Winning the Battle, Losing the War: Part I

The current political dispute between Wisconsin Governor Scott Walker and the state’s public employee unions is the first battle in a struggle that will dominate the public policy arena at all levels of government in the next 10 years -- how to pay for public employee retirement benefits, what role public employee unions will play delivering government services and their role in the future of the Democratic Party.

I seek to explore these ideas in a series of forthcoming posts. My initial post will cover the cost of retirement benefits to state and local governments (SLGs). Future posts will cover what Walter Russell Mead calls the blue model, the problems of federal deficit spending and the how these disputes will change the political environment of America. Although I expect battles between Republican governors and public employee unions to energize the base of the Democratic Party in the 2012 elections, helping Obama secure his second term, the core public policies in dispute threatens to tear apart the Democratic Party – and will force a substantial political realignment.

Pensions & Unfunded Liabilities

Unlike the federal government, every state in the union (except for Vermont) has a legal requirement of a balanced budget. Although this can be offset in deficit years by relying on the bond market to cover shortfalls SLG’s don’t have the luxury of printing the world’s reserve currency to keep interest rates low, much less pay back the loans.

The wretched standing of SLG budgets has been a victim of the Great Recession. California alone saw revenues fall from $103 billion in 2007-08 to $83 billion in 2008-2009, and will only recover to an expected $94 billion in 2010-11. Revenue figures will improve as our nation’s economic recovery continues. Nevertheless, larger budget problems have been exposed during the crisis and loom ominously in the future.

Rather remarkably, the money discussed in the Troubled Asset Relief Program (TARP) is just a mere fraction compared to the amount of money needed to right SLG pension obligations. Originally estimated to cost taxpayers $300 billion, recent Congressional Budget Office (CBO) figures estimated TARP will end up costing taxpayers $25 billion. This does not include bailing out Fannie and Freddie Mac, which has cost $153 billion so far with the potential of an addition $68-$210 billion needed by 2013.

Estimates on the unfunded liabilities of the states vary. The Pew Center recently estimated the total to be $1 trillion at the end of fiscal year 2008, yet this study used the accounting standards of state pension boards. Using standards required by the private sector the total could be as much as $3 trillion – and this doesn’t even include local governments! These unfunded liabilities has been recognized from figures across the political spectrum, from Reason to the Heritage Foundation to Washington Post progressive pundit Ezra Klein.

As the daunting dilemma has revealed itself investors and public officials have taken notice. Moody’s, the rating agency that rated junk housing derivates as AAA, recently announced they would factor in pension obligations into their credit ratings – even though these figures are not listed on their audited financial statements. This will certainly lower state credit ratings, increase interest rates on state issued debt and augment the strain placed on state budgets. An additional long term issue SLGs will have to confront is increasing health care costs for retired employees; not only will the number of retirees increase, so has the inflation rate for health care.

The same New York Times article linked above revealed states already have $2.8 trillion worth of outstanding bonds. This set of financial realities doesn’t paint an appealing picture for the future of state government budgets.

What in the World to Do?

Reserve Chairman Ben Bernanke: "We have no expectation or intention to get involved in state and local finance.” The states "should not expect loans from the Fed."

Felix Rohatyn, the longtime advisor to the Democratic Party and legendary financier who helped save New York City from bankruptcy in the 1970’s, recently told the New York Times “it seems to me that crying wolf is probably a good thing to do at this point.”

Former Los Angeles Mayor Richard Riordan: “throughout the country, 90 percent of cities and states are going to go bankrupt within the next five years, many of them sooner.”

SLGs are looking at financial armageddon in the next 10 years and the Fed won’t bail them out. What we are about to witness is best describe by astrophysicists as an “Impact Event.” The governance and political alliance structure of SLGs will never be the same after the dust settles.

Losing the 60th Seat

Imagine if the ghost of Election Future told Teddy the day after the '08 election that he would die soon and that the fate of health care reform depended on the results of the special election to replace him. I'm quite sure the lion of the Senate would've slammed down a scotch in celebration (or equivalent)!

It is absolutely remarkable how the Democrats have revived a completely disorganized, dysfunctional political party. It really comes down to the "economy stupid". Three major mistakes were made by the Obama administration and the leadership of the Democratic Party:

1. pushing health care ahead of economic reform, including financial regulation;
2. trusting that Keynesian economics work; and
3. realizing, because of the branding efforts by the Obama Presidential campaign, voters projected their own interpretations of him, and often times with radical different results.

Obama and his campaign made a very conscious effort to prevent the brand of Obama from becoming labeled by traditional political definitions. Although he had a perfect liberal rating as a U.S. Senator and was known for advocating rather liberal beliefs such as expanding the rights of Americans to health care and other social justice issues, he avoided being categorized as a traditional liberal through advocating for a "realist" foreign policy, a more efficient, results oriented approach to government services, charter schools and praising Ronald Reagan.

While this was a brilliant campaign strategy that was incredibly effective, it was extremely vulnerable once public policy was made and the vision of brand Obama was clarified by American voters. This vulnerability was further compounded by, frankly, the arrogance of the Obama administration. We saw this after Iowa, when team Obama was overly confident about New Hampshire. This overconfidence led to numerous mistakes and nearly cost him the nomination.

I would speculate team Obama became enamored of their poll numbers early on and sought to strengthen the depth of positive sentiments towards Obama by continually keeping Obama front and center of the media cycle. What ensued was overexposure. Press conference after press conference, announcement after announcement... it was soon all Obama all the time... even more that it would already naturally be as the first minority President that was the hope of saving the country from the previous administrations seemingly disastrous policies.

Furthermore, this overexposure was compounded by an apparent supreme confidence that his policies would turn around the economy and unemployment rate. This is where mistake #2 enters.

In many ways Obama is extremely fortunate to even be where he is at right now. Imagine if that jihad advocating cat from Nigeria had actually succeeded in blowing up that plane during the holidays. Obama's rating would be in the low 30's and next November would be a complete bloodbath at the polls.

At the end of the day I'm still quiet stunned how Obama managed to destroy so much of the good will he accumulated with the American people.

BusinessWeek Worth $1?

A report out of the Financial Times indicates that McGraw-Hill will essentially be forced to give the venerable news weekly away for free due to BusinessWeek's $77.8 million loss in the first of 2009 and the realities of the print news distribution model.

Palin Leaves Office

To "fight for what is right." Whatever Sarah. Her speech was the most cringing, insincere, bullshit and painful political speech I have EVER heard. I was actually laughing it was so embarrassing -- she made herself out to be the savior of America using horrible public policy puns. Seriously, it sounded like she hired Kim Jung Il's speechwriter.

Whoever is in her political team has consistently given her some of the worst advice I have seen in the modern political era.

American Right Holds It's Own Hostage

Interesting article on CQpolitics online relayed to me yesterday by a friend.

Shortly after Arlen Specter and two other centrist Senate Republicans struck their deal with Democrats and the White House on the economic stimulus package, Specter was approached in the GOP cloakroom by one of his colleagues.

“ ‘Arlen, I’m proud of you,’ ” the second senator said. Specter declined to say who the lawmaker was, but he recounted the rest of their conversation this way: “‘Are you going to vote with me?’ I said. He said, ‘No, I might have a primary.’ And I said, ‘You know very well that I’m going to have a primary.’”

That brief encounter clearly illuminated the position moderates hold in the ranks of the Senate Republicans these days — weighing their ideological inclination to find common cause with President Obama against the political risks and rewards of such dealmaking, both for themselves and for their party.

My friend David Amerikaner narrowed the list down to ten names, all male, up for reelection in 2010: Bennett (UT), Bunning (KY), Burr (NC), Coburn (OK), Crapo (ID), Grassley (IA), Gregg (NH), Isakson (GA), Shelby (AL), Vitter (LA).

Good place to start. I'm going to throw out Bunning (already facing primary challenge) and Coburn (known anti-government activist) off the top of my head. This leaving Bennett, Burr, Crapo, Grassley, Gregg, Isakson, Shelby and Vitter.

Bennett: While I know (from personal experience) politicians do not always believe their own rhetoric, I think this statement from Bennett in a Huffington Post article rules him out:

"We have a very, very clear model, because we passed a stimulus package in the last Congress -- bipartisan. Republicans voted for it. Democrats voted for it. It didn't work," said Sen. Bob Bennett (R-Utah), who led financial-industry bailout negotiations for the GOP.

Bennett argued that the last plan "was based on economic analysis of past recessions and past problems and not the depth and seriousness of this one. We saw personal income spike up as a result of the stimulus we put into the economy, and the economy was stimulated not at all."

For Bennett, the plan failed because high debts and the dire economic outlook persuaded people that they should save their money or pay down loans rather than spend. "When you're having an economic crisis, whether you're a company like General Motors or a bank like Citi or an individual, you do what you can to pay down your debt. That's what was done with the last stimulus package. That's the rational thing to do."

Burr: Not only did Obama win his state, Burr just saw Liddy Dole lose reelection by 9 points. Furthermore, his favorables are under 50 points. However, Burr has not ventured against conservative orthodoxy in his time in the Senate often. I doubt the GOP would want to further weaken an already weak candidate (see Arlen Spector). Plausible candidate.

Crapo: Won 99 percent of the vote in his reelect in 2004. It has been rumored that he's a candidate for GOP leadership in the Senate. Popular back home, doubt anybody takes him on. I'll rule him out.

Grassley: Although he got the Obama Administration to move a $69 billion AMT patch into the stimulus bill, I doubt he is the one in question. A weekend hog farmer who visits all 99 counties in Iowa every year, a viable primary challenge is not in the cards here.

Gregg: Interesting candidate here. Gregg abstained for a cloture vote when deciding on whether to take the Commerce position. That aside, he is popular with conservatives in New Hampshire. Considering the changing dynamics of the state I doubt Gregg is worried about a primary challenge from the right in an open primary system. I'll rule him out.

Isakson: Isakson is fairly conservative but has taken some moderate steps here and there (ie. the bailout and immigration). His ridiculous amendment that would have done little else than put money in realtor's pockets showed he was at least willing to play ball. No primary challenger has announced, yet there have been rumors of it happening. Strong candidate.

Shelby: Originally elected as a Democrat from Alabama to the US Senate. Shelby is now questioning Obama's citizenship (seriously?!?!). Shelby has a $13.4 million war chest (the biggest of any incumbent on the board for 2010). Doubt he is concerned with a primary challenge.

Vitter: Extremely worried about a primary challenge (voted against HRC for State as a result). His track record is ridiculously conservative, so I doubt he would even contemplate voting for the stimulus bill.
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My best guess: Isakson.

On Octo-Mom

My friend Lindsey Horvath recently published an article at the Huffington Post regarding Nadya Suleman (aka Octo-mom). My thoughts below:

I think Miss Suleman has been an easy target for our society at large to blame for being irresponsible. America has been angered at the current state of affairs engulfing our country and our personal lives -- our troops are still in Iraq, the worst financial crisis in 80 years, surging insecurity regarding one's job, etc. -- and while we blame failed politicians, bankers and variuous corporate shenanigans for these massive issues, our search for solutions defies simple explanations.

Thus we turn back to Miss Suleman. Her circumstances are essentially of her own choosing, and has resulted in her own personal government bailout of sorts. While this story would be a media sensation in any news cycle, it has gained greater prominence due to external cultural and economic difficulties.

Anytime a woman decides to bear a child society must support her decision -- not necessarily for the mother's sake but for the child's future. However, I believe a financial test for fertility treatments is not against the goals of feminism, and would actually provide incentives for woman to better gauge if they can provide for a new life's well-being.

In regards to the matters of feminism, I think it is essential for woman's groups to be pushing for greater financial literarcy with women. I'm not sure if this would have helped Miss Suleman all that much, yet -- thanks in large part to the previous generation of feminists -- as women increase their financial earnings they need the tools to empower themselves to be more responsible for the lives of their children, family and their own personal future.

Small, but Needed Step, to Greater Government Transparency

In a significant step towards greater government transparency -- and how our taxpayer dollars are being spent -- the stimulus bill requires government agencies to report disbursed monies via an optional RSS feed.

For each of the near term reporting requirements (major communications, formula block grant allocations, weekly reports) agencies are required to provide a feed (preferred: Atom 1.0, acceptable: RSS) of the information so that content can be delivered via subscription.

Real time reporting of how money is allocated will provide advocate organizations greater ammunition to push for a more effective, productive use of government resources -- and our tax dollars. I fully expect this development to create a few firestorms in the blogging world... which will consequentially be covered by radio, broadcast and print media outlets.

Hat tip: Steve Rubel

The Newspaper are Dead... Long Live the Newspaper

It is no secret the Gray Lady is facing serious financial difficulties. Just 18 months ago The New York Times Co. had a market cap of $2.7 billion -- it is only $542 million today. While the Times motto is "All the News That's Fit to Print", their business model/plan is best summarized by their debt rating -- junk. The Times's financial difficulty is epitomized with the fact a share of the The New York Times Company costs less than the Sunday edition of the New York Times.

Newspapers across the country are facing a similar financial problems. Their content is in demand by consumers -- google major local events and the local print stories almost always appear first -- yet they have lost their monopoly of delivering information on demand (before the Internet one could not pull up a radio interview or TV newscast whenever/where ever one desired).

Warning: Wild Speculation

Perhaps the best business model for the local established media would be for television stations to buy out and merge with local newspapers?

Government litigation/regulation, once again (see federal government anti-trust cases against IBM and Microsft -- it wasn't the litigation that ended their monopolies... it was the firms failure to innovate), has failed to keep up with the technological advances in the marketplace and this time threatens to destroy the 4th estate. If this issue sounds familiar, recall the contentious ideological battles in the last 30 years over the concept of "cross-ownership". The "progressive left" has fought any attempt to lift this restrictions claiming it would place too much media power in too few hands, increase media layoffs and therefore reducing the quality of local news coverage and stiffle local democracy. As Amy Goodman wrote in a 2007 article:

The problem facing Martin and his big media friends isn’t that newspapers are unprofitable; it’s that they are simply not as profitable as they used to be. This is in part because of the Internet. People no longer have to rely on the newspaper to post or read classified ads, for example, with free online outlets like Craigslist.

The media system in the United States is too highly concentrated and serves not the public interest but rather the interests of moguls like Rupert Murdoch and Sumner Redstone, who controls CBS/Viacom. Media corporations that will benefit from Martin’s handout are the same ones that acted as a conveyor belt for the lies of the Bush administration about weapons of mass destruction in Iraq. We need a media that challenges the government, that acts as a fourth estate, not for the state. We need a diverse media. The U.S. Congress has a chance to overrule Martin and the FCC, and to keep the newspaper-broadcast cross-ownership ban in place. It should do so immediately, before the consolidated press leads us into another war.

While I agree it is in the American public interest to have "media that challenges the government, that acts as a fourth estate," I simply do not see any other way to ensure the survival of local media outlets other than consolidation. Two ideas that have raised to address the financial difficulties of local newspapers have been government subsidies (horrible idea for very obvious reasons) and establishing local non-profit trusts (sounds good, yet I doubt this actually works + who is going to subsidize the entities... rich local elite who do not want negative press coverage).

The viability of local news coverage depends on increasing the efficiency with which local news is produced and distributed. Breaking up existing "cross-ownerships" or preventing further consolidation does nothing to address this fundamental reality. The "progressive left" needs to come up with better arguments than demonization of MSM to argue against the repeal of the "cross-ownership" rule and come up with realistic, viable solutions to save local media outlets.

A Possible Solution: Repeal "Cross-Ownership" Regulations

Although my prediction of four daily newspapers by the end of Obama's first term may be a bit aggressive, their is little doubt that an unprecedented number of daily newspapers will cease publication in the next four years. Newspapers have seen their two sources of income (advertising and subscriptions) massacred by the combination of the Internet and recession (esp. the collapse of the real estate and automobile industry). Significant job loses are inevitable. The daily print newspaper model is dead -- and the income from an outlet's Web site is not nearly enough to sustain current news operations.

Consolidation with local TV stations may offer the best opportunity to preserve as much journalistic talent and reporting as possible. Unlike newspapers, local TV stations income stream is far more stable than newspapers. While local TV news broadcasts have seen advertising and audience share drop, their core income stream is far more reliable long-term than print and has not fallen nearly as much.

Like all firms in any sector, newspapers are going to need need to innovate, to adapt -- and many are. Numerous print reporters are already filing video along with the written story to enhance the effectiveness of the piece on the Internet. Local televisions stations are now posting written news stories on the front page of their Web sites without a produced news clip. The delivery mechanism of these two media genres is rapidly merging -- and they are competing with each other for SEO rankings and an increased online readership.

I fear if "cross-ownership" regulations are not removed many daily newspapers will cease publication. The quality of local news coverage will be greater if the remnants of the daily newspaper are allowed to merge with local TV stations than simply go online as a shell of their former selves. In the aggregate local news coverage will be greater if consolidation allows for increased efficiency in news gathering.

The People's Republic of Santa Monica

One would think if you were going to subsidize social services for the homeless and mentally-ill woman you would look to minimize costs not related to the service to maximize outreach. This basic logic apparently does not exist with the public policy makers in the city of Santa Monica.

In 1973 the city purchased a mixed-use building a block away from the Santa Monica pier with ocean views. Since then the building has been used by nonprofits to provide services to the homeless and mentally-ill woman. One would think if the city sold this property they could use the proceeds to find a building that is not in a prime commercial real estate area to increase the center's size and scope of reach. Not in Santa Monica however:

More than 35 years after purchasing a mixed-use building on scenic Ocean Avenue, City Hall is preparing to lease the property for affordable housing.

The City Council is expected tonight to authorize the City Manager to negotiate and execute a lease with OPCC and allocate $100,000 to the nonprofit homeless service provider for architectural, legal and consulting purposes...

City Hall purchased the 19-unit property at 1614-1616 Ocean Ave. in 1973, leasing the rent-controlled spaces to residents and OPCC's Daybreak Day Center, which offers social service programs to homeless and mentally-ill women. About seven units are currently vacant to make way for future building rehabilitation.

Taking the merits of the program aside, is it really in the best interests of taxpayers to be subsidizing ocean front views for the homeless?

Is Santa Monica the only city in the state not to face a budget crisis?

But if You Ask Really, Really Nicely They May Stop!

The federal American government has spent more than $1,500,000,000 in taxpayer dollars since 1996 in abstinence-only until marriage sex education.

On one side of the debate we have Derek Dye the Abstinence Clown (the video is absolutely unreal -- and paid for by your tax dollars!), Sarah Palin and the Pope; on the other side we have the American Psychological Association, the American Medical Association, the National Association of School Psychologists, the Society for Adolescent Medicine, the American College Health Association, the American Academy of Pediatrics and the American Public Health Association. Hmm...

The hypothesis we can "educate" teenagers to go against their fundamental primordial drive is fairly ludicrous to begin with. No surprise then that the evidence reveals abstinence-only sex education fails to reduce teen pregnancy, STD or the proclivity of teenagers to explore their budding sexual desires.

From global warming to the Big Bang (seriously!) to this it is clear science played a back seat to ideology and political gain in the George W. Bush administration.

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Thanks for e-mailing me the Derek Dye the Abstinence Clown story Kaner.