Posts filed under 'Economic Opportunity'
In Japan, Bud is hardly known. It was a flash in the pan in the late nineties but never really caught on. Stella Artois and other InBev beverages have a stronger toehold, but really only a toehold. That is especially true outside of Tokyo and Osaka. For the most part, the market is locked up by Suntory and other Japanese manufacturers. (Full disclosure: I have a special dislike for how locked up it is, as the liquor importation laws, now amended, prevented me in 1992 from expanding a small exporting business to Japan. The laws are amended, but this is still Japan.)
I am sure back home the news of the InBev buyout of Bud has lessened sales, as bar hounds realize, as Drudge put it, “This Bud is … for EU.” What I found interesting was the willingness in a down market for InBev to take on so much debt to fund the $52 billion buyout of Anheuser-Busch. Perhaps this nugget from the Wall Street Journal helped convince InBev that it was a good idea:
InBev’s willingness to take on so much debt may be partly explained by Anheuser’s corporate tax rate, which at 40% was more than twice InBev’s last year. The new company may be able to offset some of Anheuser’s taxes with interest payments on the new debt.
So, tonight, raise a pint of InBev products to your federal government.
Sounds so familiar, doesn’t it?
July 14th, 2008
I have referenced the Stephen Moore-Arthur Laffer report on Rich States, Poor States, and its overall message that tax policy does matter for people and business locational decisions. I know the question of business creation and population growth is more nuanced than that, but as I was reading Stephanie Ebbert’s piece in the Sunday Globe about the hundreds of thousands of dollars we are spending to boost our Census numbers, I wondered if we aren’t as usual on trying to manage the message rather than addressing the underlying problem.
So, a friend from Mississippi emails the Moore-Laffer report and notes that we are soon to have the political oomph of the Mockingbird and magnolia state. Check out table 1 on page 15 of the RS/PS report, which suggests that Massachusetts is among the bottom 10 in the nation in terms of cumulative domestic migration. Huh? It means that we lost 330K people over 10 years (1997-2006). Connecticut lost 110K, and at the very bottom of the list is California at -1.3 million and New York at -1.96 million.
At the top (winners) is Florida at +1.6 million, Arizona at 770K, and even colder states like Washington (+218K). Folks, can we, uh, start acting like adults and figure this out?
July 11th, 2008
Ross Kerber in today’s Globe has a playful profile of Boston University Economics professor and Pioneer Academic Advisor Larry Kotlikoff. LK is indeed “one of the country’s toughest critics of mutual fund companies and other financial firms.” Is it possible that all the gnashing of the teeth and self-flagellation about Americans’ consuming too much and saving too little is, uh, hype?
When my financial advisor friends call me (two times annually to “check in” and make sure I don’t forget that I am going to have trouble walking, to embarrass my children by spilling food all over myself and ultimately die), I have to agree with the message of “Spend ’til the End.” (Buy here!)
Kerber summarizes the argument well, noting that Kotlikoff agrees that many (around two-fifths of Americans may not save enough), but that the problem lies in his observation that:
Many people end up setting aside too much money for retirement, at the expense of enjoying their youth more.
A better strategy, he argues, would be for individuals to study their own situations - including mortgage debt, private pensions, and future Social Security payouts - so they can understand how such things will affect their standard of living, before and after retirement.
And how can you disagree with the closing line of the article where Kotlikoff urges us to “price [our] passions.”
Related question regarding savings rates… Often we hear that the US saves the least among industrialized nations. Does anyone know how borrowing for home purchases figures into those calculations? The reason I ask is that it seems to me that if we are comparing the US savings rate to that of, say, Japan or Italy, where the percentage of homebuying households is far lower, we will necessarily suffer in the comparison. S/he who knows how international comparisons of debt and savings are calculated, please speak up!
July 7th, 2008
Carddata.com notes that U.S. consumers racked up an estimated $51 billion worth of fast food on their personal credit and debit cards in 2006, compared to $33.2 billion one year earlier. That tells you how far in debt we are, right? An Amex card for a burger and fries.
But Creditcards.com notes that
- The median U.S. household income is currently $43,200 and the typical family’s credit card balance is now almost 5 percent of their annual income (Source: Federal Reserve).
- Of the households that owe money on credit cards, the median balance was $2,200 — meaning half owe more, half less (Source: MSN Money).
Doesn’t sound as bad, if you put it that way. I know that there are other forms of personal debt. But it still is not nearly as bad as the state’s debt level. If you do an all-in analysis of the debt and liabilities for state government and quasi-public agencies including pensions, benefits and the backlog of infrastructure improvements we have, it totals to above $90 billion just for the state of Massachusetts. That’s above $15,000 per person (man, woman and child). And that’s not including local commitments made to unionized employees, which has already bankrupted a number of cities across the country, and, ahem, here in the Commonwealth.
Try these numbers on for size. First we have $50 billion in total public sector debt, due to:
- Total Direct Debt of the Commonwealth $20.8 billion
- Total Quasi Public Agency Debt $29.2 billion
Add to that the $13 billion for the public pension liability, another $13 billion for the unfunded retiree healthcare liability, and a minimum of $17 billion in deferred maintenance backlog. Folks, that comes to $93 billion, and we could easily have estimated more (the deferred maintenance backlog is certain to be much more!).
July 2nd, 2008
The budget’s not done but we are officially in a new fiscal year. Happy fiscal year 2009! We have all kinds of games and rides available: rollercoaster budget negotiations for the select few on the conference committee (long ride, might last a few weeks into the new fiscal year), the house of mirrors used to keep you the citizen from understanding where the money is going, and the house of horrors where the state’s financial analysts finally force themselves to stare at the coming collapse in capital gains revenues. And, yes, there is cotton candy served on paper cones made from bond prospectuses.
Are we ready?
Across the country, we have seen unsustainable increases in general fund spending. In the Commonwealth, budgeted expenditures were almost 7% higher in 2006 than in 2005, and 2007’s were almost 10 percent higher than in 2006. So what are we to do when the economy slows?
Jennifer Steinhauer of the NY Times summarizes the challenge:
State tax revenues, adjusted for inflation and tax cuts, fell 5.3 percent in the first quarter of 2008 compared with the same time a year ago, according to a report to be released Tuesday; it was the third quarter in a row that total adjusted revenue declined. The first quarter revenues were the weakest among states since early 2003.
Sales tax revenues, the beating heart of many budgets, were essentially flat for the first time in six years. Corporate income taxes declined 5.1 percent from January to March compared with the same period the previous year — the third straight quarterly decline. And 12 states showed a falling off in personal income taxes, though revenue from those taxes rose 4.4 percent nationwide.
Steinhauer further reports that
In Nevada, where the Legislature is not officially in session, Gov. Jim Gibbons, a Republican, called last week for state agencies to cut their budgets by 4 percent on top of $914 million in previous cuts in the current two-year budget cycle — all toward closing a $275 million deficit. Layoffs are also expected.
In Rhode Island, WJAR-News10 reports that Governor Donald Carcieri used the coming fiscal crisis as a way to extract benefits reforms and to trim the state workforce.
In October [2007], the governor announced plans to eliminate about 1,200 state jobs through layoffs and attrition. In the end, Carcieri fired about 220 workers, but he used the layoff threat as a bargaining chip to force other changes.
Earlier this year, Democratic lawmakers voted to reduce retirement benefits for state workers, which created a flood of retirees. Hundreds of those positions may remain vacant since Carcieri said he must eliminate 300 to 400 more jobs to balance the budget.
In return for halting the layoffs, union leaders agreed last week to a tentative deal that would force their members to pay more for health insurance and forgo a pay raise next year. As part of the terms, unions leaders supported a bill scaling back restrictions that make it extremely difficult for Carcieri to replace state workers with nonunion private contractors. It passed last week.
Back home, one wonders if we will have enough in the Rainy Day Fund to weather the storm…
July 1st, 2008
The Milken Institute does a quadrennial review of “technology and science assets, and their ability to leverage those resources to achieve economic growth.” The 2008 report (entitled 2008 State Technology and Science Index), released in tandem with the 2008 San Diego BIO International Convention, brings good tidings for Massachusetts. We lead the nation, with Maryland, Colorado and California taking up the following three state slots.
All good news. But the press release notes a shocking finding:
Regional competition has intensified since the last release of the index in 2004. Not only are states competing against each other for human capital and resources, but countries like China and India are raising the stakes to a global level.
Uhm, joking. For data junkies, take a view of the interactive link, which provides all the measures and stats.
June 20th, 2008
Glad to see the Boston Globe editorializing on the virtues of leasing out at least one of the state’s assets– the Ponkapoag Golf Course.
Earlier in the week, a news article chronicled the poor condition of the course. It really must be read to be believed and there’s an estimate that it will take $35 million to properly fix the course. Given that the Department of Conservation and Recreation has a number of claims on its budget, not the least of which is unsafe bridges, leasing out the course makes sense.
In 2006, Pioneer looked at a previous leasing effort with State-owned skating rinks and found that the leasing program resulted in greater capital investment, increased attendence, longer hours and seasons, and continued affordability.
Good for the Globe and for State Senator Brian Joyce’s efforts to lease the course out.
June 18th, 2008
To the south comes a lot of energy around advancing wind power. Don’t expect T. Boone Pickens, his 667 wind turbines or $2 billion in investment in the wind sector to come in li’l Rhodey. But Carcieri has structured a bidding process that could shape a great addition to the grid. In a press release today, RI Guv Donald Carcieri’s office notes:
At the May 27th deadline, seven companies had submitted proposals to the State of Rhode Island to construct and operate an off-shore wind farm designed to generate 1.3 million megawatt-hours per year of renewable energy.
The Guv seeks to reach the goal of “achieving 15% of our energy from wind.”
Under Governor Carcieri’s plan, the state will review bids on the basis of total cost to Rhode Island ratepayers, the qualification and experience of the bidder in constructing wind projects, and the number of jobs and the amount of tax dollars to be created. The state plans to award a contract to the best bidder, who will then begin the process of seeking the necessary regulatory permits. An evaluation team will review the seven proposals over the next couple of months.
June 6th, 2008
MassInc published a nice piece of research recently that analyzed state spending and held a good forum on it.
The author of the research paper, Cam Huff, found that Medicaid was growing like crazy:
Medicaid spending totaled $7.4 billion in 2006, an increase over 1987 of more than $4.5 billion, or 163 percent. This percentage growth was almost five times that of the budget as a whole. Medicaid’s share of the budget rose from 13 percent to 26 percent between 1987 and 2006. Increases in Medicaid were two-thirds of the overall growth in state spending.
And its notoriously difficult to figure out why:
the program has become progressively more difficult to understand. While it, like the health care system as a whole, is inherently complex, its daunting jargon and baroque accounting raise high barriers to comprehension. The state budget process does little to shed light on how the program operates and what is driving up its costs.
But it’s where the money is, when spending growth is being considered. At its simplest, Medicaid is a short equation:
Eligible Populations X Take-up Rate X Covered Benefits X Utilization Rate X Reimbursement Rate
So which one do you want to cut back on to control costs? And what are the unintended consequences of cuts in each area?
I don’t have the answers here, but this is the real spending puzzle for state policymakers to wrestle with.
May 2nd, 2008
Maybe this is just news to me, but I was interested to read Dan Bosley (Chair of the House Economic Development Committee) sharp comments on the Department of Revenue. It’s a long quote, but he makes a number of criticisms that are worth hearing:
I am very leery of [DOR's] numbers for good reason. In this bill, their revenue figure for the administration’s proposal was tens of millions greater than their figure for House generated revenues even though the language of the bill was identical coming out of committee! This is not the first time this has happened, raising, I think, legitimate questions about their numbers. In the Life Science bill, my committee asked for an analysis of extending the Governor’s tax breaks without the yearly limitations included in his bill. We asked several times and were told they could not answer the question nor should they as the Governor’s bill limited tax credits to $25 million per year. Not only is it not their role to refuse a request based on policy, but it calls into question the honesty in delivering numbers in a timely and accurate manner. After being requested again by House Ways and Means, a report was sent to us on the effect of the administration’s suggested tax credits. In looking at the numbers, it was immediately apparent that the numbers were suspect. One company had given us a figure, based on their tax liability that was larger than the DOR number for every life science company eligible for this credit. The second set of numbers we received were just as bad. I believe that the Department of Revenue based on their responses, is more interested in setting policy than enforcing it. It is the responsibility of the Governor and the Legislature to set tax policy. The Department of Revenue should provide revenue analysis that is not tainted by politics or policy.
And his remedy is intriguing:
I believe we need an independent budget office to give us honest estimates without political pressure from any side. We need an office like the Congressional Budget Office – bipartisan and independent to study all our fiscal and revenue proposals for their cost and financial impact. This is the only way we can get numbers that are beyond question.
April 30th, 2008
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