Chatham fiscal 2012 spending: 2010 Archives

In our earlier item we pointed out that the U.S. fiscal condition was much worse than that of Greece, that our fiscal shortfall totalled about $130-$140 trillion, ten times the current American GDP.

Now Professor Kotilikoff of Boston University says it's more like $202 trillion. In fact, the U.S. is bankrupt and there are no easy solutions.

The can has been kicked down the road for decades and the vast expansion of spending by the Obama administration has made a bad situation impossible to solve without a great deal of pain and misery. Reality and backbone are lacking in Washington and the nation is likely to continue to hurtle towards an even worse disaster than is forecast now.

U.S. Is Bankrupt and We Don’t Even Know It Commentary by Laurence Kotlikoff

Aug. 11 (Bloomberg) -- Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

Double Our Taxes

To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.

Such a tax hike would leave the U.S. running a surplus equal to 5 percent of GDP this year, rather than a 9 percent deficit. So the IMF is really saying the U.S. needs to run a huge surplus now and for many years to come to pay for the spending that is scheduled. It’s also saying the longer the country waits to make tough fiscal adjustments, the more painful they will be.

Is the IMF bonkers?

No. It has done its homework. So has the Congressional Budget Office whose Long-Term Budget Outlook, released in June, shows an even larger problem.

‘Unofficial’ Liabilities

Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.

For example, our Social Security FICA contributions are called taxes and our future Social Security benefits are called transfer payments. The government could equally well have labeled our contributions “loans” and called our future benefits “repayment of these loans less an old age tax,” with the old age tax making up for any difference between the benefits promised and principal plus interest on the contributions.

The fiscal gap isn’t affected by fiscal labeling. It’s the only theoretically correct measure of our long-run fiscal condition because it considers all spending, no matter how labeled, and incorporates long-term and short-term policy.

$4 Trillion Bill

How can the fiscal gap be so enormous?

Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Worse Than Greece

Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run.

This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance.

Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue.

My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain “solutions.”

Virginia's Governor Bob McDonald, speaking in Boston last night, had it right:

"There's a growing sentiment of the citizens of this country that the rate of spending, the rate of growth in spending at every level of government, is unsustainable."

The Obama administration seems intent on bankrupting our grandchildren and Massachusetts state government is chronically running deficits and raising taxes.

In Chatham the Town Manager lets public union compensation keep rising and apparently thinks overrides are the way to solve his overspending.

On top of that, the Town Manager has launched a massive capital spending program for a Big City Sewer that isn't needed to keep Chatham's coastal waters clean and healthy. The challenge could be met for half the cost and in a way that national environmental organizations such as Clean Water Action say is better environmentally. Not only that, these new systems do a better job of removing nitrogen and other contaminants from groundwater with permeable reactive barriers. Hinchey is committing taxpayers to spending about half a billion dollars for a Big City Sewer without (1) questioning the cost, (2) looking objectively at less expensive alternatives or (3) even questioning what the state's scientists say is needed to be done to keep Chatham's waters healthy. Other Cape Cod towns are seeking validation of what the state scientist have come up with through a "peer review" by the National Academy of Sciences (NAS). That's the basic question: What is it that we in fact have to do to make sure Chatham's waters are healthy? Chatham shoujld join with those other towns in the petition to the NAS. That's step one in fiscal prudence.

Read it all.

Things are downright scary. The nation is stalled in a deep recession and joblessness is growing. More people are fearing they will be worse off in the future than ever before.

Yet what is Chatham doing? Maintaining its growth in town spending but shoving what it couldn't fund this year into next year's budget, when the situation will be just as bad, but made worse by this doubling up of deferred costs. On top of that it has launched a 20-year sewer construction program that will drive the town's debt from about $30 million to over $300 million! is this the time for a debt explosion?

Does Chatham have to do the sewer now? No.

Is there a rush to clean up the waters? No. Under the town's program no improvements are expected till 25 years or so when the project is finished. Not only that, Chatham is a guinea pig for the state program's proposed solution for reducing nitrogen, which might not even show any improvement in coastal waters. For the Town Manager to embark upon a total plan for the town costing hundreds of millions of property tax dollars rather than by proceeding incrementally to test out the state's proposed solution in one or two hot spots first is inane.

Can any government agency force Chatham to act now? No. Since this is an unfunded mandate, no government agency can force Chatham to act against its interests.

Will the Conservation Law Foundation sue Chatham? No. Chatham is so far ahead of all other towns in its planning it's the last town CLF would sue.

Will Chatham wind up lagging behind other Cape towns in addressing the problem of excess nitrogen in bay waters? No. Chatham is years ahead of the 13 other Cape towns that have excess nitrogen problems. Some of them are exploring less expensive and better environmental alternatives, others are hoping for state or federal subsidy assistance and some just do not consider the problem a priority in light of their tight budgets and other demands.

More sensibly, Orleans and other towns first want to be satisifed that the plan developed by the state DEP with the scientists in Dartmouth will do the job. For years they've demanded a peer review of the science, which the state and the scientists have refused to allow. Now that demand is growing insistent. Why spend billions for something that might not do the job? It makes sense to make sure it works before committing to such massive expenditures.

When did Chatham town meeting vote to approve a sewer program costing $300-$400-$500 million? It never has. The town manager pushed a vote through town meeting in May 2009 for an upgrade of the treatment plant but didn't tell anybody the upgrade would build the treatment plant out to its planned 20-year capacity in just two years. Instead of just enlarging the treatment plant to handle the few hundred properties being added to the existing system, the Town Manager authoritzed an enlargement for ten times as much, enough to process all the presumably affected watersheds in town. As a consequence, any engineer will tell you taxpayers will be forced to fund the rest of the sewer pipe extension program or else have a malfunctioning, cost-inefficient and sub-performance treatment plant. To convince town meeting members the costs would not be too onerous, the town manager provided town meeting members with false numbers reflected in scaled down bar graphs which were supposed to show what the real costs would look like.

Should Chatham taxpayers be worried about what the economic bad news looks like for Chatham as well as the nation? Absolutely. Savings, dividends and interest payments for Chatham households are all down. Huge tax hikes at the federal level beginning next year are a certainty, so, no matter what, incomes will be slashed. States are cutting local aid and raising taxes as well. This is a time for caution.

What should Chatham do? Two major things need to be done to get the spending situation under control: First, renegotiate public union contracts to reflect the reality of the financial situation of Chatham homeowners. Automatic built-in increases should be a thing of the past. The Town Manager has refused to do this. Second, revise the capacity plans for the treatment plant expansion downward so it will handle efficiently and effectively the properties now on the system and those being added with the $20 million for piping voted at the May 2009 town meeting. Then stop and join Orleans and other Cape towns in demanding a peer review of the state's science. During that review period, objectively and fairly examine the alternatives to addressing the nitrogen removal (however it needs to be done) less expensively and hopefully less disruptively. (The EPA and national environmental organizations favor alternatives such as clusters as better environmental choices.) Following the peer review and its conclusions and the examination of less expensive and disruptive alternatives , the entire resulting plan should be put before a fully informed town meeting or a vote.

Here's a knowledgeable observer's pessimistic view of the next few years.

America’s jobless picture is alarmingly bleak
By Mort Zuckerman in Financial Times
June 7, 2010

We are drifting. We take comfort in bits of good news, but we are in dangerous waters; the Great Recession is being starkly revealed as a global crisis with the US, the traditional engine of recovery, sputtering on every cylinder. The US government responded with dramatic financial support by transferring money to the household sector. But outside of these transfers the personal income of Americans is still declining; the residential market remains stagnant at best; consumer growth is nominal. The only real energy in the economy has come from the cessation of inventory liquidation, which is now the main factor in rising industrial output and any modest improvement in the economy.

Continue reading "CHATHAM'S MAD SPENDING BINGE"

Posted by Chatham Concerned Taxpayer on Monday, June 7, 2010 at 12:37 PM | Comments (1)
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Governor Chris Christie of New Jersey is the kind of official you need in office in tough times when the habit of overspending seems unbreakable -- whether it's in Washington, on Beacon Hill or in Chatham Town Hall,

Non-emergency projects should be postponed until better economic times return. Grandiose projects should be scaled down to what's needed and deferred if no emergency exists. Fat public union contracts have to end. New taxes, no way. Spending must be cut to avoid increasing taxes by overrides.

So listen to what Governor Christie has to say.

Gov Christie calls S-L columnist thin-skinned for inquiring about his 'confrontational tone'

Tim Roper has won and was installed this morning as the newest Chatham selectman.

Let's hope that a new era of openness, civility and concern for taxpayers is about to begin.

The chronic overspending of town officials has to be reined in.

At last, the truth about the Town Manager's hugely expensive Big City Sewer project and its costs to taxpayers will come out.

It's not too late to downsize to solutions which can clean up Chatham's coastal waters at far less cost, with far less community disruption and in a way that the EPA and national environmental organizations agree is better for the environment. We should listen to what the EPA and national environmental organizations say, not Big City Sewer promoters like Stearns & Wheler, which grow rich on centralized sewers.

A centralized sewer for Chatham is a too expensive White Elephant inappropriate an unnecessary for a small, semi-rural town like Chatham.

And it's not too early to start working on fiscal 2012 spending. The idea that overrides are inevitable in fiscal 2012 must be rejected.

Chatham taxpayers took the first step at town meeting this past Monday by rejecting the Town Manager's plea for more taxes. The second step has now been taken, electing a selectman dedicated to fiscal restraint. The march to fiscal discipline has begun.