My great thanks to Sebastian Arcelus, who plays Lucas Goodwin on the Netflix monster hit series “House of Cards”, for coming on “Manzi in the Morning” this week on WCAP, 980 on your am dial. We had an opportunity to talk about him, the series, and some very interesting projects he is involved in as a filmmaker and actor. The podcast is below in case you missed it.
With House Speaker Bob Deleo talking about whittling down the Governor’s tax plan, and separating component parts by filing a separate, soon to come transportation bill, there is much speculation on how the Speaker might fund budgetary increases for transportation. The Speaker has indicated that he has issues with an income tax increase so the question comes as to what he might utilize to achieve the necessary revenue increase? Without the income tax there seems to be no where else to turn but to the gas tax.
On the question of what is actually needed for revenue the Governor is talking about $1 billion for transportation. Based on the Speakers comments I made the “guess-estimate” of between $500 and $750 million. Now comes forward Michael Widmer, who gave testimony to the Legislature in which he said that $800 million might do the trick. Widmer arrived at his estimate by looking at the absolutely necessary items mentioned by the Speaker (MBTA deficit, removing DOT employees from the capital budget) along with some additional local funding for regional transit authorities (and forward funding for them) and an increase in Chapter 90. From the State House News Service:
According to Widmer, the $800 million would cover debt-relief for the MBTA; forward-funding and a 50 percent increase for the regional transit authorities; a transfer of all the MBTA and Massachusetts Department of Transportation employees off of the debt-financed capital budget; support for “an ambitious statewide capital program” of roads, bridges and public transit; a $100 million increase of so-called Chapter 90 local road funding; and the devotion of 20 percent of the capital budget to “expansions” and “enhancements.”
With the Speaker eschewing the income tax and looking to get to his revenue number through “user fees” it is fairly clear that the gas tax would have to be in the mix. Widmer talked about how much of an increase would be needed to get to $800 million.
Widmer specifically proposed a phased-in 15-cent increase to the 21-cent gas tax, combined with inflation adjustments to fees and fares, which he said would generate $821 million by 2017. Patrick has singled out the idea of a 15-cent increase in the gas tax as an inadequate fix that he said would force drivers to bear the brunt of the costs.
Widmer said an alternative would be to increase the gas tax by 3 cents per year for three years, while making steeper increases in fees and fares.
My guess is that the lower gas tax would create a politically unpalatable level of rate and fee hikes, with the phased in 15-cent gas tax increase the more likely option of the two, if that ends up being the vehicle chosen by Speaker Deleo.
The push-back from the Governor has been strong, with Transportation Secretary Davies calling for the entire $1 billion that the Governor filed for:
On the spending side, Transportation Secretary Richard Davey said that the Massachusetts Department of Transportation has saved $500 million on efficiencies since the 2009 transportation reform, and said that the MBTA has the lowest overhead of the country’s top-20 transit agencies.
“I don’t think there’s a lot of low hanging fruit left,” Davey said, though he singled out The Ride as a service where efficiencies could be found.
House Transportation Chairman William Straus (D-Mattapoisett) tried and failed to extract a lower revenue number from Davey, asking him, “What’s the level of spending that satisfies the core mission?”
“There are a lot of expansion projects that are not on this list that folks desire,” Davey said in his reply, noting that the so-called “urban ring” of public transit around Metro Boston and the rail connection between North and South stations did not make the cut.
Davey said the money would bring down the percentage of structurally deficient bridges from 8 or 9 percent down to 5 percent, which is manageable, and moving employees off the debt-funded capital budget would free up $250 million for construction projects. While noting changes can be made to project lists, Davey said the administration had worked hard to “whittle down” the transportation plan.
“I was anticipating that was the best I was going to do,” Straus said.
One transportation activist warned lawmakers against under-funding transportation.
“The MassDOT plan has been called ambitious. We do not see it so. As I said before, 91 percent of it is just to fix what we’ve ignored. Truly ambitious plans are like the interstate highway system of the ’50s, or the Boston transportation plan. We’re not talking about that. We’re talking about just a handful of needed and long-ignored priorities,” said Kristina Egan, director of Transportation for Massachusetts. She said, “Don’t be tempted to just build half a bridge or give us half a track. We need to have a whole transportation system.”
To bring the matter into sharper focus the Governor filed a transportation bond bill that puts the projects he prioritized in his budget to the fore, including the Green Line extension, South Coast rail, and the South Station expansion. When asked if the $800 million figure mentioned by Widmer would be sufficient the Governor advocated for the larger package:
“When folks say $800 million, I say show me what you’re talking about spending with that $800 million. What do the people of the Commonwealth get? So far, the only plan on the table is mine,” Patrick said, the bond bill filed later in the day bringing that statement into sharper clarity.
As I have said repeatedly since the Governor filed his package this will not be a simple exercise for the Legislature. Even members that are solidly anti-tax will be faced with diminished infrastructure spending, including the potential elimination of some projects that have wide support, if the revenue package produced is substantially less than the Governor’s recommendation. The Governor is forcing some hard choices on the Legislature, where hard choices are held in the same regard as leprosy.
My original prediction of between $500 million and $750 million still stands, with the amendment that it will be funded with a gas tax increase of 15-cents, (or less if the revenue package is smaller), with fare increases that are put on auto-pilot. Tough choices indeed.
Tomorrow will bring us the second broadcast of “Manzi in the Morning” on WCAP 980 am, starting at 10:00 am. I am delighted to be interviewing Sebastian Arcelus, who plays Washington Herald editor Lucas Goodwin in the Netflix series “House of Cards”. I have seen all 13 episodes on Netflix, and look forward to the second season. The series is really a revolutionary change in the way Americans watch TV, and it looks like with this success companies like Netflix will produce more original programming, and possibly hasten the day when consumers are free to (gasp) abandon their cable hookup. Amazon appears to be moving towards original content delivered via the internet, another major player willing to take on the networks and the cable providers.
Of course the success of this series is not guaranteed for future efforts. The quality of this programming is terrific, with Kevin Spacey’s portrayal of Majority Whip Frank Underwood a tour de force. Netflix is spending liberally, with production values the same or better than those found on network or cable programming. Is it time to start selling the stock of the networks short? Not only is new programming coming from the internet, but cable shows like AMC’s “The Walking Dead” are routinely beating the networks in their time slots. A new wave in TV being led by Netflix, and a terrific show that you should check out in “House of Cards.” Have a question about the show you want me to ask? Post it here, or drop it to me via Twitter @billmanzi, or by email at billmanzi1@comcast.net. I will try to ask it. Tune in tomorrow at 10:00 am for some insight into “House of Cards.”
Sebastian Arcelus as Lucas Goodwin in House of Cards on Netflix.
Detroit’s problems have been a long time in the making. Detroit has experienced severe population loss, going from 1,850,000 residents in 1950 to 714,000 in 2010. Property values have plunged, wide swarths of the City are vacant, with declining revenues constraining the ability to deliver services. In addition Detroit has been subjected to serious cuts in aid from the State of Michigan, which has had its own serious financial issues. The fiscal issues have been boiling for some time, with the City in the grip of a fiscal death spiral, with cuts to the budget leading to less services, more problems, and then more cuts. But the reality is that the locals have turned in, from my distant vantage point, an abysmal performance. No matter the municipality, no matter how bad the fiscal situation, there is always a very strong political force advocating no change to the status quo. No different here. The locals have turned to budgeting tricks that are transparently bad, and have created the showdown with state government. There is no question that state government is not entirely blameless here, but the locals have not been profiles in courage. The state report that led the Governor to issue his call for an emergency manager shows us some of the ugly truth in Detroit’s budget numbers. Some of the lack of local action was highlighted by the State, in the prior mentioned report:
For example, for the year ending June 30, 2010, the human resources apprentice training program exceeded its budget by over $2.3 million, the insurance premium line item exceeded its budget by over $12 million, and the police operations line item exceeded its budget by $15.8 million. Consequently, the general fund had line items that exceeded budgeted amounts, in the aggregate, by almost $58 million. Unaudited 2011 figures indicated that line items amounting to $97 million exceeded their budget, including an excess of $25 million for fire and $44 million for police.
A couple of quick notes: The City appears to have routinely allowed budgeted allocations to be overrun by Departments. They also have included revenue estimates that are largely fictitious. And as annual deficits pile up the corrective action taken has been to simply borrow the funds to paper over the budgets. Not a good idea. Lets look at some of the annual deficits, and the corresponding borrowing:
I don’t care what Party you represent those are not only some bad numbers, but some terrifically bad financial practices. Using capital borrowing to paper over operating deficits is as bad of a budgeting practice as there is.And those operating deficits are pretty hefty, indicating that fair or not budget adjustments MUST be made. In this case either the locals do it, or the State will do it for them. What did the City propose?
The City’s deficit elimination plans and proposed budgets proved to be unrealistic. City officials either had been incapable or unwilling to manage the finances of the City. For example, the 2008 fiscal year deficit elimination plan reported $58 million in expenditure reductions in the general fund and $69 million (excluding debt proceeds and revenue sharing) in revenue enhancements for 2010. However, the 2010 general fund balance ended in a deficit condition of over $155 million and would have been much greater if not for $250 million in new debt. Again, the 2009 deficit elimination plan certified in November of 2010 projected a 2011 surplus while the actual fund balance for the general fund ended with a deficit estimated at close to $200 million. City officials had promised restructuring and consolidation, including hiring freezes and improved tax collection. Finally in mid-2011, City officials submitted a deficit elimination plan for the 2010 deficit which included revenue initiatives of over $200 million and expenditure reductions of over $300 million, most of which were to take place in future periods and were
questionable, such $10 million from selling Windsor tunnel rights and $50 million in improved income tax collections. One version of the deficit elimination plan estimated that the City would be able to realize an additional $154 million annually from collecting income taxes from residents who work outside the City. Projected expenditure reductions relied heavily upon union concessions which had not historically materialized.
I realize that the City has a different point of view than the State, but those facts are pretty damning. What about the City’s bond rating? Not much good news there either. They have fallen below BBB, which is junk status.
Nov 28 (Reuters) – Moody’s Investors Service lowered Detroit’s debt ratings deeper into junk territory on Wednesday and warned there was a higher risk the cash-strapped city could default on bonds or file for bankruptcy.
The credit rating agency, which placed Detroit on review for possible downgrades in June, assigned a negative outlook to the lowered ratings, citing “the rising possibility that the city could file for bankruptcy or default on an obligation over the next 12 to 24 months.”
Moody’s also pointed out that oversight of the city’s finances by the state of Michigan was weakened when voters earlier this month repealed a 2011 law that beefed up the state’s power to aid financially struggling local governments.
Another factor playing into Detroit’s rating woes is its “ongoing inability to implement reforms necessary to regain financial stability,” Moody’s said.
Detroit’s city council has resisted certain reform measures supported by Mayor Dave Bing, state officials and an oversight board. Last week, the nine-member council rejected a contract with law firm Miller Canfield to work on the city’s financial stability deal with the state, which had set the contract as one of the goals Detroit must meet to obtain a $10 million cash infusion this month.
Bing subsequently said the city, which was on track to run out of money by the end of December, would turn to unpaid temporary leaves for workers and other cuts to stop that from happening.
All of that borrowing to pay day to day expenses has of course left the City with a major debt problem. Debt service payments, in 2010, were $597 million, and long term debt, not including unfunded pension and OPEB obligations, total over $8 billion. I dare say that the data show that the Mayor and the City Council have to take some share in the responsibility for not coming forward with a short term stabilization plan, as well as a longer term recovery plan that would include major economic development and growth. I have given short shrift to the City’s position because even with cuts in state aid and some of the other problems involved they could have, and should have, done a better job.
Detroit presents the Governor with a unique set of governance challenges. Taking away responsibility from elected officials, even where some level of malfeasance has been shown, is a serious matter. It is, by definition, undemocratic. Detroit has a resurgent auto industry, and a few other positives to build on. Success will be difficult, but not impossible. Working for an Emergency Manager in Detroit, to produce positive results for the City and its residents, would be a unique opportunity for anyone that loves municipal management. As the state looks to impose financial controls on the City the ball is in the Governor’s court to produce a plan that just does not slash and burn, but produces economic growth and opportunity for Detroit and its people.
Addendum: Today’s New York Times had a story on the poor financial condition of Detroit that reflects on the poor performance of the locals.
Congressman Steve Lynch and Congressman Ed Markey are making a joint appearance at SEIU this morning in Dorchester. The live feed of that event is here.
The third installment of the first “Manzi in the Morning” on WCAP 980 AM had Methuen City Councilor Jamie Atkinson on the show. Councilor Atkinson announced that he is a candidate for re-election, and talked about some of the important issues facing Methuen, including Information Technology. Thanks to Councilor Atkinson for taking the time to call into the show.
Rep. Diana DiZoglio joins the show for some conversation on the state budget, local aid, and the feedback she is getting from constituents on the Governor’s tax proposals. My thanks to Rep. DiZoglio for taking time out of her busy schedule to come on the show, and I look forward to having her on to discuss the many important issues this session of the Legislature will be dealing with.
Governor Deval Patrick has put out a very ambitious agenda for his last two years, with a centerpiece being his proposal to raise $1.9 billion in additional revenue to bring new resources to education and transportation. With Speaker Robert Deleo refusing to take his traditional “no new taxes” pledge and the transportation system buckling under a severe financial burden the time does look right for some deal on revenues. The Speaker appeared “On the Record” this past weekend, and certainly seemed to throw some cold water on the expansive plans of Governor Patrick. The Speaker pointed to the two obvious holes in the transportation budget: the annual deficit at the MBTA, and the financing of the Department of Transportation workforce via the capital budget. He pegged those two combined as being in the $400 million range, saying they needed to be dealt with. He did leave a bit of room for some additional finance beyond that, and although he did not specify I would venture to guess he would allow some growth in local infrastructure assistance.
The Governor has not simply laid out a standard tax package. It has a lot of moving parts, and rather than trying to just deal with ongoing transportation deficiencies the Governor has put forward a package large enough to finance projects long talked about, but stalled due to lack of financing. What are they? South Coast Rail at $1.8 billion, Green Line Extension at $674 million, South Station Expansion at $850 million, a Boston-Springfield rail connection at $364 million, and several other projects. I still believe that the Governor’s proposal manages to flush these transportation issues out, with no funding meaning no projects. We have traditionally managed to do big infrastructure projects without worrying either about construction costs, or ongoing maintenance. As I see it the Governor, at least on the construction cost side, is saying to the Legislature that hard finance choices need to be made. The Speaker seems ready to do just that. In addition to his appearance on OTR he spoke today to the Greater Boston Chamber of Commerce, where the State House News Service reports he will say:
“I’m worried that the administration’s proposal places too heavy a burden on working families and businesses struggling to survive. We want to minimize the pressure on Massachusetts citizens as we find ways to meet our goals. If we are to pass a new revenue package, I believe it should be far more narrow in scope and of a significantly smaller size,” DeLeo plans to say.
Significantly the Speaker looks to be ready to undo the Gordian Knot developed by the Governor by separating a transportation finance package from the rest of the budget, and bringing that forward in advance of the House Ways and Means proposal.
The House appears to be moving toward addressing transportation financing with separate legislation ahead of the April 10 release of the House Ways and Means budget, a path that would require details of the House revenue plan to be released very soon.
Just based on his comments I would be willing to guess that a transportation finance package worth about $500-$750 million will be coming forward. He needs $450 million to just solve existing problems, and a bit of growth beyond that (forward funding for regional transit, Chapter 90) should bump that number a bit. But it will not solve all of the transportation issues facing the State. Where will the money come from, if not from an income tax hike?
It appears as though the Speaker will be looking towards some additional “user fees”, which could be additional fare and fee hikes on users. Will all revenue increases come from “users”? Hard to see how that is possible, but we will have to stay tuned. For now it looks like the Governor can expect a substantially downsized revenue package from the Speaker.
I was very happy to debut a new morning radio show on WCAP, 980 on your am dial, that we are calling “Manzi in the Morning”. My thanks to News Director Todd Robbins, who hung out with me and helped me through, and to my pal Teddy Panos, who has been so kind to me. Of course special thanks to Sam Poulten, who has entrusted me on his airwaves.
Our first guest was Daniel Barrick, Deputy Director of the New Hampshire Center for Public Policy Studies, who was good enough to come on to discuss the new study by the Center on the potential impacts of casino gaming in New Hampshire. We talked jobs, the social costs of gaming and how it relates to the ultimate financial impact on the state, the investment called for by the legislation, and when New Hampshire could realistically expect to realize operational tax revenue from current casino legislation. I did a post on that study just a couple of days ago. The study itself is, in my view, quality work that uses the best data available to assist policy makers as they contemplate this issue in New Hampshire. We will continue to follow this story as casino legislation works its way through the New Hampshire Legislature, and look forward to some additional conversations with the folks at the New Hampshire Center for Public Policy Studies.
Well the sequester has hit and no major disaster has occurred. As those of you that read the blog know I have been very critical of Republicans for their no compromise position on fiscal issues. They continue to warrant that criticism, but there are some signs that the Republican glacier like opposition to any new revenues may be beginning to thaw.
Since I have been so hard on Republicans let me take a moment to issue a little criticism to the Democrats. It has been very clear to me that the Republicans were not willing to negotiate any changes to the sequester. On January 8th I posted my prediction that the sequestration, as written, and including defense, would take effect. The idea that Republicans could be moved on that issue was ridiculous on its face. Does that Republican intransigence mean that Democrats should give way? No, I do not believe so. But certainly it appeared to me that the Administration was unprepared for the sequestration end game. The President seemed genuinely surprised that an outside campaign did not work to change Republican votes. If he was surprised by that I can tell you he is in for a rough year. The Administration messaging on sequestration was also, frankly, a mess, with the President himself contradicting earlier Administration predictions of doom by saying that sequestration would not “be an apocalypse.”
The truth of the matter is that a sequestration fix would have been a terrible vehicle to use to close tax loopholes, which is what the President sought. I felt the same way when Speaker Boehner tried to introduce the “closing of loopholes” as a way to raise revenues during the debt ceiling crisis so he could avoid marginal rate hikes for top earners. The closing of loopholes and tax reform should be used as part of a “grand bargain” that may still be possible, despite all the childish behavior that has occurred in Washington. You could raise another $600 to $900 billion in revenues while striking a deal on entitlement reform that could bring Republicans to the deal. Think I am crazy? Listen to Republican Senator Kelly Ayotte of New Hampshire, who broached the possibility on “This Week” in the below attached clip.
If the Republicans took the position that revenues are on the table, but drive a hard bargain (for example the Ayotte demand that new revenue be used exclusively for deficit reduction)they could eliminate much of the upfront criticism. There are going to be serious disagreements even after the Republicans put revenues on the table, but the idea is that real negotiations can begin on solutions that can only happen in a bipartisan way. The Ayotte position is likely the result of the defense cuts contained in the sequester, as her, Lindsay Graham, and John McCain remain strongly opposed to defense reductions. Without a grand bargain the three amigos better get used to even further reductions in defense spending. Maybe the sequester will provide the impetus for real negotiations.
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