Salvation is at hand: California is going out of business

The prolonged recession in Idaho is finally starting to cause some people to ponder the fate of the state, though not yet in the public sector. Rest assured, though, the day of reckoning is coming for those folks too.

You probably saw the Statesman’s business panel making predictions about what they think will bring some financial security to Idaho. If you missed it, here’s the short exchange between economist John Church, Lorana Quintero from Idaho Pizza, and Clay Young from Innovus Solar:

What do you think are the implications for Idaho’s economy of having students who do not have this global view?

Church:
Our growth in Idaho is very bright, and one reason I think it is going to be very bright in the future is California, not because of how good California is, but how messed up California is. Fiscally, the handwriting is on the wall: Something is going to have to be done, and it is not going to be painless for business and people in California. What are they going to do? They are going to leave. If we just catch a trickle of that, Idaho is going to do very well.

Do all of you share John’s scenario for California?

Quintero: I think so. Ask anybody where they are from, (and they say) California.

Church: We should be mining.

Young: I would agree with that.

These are the impotent cries of our leaders: wait for California to fail, and we will win.

Utterly, ridiculous.

Even if California with all its human capital cannot figure out its budget situation – what makes these people think that: 1) Idaho is the best choice for all of California’s businesses to relocate, and 2) that Idaho’s elected officials will manage our resources here any better than California?

And that is only one argument. For God’s sake California is the fifth or sixth largest economy in the world. It offers unprecedented access to domestic markets as well as Asian markets. It has a university system that is tops in the world – and Berkeley is the top research university in the country. California has 350 sunny days a year, Silicon Valley, Hollywood, the home of the west coast banking and finance establishment in San Francisco, the military industrial complex, and on and on and on. Stating that California is going out of business anytime soon, and that Idaho is a likely beneficiary of any financial malaise there can’t be taken seriously.

BVEP and plenty of local leaders want you to believe that economic salvation is as easy as saving your own soul – but it aint. At some point, our leaders need to invest in something – ANYTHING. Roads, education, infrastructure – SOMETHING. Idaho’s immediate problem is that it cannot compete with the well run Utah, or Colorado which has a structural budget SURPLUS. Until we can be top dog regionally at SOMETHING, Idaho with its low cost of living and little else will continue to succeed at luring California’s low-skilled, unemployed hard cases, and nothing more.

How to close Idaho’s budget gap

Senator Elliot Werk sent out his pre-session newsletter today asking for feedback so I sent him a few ideas for balancing the budget. The reality is that without spending reductions and tax increases, there is no way to get to the $340 million that we’re gonna be short. But here are seven things I’d probably do regardless:

1. Cancel all the state purchasing contracts and work out new contracts with local vendors. At any given day you can go to Best Buy and get computers cheaper than you can on the State contract. With furniture, it’s even more noticeable. Plus, why we would want to send Idaho’s wealth directly to Michael Dell in Austin TX is beyond me. We need to buy local and keep those profits with our businesses and banks in Idaho. That is the way it was before Gwartney took over.

2. Privatize the Department of Commerce as they have in Utah. Send Packwood and Dietrich to the Governor’s office and help the private sector put together an NGO like the Utah Economic Development Corporation to run the show.

3. End the charade at the Tax Commission by redefining business income. The problems at the Tax Commission are not agency problems, it is a policy problem created by legislators. If you redefine business income more simply, you’ll close the loophole in 63-3027 that allows companies to challenge their tax bills. This will also bring in $5-$10 next year from out of state corps dodging their taxes. I sent Killen and Sen. Hill a bill mock up for this.

4. Give local governments and entities more authority to control their own futures. School funding is not my strong suit, but I can’t help thinking that giving the Boise School District more authority to raise revenue (and the City of Boise as well) would allow the state to reduce transfer payments to those entities.

5. Give up on the Tax Expenditure bugaboo. The state will fail to collect taxes on about $2 billion in sales and income this year – so the issue is far worse than you describe. However, Idaho’s tax code really doesn’t look any different than any one else’s as far as exemptions, credits, deductions, and exclusions go. In that $2 bilion there’s really only about $20 million worth of really bad tax code. Almost 80% of those exemptions are for things that generally comport to “good” tax policy – that is those exemptions mitigate double taxation, regressivity, and help us comport with interstate taxation. So there really isn’t a whole lot of bad tax policy there to be honest (Boise State has a new paper coming out on this that I co-authored). However, I would let Alex LaBeau trade a rate reduction or increased cap in Personal Property Taxes or Corp. Income taxes for every dollar he agreed to support in elimination of some of the really dumb exemptions (like model glider kits, vending machine sales).

6. Why not eliminate the Senate? There isn’t any use for that body (sorry) if it isn’t going to be structured like the U.S. Senate. Go the way of Nebraska, Australia, Canada, and Hong Kong. Unicameral.

7. Cut ISP. Masterson says BPD is bored and underworked so they are focusing on traffic enforcement. Fine. Push off ISP’s urban patrols on urban police departments.

I assume that legislators have already done all the sleight of hand stuff – raise revenue predictions; sell assets; borrow from other funds; accelerate revenue collections; defer payments; capitalize current costs; anticipate future savings; raid pension funds or defer contributions; rearrange payment dates – and the like. No one asks but I assume the $340 million figure is what is still left after al the budget tricks have been applied. Gonna be a rough ride this session . . .

Brad Little: Idaho “Very Competitive”

Last week the Governor’s Blue Ribbon Transportation Commission wrapped up its work. The work was trying to figure out how to pay for the massive transportation infrastructure investment needed in Idaho. Betsy Russell at the Spokesman wrote a GREAT series of posts on the work of the Commission. I encourage you to get the details there.

In short, the Commission decided to recommend the Governor do nothing. In order to maintain and improve our existing road and bridge network, Idaho needs to spend more than a half billion dollars per year. And revenue enhancements are not forthcoming.

Lt. Governor Brad Little in response to the Committee’s work said this:

“One of the things that makes Idaho a great state and makes us very competitive is how hard it is to raise taxes.”

First a comment, then I’ll ask the questions that are begged here. To illustrate the flawed thinking in this statement, let me translate it into private sector language (since the Guvs want to run ID like a business):

“One of the things that makes ACME a great company and makes us very competitive is how few capital expenditures we make.”

Any CEO that said they were successful because they didn’t invest in their physical plant would be deemed insane by the Board of Directors and fired. But our leaders say exactly the same thing – we’re not going to invest in Idaho and that’s what makes us competitive – and we send them right back to office with high marks.

So – on to the questions. I want to know who told the Lt. Governor that Idaho is competitive, in what, and compared to whom? As I have argued over, and over, and over if a site selector has Boise and Salt Lake on his list, there is simply no way Boise wins. Not ever. Boise is absolutely not even in that league, and that should concern private and public sector leadership here, but it does not.

There’s a nifty new tool out there that Dr. Brian Greber over at the BSU College of Business and Economics developed that shows detailed cost of living comparisons between metro regions in the U.S. Soon, he’ll be unveiling dashboards that will allow public and private sector leaders real time economic indicators. Maybe that will scare ‘em finally. We’ll see. Anyway, quickly – here’s the comparison of SLC and BOI:

This tool is mostly relevant for employees as opposed to employers. And remember, it’s employers that decide where plants are located. Generally, employers don’t care about quality of life issues. They care about costs, connectivity, infrastructure, and quality of workforce among other things. So employers don’t care if a t-bone costs more in Vegas than it does in Des Moines. But three things that they will definitely care about are utility costs, local transportation costs, and the cost of health care. And, as Dr. Greber’s nifty tool shows us, the cost of living differential between BOI and SLC is minimal except in the areas that business cares about.

So maybe Brad Little is right in one regard. We’re competitive because you can pay low wages in Idaho, because cost of living is relatively low. But the lack of economic development in this region relative to the BOOM in economic development just south of the Idaho border, is prima facie evidence that those low wages aren’t offsetting the costs of doing business here.

BLS: 2nd Quarter Estimates Show U.S. Economy Expanding – Kind of

A report this morning by the Bureau of Labor Statistics (BLS) estimates that the U.S. economy grew 2.4% in the second quarter. While that growth shows the nation as a whole is out of the recession, the growth rate was down from the first quarter when real GDP grew 3.7%.

Economists at the BLS gave the following rationale for the slowdown in growth:

The deceleration in real GDP in the second quarter primarily reflected an acceleration in imports and a deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending.

In previous quarters, we had seen that investment by business was driving growth. Now, it appears that the pubic sector is responsible for keeping GDP on the positive side. That is obviously going to be bad news for Idaho, the state that led the nation in reducing state employment, cutting 6.9% of the workforce by the time the fiscal year closed out on June 30.

So if you wonder why your state economy is still floundering as we enter the third quarter, you now have a pretty good idea.

More “Good” News for Idaho’s Economy

The Bureau of Economic Analysis reported today that personal income growth in the State of Idaho was among the highest in the nation, as indicated by the above map. Before we get to giddy and declare that perhaps our policy makers have done something to spur this, it’s helpful to drill down into the tables a little bit to see that Idaho also in the first quarter of 2010 received its largest annual rate of ARRA (federal bailout) money. In some states, such as Mississippi, transfer payments from the Feds represented half the state’s personal income growth. This begs the rhetorical question then, what happens when those funds are cut off? Anyway, thanks Uncle for all your help floating the economy here!

My “Buy Local” interview in the Boise Weekly

First let me welcome and say congratulations to Zach Hagadone who has transitioned from the Idaho Business Review to the Boise Weekly. He kicks off his new gig with a very fine piece on buying local, a piece for which I provided him some background. I am sure you will all be fascinated by my lecture on 16th Century mercantilist economic thought. Go check it out, and again congrats to Zach.

Airport to Get Bonding Power? Some Urban Legislators Balk

Any day now my good friend Dave Frazier will be going ballistic over on the Guardian Blog about HOUSE JOINT RESOLUTION 5, which passed the House 57-12-1, and the Senate 34-1. This resolution which will go to a vote of the people this fall would amend Idaho’s Constitution so that Airports can issue bonds without having to get a vote of the people. This is an idea whose time has come as evidenced by the vote. Good on you Senator Stegner for finally designating some authority to jurisdictions other than the state. With luck, this is the start of a new trend.

But there are those who still don’t see the need to devolve power to local governments and other jursdictions. Idaho’s cities and counties (and airports and public hospitals, etc.) have less authority than do the cities and counties in any state west of the Mississippi (see: D, Krane, Rigos N, and Hill M. Home Rule in America : A Fifty-State Handbook. CQ Press, 2000.). Of the 12 Representatives that voted against this measure, half are from urban areas, the other half rural. Thus, the urban rural divide is still in full effect.

I think it is somewhat amazing that anyone from an urban district would vote against this, thus some of these legislators’ votes deserve special attention. Clifford Bayer (R), Boise casts a vote that puzzles me. His district is part of the economic engine of the Valley. The Boise-Nampa MSA is responsible for 50% of state’s GDP. Voting to hamper the airport is no help to this economy or the citizens in his district.

Representative Hartgen (R), Twin Falls is the other mystery here. His vote is interesting first because his own district struggles with urban problems such as providing public transit – so he should be well aware of the need to start devolving authority to the governmental units that can actually solve his people’s problems. Secondly he is a professional economic development consultant. Voting against the public’s ability to provide infrastructure isn’t in any of the textbooks I had on economic development.

Several of the delegation from the CDA area voted against this measure as well, showing that they too do not yet grasp that their region is an urbanized area and also very much needs to have some flexibility to solve regional issues such as the traffic between CDA and Spokane, and also the border crossing to the north. No longer are CDA and Hayden sleepy little mountain towns on the way to nowhere.

Full details on the bill are available over at the Statesman.

Will Boise Lose Hawks Stadium?

There’s been a lot of hullabaloo surrounding Hawks stadium recently, mostly coming from Meridian. I have to hand it to Mayor DeWeerd and the Meridian Development Corporation: they have a vision, and a mission and they are going after it.

This morning the Boise Hawks unveiled a survey that showed a vast majority (75%+) of the 300 people surveyed, favored construction of a new multi-purpose sports facility somewhere in the Valley. It turns out that a plurality of people also identified MERIDIAN as the favored location for a new sports facility. I am guessing that this will have a few people at the City of Boise upset.

In January 2007, a design charrette for the 30th District Master Plan in Boise, revealed that the 200 people in attendance hoped that a new Hawks stadium would be built in downtown Boise. The photo below appears on page 185 of the 30th Street Master Plan, available on the City’s website.

Hawks Stadium envisioned as part of the 30th Street Neighborhood

So what say you, City of Boise officials? Are you working up a deal to make the stadium a centerpiece of a new 30th Street Neighborhood? The implementation plan for 30th Street says that within 1-3 years Boise City and CCDC will:

Identify where land assembly, land acquisition and/or development partnerships would help implement the development concept for each subdistrict. Initiate conversations with property owners to determine their level of interest in selling property, land assembly and/or development.

Where are we on this project? Granted the plan only went forward in June 2009, but with Meridian breathing down your necks, it might be time to kick this project into high gear – unless you really like the sound of “MERIDIAN HAWKS.”

The truth comes out: Harvard wrecked the economy

In my new favorite blog from Stanford Economist John B. Taylor we get a great dose of reality about the value of ideas. In a great blog post responding to the charge that Chicago School economists wrecked the economy, Professor Taylor shows graphically how that charge simply cannot be true. The graph below shows the number of University of Chicago, Harvard, and MIT economists on the President’s Council of Economic Advisers:

The only question I had after viewing the graph was, “well, yeah, but what about other policy makers?” He answers that too:

The data are robust when you look beyond the CEA to other top posts normally held by PhD economists. All assistant secretaries of Treasury for Economic Policy appointed during the Bush 43 and Obama Administrations had PhDs from Harvard. During the same period, all chief economists appointed to the IMF had PhDs from MIT, and, except for Don Kohn, who was promoted from within and Susan Bies who was appointed as a banker, all PhD economists appointed to the Federal Reserve Board were from Cambridge MA.

So the crash? Blame it on Harvard.

Veritas.

Poverty Rate in Boise Remains Low While West Suffers

A newly released Brookings report spells good news for Boise and its suburbs. While cities in the west, and particularly the suburbs (meant here as cities in an MSA outside the primary city, e.g., Meridian, Eagle, Nampa) saw increasing poverty rates, from 2000-2008, Boise maintained a low poverty rate compared to the other largest metro areas in the country: