Think Tank West

Until the seedy practice was exposed, the host committee for the Democratic National Convention in Denver was dodging state and federal taxes by filling its cars using the city government’s gas pumps.

Defenders of the scam tried to say the GOP elites were doing the same thing in Minneapolis (plausible, but not true in this instance). They also have the absurd excuse that city pumps were being used for security purposes (I suppose we should be happy that these nonentities are not demanding 24-hour police protection):

The committee hosting the Democratic National Convention has used the city’s gas pumps to fill up and apparently avoided paying state and federal fuel taxes. The practice, which began four months ago, may have ended hours after its disclosure. An aide to Mayor John Hickenlooper released a statement Tuesday evening saying that Denver 2008 Host Committee members would pay market prices for fuel and would also be liable for all applicable taxes. However, Public Works spokeswoman Christine Downs told City Council members just hours before that host committee members were fueling up at the city pumps.

…”There’s something there that just doesn’t seem right to me because, in a sense, you’re saying then that the officials who pass the laws are not willing to live by them,” said Councilwoman Jeanne Faatz.

Hickenlooper said the practice isn’t unique to Denver. “I do know for a fact that they’re doing the same exact thing in Minneapolis,” Hickenlooper said, referring to the city that along with St. Paul is hosting the Republican National Convention. But Teresa McFarland, a spokeswoman for the Minneapolis-St. Paul host committee, said its members are getting their gas at public pumps.

…The host committee, which is responsible for raising money to put on the convention, is using the city’s pumps “for safety and security reasons,” Lopez said.

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The Wall Street Journal reports today on the front page: “States Slammed by Tax Shortfalls.” According to the story, states are in “pain” because they are having to “slash” spending, which is causing some services to be “hit hard.”

The story illustrates the curious way that many newspapers report on state budget issues. The coverage is generally uncritical of state policymakers, treats any needed spending restraint as a crisis, and is devoid of hard facts about actual dollars spent by the states. It is as if the woe-is-me press releases of government groups such as the National Conference of State Legislatures are simply reprinted without any independent analysis by the reporters. Seven journalists contributed to the Journal story, but their job seems to have been to simply gather anecdotes in support of a new NCSL study on state budgets.

Oddly, the Journal undercut its own crisis tone in places, with reporting such as: “In Minnesota, the city of Duluth plans to stop operating its Fun Wagon—a free trailer stuffed with games and cookout supplies for a neighborhood party.” Geez, what a tragic loss for the city.

Anyway, the Journal is not alone in its pro-spending view of state budgets. A March 31 piece in the Washington Post (“States Hit Hard by Economic Downturn”) was of the same genre. It reported: “at least half of the nation’s states are facing budget shortfalls, some of them severe, and policymakers in most of the states affected are proposing and passing often-painful measures to trim costs and close the gaps. Spending on schools is being slashed…”.

The economics reporting of the Journal and Post is often outstanding. But the papers don’t apply a critical approach to state budget issues, as they do, for example, to federal budget issues. When the federal budget deficit increases, federal policymakers are often criticized for their bad decisionmaking. But when state budget “shortfalls” arise, state policymakers are almost always treated as innocent victims of uncontrollable events.

Are state governments in a fiscal crisis? Let’s look at a few hard facts, not reported in these two stories. Data from the U.S. Bureau of Economic Analysis show that total state and local tax revenues increased 8.4 percent in 2004, 8.9 percent in 2005, 6.6 percent in 2006, and 4.9 percent in 2007. Data for the first quarter of 2008 show that tax revenues are up 3.2 percent over the first quarter of 2007. Thus, government revenue growth has slowed from the large increases of recent years, but that is hardly a fiscal crisis. Indeed, it indicates a needed respite for overburdened state and local taxpayers.

Alternately, consider data on state government general fund spending from the National Association of State Budget Officers. Spending across the 50 states increased 6.5 percent in 2005, 8.7 percent in 2006, 9.3 percent in 2007, and 5.1 percent in 2008. Spending growth is projected to slow to 1 percent for 2009, but that is certainly no crisis after the orgy of budget expansion in recent years.

Nonetheless, there a real state fiscal crisis. But it is the longer-term problem of exploding spending on Medicaid combined with the huge growth in debt and unfunded retirement promises made to the nation’s 16 million state and local employees. Because of those problems, the real crisis in coming years might be headlined ”States Slam Taxpayers with Huge Hikes.”

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The French prefer Obama by a 64-4 margin.

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The WashingtonWatch.com blog has a breakout of all 36 bills in the “Coburn Omnibus.”

#36: a greenhouse in Suitland, Maryland!

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The New York Times reports that Providence’s police would prefer to spend their federal grants on crime rather than terrorism. That is because there is crime in Rhode Island but no terrorism.

This conflict is national, as I discussed here. Because our domestic counter-terrorism bureaucracy is largely our crime-fighting bureaucracy, the more you chase terrorists, the less you chase criminals. Some of the counter-terrorism money is new, but much of it comes by cutting back on other things. The FBI only has so many agents and the Justice Department so much grant money. Police officers only have so much time.

The result is pressure to divert counter-terrorism resources to crime-fighting. There are not enough terrorists to go around, so terrorist fusion centers become all-hazards fusion centers. Police departments try to use counter-terrorism funding to buy things - like police cars - that aid their actual work. Scandals about misused homeland security funds follow. But maybe the misallocating police had a better grasp on local risks than the grant-giving feds.

This was all summarized by the Wire. Early on, Detective McNulty struggles to interest the FBI in his investigation of Baltimore drug dealers, going so far as to call them terrorists to try to meet FBI criteria. Later, as a beat cop, he complains about the uselessness of a counter-terrorism course but uses notebooks they give him there for his kids’ school supplies.

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I was on the floor of the Cancun Convention Center when the September 2003 WTO ministerial conference officially ended in failure.  What struck me the most about the abrupt termination of the conference was the absolute jubilation with which the Indian trade delegation and its posse of reporters and NGO cheerleaders greeted the news.  There were high fives and hugs and ear-to-ear smiles.

At the time, I thought it odd that the Indians should be so gleeful about the failure of the conference, when, after all, India and other developing countries had so much to gain from a Doha agreement.  True, the U.S.-European agricultural proposal at Cancun was a farce, and developing countries were right to object.  But the negotiations were in tatters on that day and it was highly questionable that they would ever resume – hardly a reason for celebration.

Technically, the negotiations resumed the following summer.  But the Doha Round has never fully recovered from the Cancun meltdown.  The same divisions exist.  The same sense of victimization persists.  The same issues remain unresolved. The same preposterous mercantilist arguments endure.  And the same outcome should be expected from this week’s “do-or-die” ministerial meeting in Geneva.

Though the stasis has been attributed to United States and European stinginess on agricultural liberalization, there is plenty of blame to go around for Doha’s failure. It occurred to me sometime soon after witnessing the Cancun jubilation that a meaningful Doha deal would remain elusive because too many developing country trade ministers get too much political mileage back home when they are seen standing up to the U.S. and Europe.  Kamal Nath, India’s commerce minister, revels in his role as David to the Western Goliath. (Although his portrayal of David as an arrogant, condescending Narcissus makes you want to cheer for the Philistine giant.)

It’s always all about politics, and if the politics of denying progress on trade negotiations pays higher dividends to the participating politicians than the politics of bringing home a deal, then no deal will happen.  With each criticism or rejection of a U.S. or European offer, Nath’s political standing at home moves up a notch. He’s tapped into a post-colonial nationalism (southism, really) that has gained confidence with the emergence of his and other developing-country economies, and is energized by the thrill of seeing the West get its comeuppance.

Nath will continue to play this card because he doesn’t believe that India needs a Doha deal. Or, more aptly, he knows there is greater opposition (political cost) to securing a comprehensive Doha deal (which would require India to “lock in” the tariff liberalization it has undertaken unilaterally over the past several years) than there is demand in India (political benefit) for liberalization abroad. The Indian economy has grown handsomely this decade, which is reflected in the prideful attitudes of its political leaders (nevermind the fact that 300 million Indians still live on less then $1 per day).

To compound the problem this has created for the negotiations (which requires consensus from 153 members to reach agreement), since Cancun India has been speaking for most developing countries (and certainly the least developed countries). Thus, Nath’s hard line has become the hard line of 80 percent of the WTO delegations.

The belief that rich-country trade barriers are a primary cause of poor-country poverty, and that poor-country barriers are needed to overcome poverty, remains prominent in developing countries. But what would happen if there were no rich-country barriers, yet poverty remained? How would the politicians explain continued poverty in the absence of repressive rich-country barriers?

Losing the capacity to scapegoat external forces would be another big cost to developing country politicians, like Nath.

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