Budget

In the Connecticut town of Avon, voters have the right to hold as many as three separate referenda on the town budget before officials can enact a spending plan themselves. This spring, voters have used the referendum twice -- twice, in fact, in the past three weeks -- to vote down the town government's proposed budget. A third referendum is scheduled for June 25.

Here's my look at how Schwarzenegger's proposed budget cuts, especially on education, are getting in the way of his push for budget reform and a redistricting ballot initiative that appears headed for the November ballot in California.

In each formulation of American grand strategy since World War II -- until we inexplicably stopped such planning in 1992 -- the President and Congress relied on the power of the American economy to do the strategic heavy lifting. Sixteen years, however, is far too long for even the American economic engine to coast without a strategic re-alignment, and the stimulus, bailouts, subsidies and even military operations that naturally ensued have forced even Martin Wolf of the FT to declare the "dream of global free market capitalism" dead. Writing in the upcoming issue of The Nation, Sherle Schwenninger, looks to the architects of the New Deal and finds three lessons essential for re-tooling the American economic engine and bring market capitalism back home to America's shores.

Today in Washington, the House and Senate consider their respective versions of the budget before they close up shop for two weeks of spring recess. By reading the budget you can usually get a sense of the big-ticket items, but smaller-ticket items are usually left out of the text in the House, and only added in the Senate by floor amendment.

That's why I'm so surprised that the budgets of both Rep. Spratt and Sen. Conrad included specific text to create a reserve fund for a public-private entity for comparative effectiveness research -- i.e a way to find out what really works for patients and at what cost.

As the Senate Budget Committee's supplementary materials state:

"The purpose of such research would be to evaluate and compare the clinical effectiveness of two or more health care interventions, treatment protocols, procedures, medical devices, diagnostic tools, pharmaceuticals, and other processes or items used in the treatment or diagnosis of patients. This information could lead to savings over the long-term by allowing providers to avoid treatments that may be clinically ineffective, while at the same time improving health care outcomes." 

The United States loses 10 Bradley fighting vehicles a week in Iraq and Afghanistan. In addition to the tragic loss of our fighting men and women this figure represents, this loss rate translates to a cost of $30.7 million dollars. Add it all up and we're spending about $3.5 billion per week, but only $350 million on pay for our troops. Writing in TomDispatch, New America's Bill Hartung helps us all get a handle on this large, large number.

Just as major league ballplayers were taking the field for the first spring training exhibitions on Feb. 28, Arnold Schwarzenegger was putting taxes in play in California's budget debate.

"I am a big believer that when we have a financial crisis like this, we all should chip in," California's governor said about his state's two-year, $16 billion budget shortfall. "This why I totally agree with the Legislative Analyst’s Office when she says we should look at tax loopholes.... We should go after those tax loopholes."

It won't be hard to find them. California is a big-league loophole-creating machine. It takes only a simple majority of California's Legislature to carve out a tax loophole, but it takes a two-thirds vote to close a loophole or pass a budget. That imbalance has created a ratchet effect in California's tax code.

This is the title for a 2/27/08 New America Foundation and UC Center Sacramento workshop in Sacramento. It will look at a variety of California tax and budget issues and possible remedies that also bring California's depression-era, industrial-based tax system into the 21st century. This blog post serves as place for further discussion on the topic and the workshop presentations.

Here is a link to my presentation topic on broadening the California sales & use tax base and lowering the rate. If other workshop materials are posted on the web, I'll add a link to them at this blog entry.

I look forward to your comments and online discussion.

In his 2/13/08 State-of-the-State address, Minnesota Governor Tim Pawlenty announced that he would create a 21st Century Tax Reform Commission to recommend tax reforms for the 21st century economy. Related to this, he also noted:

• the state has a serious deficit
• tax policies, job climate and large government have harmed economic growth
• there is a need to reduce taxes
• Minnesota should join other states and cap property taxes
• there is a need to move the tax system from the 1960s to the 21st century
• tax reforms should "encourage job growth, income generation, investment, entrepreneurial activity, research and exports"

Well, as the title of this blog would suggest, I think this is a good move for Minnesota. But, it won't be easy -- change rarely is.

The presidential candidates have mostly "tweaking" ideas for our tax system; they don't seem to be focused on the incredible budget and tax issues that will face the new president during the first term. Or, perhaps they just aren't being asked the right questions.

Pending fiscal challenges include:

Higher Ed Watch has some questions for the Bush administration about its Fiscal Year 2009 higher education budget: [slideshow]

1) The Federal Family Education Loan (FFEL) program and the Direct Loan program show similar per loan costs for 2008 and 2009, with the FFEL program showing a slight cost advantage for the first time. However, page 364 of the Budget Appendix notes that costs are higher for the Direct Loan program, because it holds nearly 100 percent of student loans that have defaulted (under FFEL and Direct Loans) and have been rehabilitated through consolidation.

Can per loan program costs be accurately compared when high-default risk FFEL loans are dumped into the Direct Loan program? If OMB and the Department of Education corrected cost estimates for this bias, how would the costs change? Which program would be cheaper for taxpayers if costs were controlled for borrower differences?

2) Federal funds held by state guaranty agencies used to pay loan default claims under the Federal Family Education Loan (FFEL) program nearly doubled to $1.1 billion in 2007 from $579 million in 2006. Are the federal funds held by guarantee agencies in excess of what is needed to pay default claims, and if so, would the administration recommend recalling those funds?