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« City of Madison Capital Budget Message for 2012 | Main | Bicycling Madison Style: The 2012 Capital Budget »

September 09, 2011

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Teresa Doyle

These graphs and tables are amazing, even I could understand them. If someone chooses to go to 9 minutes into the Board of Estimates Meeting when Mayor Soglin introduces the graphs with the city accountant, it's a civics education worth learning, at least for me it was.

http://media.cityofmadison.com:8093/mediasite/Viewer/?peid=93d6a5328dad48feb62a41d68d0528411d

Dan Sebald

My comment pertains to this and the previous post.

As for the references to previous city administrations, basically the point is that the previous mayor had a non-austere budget, whereas you are proposing an austere budget (e.g., putting off fixing things or buying new equipment). That's "austere" in the true sense of the word as opposed to the faux "austere" at the state and federal levels where politicians are using austerity to cut some programs in favor of others, i.e., advancing a political agenda. At the city level, there isn't the advantage (a.k.a., "tricks"...personally, I wouldn't call it tricks, but I also wouldn't blame anyone for using that pejorative) of controlling currency and raising debt ceilings that exist at the federal level. Anyway, at some point relativeness to Mayor Dave goes away.

"It will do no good if the investment is made outside of the city."

From the city's perspective, the phrase "investment outside the city" is an oxymoron of sorts. Money spent in other communities and states and countries is a net loss or expenditure, so hardly an investment. My point, I guess, is that sustainability and diversity go hand in hand. If a community has the skills to maintain the infrastructure (a.k.a., capital) requirements, then "investment" in infrastructure is circulating money and promoting a good local economy. Higher level government funds (e.g., state and federal grants) are meant to compensate for such a lack of diversity. That's why Gov. Walker's move to balance the state budget by withdrawing funds from cities is such a jolt to the system. No, cities currently do not have "the tools" to deal with the situation because locally there isn't the skills to maintain roads, supply goods, and so on. A gradual modicum of adjustment on part of the governor would have been nice, as opposed to tossing the training wheels approach. But Wisconsin cities must now deal with dire straits, so...

"This, of course, would require a combination of a national economic recovery"

We could be waiting a while on that, Paul. Let's be honest about assessing the situation. We know that national economic recoveries are on the scale of years, and right now it doesn't feel like one is just around the corner. You could be recycling this post for the next budget cycle.

One never knows about the economy as there are always game changers, but there are a few worthwhile observations. One is that the country is realizing that there isn't some magic in capitalist and market-based economies that so many mostly Republican politicians like to go on about. Capitalism has its advantages in certain situations. Capitalism works well in emerging and growing markets with unlimited energy resources. A few percent growth is about right to keep capitalist systems functioning well. But there is a natural limit to growth. At some point bubbles arise, whether it be market prices or housing stock or business office stock (more later) when there is unfettered oversight. To expect the tax base to grow by expansion when we now have what looks to be shrinking markets is dodgy. In a shrinking market, because business transaction volume diminishes, prices increase to compensate (or a reduction in force, i.e., lay-offs, has to be done). Shrinking markets are the bane of capitalism; part of the boom/bust cycle.

If one looks at the grand scheme of economic things, there are occasional political events that have long term consequences and in retrospect show themselves to be irresponsible. (Let's leave wars out of the discussion for now.) One could argue there were a couple in the past decades. One was the notion of the free trade agreement initiated by a Republican administration and ratified by a Democratic administration in the mid 90s. This open-ended agreement with little but lip service for its economic consequences, technology transfer, trade rights and workforce and environmental effects is, in my opinion, irresponsible. There are better ways to conduct trade and lift standards of living across the globe.

A second issue, and one we are dealing with now, is the Bush administration's push for the Federal Reserve to drop interest rates to near nil, whether they did so out of benevolence for working Americans or their own self interest. I'm not an economist, but my intuition concludes there is something irresponsible in that action in the long run. It was a temporary boost to the economy, and the prolonged low interest rates have gradually pushed the financial markets out of whack. A very complex financial system no longer sits at an equilibrium point.

The shift in energy costs, a major component of the U.S. economy, must be factored in as well.

The discussions and debates de jour in Washington are Social Security, teacher's benefits, charter schools, and so on which bear little effect on the current economy because these things were never really broken or only needed tweaking at worst.

Put everything together at the national level: military spending with its debt services and resulting inflationary pressures, free trade agreements, a financial system now out of alignment, rising cost of energy, and a U.S. Congress unable to recognize the problems no less know how to deal with them. It has taken eight to ten years for the consequences I argued above to emerge. It will take a similar length of time to get the economy back on course once we get a good captain and crew in Washington. My best guess is that economic recovery isn't on the near horizon, but rather three or more years from now; probably more like five years.

I think the best one can do, and which should have been done all along instead of messing around with financial market formulas and savings rates, is focus on priorities, efficiency, sustainability, occasional unique civic projects, etc. (To your credit, the blog post chronologically following these is heading in the right direction.) It's a bottom up situation until national politics gets straightened out. But bottom up isn't necessarily bad; mayors just have to be effective and cities across the U.S. must lead by example. (Chicago seems to be doing fine still.)

In that regard and without mentioning any specific projects, I think Madison city government needs to re-examine its land use policies with regard to business parks and move more toward mixed-use. The sustainable jobs are not in building new and more offices; they are in the businesses that occupy those buildings and maintain those buildings. Value lies in utilizing the capital in question, whether it is offices, libraries, clinics, parks, sidewalks, bike paths, roads, homes and so on. What makes those capital investments get heavy use should be the focus of good administrators. There is no huge tax base to be gained from office buildings that sit empty; in fact it comes at the expense of city services.

In summary, no quick economic fixes here.

Dan Sebald

To illustrate my point, having no room to move short-term lending rates, the Federal Reserve has now moved to push down long term lending rates:

Fed Will Shift Debt Holdings to Lift Growth
By BINYAMIN APPELBAUM
Published: September 21, 2011
http://www.nytimes.com/2011/09/22/business/fed-to-shift-400-billion-in-holdings-to-spur-growth.html?_r=1&hp

At some point, someone with even a large sum of money in a bank account will be paying fees because of the little interest that nest egg generates.

Yes, the Fed is trying something, but I don't think this move will have much of an effect on job creation. If anything it confirms the financial problems the country finds itself in. A recession is one thing, but all these moves by the federal government and Federal Reserve seem to be making a bad situation worse. The government is afraid to raise taxes and use that money for programs that generate jobs (smartly placed jobs, I point out, not just dumping the money into road construction, etc.); the government doesn't hold poorly managed banks accountable; so what is left that doesn't run the risk of upsetting voters? Penalize saving and lending money.

Markets dislike uncertainty, and everyone from the average citizen to the big corporation (now also a citizen in some politician's eyes) is probably wondering what is going on.

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