Bottom Up or Upside Down, It’s Still More Government

Yesterday I attended the Governor’s Bottom-Up Economic Development Initiative Regional Meeting.  These meetings are part of the executive order Hickenlooper signed on his inauguration day.  His plan is to “to engage Coloradans across the state in

developing a comprehensive and collaborative approach to economic development.” Information from regional meetings and County subgroups will be used to create this new plan.

I was disturbed that so many in attendance have "swallowed the kool-aid", believing that government can craft the right program to get the economy moving and put people back to work.  Any attempt by government to incentivize business is a burden that must be borne by taxpayers, and a comparative disadvantage to the businesses that don't qualify for the incentives.

The Mayor of Commerce City (Paul Natale) boasted that they appoint a person to help any large business that's moving to their city, a single point of contact between that business and the city to facilitate the move. But what are the chances that a smaller business would get that same assistance?  The businesses that drive the economy and offer the most employment are the small, less glamorous businesses. One thousand sole proprietors that each hire one person creates more jobs than a relocated company with 500 employees. And the sole proprietor doesn't show up in any statistics. Making it easy for people to start small businesses by removing barriers can have a far greater impact on employment and the creation of wealth.

Natale also wanted protection (tariffs?) for the concrete pipe companies in Commerce City.  Apparently there's a move afoot to change regulations to specify plastic pipe instead of concrete in public works projects.  This is foolishness all the way around.  Protectionism always harms the consumer (the taxpayer in this case).  And regulations that specify a particular product (rather than performance criteria) invite more governmental favoritism and corruption.

There were lots of ideas about government programs to educate businesses. Really? Perhaps the people who run the Post Office, Medicaid, Medicare, Social Security, etc. can teach us what they know.

Someone wanted to raise the gas tax to fund transportation.  I'm always amazed at the people who believe that if you come up with a new way to tax, it will somehow create new money to be taxed.  It's as if consumers are saving money under their cushions until someone comes up with the right way to pry it out.  Gas taxes are the best way to ensure that the users of roads are the ones who pay for the roads. But if gas taxes are raised, there must be a commensurate decrease in other taxes, or it will further dampen economic growth.

Someone trotted out the common belief that the key to prosperity is to fund higher education. Adams County apparently doesn't have enough college graduates.  The belief is that if we have more college graduates sitting around waiting for jobs, companies will relocate here.  I would contend that companies will relocate here if they see a comparative business advantage, meaning less government intrusion and taxation and more stability in regulations.  Then those businesses will attract the people they need to staff the company.  The main reason to improve higher education in Colorado is so that parents don't have to ship their kids out of state to get a good education.   That's not a bad thing, but let's be honest about it.

One gentleman thought we should have a government agency that businesses could contact to keep abreast of government changes that might affect them.  I believe it's a sad day when our business environment is so volatile because of government that we have to have an agency to help us track the changes.

Someone suggested that the Governor should personally know the CEOs of the top 100 Colorado employers. Can you imagine that weekly phone call from Hick to Mr. Big?  Do you think either will care that Hick generally cannot help Mr. Big’s company without taking from the taxpayers, or putting competing companies at a comparative disadvantage?

Although everyone acknowledged the need to cut red tape, very few specific ideas came up.  It's such a huge task that few know where to begin.  Perhaps it’s also because the government representatives in attendance don't experience the red tape problem.  Remember that the first red tape Hickenlooper cut was for brewers, a problem of which he has first hand knowledge.

This whole fiasco is a classic example of the grand conceit of those who think they can plan our economy.  A room mostly full of government representatives trying to decide how best to "create jobs".  Business people attend because "if you aren't at the table, you're on the menu". TIFs, programs, agencies, enterprise zones, tariffs, incentives, and on and on.  It all adds up to favoritism for the businesses that government approves, and taxpayers foot the bill.

  

Remember what happens when you bend over and grab your ankles - you are Bottom Up. An appropriate name for this misguided attempt to create jobs.

The "New Energy Economy"

This year’s legislature has seen a whole slew of bills that would subsidize the “New Energy Economy”, Governor Bill Ritter’s legacy and proudest accomplishment.  Government believes it needs to nurture this fledgling industry until it develops the technology to power our economy.  Unfortunately, this approach rarely works.  When it does, it can be attributed to coincidence or a “lucky guess” by the government.  That’s far more credible than believing that government has the wisdom, foresight, or knowledge to understand which industries are worthy of coddling, and just how best to coddle them.

Subsidies create dependence.  Once an industry begins to receive a subsidy, it will continue to clamor for that subsidy. The industry will howl about its destruction and the loss of jobs without the subsidy.  Witness the recent solar industry furor over Xcel Energy’s plan to reduce its subsidies. This brief video demonstrates the faulty reasoning behind these subsidies, while giving an entertaining look at how reason will not sway a liberal bent on coercing us all to live a green life.

Studies have shown that the “New Energy Economy” in Europe, where they have been coddling much longer than we have, has resulted in the loss of 2 – 4 jobs for every green job created.

Here is a partial list of green bills that have come to the legislature this session:

HB 11-1132 – On-Bill Energy Efficiency Improvement Financing - killed by House Transportation.  This bill would have allowed utilities to provide financing for energy efficiency improvements to private properties. A bad idea considering the foreclosure rate.  Ratepayers will be left holding the bag if a recipient of this subsidy can’t pay its bills.

HB 11-1160 – Governor’s Energy Office Green Building Incentive Program – Passed the house.  Gives money to certain new home buyers for energy efficiency improvements to their current inefficient homes.

HB 11-1170 – Extend Credit for Alternate Fuel Facilities – Passed Natural Resources committee, referred to Finance.  Provides tax credits for up to 20% of the cost to build or buy a facility for fueling vehicles with alternate fuels.

HB 11-1228 – Economic Development Through Distributed Generation – killed by natural Resources Committee.  Commissions a study to determine economic benefits of feed-in tariffs, a major cause of the collapse of the solar industry in Spain.

HB 11-1255 – Colorado Alternative Energy Park Act – Introduced, assigned to finance, hearing scheduled March 24.  Uses Tax Increment Financing and other tax incentives to subsidize alternative (green) energy. Even requires that transportation for the park be “energy efficient”.

SB 11-032 – On-Bill Financing Program for Energy Cost Savings – Assigned to Natural Resources. Similar to HB 1132, allowing utilities to provide financing for energy efficiency improvements to private properties.

SB 11-047 – Bioscience and Clean Technology Reinvestment – Passed Business, Labor and Technology, referred to Appropriations.  Provides grants for bioscience and clean technology research.  Claims that such funding has been beneficial for Colorado’s economy.

SB 11-130 – Transparency Building Energy Performance – Assigned to Natural Resources.  Requires utilities to monitor and report energy consumption by all commercial buildings to the EPA.  This is clearly invasion of privacy and a step toward EPA regulation of all energy consumption.

SB 11-131 – Colorado Smart Grid Task Force Recommendations – killed by Natural Resources.  Moves Colorado toward implementation of a “smart grid”, which can eventually be used to restrict consumer use of power.  Also integrates “feed-in tariffs”, which will require ratepayers to pay cost plus a profit to every alternative energy supplier, regardless of efficiency or cost.

Budget Shortfall - Fact or Fiction?

From December to March, Colorado’s budget forecast for the general fund increased by over half a billion dollars, substantially shrinking that $1.2 billion budget shortfall we’ve all heard so much about. That’s good news.  But here’s the dirty little secret:  The budget shortfall is a fiction. 

The budget for the current year (2010-11) is $7.1 billion.  We’re told that the legislature closed a $350 million shortfall.  Yet the budget for 2009-10 was $6.3 billion. That’s an increase of $800 million.

The budget forecast for next year as of last December was $7.1 billion, the same as the current year. Does that sound like a $1.2 billion shortfall?  And the updated forecast, released yesterday, predicts less than half of that shortfall.  Total budget forecast: $7.1 billion, the same amount that predicted the $1.2 billion shortfall. Huh?

Let’s do the math.  If the budget in the current year is $7.1 billion, and we anticipate a $600 million shortfall next year, what is the anticipated budget for next year? $6.5 billion, right?  Not in the world of government budgetary mathematics.

Now it may be that I don’t understand the budget. As far as I can tell, neither do the legislators.  They haven’t been able to explain how the shortfall number is calculated, and have only raised more questions when they tried.  I’ve talked to Henry Sobanet, Governor Hickenlooper’s budget director and one of the foremost experts regarding the state budget.  He provided far more insight than anyone I’ve talked to about the state budget.  Yet he could not explain the budget shortfall in a way that mere mortals could comprehend.

And therein lies the danger.  Despite the good news about the budget, the steady drumbeat about the shortfall will continue and get louder. And we’ll be asked to approve new taxes. What do you suppose are the chances that anyone will tell us how they arrived at that number? Don’t you think they should be able to prove the numbers before they ask us to satisfy the rapacious government appetite for that which does not belong to them?

Even if there are real numbers behind what appears to be fiction, shouldn’t we all be on the same page? If “shortfall” means something entirely different to you and me than it does to the general assembly, shouldn’t we reconcile terms before we hand over more money?

Unemployment is at a record high in Colorado.  People are struggling to keep food on the table, heat their homes, and put gas in their cars.  There are families that can’t afford to pay 30 cents a day to have schools feed breakfast to their children. Raising sales taxes will hurt those families the most.  Raising income taxes will hinder job creation by diverting more money from the productive private sector to the unproductive government sector.

We understand the harm that will come from raising taxes.  Shouldn’t we have a similar understanding of the supposed harm of not raising taxes?  Show us how a shortfall number is calculated!