic increase in their power to punish and collect money from citizens. The tenth amendment is ignored as the Federal legislatures deem it legal to require that citizens buy a money handling service in order to obtain health care. This is a violation of our personal rights to decide how we will spend our money. So now the health insurance firms will have a permanent sellers market, illegally mandated in violation of the tenth amendment. The federal government is creating and controlling economic activity instead of only regulating economic activity interstate.

I feel that we need reasonably priced health care, not a series of mandated brokers handling our money for us.

DEBT DEBT EVERYWHERE A DEBT DEBT

How to cut local and federal debt

The government must cut spending somewhere before adding a new obligation, popularly known as PAYGO. Unfunded mandates from the federal to the state must cease, particularly in education.

A young doctor will borrow against future earnings to buy an incredibly expensive piece of equipment, and then charge patients to pay for it. Perhaps the government might subsidize the cost of the equipment, rather than distributing the same amount in subsidized patient health care. I think health care professionals would find subsidized equipment financially attractive debt relief.

Student loans are a drag on the economy. Somehow, you should be able to work all of them off in public service, like on the reservations. (For example, teach GED or tutor students to work it off)

Did term limits encourage the mountain of debt? This is a cynical thought that during the cheap credit drama, borrowing on the part of cities in Arizona rose precipitously, giving the borrowers much power in the community, without having to return to the voters for a long career in congress. Absolution of responsibility? Why not borrow? They won’t be here to pay for it because they are term limited. I think politicians ability to indebt the taxpayer should not exceed their term of office. Term limits disrupt entrenchment of special interests, which is a positive effect. Which is worse?

Road building has gone far enough for now. We need to maintain the transportation infrastructure rather than borrow to expand it. No more borrowing for transportation would force a pay as you go plan and reliance on short term contracts to local contractors.

Moneylenders have their place but it should not be at the top of the profit chain. There are too many fees, interest payments, obligations; it costs too much to borrow, too many brokers, too many people who produce nothing cut in front of everybody at the table. Endgame. Somebody big should take a haircut, face a clawback of that money and fraud charges.

Legislation against debt needs to happen. It looks like the city of Tucson is paying $133 million to borrow $80 million. This is not judicious use of taxpayer money. How about limiting debt incurred by politicians to their term or require a public vote on any debt?

Reduce the fleet the government sponsors. Cancel all cars for other than police and fire. This would save insurance, fuel and maintenance plus a cash outlay for new units. Sell off gas guzzlers, private cars etc.

Van Tran in Tucson: how many people are being served at what cost per person? Would this be cheaper contracted out to a private enterprise taxi?

Pima County should not borrow to build more wastewater plants. We are still paying for the last one. Why not start incremental work and use local contractors and pay cash as it comes in? Don’t borrow to build. Pay for the ongoing work as the money comes in and avoid interest charges. If this doesn’t generate enough money then the plans are too grandiose and must be scaled back to the actual income available. The amount of actual income available should drive the scope of the project, not the maximum able to be borrowed and the cash in a lump sum for somebody to play with. It costs money to borrow money and an ambition to control a large amount of money is not adequate criteria to indebt the public.

The TIF Rio Nuevo in Tucson did not produce adequate results from the cash borrowed and the debt remains. Legally this appears to be tenuous as audit results are awaited. How did the people who controlled Rio Nuevo get the power to borrow against the revenue stream? Why is this allowed without a popular vote? Somebody landed control of $80 million and blew it. Who voted to do this? What about the $15 million entrance boondoggle? That’s like financing a new Cadillac and never getting possession of the car but still have to pay the debt.

Mandating insurance turns it into a debt. This assures that a percentage of income is forever inaccessible to the earner. This is a tax also. The net result is that the earner may never have access to this money, but is required to pay it. This is a debt. The insurance companies are taking too much out of the general economy and funneling too much of the money to themselves and health care professionals, who are pumping up the costs by ordering expensive tests/procedures in order to avoid litigation.

Litigation in the medical world is making money for the lawyers at the expense of the insurance companies and medical professionals who must pay enormous insurance premiums. Some claims are legitimate but the parasitic aspect of litigation and the negative results on society is a cause for concern. Limits on litigation must be set in order to protect our medical professionals, while protecting individual rights.

There are more ideas out there. Cut debt, reexamine contracts for legalities and applied limits to more than the market value for rent as a lease payment in Tucson, and renegotiation possibilities for strapped homeowners. Or defaults will continue to rise. Nobody wants to put more money into something that is losing face value, making the debt impossible to pay in today’s economy. If you can get better elsewhere for less money, then that will happen. Buyers have dried up. Cut the rents. Nobody can make money while paying exorbitant rents because the owners have huge debt on the property. So units stand empty.

If you own a rental and that rental remains unrented with an exorbitant rent demanded, does that constitute a tax deduction for the owner? If it does, cancel that deduction. Nobody should make money from the government by leaving units unrented.

Creative thinking needs to happen. Focus on the real necessities. If local default becomes an option, we can start over with the actual income to be applied to the necessities of government, instead of harmful cutbacks in physical necessities in order to meet debt service. Practicality must rule.

Remember that old Alexander Dumas story about the poor woman who borrowed a diamond necklace from a rich friend, lost it, and spent years paying for a replacement only to eventually find out the original necklace had been glass? I don’t want to spend the taxpayers’ lives paying for debts incurred within a few years. This truly impoverishes the community for the duration of the debt. They cannot count on continued inflation and another boom to bail them out of debt made smaller through inflation. That is wishful thinking.