To Assess, or Not to Assess
by Jim Mulcahy
December 13, 2011
Grand Island is considering reassessing all properties next year with the goal of going to an 100% valuation. The State is encouraging all communities to do this. The stated purpose is to make assessments “fair” (my quotes). By fair is meant that everyone’s property will have been valued within the same time frame. For point of reference, the last town-wide assessment on Grand Island was in 1986. With the Seneca Indians lawsuit in the 1990s, 9/11 and the recent property value meltdown the timing hadn’t been propitious to do another, to say the least.
TeaNewYork held a second informational meeting Monday evening, 12/12, at the Library on this issue. A point of confusion, similar to the previous session, was the distinction between tax base, tax rate, and total taxes. Simply put, total taxes (the tax levy or budget) equal the tax base (total assessed valuation) times the tax rate (typically expressed as dollars per thousand of assessed valuation). The tax rate is solved for by dividing the tax levy by the tax base. A doubling of the assessed valuation would cause the tax rate to be halved. The only way for one’s taxes to go up is if the Town Board raised the amount to be collected. That is a completely separate issue.
The town could go to full valuation, 100% assessed values, by multiplying the current assessment by 1/.465 = 2.15 (I believe that .465 is the ratio of our assessments to full value). This would solve the full valuation problem but wouldn’t address the “fairness” problem. The fairness issue arises because new homes, recently sold homes, and homes that have been improved, that is, obtained a building permit, have been assessed since 1986 and their values more closely approximate market values. Homes that are older, haven’t been sold or had any improvements done are assessed using the 1986 valuations. This creates a discrepancy in that the former’s share of the property tax burden is most likely higher than it would be if all properties were re-assessed. Again, it is important to keep in mind that the total taxes to be collected doesn’t change; just the distribution of who pays what. This all holds true whether or not the town goes to full value assessment or whether it keeps to the fractional system.
The question then is should the Town incur the expense of a total re-assessment? I think not. It is my view that the property tax system is irredeemably flawed. (See "Has the Property Tax Outlived its Usefulness?" at http://wnypoliticaleconomy.com/ or http://deepflies.wordpress.com/2010/03/) As such, I believe that we will just replace one set of problems for another, incurring the re-assessment expense for the privilege of doing so. Fairness is in the eyes of the beholder, of course. The issue of someone relocating from NYC, Chicago, SF, or DC and buying a home here is problematic. They could and would bid well above market for places they wanted and still think they had died and gone to real estate heaven compared to their former locales. They will distort the valuations and there is no way around it except to exclude them. Okay, but at what point does one stop excluding? It is necessarily arbitrary. There is the problem of our county taxes. Not all of the other communities have gone to full valuation or recent re-assessments. If we do and there are communities that haven’t the re-assessment will increase our proportion of the county taxes paid by Grand Island.
Further, if the total assessed valuation in the county is now higher, they can spend more proclaiming that the tax rate is being held constant. This is true but again remember that total taxes equal assessed valuation times the tax rate. We will see spending creep up surreptitiously. Not a good thing. Over at the School Board, where we really vote on the tax rate implied by the budget we can expect to see total taxes collected go up. Further, when the revised rates are first introduced we will be subject to their shell game of: “the rates are now lower; that they have decreased X% from last year” (even though they should have decreased even further, if we were to have an apples-to-apples comparison).
In California where rising property values were pauperizing the middle class they passed Proposition 13, officially named the People's Initiative to Limit Property Taxation, in 1978. The ballot measure set real estate property value for tax purposes at 1975–1976 market value, limited real estate taxes to 1 percent of that value, limited tax increases to 2 percent per year for continuing owners, provided for a full reassessed value base for new owners, required a two-thirds vote for legislative revenue increases, and made any local government tax increase dependent upon a two-thirds approval of the local voters. California is a notoriously high tax state but a comparison is instructive. A friend of mine sold his home in Buffalo, in the Delaware Park area, for $900,000 or so. He had been paying $20,000 in property taxes. He moved to California, bought a similarly priced home, and his property taxes are $5,000. What we getting for all of the money the political class siphon from us? While we, on Grand Island, don’t have all of the safeguards that Proposition 13 provides, not re-assessing homes until they are sold comes close. Getting rid of re-assessments when someone improves their home should be instituted immediately.
I think that if the re-assessment was put to a vote, it would fail miserably, as I believe it should. I also believe that a vote to not re-assess when an improvement is done would pass overwhelmingly. It would also increase construction activity, helping employment in the area. If someone believes that their assessment is grossly unfair they can appeal it, as they should. Finally, as I wrote on those websites, the whole concept of property taxes needs to be completely rethought.
Dysfunction Persists in Albany
by Jim Mulcahy
December 11, 2011
Andrew Cuomo’s tenure as an economic realist was shortlived. He buckled under to the squeals for more tax revenue by the panting mobs outside (or inside) the capitol buildings. The mobs were the usual eclectic pairings that have become so commonplace in NY: corporations; self-proclaimed do-gooders; schools; research institutes; cities and towns; and those not elsewhere classified. Cuomo made the mindless statement that it is “fair” that the rich pay more taxes, by which he did not mean that if you make twice as much taxable income as the next guy you should pay twice as much. No, he explicitly said that the tax rate should be higher, that is, the rich should pay more than twice as much. There is no philosophical justification for this, nor is there any empirical justification. Envy and jealousy are the only justifications for the former and neither is an uplifting reason. The Keynesian short-run macro model is the justification for the latter. It has been debunked by Milton Friedman’s work on the consumption function as well as the record of the last 50 years.
Listen to this nonsense: ‘ "Our state government has come together in a bipartisan manner to create jobs, grow our economy and, at the same time, enact a fair tax plan that cuts taxes for the middle class," Cuomo said in a written statement.’ Cutting taxes for the middle class is a euphemism for that’s where the votes are, at least in the near term. Earlier this year the governor was opposed to tax hikes, actually that meant leaving the current surcharge in place, for the rich because of the fear that they would pull up stakes and leave the State. Clearly, some will but it is unlikely to be a stampede. Tom Golisano was a unique situation; he was retired as CEO of Paychex which he had founded, and couldn’t see the justification of paying over $13,000 per day (that is right, per day) in state income taxes. So he decamped to Florida where he pays zero state income taxes.
The problem is that the governor and the legislature don’t understand the dynamics of economies, or don’t care. The rich will do what they have always done when confronted with higher taxes that are expected to be permanent. It isn’t that many will leave the state but that fewer and fewer soon to be rich will set up shop here. Many of the Wall Street activities can be done anywhere these days. Stamford , CT, would be an obvious place. One gets all the advantages of living close to Manhattan, none of the daily hassles, lower taxes, and quicker access to the airports. What is not to like? Further , they will put more of their wealth into activities that avoid taxation or defer it endlessly. This not only reduces tax revenue but it wastes resources.
One of the more the bizarre aspects is that the State is currently running a deficit, which will balloon next year without more revenues. These tax rate modifications lower the tax revenue that can be expected because the lower rates are being cut, reducing revenues by an estimated $690 million. The higher income earners will see their rates stay where they are. While this will increase revenues from where they were expected to be next year it isn’t an increase of this year’s revenue which, in itself, will come up short. Even with these changes revenues are expected to be $2 billion less than needed to balance the budget. The shortfall will be closed with spending cuts to be named later. Don’t hold your breath.
To show how out of touch with reality the folks in Albany are they approved $785.5 million in projects throughout the State. If the projects that were funded in Western NY are at all representative this is far from the best use of taxpayer money. The expenditure is being touted as an economic development stimulus. Where have we heard that before? Quite bluntly, it is not. It gives money to businesses that should finance their own projects. The other expenditures don’t pass the smell test, either. Here are some examples (I’m amazed that the Buffalo News in which this list was published didn’t scream at the inanity of these expenditures) :
Develop a Regional Sustainability Plan for Western NY that will establish a sustainability baseline including inventories of greenhouse gas emissions and energy use. The plan will assess sustainability indicators including economic assets, liabilities and opportunities as well as transportation, land use, and natural resources. The plan's long-term and shortterm goals will address improving energy eciency, promoting renewable energy, and reducing carbon emissions. Once the plan is completed, it is intended to inform municipal land use policies, guide both public and private resource investments in infrastructure, and identify tangible actions to reduce greenhouse gas emissions. $2.8 million (you can’t make this up.)
Replace and repair 24 substandard septic systems and 12 substandard well-water systems in Cattaraugus County, $278,000. (what about those of us who maintain our own septic systems out of own pockets?)
The Southern Tier Extension Railroad Authority will replace approximately 3 miles of rail and 7,000 ties in a 7.5 mile span of railroad between Carrollton, NY and Salamanca, NY. $786,850 (Why should the taxpayers subsidize the railroad?)
This project includes the construction of a hangar for small planes at the Cattaraugus County - Olean Airport. Currently, there is limited space for the storage of general aviation aircraft at the airport. The City has identifed many aircraft owners who have expressed interest in leasing hangar space if it becomes available. These aircraft owners are on a waiting list that has been in place since 2004. $630,000. (It clearly isn’t a priority if they can do without it for 7 years. Why didn’t the airport float a revenue bond to fund it?)
."This project is part of the final phase in the completion of a Grape Discovery Center in Chautauqua County. The Grape Discovery Center will educate visitors about the historic development of the region and the role that grape growing played in the region's cultural landscape and communities. The plan proposes 19 exhibit panels in the Display Room and 14 exhibit displays, free standing and wall mounted, for the reception/gift shop space, as well as exterior exhibits and an orientation pavilion." $200,000 (Why shouldn’t the grape farmers fund this?)
Project will expand production of liquid natural gas fuel tanks for medium and heavy duty trucks due to increased market demand. $1,250,000. (This is to a private corporation. Notice that it is being done due to increased demand. If there truly is increased demand, let the demanders pay for it.)
Train 23 Buffalo employees in critical technical skills for Information Systems sta" with these titles: system engineer, senior system
engineer, developer, system administrator, system operator, telecommunications analyst and network analyst. $49,499. (this is to a publicly traded company that doesn’t need taxpayer assistance.)
The Somerset Railroad Corp. will replace ties on the Gulf Bridge to correct the defective tie condition. This work will allow for emoval of the 10 MPH speed restriction, improve train speeds, and will preserve rail service for coal deliveries to the AES Somerset Generating Plant, near Barker, NY.$164, 900. (Again, why should the taxpayers subsidize private corporations?)
The other projects are even more ludicrous. We continue to subsidize people and projects to the point that they will never be able to fend for themselves; it will become impossible to stop throwing good money after bad; and the largess will be expected.
How many more decades does NY state, and Western NY in particular, have to endure declining economic activity with worse prospects looming? The grand tax bargain Cuomo, Silver, and Skelos (the only three in Albany that matter) fashioned is a recipe for continued decline. Oh sure, some developers and other well-connected individuals will benefit. But at what price? Keeping the State’s public sector unions happy is not leadership. The three men in a room have put another bandaid on the State’s fiscal mess that is just hiding the infection, oozing pus, and gangrene that lies beneath the surface.
The liberal Brennan Center at NYU’s law school has called NY’s government the most dysfunctional in the nation. They proved it once again. Mr. Cuomo doesn’t want to offend the public employees’ unions because they are to be his core constituency for his 2016 presidential bid. He needs to keep in mind that the swill they imbibe East of the Hudson does not travel well, if at all.
The Silly Season Gets Even Sillier
by Jim Mulcahy
October 31, 2011
2011 is one of the worst years imaginable. No, it isn’t that the Yankees fell flat once again in October or that the economy is still in the sewer, it is that election day is the latest that it can legally be. This means we are tormented that much longer with vacuous pieces of paper, TV ads, or robo-calls imploring us to vote for [whomever].
Normally, I go into hibernation about now with a good book, Sabres’ games, or the World Series, as this plague descends upon the long-suffering populace. However, this year the inanity reached heights not seen since the heydays of Chuckie Swannick and Bill Pauley. I am compelled to respond, to save my sanity if nothing else.
By now, all Island residents, including headstones and pets, have received numerous fliers from one Jeremy Zellner; he being the Democratic candidate for the Erie County Legislature. His sole, as far as I can discern, rationale for us to vote for him is that he is going to be a full-time legislator. Huh?!
It is a part-time position. It should be a no-time position but more on that later. Bill Pauley, an original RINO in Amherst if there ever was one, decided being a full-time politician beat doing whatever it was that he did. He did the job full-time, as did Swannick starting a few years later. In his case, it beat working on the railroad (I would have picked the RR.) There are serious consequences to having these folks unilaterally declare these part-time slots full-time ones. They have to justify their existence. As such, they will spend our money trying to make us feel better. As Alexis de Tocqueville said, “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” One can substitute Erie County Legislature for Congress and the quote loses none of its vitality. If it is full-time a couple of things happen: the incumbent ‘s private sector skills atrophy, making it harder to become employable there as time goes on; and he/she will want pay and benefit raises. Once one is elected it becomes a necessity to be re-elected. Please re-read de Tocqueville’s quote for the explanation of what will transpire.
Not only don’t I believe that the legislator’s position should be full-time, I believe it should be eliminated entirely along with that of the County Executive. The county should revert to the Board of Supervisors system. We are already paying for these guys. They don’t have any incentive to squander our money on doofus projects that are nothing but bribes as de Tocqueville so succinctly puts it. We would eliminate a whole layer of totally unproductive government. (How come Kevin Gaughan never thought of this?)
If we can’t in the near-term eliminate the county government structure, let’s keep it as minimal as possible.
Nothing Ever Changes
by Jim Mulcahy
April 26, 2008
Before he unceremoniously left office, Eliot Spitzer had concocted a budget that came up short on revenues to the tune of $4.6 billion, not exactly chump change. The wizards of Albany knew that the revenue projections were, to put it politely, on the generous side. The travails of the investment banking firms have deeply cut into tax revenues. It was stated that last year that the ten largest corporate taxpayers paid $500 million. This year, because of the trading losses, the same ten are expected to pay only $50 million.
With the national economy swooning and the banking industry in the tank one would have thought that the wizards would have seized upon the moment to get the State’s fiscal house in order. Ha! Fat chance. They have never seen an expenditure they didn’t want to increase: Medicaid; schools, you name it. The reality of constraints doesn’t seem to sink into these folks.
So we are now back in the same position of playing charades with revenue sources to get the legally-mandated balanced budget. In the past, Mario Cuomo raided the workmen’s comp. fund on one occasion and, on another, shifted the Erie Canal from the general budget to the Thruway Authority so he could free up millions; currently $80 million. Nelson Rockefeller created all of those off-budget agencies in the 1960s when the voters said no to further taxes. It is clearly a bipartisan effort to destroy New York’s economy.
This year’s fiscal skullduggery includes, I kid you not, a $1.25 per pack increase in the cigarette tax. The wizards said with straight faces that this would raise hundreds of millions of dollars in additional tax revenue. In reality it is the Seneca Nation Relief Act of 2008. More smokers will decide it is worth the trek to Smoking Joe’s and other locations to buy their tax-free cigarettes. Oh, and as long as they are there, they might as well fill up on gas. There are plenty of excellent economists on the staff of the government or at their beck and call who could have, and I’m sure did, tell the wizards of the consequences of their actions. The wizards, though, are so dysfunctional that they are incapable of doing what is best for the health of the State.
Mike Bloomberg, the nanny in residence in NY City, wants a 0.75% increase in the income tax rate on millionaires. This tax is only supposed to last five years – just like the Erie County sales tax increase from 7% to 8%. Bloomberg rationalizes this tax because only 40,000 of the 75,000 taxpayers impacted live in NY. The others live in New Jersey or Connecticut. Hasn’t he figured out that the only thing these folks can’t do in Jersey City or Stamford is go to a great place to eat? Eventually, the restaurants will follow them across state lines. The State not only won’t collect the surcharge but the tax take from these sources will drop to zero. NY State doesn’t have monopoly powers to compel people to live and work here. If they make it too onerous people will leave. As importantly, no one is moving in or will consider setting up shop here.
Sam Hoyt, showing ignorance above and beyond the call of duty, gushed on about the $1.59 million or so additional funding that the wizards are providing for the Grand Island schools. This represents a 9.3 percent increase from the last fiscal year. The school district will receive a record total of $17.79 million in state aid. He made the idiotic statement that this will lessen the tax burden locally. In his own words: Hoyt said, "This is great news for Grand Island's school children. This increase in school aid will help lessen property tax increases and allow the Grand Island schools to continue reforming and enhancing its programs. This increase represents real progress towards providing our schools with the tools and the funding they need to provide our children with the best quality education possible."
The contempt for the intelligence of their constituents is the outstanding feature of our legislators. While shoveling this extra money at the school district may lower the property tax burden (it all depends on whether these funds result in a substitution for funds that would have been raised through the property tax or if they result in higher spending) the expenditure will keep total taxes at the state level higher than they otherwise would be. To think otherwise would imply that he thinks someone in Montana or New Jersey is paying for it. Fees, duties, and other taxes are all being raised at the state level, while mandates are being crammed down onto the counties. The school districts may not have to raise, and be held accountable for, as much of the funds that they spend but the tax burden has not been reduced, but only shifted from the right pocket to the left.
Unfortunately, the ignorance doesn’t stop there: ‘Hoyt commented, "The legislature worked hard under extreme circumstances to pass a budget that stabilizes school taxes for the residents of Grand Island. This will allow our educators to focus on what's really important for the children of Grand Island and that's educating our children."’ Here is our very own font of financial misunderstanding: ‘Mr. Christmann concluded, "As a result of Assemblyman Hoyt's hard work, we were able to maintain programs in the Grand Island school district while keeping our tax rate increase well below the cost of living."’
Let’s parse these two statements. Hoyt says that the legislature stabilized school taxes. No, they didn’t. Taxes at the state level are higher, not flat, because of this feeding at the trough. In fact, if the state (read: taxpayers funding them via Albany) cannot come through with such largess next year, property taxes will soar. He also states that “This will allow our educators to focus on what's really important for the children of Grand Island and that's educating our children.” What have they been doing all along, then? The educators, the people in the classroom, don’t get involved in the budget machinations. That is the purview of the Board, the Superintendent, and the Asst. Superintendent for Finance. When you cut through the nonsense, it is more vote-buying by the incumbents. If one wants real campaign reform pass a law that says there cannot be any increased budgets during election years.
Turning to Mr. Christmann’s silly statement that they were ”… keeping our tax rate increase well below the cost of living."’ See above that the increased funding amounted to a 9.3% increase over last year. Who, pray tell, does he think pays this. Just because the property tax component goes up less than the cost of living, the other components are going up substantially more. This is a basic word problem from algebra. What he really means is that he and the school system gets to spend a lot more of our money without being responsible for justifying it and raising it directly from the taxpayers.
I focus on the school systems because they are the single component of our property tax, over 50% on Grand Island, and are the source of some of the most ignorant statements on finances I’ve ever heard. The aid to schools is one of the largest items in the state budget. We are all aware of this elephant in the room but many pretend it isn’t there. Both Buffalo and Erie County pretended the elephant wasn’t there. Look what it got them.
Byron Brown Can’t Count
by Jim Mulcahy
January 22, 2008
Buffalo’s mayor, Byron Brown, has repeated like a mantra the statement that the City of Buffalo had a $20 million surplus in its last fiscal year. He has said it so many times I think he actually believes it. He must since he has gone on a spending spree, adding another deputy mayor and two other staff positions. None of them were minimum wage jobs, by the way.
There are some problems with his bleating this to anyone within earshot. There is the problem of deluding people into believing that there is a surplus. The unions, who supported Brown’s candidacy, particularly the police and firefighters’ unions, will be expecting their quid pro quo. The pay scale for the police has been an issue in Buffalo since the State imposed the Control Board on the city due to its profligacy. It is now time for payback! The unions are going to say, ‘Hey, you, Mr. Mayor, have said that there is a $20 million surplus. We just want our share.’ Can anyone blame them?
Now here is where cold, cruel reality intrudes. The estimated population of Buffalo was 276,059 for 2006. The estimated per capita income in Erie County was $33,039 in 2005. Using these figures as reasonable proxies for the actual numbers, we find that the total income for the city of Buffalo was $9,120,713,301. The top tax rate for NY State income tax is 6.8%. Let’s assume that all of the above $9 billion is taxed at this rate. Clearly, it will overstate the tax liability but will make the conclusion that much more disheartening. Multiplying the $9+ billion by the 6.8% one gets $620,208,505. Again, this is the upper limit of the taxes that could be collected from the citizens of Buffalo if all income was taxed at the highest rate and there were no deductions, whatsoever.
Turning to the 2007 budget that generated the so-called surplus we find that the State provided $162,210,644 to the City’s General Fund. Further, we find that the State provided $525,182,185 to the City’s school system. Adding these two figures together, we get $687,392,829. Compare this to the maximum collectible taxes in the previous paragraph. Notice anything? Right. If the city’s taxpayers didn’t pay one red cent to the State in income taxes but directed it to the city’s coffers, it would come at least $67,184,325 short.
I recognize that there are businesses in the city that pay taxes but I have grossly overstated the income taxes collected from individuals. The shortfall here is staggering. Why Byron Brown wants to paint himself into a corner by making such ignorant and irresponsible statements escapes me. There is no surplus. The city is a ward of the State. How is he going to convince the unions of this fact now that he has trumpeted this mythical surplus, a $20 million surplus at that.
This is just one more example of the incompetent leadership Buffalo and all of Western New York, for that matter, has had for way too long. To an extent you get the public officials you deserve. However, I can see why no one competent wants to run in this community. Who would want to confront recalcitrant unions and political hangers-on every day? However, we need to have the media say the emperor has no clothes, not just allow the politicians air time.
Kevin Gaughan rehashes his sorry agenda once again
by Jim Mulcahy
January 21, 2008
On Tuesday, January 15, 2008, Kevin Gaughan brought his road show to the Grand Island Town Board. His purpose was to shame [my word, not his] them into eliminating two councilman seats. His rationale is that Erie County has too many elected officials; 439 by his count. The cost of employing these individuals amounts to some $32 million per year. He believes that these positions are what is holding Erie County back from its rightful place as the economic and cultural leader of our fair country.
When one scratches below the surface, though, his numbers and reasons don’t add up. Of the 439 positions a number of them are justices of the peace, highway superintendents, and town clerks. We could eliminate these as elected positions but the workload won’t disappear. Would he really rather have more civil service employees? I certainly don’t.
On Grand Island we have nine elected officials: a superintendent, four councilmen, two justices of the peace, a highway superintendent, and a town clerk. Forty-four percent can’t be eliminated. For arguments sake, though, let’s say only one-third can’t be eliminated and this holds true through-out the county. This leaves 292 elected officials. If we eliminate two seats out of every five remaining positions, we will reduce the number of elected officials by 120.
How much does this save? In the aggregate, we spend $32 million on all 439. One-third, or $10.6 million, is for those whose positions can’t be eliminated. The remaining positions cost $21.4 million. Eliminating forty percent would $8.56 million. Actually, it would save less since the positions to be eliminated are part-time and account for much less than forty percent of the cost. It would be a stretch if they accounted for thirty percent, or $6.42 million. With approximately 700,000 people living outside the city of Buffalo in the county, each would save, at best, $9. This assumes that the money wouldn’t vaporize elsewhere in the budgets and be used to leverage even more money in the future. It alos ignores the fact that the remaining councilmen will be doing more work and will over time get part of the saved salaries re-allocated to them.
Two Councilmen positions on GI, if I read the 2007 budget figures correctly, amount to about $60,000 all-in. The General fund expenditures were $5.866 million. Therefore eliminating these two slots would save at best 1% of the budget. The Town’s general fund budget is about 10% of our property tax burden. So Grand Islanders would save 1/10 of 1% of their property tax bill. Brilliant.
Eliminating the seats would make it easier for pressure groups to get their way. There are fewer people to be lobbied. If you think I’m mistaken, notice that the teachers’ union loves the US. Dept. of Education because it means only one place to lobby instead of 50. Lobbyists, in general, would rather lobby at higher levels of govt. You get more bang for the buck.
He said that we spent over $320 million in the past ten years on these officials. (Why didn’t he go back 20 years and make it a cool half billion?) He then goes on to say that if we had saved even $150 million look what we could have done: re-opened libraries, torn down the skyway (which isn’t Erie County’s to tear down), and, as almost an after-thought, reduced taxes. The only way you could do any of the things he envisioned if we eliminated the positions would be to send the savings to a county-wide “kitty” to be spent on his pet projects. How many communities would do that? The $60,000 gross savings on GI would be easily absorbed into other projects here on the Island.
It is interesting that he bemoans our too many elected officials. No other community has such wasteful practices he told us. He continually reiterated the fact that we have more than anywhere else. However, he is all in favor of re-opening libraries. Erie County had the highest number of libraries per capita anywhere on the planet. These should have been obvious to close. But with his savings, we could spend it on them, even though they are never open on a holiday!
He cites Williamsville as having the highest number of elected officials per capita. This is the most prosperous community in Erie County: people always moving in, good schools, etc. Clearly, too many officials aren’t hurting them. When I pointed out that inconsistency, he mumbled and went on.
Since this grandiose scheme won’t save any money and won’t change the economic dynamic in the area, why do it? Qui bono? (Who benefits?) He’ll say, see we have done as well, or as poorly, with fewer officials, let’s have another round of cuts/consolidations. Trust me this is where he is headed. Regardless of what he says or how he says it with that unctuous, Uriah Heep delivery he wants regional government.
This is a stupid idea. Keep in mind stupid ideas never die, they just keep getting recycled. People still advocate socialism. The US Founding Fathers devised a system that restrained jerks. They knew that we weren’t always going to elect the Angels Gabriel or Michael as chief executive. They put restraints on the process. They wanted division of political units and more competition, not consolidation and raw power. Keep in mind, his one world solution could give us the Buffalo school system with Phil Ramore, not Grand Island, Amherst, or Williamsville. It could give us Joel Giambra or Tony Masiello, not Pete McMahon.
Mr. Gaughan isn’t adverse to govt. spending, in fact, he is all for it. He just wants to spend it the way he thinks is best, not us. He wants regionalism. This ‘daring’ us to eliminate some seats is a prelude to his saying, “see we don’t need all of these local govt. units, let’s have one big govt. that tells everybody what to do.” He will show us the path to a better life. He truly believes he is morally superior to all of us. Then he hopes to impose his vision of no “sprawl” (translated: I don’t like how you spend your money or where you choose to live) and other schemes to do as he sees fit. He has contempt for those who live out in the suburbs, although he has toned down his rhetoric on this in recent years.
He has never, to my knowledge, called for the elimination of any county-wide expenditure, whether subsidizing the Bills, the Sabres, the IDAs, anything. He has never led a charge to reform NY State’s Medicaid program. It is a disgrace. The County tax burden is over 25% of the burden on Grand Island. Most of it is the exceedingly generous Medicaid spending: NYS spends more on Medicaid than Texas and California combined, even though it has 1/3 as many people. For most communities school taxes account for over 50%, in some cases, over 60%, of the local tax burden. We shouldn’t forget workmen’s comp costs. These are the causes of the demise in all of upstate NY. Again, he has no problem with that. He just wants to centralize power.
Other problems are the regulatory labyrinth that businesses and homeowners have to navigate to get anything done. Even though there is no direct govt. budget item these activities cost money to the individuals. Big money! They discourage enterprise. No one is going to establish a factory in WNY that doesn’t have deep roots to the area (New Era Cap, for instance.) It is too costly. The NYS tax code favors human capital: lawyers, doctors, investment bankers, etc. who only get taxed once on their earnings, but not a second time on the value of their capital. Most anything that can be done in WNY can be done cheaper elsewhere.
Speaking of the county legislature and executive, why not eliminate them? Go back to the Board of Supervisors. Any evaluation will show that we prospered more under that form of govt. structure than we are under this.
We hear complaints continually about how Albany ignores us, that our elected officials are too far removed from the localities they are supposed to serve. His regionalism scheme is more of the same.
The communities he compared us to: Baltimore, Charlotte, and Indianapolis; are different. No doubt about it. Charlotte and Indianapolis have strong business presence: Bank of America and Wachovia in Charlotte; Eli Lilly, RCA, and the Indianapolis Speedway in Indianapolis. Charlotte may have only one school district but the school bureaucracy isn’t as powerful, and many send their kids to private schools. Both communities are conservative and have minimalist govt. compared to us. Baltimore isn’t a safe place to live. Their harbor area is nice but, keep in mind, it doesn’t get the weather our lakefront does. It also benefits from being close to pork-barrel central: D.C.
He protests too much that his dream of regionalism is dead. He still fervently believes it. He is a big, oppressive government fan. The dispersed nature of govt. in Erie County prevents power-mad folks like him from getting his way. This is a good thing. Gridlock works.
Multiple Messes Do Not Cancel Out!
by Jim Mulcahy
November 29, 2006
By now everyone has most likely heard about the hospital closings recommended by the State Commission. Those who are getting gored, almost everyone involved, are furious, as well they should be.
The Catholic Health System has filed a lawsuit challenging the order to close St. Joseph’s Intercommunity Hospital. Their argument is that they have already closed facilities at considerable expense. The unions, particularly the CSEA, are unhappy at the prospect of fewer jobs, as well they should be.
The basic assumption is that we have excess capacity in the provision of health care services and it is costing us billions of dollars. This is determined by multiplying the vacant room-days by the charge per day. The arithmetic is impeccable. I’m not so sure about the economics, though.
How did we come to this stage? Before the government elbowed itself to the forefront of decision-making on health care decisions, hospitals ran quite nicely. Any financial shortfalls were covered by generous fellow-citizens and many hours of volunteer work were performed. Most hospitals were established in the 1800s by people much less well-heeled than we are today as eleemosynary institutions. But along came the 1960s and the intrusive presence of government everywhere. Its impact on health care may be the most egregious. Medicaid, especially as practiced in New York, raised costs by increasing demand. The state then got in the business of issuing certificates of need for facilities. (At the same time as the state wants to close numerous hospitals, it has issued numerous certificates of need for new free-standing surgical facilities.) Because costs were rising due to the increased demand, they started to dictate prices, reimbursement rates, actually. So, the state creates the mess in the first place and, rather than rescind the actions that caused the mess, they set prices – another mess, and now, they propose to “fix” things by creating another mess.
James Madison, in 1794, called it “the old trick of turning every contingency into a resource for accumulating force in the government.” He was clearly onto something even if he, in his innocent state, couldn’t have possibly conceived of the reach and intrusiveness of late twentieth century government.
I suggested that it isn’t clear that we have excess capacity in our hospitals. Why, or how, can I even think that? In 1920, Ludwig von Mises, one of the leading lights of the Austrian School of Economics, wrote a paper, “Economic Calculation in The Socialist Commonwealth.” In it he showed the impossibility of a self-sustaining socialist economy. In essence, he predicted the demise of the communist empire. The fundamental problem is that socialist economies do not have market-determined prices. As such, they don’t know what goods to produce, how much of a good to produce, or by what means to produce goods; that is, what is cost-minimizing combination of land, labor, and capital. Without consumers signaling their desires for specific goods in specific quantities at various prices, it is not possible for producers to know what to do. Likewise, if producers, including labor, can’t signal the prices at which they are willing to supply the various goods, it is impossible to know if consumers would pay for the next unit produced. In practice, too much of one good is produced, either rusting or rotting out on a shelf somewhere, or there are lines of unsatisfied consumers who couldn’t get the goods they wanted. On the production side, we will see idle men over here and idle machinery over there.
There are no market prices in health care. Producers: hospitals, doctors, nurses, etc.; don't know how much of each service to supply. Consumers can't make welfare-maximizing choices about what types of health care services to purchase and in what quantities. As such, we have an excess supply of hospital beds and excess demand for outpatient surgery.
If there were market prices, I can assure you the various hospitals would find all sorts of innovative ways to utilize their facilities at profit-making levels or go out of business. The excessive production of freestanding surgical centers would cease, also. Unfortunately, the current system is so ossified that it can’t even begin to think in these terms. Until there is a market system in health care we will never know what services people would be willing to pay for and whether or not our hospitals are really under-utilized.
One of the arguments for closing facilities is that due to improved surgical techniques, hospital stays are shorter. That is undeniably true. What is also undeniably true is that people are richer and are willing to pay for more elective procedures. Also, people are engaged in much more strenuous activities at older ages than in the past, requiring hip replacements, knee replacements, etc. It won’t be a surprise when I tell you that more people are living longer which will increase the likelihood of hospital procedures. I’d be willing to bet that many people would be willing to utilize services hospitals could provide if they were competitively priced and made known (advertised, to us crass types.)
All of those (that’s everybody) with a stake in this current round of decision-making folly from Albany should demand that the state get out of the business of setting prices, reimbursement rates, and giving certificates of need, letting the market do it. I can assure you this alternative never occurred to them.
More on the Grand Island Bridge Tolls
by Jim Mulcahy
November 12, 2006
Rus Thompson, a Republican candidate for the NY State Assembly this year (he lost), is pushing to have the tolls removed from the Grand Island bridges. I believe that this is the wrong thing to do.
Mr. Thompson says we have three alternatives: .
1- Build another bridge to Grand Island New York. .
2- Expand or widen the bridges. .
3- Remove the tolls to allow the free flow of traffic. .
There is a fourth: raise the tolls for non-Islanders! .
Mr. Thompson, as well as many others, seems to forget that people will modify their behavior to the reduced tolls. Simply put, there will be substantially more traffic over the bridges, including more truck traffic, with the preponderance being non-Islanders ”cutting through”. .
Just look what happened on the 190 when the tolls were removed. The commute is a good ten minutes longer, with much more stop-and-go traffic, as more people have started driving to work. So, we have saved $.75 in tolls at the expense of ten minutes, thus valuing our time at $4.50/hour. Our gas consumption has increased due to the stop and go nature of the traffic. Since there hasn’t been an influx of people to WNY on account of the elimination of the tolls, the additional drivers must be former bus riders. We can look to having to pay more property taxes to underwrite the increased NFTA losses. If enough people drive we can expect to see higher parking fees downtown. The roadbed will also deteriorate faster. Yeah, removing those tolls was a great idea! .
On Grand Island the situation is even more complicated: the tolls are the best police protection we will ever be able to afford. If an Islander crosses the bridge once a day every day of the year it costs under $35, or less than $3/month. It is not that expensive. .
We should demand that the tolls be increased for non-Islanders with the requirement that the funds so collected be used to complete the LaSalle Expressway around to connect with the Colvin extension or the 990. Not only would this eliminate unnecessary traffic from the Island, but would assist the Tonawandas in regaining the competitive positions they lost when the expressways ignored them. .
Don’t believe that saving $3/month in tolls is a good thing. It isn’t. It will be a disaster for our lifestyle. .
As usual, Gaughan does not add up
by Jim Mulcahy
November 3, 2006
Kevin Gaughan is at it again. His never-ending quest to bully everyone in Erie County continued apace this past week. He, with the help of some fresh-faced law students, determined that we have too many elected officials in Erie County. Duh!
Gaughan has counted 439 elected officials throughout the county that cost $32 million. So what? Let’s say we could get rid of half of them. The saving would be, at best, $15 million. That works out to about $15 per person in the county. I think that is a reasonable price to pay for reducing the concentration of power. Remember, government isn’t like the private sector where it is easy to open a competing business. In fact, what is being proposed here is a move towards a public sector monopoly. The worst kind of monopoly there is.
The underlying assumption, of course, is that a leaner government would be more efficient. He compares Erie County with other communities around the country and finds, surprise, surprise, that we are top heavy. It isn’t at all obvious that fewer elected officials would make each government function more efficiently; in fact, the opposite is more likely to be the case. Further, do we really want an efficient government? It depends on what we mean by efficient. If it means providing necessary services at the lowest cost, yes. However, our freedoms are being circumscribed daily by the incompetents that we have in office. Imagine what would happen if we had a few efficient zealots: remember, the Nazis were efficient, brutally so.
If we have fewer elected officials, with no change in the scope of government, each of the remaining officials will have the opportunity to split up the former officials’ speaking time and bloviate even more. Special interest groups will have fewer officials to lobby. It is no accident that the teachers’ special interest groups, their unions, love the Federal Department of Education. They only have to lobby once to inflict themselves on us, rather than go to all fifty legislatures and governors to get favorable legislation passed. Logrolling would also be easier. An official would have to convince fewer officials to buy into his scheme. Why does anyone think that it will be any different in this instance? We aren’t legislating a change in human nature.
Joel Giambra has been pushing this same idea for some time, also. He, of course, wants to have fewer independent spheres of power. With Joel, it is all about concentrating power in him. His whole political career is predicated on the fact that he knows people and can hand out favors. The more power that gets concentrated in County Hall, the easier it is for him to buy loyalty. (Remember, he wouldn’t support a Republican nominee for the legislature, Kevin Hardwick, because Kevin wouldn’t swear absolute fealty to Joel. Because of this, we were treated to another two years of Chuck Swannick.)
Gaughan wants to consolidate power in the county executive, also, but for other reasons. He doesn’t like the choices we make: living in the suburbs, working out there, etc. He is another intolerant totalitarian; a clever one, I’ll admit. He dislikes individual freedom and choice if it doesn’t square with his exalted view of the “good” life.
As I stated above, reducing the number of elected officials won’t reduce the cost of government. With the special interests having to woo fewer people, they would be able to increase the reach of government in our lives. This would increase both the direct cost, i.e., our taxes, as well as the indirect costs: fewer freedoms and reduced economic activity as the area is perceived, correctly, as an unattractive place to do business.
The clear need is to reduce the scope of government. Get it out of activities that the private sector can provide more efficiently, if at all. The last point is quite important. Many of the ‘services’ government provides wouldn’t be supplied by the private sector because if people could choose to buy them on an a la carte basis out of their own pocket, they wouldn’t.
Regardless, government should stop providing services that can be performed more efficiently by the private sector. A few examples will suffice: garbage collection in the City of Buffalo – no other community has its own collection force; the technology departments at both the County and the City: Monroe County outsourced theirs to IBM and Siemens for a savings of $1million per year for fifteen years. Neither of these examples requires genius to see their value. Also, how many positions should properly be filled by part-time workers? There is no reason to burden the taxpayers with full-time workers who are overpaid and under worked, being supported by those who are over worked and under paid!
A number of normally level-headed individuals have bought into this idea of Gaughan’s. It is amazing how the scent of even a couple of bucks will send some people drooling like one of Pavlov’s dogs. They have, clearly, not analyzed the secondary impacts. “Thinking Beyond Stage One” as Tom Sowell puts it. If they did, they would realize it isn’t the number of elected officials that is the problem but the intrusiveness of government in our lives. Reducing the scope of government is the necessary first step in cutting the waste. The need for elected officials will decline once they realize there is nothing for them to do.
Kevin Gaughan should a) learn some economics and b) be more forthright in detailing the reasons he advocates these positions. I think he would find much less enthusiasm for his plans if people knew the endgame. But, of course, Kevin knows that.
Casinos in our Town
The humorist, Will Rogers, once said that he didn’t make up his material: it was all in the newspapers. Likewise, I don’t have to think of topics to write about for this website. I just have to open the Buffalo News for material.
Donn Esmonde, that perpetual source of ideas, recently wrote, in the 4/14/06 edition of the News, about casinos. The title of his article was, “Folks finally catching on to casino myths.” The implication is that “folks” are finally coming around to his view and/or the News view.
He writes as if he was a staunch anti-casino stalwart all along. Really? This is the first opinion article by the News’ staff that comes down against casinos. In the past, any anti-casino article was a news piece about an anti-casino group. In the process, Esmonde takes a gratuitous cheap shot at Tony Masiello and his championing the casino. This is in keeping with his (Esmonde’s) total about-face regarding Masiello.
With respect to the casino and its impact there is nothing to analyze. The information necessary to make an informed decision about the casino has existed for years. The only new things from the Senecas are the admission that the Buffalo-based casino will be nothing more than a vehicle to siphon money out of the community and that they want to expand their ownership of land in the cobblestone district. These two items seem to have shocked the community. When asked to commit to writing that they didn’t have any designs on more land, Barry Snyder, the current leader of the Senecas, said it was “an insult to the Senecas, a sovereign nation.” Mr. Snyder continually refers to the Senecas as a sovereign nation when things aren’t going his way. This should be a wake-up call to our politicians that he intends to invoke this every time there is a dispute involving the casino and the community. The implication is that we, the community, will have to take it up with the U.S. State Dept. or the Bureau of Indian Affairs. Guess what? We may ultimately win but it will take years.
Mr. Esmonde thinks that the $7MM annual payout to the city is a paltry sum, given that it based on $150MM in revenue at the casino. Of course, it is. We have an 8.75% sales tax in Erie County. This would generate over $13MM in itself. This doesn’t include property taxes or any income taxes that would be paid to NY State if it was a private business. In a letter to the editor I sent to the News, published 8/14/05, I pointed out the give-away in Niagara Falls. Keep in mind we have not hit steady-state yet with respect to bankruptcies, divorces, and other social maladies due to casinos. (see below the article I sent to the News in early 2005 on these points that wasn’t published.)
Mr. Esmonde lauds Byron Brown for seeing the light. Why? If this is an example of what it takes to get him to take a second look at things and reconsider his views, Buffalo is in trouble. Years ago, when he was a state senator, I wrote to him and pointed out the shortcomings of these casinos. He responded that he believed that they were good for economic development and job creation. He had bought current the party line about casinos and wasn’t about to budge. So much for him being an independent thinker.
Here is a letter to the editor [of the Buffalo News)] I wrote over two years ago. Needless to say, it wasn’t published since it was diametrically opposed to their position at that time.
To whom it may concern:
The proposals for casinos in WNY are poorly conceived and will make the economy in this area worse than it already is.
The biggest problem is giving the Seneca Nation or any other Indian tribe (nation) the exclusive right to this very lucrative franchise. As an independent nation they will demand that the city or county go through the State Dept. in DC to resolve any disputes. Guess who wins on that one? [I personally believe that no foreign govt. should be allowed to own any business or non-consular property in the US. It conflicts with running foreign policy.] Another serious consideration is the fact that every small deli, grocery, bar, etc. for 20 blocks away from the casino will be put out of business because they won't be able to compete with the tax-free cigarettes and alcohol. The City of Buffalo will incur increased police costs to deal with the crime that is spawned by these facilities.
If we believe that gambling is acceptable, then we should allow a level playing field: let Mirage, Hilton, Harrah's, Trump, et al. compete. If the Senecas are to be allowed in, then they should have to create a US corporation that is taxable, etc. just as the above firms are. In this way we wouldn't have to give the store away to get the development. If it is worthwhile, they'll invest.
I don't think most people have any idea of how profitable these Indian casinos are. If they did, they wouldn't accept the revenue split that is being proposed.
Again, the casinos, as proposed, will be devastating to Buffalo and WNY. They will not improve our economy. They will make a bad situation significantly worse.
Thank you for your attention.
Here’s another, written in early 2005. It, too, wasn’t published.
On December 28th of last year, the News ran an article titled “Waiting for the Payoff.” It was, of course, about the Niagara Falls Casino. The problem with the article and all of the other reports about the casino’s first year was that all of the reporters took at face value the statements made about its financial success and impact. Nobody it appears to have put pencil to paper and done some basic arithmetic.
Let’s do some. It was stated that the casino took in roughly $4 billion in revenue. Approximately 5% was from Canadians. This means that $3.8 billion came from Americans. The State and local sales combined tax rate is 8.25%. If this tax rate were applied to the $3.8 billion (which would include the sales tax revenue), then NY State and Niagara County would have collected almost $290 million. Compare this amount to the $38 million check that NYS will get, of which $9.5 million, 25%, goes to Niagara County. One doesn’t have to be a financial whiz to see that something is (more than) amiss.
The argument will be made that this is bringing business into Niagara Falls. Maybe so, but it is coming from Erie, Genesee, Wyoming, and other New York counties. This is a classic beggar-thy-neighbor program. How are Governor Pataki, Speaker Silver, and the rest of the State legislature going to offset the losses suffered elsewhere in the State? If you are having trouble coming up with the answer, I’ll tell you: They are not going to lose a wink of sleep over it. In fact, this decline in economic activity that they were responsible for will be an excuse for more inept economic programs out of Albany.
If you don’t think they are capable to constructing more idiotic programs, get a load of the one that caused this mess: the State gets 18% of the revenue from the slot machines, period. This sounds like a high rate but the slots revenue was only $211 million, or slightly more than 5% of the total revenue. The remaining revenue is excluded from the calculation. The 18% shrinks into a mockery. Also, keep in mind that the casino doesn’t pay income taxes. Believe me when I tell you that casinos are more profitable than the typical business: grocery stores make about 1% on its revenue and GM around 5%. Split the difference; say they make 3% net, a very conservative estimate. This means the pre-tax income is about 5% or $200 million, of which NYS would get about $20 million.
The issues that were there at the beginning of the process to permit this casino are still there: sovereign nations owning businesses in the US (see the fiasco currently under way in California over a defunct insurance company and the interference of the French govt.); social problems, bankruptcy, divorce, etc. – they haven’t materialized yet, but they don’t show up on day one; and the deleterious effect on the surrounding businesses. These will be ignored because politicians like to be wined and dined and like to point to big payments they receive. You won’t see them rattle off the list of small businesses that lost money, made less, or reduced employment. No, they will tout the $150 million that the casino put in the economy, with no deduction for the offsets suffered elsewhere.
Is the Seneca Nation to blame? Of course, they are not. It isn’t their fault that our political leaders and their hangers-on dream of big paydays, throwing the bomb in football or hitting a grand slam in baseball. This is the story of WNY, writ large. So who is to blame? As Pogo once said, we have met the enemy and he is us!
Robert Strauss, a former power in the national Democratic Party, said that we get the government we deserve. He is absolutely right. We keep electing and re-electing the same cabal election after election. The faces may change occasionally, but the basic philosophy doesn’t. They all believe that they know best how to run our lives. How many of them would you want running the company you work for? I rest my case.
We must stop believing in the tooth fairy and other dreams.
My point is that the information regarding the casino’s deleterious effects has been known for some time. Now that the community is waking to the fact, the News is trying to get out in front on the issue. What a joke. Where is any decent analysis of the claims made by the Senecas that the casino will add value to the community? We see ads on the TV touting 1000+ new jobs to be created. Really? There have been no new jobs created by the Niagara Falls casino. The employment data do not show any increase in employment since the casino opened. People left other jobs and went to work there.
Our political leaders (I hesitate to use the term “leaders”) are either incapable of stating clearly and unequivocally that the casino is a bad idea or they just don’t understand the economic and political implications of it. I don’t know which is worse.
As with everything else in WNY, we have way too much government involvement in the decision-making process. How many examples of missed opportunities and self-serving behavior will it take before the populace rises up? Further, we have the spectacle of being a one newspaper town and its negative impact. We need to vote out every incumbent, as a matter of course. We also should boycott the News. They need to be shaken out of their smug complacency.
Is a New Breed of Owner Really Killing the Bills, or Is Ralph Wilson Just Playing Us (Again)?
Ralph Wilson is at it again, in his “folksy, meandering way” but not as Donn Esmonde meant in his 4/9/06 Buffalo News article. Esmonde has bought hook, line and sinker Wilson’s whine that the new football contract will make the Bills uncompetitive. The reason according to Ralph: Big buck owners are keeping more of their revenue for themselves. Why is this is going to harm the Bills?
Let’s examine this charge a little closer, and with a much more jaundiced eye than Esmonde did. Yes, the Jerry Jones, Dan Snyder, and Bob Kraft’s want to keep more of the revenue their teams generate. So what? This doesn’t necessarily imply that they can out-compete the Bills. They have much greater expenses than Wilson does. Snyder, for instance, paid over $700 million for the Redskins and their stadium. He has to repay that loan or, at least, earn a decent return on his invested equity. Jones, Kraft, and others all have purchased their teams for millions of dollars. They have capital costs to be recovered, also.
Wilson paid $25,000 for the Bills in 1960. He has made money each and every year he has owned the team. He has a sweetheart of a deal for one of the largest stadiums in the league. He threatens to move the team periodically so that our elected morons fall all over themselves to give him everything he says he needs to “stay competitive.” All he needed to stay competitive was to have kept Bill Polian!
Wilson drained every nickel he could out of Erie County years ago. His last foray into money-grubbing required that he hit up the State. Pataki was running for re-election so it was a foregone conclusion he (Pataki) would screw the taxpayers. Rob from the relatively poor to shovel at the very rich. Beautiful.
We have a county control board because of our abysmal finances, and worse stewardship. The subsidy to the Bills never was mentioned in the budget fiasco last year. Why not? It should be. For instance, how many of the tickets were sold to out-of-county residents? Why should Erie county taxpayers subsidize Monroe County or Canadian fans? Let’s be clear, there is no economic multiplier effect on the local economy by the Bills, or any other sports team, anywhere, for that matter. We are taxing people who can barely afford to take their families to games so that the beautiful people (the ones who go to a game to be seen, rather than see the game) will be able to spend their money on other things. Where is the populist outrage from the leftists at the News?
Esmonde doesn’t understand the NFL business model, at all. He likes to paint Jones, Snyder, et al. as a bunch of greedy dumb capitalists who were sold on a socialist idea. Not so. It is much more accurate to think of the NFL as a McDonald’s, where each team is a franchisee. This shouldn’t be too hard. We refer to the various teams as franchises, now. Pete Rozelle’s idea, a very good one, by the way, was that the NFL, as a whole, competes for the consumer’s entertainment dollar. People have other ways to enjoy themselves. Just look at Los Angeles: two NFL teams have left and the populace does not seem to care. The citizenry there have options.
Just as McDonald’s has joint advertising and other communal activities to maximize the total pot, so does the NFL. Likewise, just as McDonald’s has some franchises that make more, substantially more, than others do, so does the NFL have its winners. Guess what, the highly profitable McDonald’s franchises are in growth areas. The cost of those franchises, today, will be more than the cost of one in a slow or stagnant area. Does this come as a surprise to anyone?
We have the disgusting spectacle of Sen. Charles (“is this a good pose?”) Schumer preening for the cameras intervening to “get some answers” from Paul Tagliabue, the NFL commissioner. Why is he involved, at all? This isn’t a Federal case. This is a contract dispute over who gets a bigger cut of the spoils. Schumer, the egotistical patsy, is just being a bag man for Wilson. Wilson’s five year agreement to keep the team in Buffalo is up. There aren’t any places more attractive, so he needs to hold us up once more.
Remember back to when the stadium was being debated. A local businessman wanted to build a stadium in Lancaster. Wilson announced that he would only deal with the county. No kidding!. Dealing with another businessman would have made the negotiations a level playing field. Negotiating with the county was a rout. Interesting isn’t it that Ralph wants a “level playing field” today, but he never wants to compete on an even field if he it means that he has to give up the edge.
A couple of last points: Pittsburgh has a smaller stadium in an area with economic problems but they aren’t complaining. Neither are Kansas City or Green Bay. Why not? It is interesting that Wilson became vocal just as the NHL playoffs were about to start. The Sabres were/are getting all of the newsprint in town, deservedly so. Was Ralph jealous.
When will our elected officials and the saps in the media learn that Ralph Wilson is a greedy capitalist just like the owners he is currently demonizing?
One last thought: Mr. Esmonde seems to be against these greedy owners who buy a company (team) and raise prices to cover their costs and then some. Maybe he should evaluate Warren Buffett’s purchase of the News. Talk about raising prices and making a potful of money!
A Lesson as to Why Upstate NY continues to Stagnate
by Jim Mulcahy
posted April 23, 2006
There was an article In the Sunday, March 19, 2006 edition of the Buffalo News by Jerry Zremski. He is the News’ National Correspondent. The article was another News puff piece about Hillary Clinton and how much she does for upstate. Further, we are led to believe she could do more if it weren’t for those recalcitrant Republicans.
Mrs. Clinton actually believes she can improve the upstate economy as a U.S. senator. Unfortunately, so do many of the so-called business leaders in this state. Everything these people think and propose will do more harm than good.
Actions: tax policy; monetary policy; and regulatory policy that affects all fifty states; taken at the Federal government level can only affect the overall level of economic activity. It will not make any particular area prosperous. In order for NY state to partake in the expanding U.S. economy, our State and local politicians must create an environment that rewards risk-taking and economic effort. For all too long they have done just the opposite. Let me recite some examples.
From WGRZ-TV’s website: Paul Hojnacki the President of the Curtis Screw Company says "Our workers' comp costs here are over one million dollars a year. For the same number of employees at our plant in North Carolina, our costs would be $150,000. "That's an $850,000 penalty to do business in New York." Firms looking to expand their operations obviously won’t consider NY with disparities like this.
For those old enough to remember, in 1981, due the extraordinarily high rates of inflation, firms were paying taxes on economic losses. The tax reform bill of that year included a revised depreciation schedule, ACRS (accelerated cost recovery system). Up until then, NY had firms take the depreciation they reported on their federal tax returns and use the same amount for calculating their state taxes. Because of their myopic greed, the geniuses in Albany severed the link that year, requiring firm to use the old schedule which resulted in a higher state tax liability. Guess what? Firm after firm shut their doors in NYS, never to return.
I find it incredible that a reporter who is supposed to be skeptical of self-serving comments and praise, doesn’t see the problem with all of the "Ave Hillary". Every example he gives should cause one to ask, “why aren’t these firms doing it for themselves?” Why can’t Corning tout its own products? Shouldn’t the farmers be marketing their own goods? Can’t the folks in the North country contact eBay themselves? We can set up all of the entrepreneur “incubators” we want. Entrepreneurs, by definition, are not bureaucratic. They need flexibility and opportunity, not government nanny-ism. Does anyone really think the government can create productive jobs?
In the first half of the last century the railroad industry was so regulated that managerial talent went elsewhere. So much so, that just when they were finally de-regulated the managements weren’t up to the task of competing in the marketplace. We are seeing the same thing here in NY. Our politicians believe that they should be involved in every decision a firm makes regarding expansion. As such, competent management won’t expand here. You don’t here about it because they don’t go to the trouble to advertise that fact. We just see it in the declining economic health of our state.
Let me be very blunt: Hillary Clinton does not understand economics, finance, or accounting. She has no qualms about using the power of government to further her ambitions. Throwing Federal taxpayer dollars at NY state will not improve our economy. NY politicians are immune to any criticism of their policies.
The upstate politicians can come home to see the mess they have helped create. They can read all of the studies showing how perverse the state’s policies are. They can read Bob Wilmers’ comments at the M&T Bank annual meetings . They can do these things and they do. Nothing, however, changes. These politicians are impervious to new ideas.
As long as the politicians are aided and abetted by puff pieces in the upstate papers we will continue to get policies that slowly strangle our economic vitality. Keep in mind, NY is not a police state that can force people or firms to stay. People are voting with their feet and leaving in droves each year, especially young people. What’s Hillary’s plan for this? Are we going to bribe people to stay? Probably, it’s the government way!
Thruway Tolls: A Dissenting View
By Jim Mulcahy
[In the spirit of full disclosure, I pay both the Breckenridge toll as well as the resident toll on the Grand Island bridge each day.]
The Cause of the moment is the tolls on 190 around Buffalo, NY, with the Grand Island Bridge tolls thrown in for added heft. The politicians are upping their bids to show who is the “most for” getting rid of the tolls. Beware politicians bearing gifts, to coin a phrase. Just about everything about the politicians’ “seeing the light” on this issue is suspect or wrong.
Let’s look at the merits of eliminating the tolls. Thomas Sowell, an excellent economist as well as a very clear writer (my kingdom to be as good as he is) wrote a superb book called, “Applied Economics: Thinking Beyond Stage One.” The issues he discusses are very germane for our topic. Everyone understands that eliminating the tolls will reduce one part of the cost of commuting. Notice I said “one part of the cost”, not “the cost”. This where thinking beyond stage one enters.
Some of the promoters of eliminating the tolls, like developer Carl Paladino, assume that more people will be induced to work or at least drive downtown. Initially, they will. Confronted with an initially lower cost of commuting, more people will drive to work in the city. But then what? Parking is already at a premium. When the parking ramp across from the Convention Center was demolished a year ago, monthly parking rates increased $20/month at a nearby ramp. This is a $1.00 a day increase. We shouldn't be surprised to see increased demand push prices up further.
With more people commuting, congestion will increase, slowing commuting times. Don’t forget that there is a value to time even if it is only to get another 10 minutes sleep in the morning. Also, we can expect to see an increase in trucks plying that section of highway. Both effects will speed the degradation of the road. Both are costs that need to be added.
Since there won’t be any tolls, we can’t complain to the NYDOT or thruway authority that 'the road which we pay tolls to keep in repair is in disrepair, fix it'. We will have to get in the queue with all the other road projects in the state. Those in most urgent need of repair or where the most votes can be gleaned will be at the top of the priority list. Remember the highway funds have been reduced due to the elimination of the tolls. We can eliminate every dunderhead at the thruway authority but we will still come up short on funds.
Let us see where we are, so far. We save $.75 in tolls; we pay additional parking fees; we have increased congestion; and deteriorated roads with fewer funds to repair them. This hardly looks like a winner. But we are from Buffalo; it gets worse, of course. These additional drivers have to come from somewhere. It certainly isn’t from net job creation in WNY. They will come from the buses and/or the toonerville trolley (light rail for those too young to remember Petticoat Junction). The NFTA will thus have lower revenues. Since it is already running a (wopping) deficit, the deficit will only get bigger. Guess who makes that up? We all do: lower tolls, higher property taxes for all. Such a deal!
As much as I am a firm believer in my hero’s, Thomas Jefferson, view that the government that governs least, governs best, I am also economically rational. I believe that those who receive the benefit should pay. We are complaining that all the other communities in the state, outside of NYC, don’t have to pay. We should be asking, “why not?” In our case, why should someone in Clarence or Eden subsidize a Buffalo commuter? Cross-subsidizing everything as we do now makes it almost impossible to know to what extent people value the services provided. Even if the other communities don’t have the tolls imposed, we should be careful before we eliminate them. Two wrongs do not make a right. We need to Think Beyond Stage One.
There is a pervasive view around WNY that Albany sucks money out of the area. It is true that they impose costly regulations and other burdens on us. Even though we wouldn't purchase those goods at all or in the mandated quantities in a free market, the monies stay here. I doubt if WNY wants Albany to determine if we are a net provider of funds to the State, or vice versa. On the other hand, the 190 along the river has usurped some of the most valuable real estate in the city. The city should demand that the thruway authority pay property taxes on it or at least make a payment in lieu of taxes. The railroads pay taxes on their railbeds, the interstate system should do the same. If people were confronted with the true cost of commuting, more people might use mass transit or move back into the city.
It is even worse with respect to the Grand Island tolls. Eliminating the tolls will cause even more trucks to come rumbling across Grand Island. There will be less incentive to complete the LaSalle Expressway to the Tonawandas, revitalizing those communities. The bridges will be patched rather than get the thorough repairs that would be called for as they deteriorate. In fact, they will deteriorate even faster than they currently do. Such a deal!
From a purely selfish standpoint as a Grand Islander, the tolls are the least costly police protection we will ever have. Grand Island is larger than Manhattan in area, but with only 20,000 residents. Does anybody seriously believe that the Island could afford the police protection that would be required to give even the semblance of the protection that we now receive? Be careful of what you ask for, there will be no turning back. We need to Think Beyond Stage One.
At the beginning I spoke of our politicians’ stance on this. Eliot Spitzer is an easy one to dispose of: he is engaging in a crass vote buying effort. Is this the leadership we can expect if he becomes governor? Find out which way the wind is blowing, and blow harder. We can disregard Sam Hoyt, since everyone in Albany does. He is ineffectual in the extreme. Coppola is another echo.
I turn now to Brian “the bully” Higgins. What, pray tell, is a U.S. representative doing telling the State of New York how to manage its internal State affairs? This is a Federal Republic, at least it is as I write this. Power flows from the States to the Federal Government, not the other way around. You would think someone with a political science degree would know this. Who is he to threaten to withhold funds if he doesn’t get his way? I realize that the Buffalo News and our elected officials haven’t seen anything wrong with his stance, but what will happen if some congressman threatens to withhold funds and we disagree. We can’t fall back on any principle of separation of powers. We will just look stupid. Further, if eliminating the tolls is the correct thing to do, why didn’t Higgins champion this when he was in Albany? He always seems to champion something when he can’t and/or shouldn’t be involved. Some day, hopefully, the media will figure him out: that he is just one step ahead of the messes he creates or allows to fester.
Again, be careful of what you ask for and Think Beyond Stage One.
Erie County Library System Observation - 2006
By Jim Mulcahy
Posted Monday, January 16, 2006
Starting in November, 2004, we were treated to the Erie County budget fiasco. One of the areas where Erie County’s budget was found to be out of whack was the library system. We have more library buildings per capita than just about anywhere else. There were two schools of thought on how to address this. On one side, there was the slash and burn crowd and on the other, the sacred cow crowd. Neither side got its way in the budget struggles. We settled for a Solomonic splitting the difference. Some buildings were closed but not as many as some would have liked.
The library supporters say that the libraries are very important to our community. I agree.
However, I think they are to be used, not to be just a census indicator of our commitment to reading. Next Monday, January 16, 2006 is the Martin Luther King holiday. The libraries are closed. Huh? A day when the largest number of taxpayers are free to use the library it is closed. It is the same for Columbus Day and every other government holiday. Does this make sense to any one? Clearly, it shouldn’t. It appears that, as
usual, a taxpayer-funded entity isn’t there for the benefit of its customers but of its employees.
The whole operating philosophy of the libraries, in my opinion, is wrong. The libraries aren’t being run for the benefit of their customers. Why aren’t the libraries open in the evenings, holidays, and on the weekends when the paying customers, the taxpayers, could actually use them? All of the libraries don’t have to be open every day. Within a region the various branches could rotate days. This would ensure
availability without incurring unnecessary expense.
Some employees may not like the weekend or evening hours. In the private sector where one has to accommodate the customer or go out of business, many people cycle through a weekend or evening shift. That is part of their job. Maybe we need fewer full-time employees of the library system and more part-time employees. In the private sector management would be thinking along these lines. Why can’t the public sector do the same?
Relicensing Niagara Falls Power Project - 2005
By Jim Mulcahy
Posted Thursday, September 15, 2005
[Note: this was originally written long before Brian Higgins decided to get into the act and shake down the Power Authority to fund his vision of the good life.]
The January 24, 2005, edition of the Buffalo News has an article about the relicensing of the Niagara Falls power project: “Relicensing bonanza eyed.” Since then, the feeding frenzy has only increased. Every special interest is bellying up to the bar to get a handout. The sad thing is that, in my opinion, no one is going to be satisfied. Now, I have some experience in the area of utilities and their regulation. I was a senior economist/rate of return analyst for the Public Utilities Commission of Ohio; a senior consultant in the Energy & Utilities Group for Data Resources (DRI), and a senior financial analyst in the treasury dept. of Consolidated Natural Gas Co. I know energy.
The fact that the Niagara Falls hydroelectric facility is nearby but WNYers do not get enough (whatever that means) of the relatively cheap-to-produce power rankles local business owners, in particular, as well as many homeowners. And horrors of horrors, some is sold out of state. The Chamber of Commerce of the Tonawandas believes that the Power Authority makes enough profits from the Falls project to substantially lower rates for business and residential customers in a thirty-mile radius of the plant. (How many members of the Chamber would agree to do this with their businesses?) Basic economics tells us that property thirty-one miles from the plant will fall in value while property within thirty miles will increase, especially of those that contemplate using lots of electricity. I believe that this solution and the other desired solution: selling all of the output from the hydro plant at below market rates to businesses in WNY, are both wrong.
Let me (quickly) address the issue of out-of-state sales. The ten percent out of state sales requirement was part and parcel of the enabling legislation creating the Niagara Power authority. Is anyone shocked that there was politics going on? I agree that the out of state sales are unseemly, but not for the reasons suggested. I might add that selling power to Vermont, which doesn’t have industry that competes with WNY and relies on imported oil, is better than selling power to the City of Cleveland municipal power company. This was the case in the late 1970s/early 1980s. I challenged a Power Authority spokesman at that time on the logic of this: effectively substituting hydro for American coal instead of imported oil at the height of OPEC II. Needless to say, the response was a standard “you just don’t understand”. Oh, but I do, all too well.
Turning now to the main issue of selling power anywhere outside of WNY. For arguments sake, let’s say that WNY could have access to all of the power that the hydro plant could produce. Does that imply that we should try to woo companies to WNY with the enticement of cheap electricity? I submit that it does not. We must keep in mind there is a finite amount of power capable of being allocated. If the only attraction, that is, the only economic advantage that we offer is cheap power what will happen when these firms try to expand? There will be no more cheap power. We will have already allocated every last kWh. Guess what, these firms will expand elsewhere. There is nothing to justify their staying here.
Also, how should the power be allocated among those firms (and homeowners) that want it? I can assure you everyone will want cheaper energy. Do we dangle it in front of newcomers, or do we give to those firms that stayed here in spite of high-energy costs? This is economics 101: if you don’t use the price system – supply and demand – then resources will have to be allocated by some other means. It can be done by lottery, age, or, that all-time favorite, political clout. Which will it be? It has to be something.
Let me suggest an alternative. In WNY energy costs aren’t necessarily a problem. If one isn’t an energy-intensive business, it is not the critical problem, by any means. However, there is a cost that is a problem to everyone in this part of the state whether they are a business or a homeowner. That is taxes. Property taxes, which are an overhead cost, must be paid regardless of one’s income or sales volume. I might point out that a not insignificant portion of one’s utility bill consists of taxes.
I now come to my proposed solution. We should think of the Power Authority as a private company. Forget this “public, non-profit” nonsense. Can you tell which power lines belong to the Power Authority, Niagara Mohawk, or NYSEG? I didn’t think so. Neither can I. Nothing would be different about the hydro plant if the Power Authority sold it to a private producer except it would have a different nameplate on the front door? Both enterprises would be using a scarce resource; the escarpment and the land behind it, to produce electricity. We would tax the private producer, but we don’t the Power Authority. Why not? We should. They should pay the same property taxes on all of their facilities in WNY that NiMo would pay, as well as being charged the same sales and gross receipts taxes that the private companies pay. The taxes generated should be used to lower property taxes across the board in WNY, particularly Niagara County. They were the big losers when the Power Authority replaced the tax-paying Niagara Mohawk plant.
Electricity, like any other good, should be sold to the highest bidder, whether in WNY or not, to ensure that it gets used in its highest-valued use and is used efficiently. If this is done, it will generate substantial revenues. We can stop fretting about “sending” this power to NYC. In fact, we should encourage them to bid up the price. It will increase the tax revenue. More importantly, ALL WNYers would benefit from this lowering of property taxes, not just those who use lots of electricity and threaten to leave if they don’t get cheap power. What makes them more deserving than anybody else?
Likewise, we have the spectacle of Rep. Brian Higgins threatening the Power Authority unless he gets a pound of flesh for his pet projects. Why? If this resource “belongs” to WNYers then let each and everyone decide how to spend his or her share of it. Hasn’t the sad litany of fiasco after fiasco by our political “leaders” shown us that they are not the ones to make decisions for us?
“A Battle Won” - 2005
By Jim Mulcahy
Posted Thursday, September 6, 2005
There was a collective sigh of relief, quickly followed by much back-slapping and rejoicing in WNY when the Niagara Falls Air Base was removed from the BRAC commission list of bases recommended to be closed. Jobs were saved and the area will continue to be the recipient of Federal largess. The Base, though, is not a growth industry nor is it an engine of growth.
No one asked, much less had answered, the question, “at what cost did we ‘win’ this battle?” In economics the key concept is that of cost, specifically, opportunity cost. This is the value of the best alternative that was foregone in order to undertake the chosen option. For instance, students have the option of watching TV or studying. The opportunity cost of TV watching is reduced future income possibilities due to being ignorant.
One should ask what did we forego by keeping the airbase? It has excellent runways: both long and strong to carry the heavy cargo planes the military uses. It has excellent radar, again for military needs. What else could they have been used for? How about an airport for charter flights or other long distance flights using 747s and other large jets that are incapable of using Buffalo International? How about as an aircraft maintenance facility as there are many good technicians there now? Clearly, these aren’t going to occur with the military there.
What else was foregone? How about more restaurants and hotels in the Niagara Falls area as people come to see the Falls. Americans might not have to travel to Toronto to get direct flights to overseas locations and nearby Canadians wouldn’t have to slog their way to Toronto, either. Also, there might be sufficient rationale to extend the Colvin extension so that it connects with the LaSalle expressway, providing a more direct route from Niagara Falls to Amherst and the Tonawandas.
I don’t know the answer to which alternative is the best. I do know, though, that the alternatives should have been discussed and evaluated. Most communities that have had military installations closed have done better without them than they did with them. Why didn’t we consider that possibility, rather than defaulting to the chicken little theory of base closings?