Posted tagged ‘Maryland’

Increasing Poverty and Homelessness: Who Benefits?

27 March 2014

Giving politicians the power to manage the economy causes all kins of problems. For one thing, they act in their own interest – just like anyone else. This shouldn’t be a surprise to anyone, but it seems to be. It’s time to get past the idea that politicians (or bureaucrats) are wise and altruistic overseers of the economy, taking necessary actions to correct imperfections and imbalances caused by, well, regular people.
A good example is the proposed legislation in the Maryland General Assembly to raise the state minimum wage by nearly forty percent. The purpose of this law is to make it illegal for a high-school dropout — let’s call him John — to agree to accept a $10 hourly wage from a shop owner.
The evidence clearly shows the likely result of this action. If the shop owner has a job, she will hire the best-qualified person she can. A person with a good work history, or a high school diploma or GED, will seem like a better bet than John. John, representing the lowest level of skills and education in our society, will be the loser from this legislation. He will become unemployed, and likely remain unemployed for the long term. An increase in the minimum wage almost always increases unemployment for that reason. Specifically, it increases the already abysmal employment prospects for those starting out in the job market (the 17 – 25 cohort), and even more so for the black and Hispanics in that group. An increases in the minimum wage ends up being a knife in the back of the least advantaged, the worst-off among us. When Montgomery County sought to raise the minimum wage, this was the advice they got from expert labor economists at the University of Maryland and Georgetown University. The deleterious effects, the economists testified, are more likely when the increase is large and when the unemployment rate is already high. Economist Stephen Fuller looked at the Maryland bill and concluded it would probably cause a reduced standard of living and higher costs.

But political management of the economy doesn’t pay any attention to those people at the bottom. When the high school grad with the increased wage gets his paycheck, he’ll thank the politicians who caused it. The politicians have no incentive, however, to be concerned about the people at the very bottom of the economy – the ones we should be most concerned about. John’s lost job or lost employment opportunity doesn’t have any political loss for them. They are seeking political support, and they get rewards for increasing the minimum wage — and also for increasing unemployment, poverty, and homelessness.

Council and Executive Lay Higher Burdens on Montgomery Residents, Drag Down the Economy

4 June 2013

The County Council (last week) approved the budget for the upcoming fiscal year.  In a time of austerity, this budget represents a turn back to bigger government.  While the citizens are tightening their belts, this budget increases spending by 4.1% over last year.  The budget recommended by the county executive and now approved by the county council increases property taxes and increases energy taxes.  Combined with the increase in state taxes (including the jacked-up gasoline tax), this will be a draw down on the county’s economy.

There is a popular opinion that Montgomery County has not been affected by the recession, and therefore the government can increases taxes and spending willy-nilly.  But unemployment in the county is 56% higher than it was in 2008.  A report from the Sage Policy Group concludes that the 80% increase in the state’s regressive gasoline tax is likely to cause the loss of  959 jobs, and a loss of $124M to the economy.   The county budget is only likely to drag down employment and the economy even further.

State Budget: Worse than They are Telling Us

23 September 2012

After years of  the state government spending more money than it takes in,  Comptroller Pierre Franchot announced recently that Maryland ended this fiscal year with a surplus.  One shouldn’t be deceived by the appearance of good fiscal news, however.

First, because most of that surplus  is due to the tax increases that Governor O’Malley pushed through the General Assembly.  Soon, you can bet, he’ll be proposing more places to spend that money.

Second, the surplus is illusory.  The  balance sheet, as we can usually expect from government accounting, doesn’t reflect all of the liabilities the state is carrying. A recent study by the Pew Center for the States shows that Maryland is actually in deep debt in terms of keeping up with its obligations for funding pensions.  The state pension plans have a liability of $ 71 billion, and
are poorly funded – not only by professional standards, but also well below averages for states across the country.  Most disturbingly, retiree health care funds are even worse, as they are only about 1% funded.  Maryland health care funding got the lowest grade possible in the report.

So take the reports of fiscal health (like most positive trumpeting from Annapolis) with a huge grain of salt.  Fiscally, we are still in very bad shape, and spending on health care is going to skyrocket soon.

Addressing PEPCO Problem — for real

4 September 2012

I thought it best to follow up on the snarky approach from my post on PEPCO solutions.  How about something a little more practical?

The problems that need to be addressed include (apparently) better maintenance of the infrastructure for distributing electricity, and improvement of PEPCO’s responsiveness, especially to repairing wiring and connections when storms cause outages.

How can these problems best be addressed?

First, forget about Councilman Berliner’s dream of a publically owned power company.  There is little empirical evidence to suggest that a publically owned utility would be more efficient or responsive than an investor-owned utility like PEPCO.

Keep in mind that PEPCO is already a monopoly – granted and enforced by the state.  The main problem with a government-granted monopoly like PEPCO is that the firm has little incentive to improve service.  Since the law precludes any competition with PEPCO, they don’t have to fear that customers will abandon them in favor of a different electricity provider.

How, then, can we provide incentive for PEPCO to do better?  In theory, oversight from the state is designed to pressure them to be more responsive to consumer needs.  And there have been many cries for the Public Service Commission to “crack down” on PEPCO.  But the PSC doesn’t seem to have successfully induced PEPCO to better service.  In fact, it almost seems like PSC has done the opposite.

The policy solution may go back to that problem of incentives.  Despite the monopoly they are granted, there are ways to improve the utility’s performance incentives.

1)      Emphasize competition, wherever possible.  Maryland law has already been changed to allow some flexibility and competition in generation of electricity.  You can choose which of several firms you would like to buy power from.  But in distribution  of electricity – that is, bringing it into your home — we have no competition yet allowed by law.  One way to do this is to emulate the model that is used for pay television services.  In much of the county, you can choose your service provider for pay television.  In addition to satellite services like Direct TV and Dish Network, service is provided by Comcast, RCN, and Verizon.   If you get junk mail, or see television commercials, you know how fiercely those three firms battle for customers.  For the most part, they are not building redundant wiring networks.  They are competing for the right to use the existing network infrastructure (both cable and telephone) to provide services to customers.   A similar model is used in telephone service.  You don’t have to purchase your telephone service from Verizon; there is an array of CLECs (competitive local exchange carriers) that you can contract with.  This doesn’t even discuss VOIP or other options.  All of this competition has helped lower rates and improve service;  wouldn’t it be nice to see the same thing happen for electricity distribution?

2)      Reduce barriers to entry.  We need to make sure that the legal framework for electricity is advancing to meet the technological framework, which is changing all the time.  Cogeneration, home solar, local generation – these are just a few ways for people to get electricity and (at least partially) bypass the PEPCO network.  Any legal or administrative obstacles to increasing these options need to be removed.

3)       Fix the “decoupling” policy.  Decoupling was the legislative solution to an apparent paradox (or conflict of interest) that confronts electric utilities.  On the one hand, the state wants to conserve energy, and utilities are required to subsidize energy efficiency programs for consumers.  That left the utilities in the awkward position of urging customers to buy less from their businesses.   The decoupling policy was the remedy: it guaranteed income to the utilities even if power consumption dropped.

The problem is that this creates a tremendous disincentive for utilities to be efficient about restoring power.  As UMBC economist Tim Brennan phrases it, “[T]he silliest thing we could do would be to promise these utilities the same profits regardless of how much electricity they deliver.”   The PSC has already taken steps to limit the charges that utilities can make, but the issue needs to be addressed more comprehensively.

We’re Number One! We’re Number One!

18 November 2008

If you count from the bottom, that is.

The Cato Institute released their ratings of governors on fiscal policy.  Guess who’s rated the worst in America?   (We’re number 50! We’re number 50!)

The rating are based on a methodology which looks at changes in governors’ proposed spending, changes in actual spending, changes in rates for personal income taxes, corporate income taxes, sales taxes, and other fiscal variables.

The review labels O’Malley “a champion tax hiker”, but – let’s give credit where credit is due – the General Assembly earns that label along with him.  The report notes that not only do Marylanders get hit right in the pocketbook, but we also lose because of the resulting slowdown in economic growth.

How Governments are Different from Real People

26 June 2008

Both the state and the county have been whining about being in bad financial straits. Tax receipts are down, and it seems like we can’t spend as much as we want to. When real people find themselves in a financial bind, they reduce spending. When governments get in a bind, they increase spending. The General Assembly passed a state budget for the upcoming fiscal year, increasing spending by 4.5%. The County Council passed a budget last month that increased spending by 4.3%. Since inflation is running about 3.9%, these spending increases are not just about “keeping up”; they are about spending more than we ever did before.

How do you spend more when tax receipts are down? Increase taxes, of course. The General Assembly, as we remember, passed a record-breaking set of tax increases, amounting to $1.4 billion.

The County is more limited. County Executive Leggett and council members are crowing that they passed a budget without increasing the property tax rate; which is true. However, they did increase property taxes. How? The County Charter – equivalent to the Constitution – restricts how much property taxes can be increased in a single year. Faced with that, the council members yawned – and voted to override the charter. Again. Which means, your property tax bill goes up, again.

And it’s not just property taxes. Other tax increases include:
– Increase in (county) income tax, to the maximum the State allows
– Increase in the energy tax (more than quadrupled since 2003)
– Increase in the telephone tax.

Pony up, folks! We need to subsidize the new concert hall in Silver Spring, and the athletic facility in Germantown, and the old concert hall at Strathmore, and all manner of pork.

Taxing the Rich?

12 October 2007

Yeah, Governor O’Malley would like you to think so. He claims that his budget will ensure that “the rich will pay more”, and that “everyone will pay their fair share.” For example, he claims that his plan will increase taxes on corporations (by eliminating the technique of “combined reporting”), and by increasing the corporate income tax by 14%.

I have to suppose that O’Malley is neither stupid nor devoid of advisors with some knowledge of economics. Even common sense tells you that firms see these taxes as a cost of doing business, and will pass along those costs to consumers to the extent possible. Economists study what’s termed the “incidence” of taxation, i.e., upon whom the costs actually fall. The degree to which those taxes can be passed along depends on the nature of the good or service being taxed, and the properties of the demand and supply in the relevant markets. But for the most part, though, we consumers can expect to pay most of the costs of these taxes.

And that’s only some of the taxes. The rest of the set of proposed tax increases are unequivocally regressive, such as the 20% increase in the sales tax, and the expanded set of goods and services that will be taxed. Other proposed increases seem specifically designed to exacerbate the high cost of housing, such as the increased property transfer tax and the titling tax.

We don’t have to give the governor political cover or buy into the myth that “the rich” or evil corporations will pay these increased taxes. When O’Malley says that, remember that we consumers will be paying the billions in higher taxes for this budget.