Archive for category Colorado Politics
A Bad Week for Regulation
Posted by Joshua Sharf in Colorado Politics, HD-6 2010 on August 31st, 2010
Nobody reasonably doubts the need for responsible regulation. It’s for that reason that we need to understand the limits of reasonable regulations, and the risks that come from the temptation to exceed them.
Last week as a bad week for bad regulation. First, this example of entrenched industries using regulators to further their own interests at the expense of their customers:
The National Association of Broadcasters is lobbying Congress to stipulate that FM radio technology be included in future cell phones.
In exchange, the NAB has agreed that member stations would pay about $100 million in so-called performance fees to music labels and artists. Radio stations would be required to pay performance royalties on a tiered schedule with larger commercial stations paying more than smaller and non-profit stations.
FM radio now has to compete not only with AM, but with all manner of streaming media. So of course, they want the government to force their competition to pay the freight to expand FM’s market. The irony is that the regulators writing these rules are just as clueless: my smartphone already includes an app where I can listen to any local FM radio station.
The other lesson is in the risk of politicizing well-established rules. BP was browbeaten, if you recall, into putting $20 billion into escrow for the executive branch to dispose of as it wishes. Some of us argued at the time that there were rules for how to deal with liability, and that the courts were a better, non-political venue for doing so. Even assuming that Kenneth Feinberg were completely incorruptible personally, he would find himself buffeted by political pressures he – or his administration employers – might feel the need to respond to.
The first, most obvious pressure, is to be lenient in disposing of BP’s money. Feinberg has tried to make it clear that he will, in fact, be far more lenient and timely than the courts would be:
Appearing … before about 300 people in Houma, La., Feinberg lectured, cajoled and asserted that once he takes over Monday, the process will be accessible, fast and fair.
“I will be extremely lenient in documentation,” Feinberg said. “I don’t need reams and reams of stuff. I don’t need a tax return. Do you have something you can show me? Well, the ship captain will vouch for me — fine. Well, my priest will — fine.”
But this hasn’t mollified those who want more:
Kenneth Feinberg’s effort to set the terms for handing out BP PLC’s money to Gulf oil spill victims came under fresh attack Monday from state officials and private lawyers who said he planned to be too restrictive in deciding who gets paid.
“Mr. Feinberg seems to be completely tone-deaf to the concerns of people along the Gulf Coast,” said Alabama Attorney General Troy King, who blasted Mr. Feinberg as a “corporate shill” of the oil giant.
The point here isn’t who’s right. I certainly don’t know. The point is that the suspension of normal, well-established processes for recovering economic damages have been suspended in favor of the judgment of a single bureaucrat. Many will pile on and try to pressure the system in their direction, often through the media, which can’t help but erode public confidence in the system.
The temptation to help a client group, or to solve a problem now is dangerous, and often, if not usually, makes thing worse rather than better.
Budget Lessons from the Old Dominion
Posted by Joshua Sharf in Budget, Colorado Politics, HD-6 2010, PERA on August 31st, 2010
This, from the Wall Street Journal, describes how Virginia managed to close its budget gap:
Here’s something you don’t see often these days: a government running a budget surplus. Governor Robert McDonnell announced last week that Virginia closed fiscal 2010 some $400 million in the black. That’s a radically improved financial picture from a year ago when the state faced a $4.2 billion two-year budget hole.
The usual suspects—the big business lobbies, the Washington Post—thought a major tax increase was needed. So did the previous Governor, Democrat Tim Kaine, who proposed a $2 billion tax hike before he left town, on top of two major Virginia tax increases in the previous eight years.
Mr. McDonnell has proved otherwise. The newly elected Republican put a freeze on hiring and took the knife even to such politically sensitive programs as school aid, police and Medicaid to cut hundreds of millions of dollars. Total state spending has been reset more or less to 2007 levels. If Congress were to do that, the federal deficit could fall by more than $900 billion, or two-thirds.
It’s true that Richmond used too many budget tricks to make the surplus appear larger than it really is. Sales tax payments were accelerated by one month to count in 2010 rather than 2011. Several hundred million dollars were borrowed from the public-employee pension reserve—money the Governor promises to repay by 2013. Most fiscal experts think the real surplus is closer to $87 million. But given the lousy economy, Virginia’s budget achievement is laudable. (Emphasis added)
Virginia does biennial budgeting, so they’ve passed their FY11 and FY12 budgets already. Virginia’s general fund is about $15.5 billion, and its total budget is about $38 billion, so either way, it’s about twice Colorado’s. Virginia was facing a $4.2 billion deficit over two years, so it was also roughly proportional to the $1 billion hole we face in FY11-12.
We could begin with a meaningful hiring freeze ourselves. Despite the Democrats’ claim of a hiring freeze, the Bureau of Labor Statistics tells a different story:
It also makes the urgency of converting PERA from a defined-benefit to a defined-contribution plan even more plain. (For the basics on public pensions, see this primer.)
In the past, I’ve posted on the difficulty of forecasting, how despite the best intentions and best information, the folks at Legislative Council have a hard time seeing revenue crises before they hit. Bloomberg has a fine posting on why this is so:
How do economists fare when it comes to real forecasting, to predicting GDP growth and inflation one year out? About as good as a coin toss, according to Bryan’s research. Less than half the economists did better than the “naive” forecast, which is based on no understanding of the economy and merely assumes next year’s outcome will be the same as this year’s. It’s what you’d expect if the results were purely random….
I want to hear a plausible scenario, based on what we know and what we expect, for how things are going to play out in the U.S. and on the global stage. Getting the number right is a job for an accountant. Putting that number in the context of a larger trend is a job for an economist.
We don’t know when revenue will recover, and we don’t know when the next drop will hit. As a result, we need to be careful not to build in additional structural spending when times are good.
Unfortunately, we’ve already used up all those gimmicks that make the Virginia surplus look larger than it is. For us, it’s going to be even more painful, which means it’s going to call for a seriousness that’s been lacking. It’s going to call for the guts to make difficult cuts, and the courage to defend them before the voters – even in odd-numbered years.
Signs
Posted by Joshua Sharf in HD-6 2010 on August 30th, 2010
So I’m in synagogue on Saturday morning, and a friend of mine introduces me to someone he’s talking to:
David: Joshua, meet Steve
Steve: Hello, I’m Steve
Joshua: Hi, Joshua Sharf, how do you do?
Steve (slightly incredulously): You’re Josh Sharf?
Joshua (having been Joshua Sharf all his life, and thus finding it unremarkable): Eh, ye-es….
Steve: You’re the guy with all the signs!
This has happened a couple of times, with the blog, or with the radio show, or with the signs. I’m always amazed by it.
The Wrong Way on Pensions
Posted by Joshua Sharf in PERA on August 24th, 2010
Via this morning’s Denver Post:
The city and the fire department union were at odds over how pension benefits are paid. The city wanted to continue the current pension plan, similar to a 401(k).
The union wanted to have the Fire and Police Pension Association of Colorado take over management of its pensions. The city feared losing control of the pension process.
An outside arbitrator recently sided with the fire union.
But this month, the City Council rejected that recommendation, which would have forced the issue onto the November ballot.
…The resolution passed by an 8-2 vote. Another matter to put the issue before voters in November was tabled indefinitely, killing it.
This is a terrible development, taking one, relatively small public pension (although not to the people of Aurora) entirely in the wrong direction.
PERA is underfunded by at least $20 billion. It’s underfunded because it’s a defined benefit plan, and because politicians have traditionally found it easier to vote new benefits, listening to rosy return estimates and aggressive discounting. There is enormous default risk associated with these pensions, and it’s sad to see the City of Aurora going down the same path with its firemens’ pension.
How Not To Fix Health Care
Posted by Joshua Sharf in Colorado Politics, HD-6 2010, Health Care on August 4th, 2010
This, from this morning’s Wall Street Journal:
The Food and Drug Administration proposed shoring up medical-device approval rules that have been criticized as lax and inconsistent by consumer advocates and the agency itself.
The FDA aims to better define what devices can use an approval pathway known as 510(k), under which companies can get an accelerated decision on whether they can market a new product if they can show it is similar to an already approved device. The proposals, which will be open for public comment, will be closely watched by the device industry because more-stringent rules would raise development costs.
Since in politics, anything you say can and will be used against you, let’s start by saying that medical devices that are supposed to help us shouldn’t kill us, and the FDA plays a useful – although an exclusive – role in making sure that doesn’t happen.
That said, this is bad news for health care and bad news for Colorado. Medical innovation is the single, surest way of bringing down costs. New technologies cost more, sure, but they bring down the relative desireability, and thus the relative price, of existing technologies.
Think about your cell phone. Everything about it, from the signal to the network to the phone itself, is in a relentless drive towards being commoditized. Which means that you can get an iPhone for about 1/2 the real cost of a cell phone ten years ago, and pay only slightly more for the network access. The same factors are at work in every market.
And bad news for Colorado? Well, we’re home to some of the best, most innovative biotech companies around, which up until last year, attracted a lot of venture capital money.
Let’s hope the FDA doesn’t make things worse, and that if they do, that our Congressional delegation has the sense to stand up for innovation, rather than demagogue about “rich” “companies” “profiting” “at our expense.”
Bad Behavior
Posted by Joshua Sharf in Colorado Politics, Senate 2010 on August 2nd, 2010
Finally, the bad blood on the Democrat side of the ledger is getting some attention.
The U.S. Senate Democratic primary campaign turned confrontational Saturday when about 100 supporters of Andrew Romanoff turned up at a campaign event for his opponent, Sen. Michael Bennet.
The Romanoff backers chanted and tried to interrupt the event, a news conference called by Bennet to slam his opponent for stooping to a deceptive attack campaign instead of focusing on issues.
While Romanoff’s ad is politics-as-usual (a strategy not without its own risks), showing up to disrupt your opponent’s press conferences is reminiscent of something else.
I’ve said before to my Republican friends that the Democrats have all the same problems that we do, we just don’t often see them because we’re on the outside looking in on that drama, and we’re also very wrapped up on our own soap opera. But even as we’re busy sorting out our own nomination, it can be instructive to see how the other side is behaving.
Discount That Optimism
Posted by Joshua Sharf in Colorado Politics, Finance, PERA on July 28th, 2010
On Sunday night’s Backbone Business, we discussed the problems with (mostly) public pensions. PERA, Colorado’s Public Employee Retirement Administration, is not exempt from these issues.
The biggest issue with public pensions is that, for some reason, they’re allowed to game the number that describes how much money they need to have in hand in order to cover future expenses.
We should always discount future cash flows according to the required rate of return of the project. In this case, the project, a government guarantee, should be discounted at the same rate as comparable government bonds. Corporate pensions, a company guarantee, discount at a rate equivalent to a basket of highly-rated corporate bonds, since that closely matches their obligation.
The economic reason for this is that a lower interest rate is associated with lower risk. If you discount at a lower rate, it implies a higher level of safety, and therefore, creates an obligation to have more money on hand to cover those expenses. Since the level of risk associated with a state pension is the same as the level of risk associated with a government bond, they should be discounted at the same rate. Otherwise you have equivalent risks paying different returns which creates all sorts of arbitrage opportunities.
The problem is that government pensions are allowed to discount at the expected rate of return of their investments, in effect presenting a risky investment as though it were a sound one, and therefore underfunding the plan.
Currently, PERA takes full advantage of this loophole, and discounts its obligations at 8%, the expected return on its investments. Needless to say, despite whatever reforms were passed in the last session, it’s not enough, and the taxpayers are going to be left holding the bag.
Eventually, we are going to have to transition to a defined contribution plan, and with the unfunded obligation growing rather than shrinking, the sooner we make that decision, the less painful it will be.
Biases – Who Cares For the Poor?
Posted by Joshua Sharf in HD-6 2010 on July 27th, 2010
I’ve mentioned before how much I enjoy walking the district, and not just because I get to meet people who agree with me. You learn more from the people who disagree, and how they disagree. Usually, we manage to do that without being disagreeable. After all, it’s surprising to me when people taken the campaign more personally than I do.
But then, there are the times that are revealing. I started a conversation with one voter, who asked how I felt about the Taxpayer’s Bill of Rights. I’ve never made any secret of the fact that I support it, especially the provisions that require taxpayer approval for any increase in taxes. I firmly believe that recipients of new funds should have to make the case of the worthiness of their cause to the people whose money they’ll be spending, not merely to legislators who see an opportunity to buy votes with taxpayer dollars.
The voter, who, as it turns out, works for a very left-of-center think tank here in Colorado, vociferously disagreed. Nothing wrong so far. Then, this:
She: I’m a member of society, and I’m willing to do my part and pay more if I have to
Me: Fair enough, but you do realize that there are plenty of private charities that you can contribute to, that are just as much a part of society, and do just as much good
She: Well, you go ahead and contribute to your religious groups (slight pause) and your secular groups….
Me: Ma’am, please don’t put words in my mouth. I didn’t mention religious groups at all.
She (spitting nails at this point): Well, I know what you meant.
Me: No, you don’t. Although, remember that the soup tastes just as good when the Catholics serve it.
This is problematic on a number of levels. I don’t have any reason to believe the woman was reacting speficially to my yarmulke. That is, I’m willing to give her the benefit of the doubt and assume that she has a problem with religion in general. But the close-minded opposition to the assumed close-mindedness of the religious is an especially destructive sort of prejudice. It undermines our civil society, those institutions that exist independently of the government, and provide a community connection for both the giver and the receiver.
There is also, perhaps a cautionary tale here for those religious (and secular) organizations whom the government uses to provide needed social services. These groups, seeing an opportunity to do more, can all too easily be converted into clients of the state, dependent on the government not only for money for service delivery, but also for general overhead. And after that, they can become easy prey for those who, like my neighbor, hold them in disdain.
Nobody ought dispute the need for a government safety net. But the temptation to “do more,” laden though it is with good intentions and sympathy for those who need our help, also carries its own risks.
Forcing The Issue
Posted by Joshua Sharf in Colorado Politics, Governor 2010 on July 22nd, 2010
This afternoon, Tom Tancredo issued the following statement to the press:
Events of the past two weeks have developed in such a way as to create an unprecedented situation in the race for Governor of Colorado. The two candidates vying for the Republican nomination have, in my opinion, lost any hope of carrying out a successful campaign.
This situation is unacceptable to me, and I am sure, to thousands of other Colorado Republicans, Independents and other Colorado voters whose hopes for a change to a smaller and fiscally responsible government in Colorado in November now seem dashed.
To achieve this goal the winner of the August Republican primary must step down and allow the Party to appoint a viable replacement candidate to face John Hickenlooper and the Obama-Pelosi smear machine. It is up to the Party to pick that replacement except that it is imperative he or she be a solid conservative with a chance to win the general election in November.
The Quantum Theory of Government
Posted by Joshua Sharf in Colorado Politics, Taxes on July 21st, 2010
Back in the early days of quantum theory, Sir William Bragg used to say that on Mondays, Wednesdays, and Fridays, physicists thought of the electron as a wave, and on Tuesdays, Thursdays, and Saturdays, as a particle.
The Obama Administration, and their Democrat counterparts here in the state, have adopted a similar theory of taxation. First, it was the state Democrats insisting that a fee wasn’t a tax, except when it was. Now, the Obama Administration, in response to Virginia’s lawsuit against Obamacare, has changed its tune about the penalty you will soon pay for not carrying health insurance.
Initially, they claimed it wasn’t a tax, in order to avoid rhetorically breaking the President’s promise not to raise taxes on anyone making less than $250,000 a year. Now, in response to the lawsuit, which claims that the government can’t impose a penalty for not engaging in commerce, and that the IRS can’t be used to collect penalties unrelated to taxation, the Administration has decided that it’s a tax, after all.
Which will create difficulties of its own. The Constitution limits the direct taxation authority of Congress pretty severely. While the 16th Amendment permits income taxes, this isn’t an income tax. And while it permits capitation taxes, those taxes have to be in proportion to a state’s population, which this also isn’t.
So we’re left with a situation where something is a tax on Monday, Wednesday, and Friday, a fee on Tuesday, Thursday, and Saturday, and a penalty on Sunday.
The resolution to the quantum paradox, most agree, is that the electron and other particles aren’t really particles or waves at all, but something else entirely that has features of each. I think it’s pretty clear what’s what in this case, but no doubt the Democrats will soon be arguing that it’s neither a penalty nor a fee nor a tax, but something else altogether.
The one common denominator to all these definitions is that it means more money for them, and less for you.
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