Citizen Voices November 2013 Endorsements

The upcoming election will shape our economic future and thus we must not allow it to be a “single issue” campaign. We must move beyond rhetoric to results. Citizen Voices consists of Oneonta area business people who focus on practical solutions to the challenges facing our region. They include declining school enrollments and programs, an aging population, reduced services, fiscal distress for our municipalities, decaying infrastructure, the need to transfer ownership of the manor, and a lack of career opportunities for our children and significant others. Attracting new businesses to the area will increase tax dollars by increasing both the tax base and sales tax revenue while providing well paying jobs for current and future generations. A welcoming business climate and a pro growth environment are essential for our sustainability. With a responsible approach, Otsego County can be open to business and industry while protecting our scenic beauty and conserving our natural resources. We must stop arguing about what we oppose and collectively identify actions that will foster economic development.

Meeting those objectives can only be accomplished with representatives who demonstrate dynamic leadership and independent thinking. They must be consensus builders from both parties, who will place the greater good above niche issues and political ideology. Citizen Voices endorses the following candidates because we believe they exemplify these characteristics:

County Treasurer: Dan Crowell; County Representatives: Edwin Frazier, Jr. – District 1, James Powers – District 2, Kathy Clark – District 3, Janet Hurley Quackenbush – District 4, Donald Lindberg – District 6, Beth Rosenthal – District 7, Rick Hulse, Jr. – District 8, Craig Gelbsman – District 12, Linda Rowinski – District 13 and Katherine Stuligross – District 14; Oneonta Town Council: Brett Holleran and Fred Volpe; Oneonta Mayor – Richard Miller.

In some cases, Citizen Voices was unable to make an endorsement because we did not have the opportunity to interview the candidate(s).

Dave Rowley for Citizen Voices

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Economic Alphabet Soup

Economic Alphabet Soup

 

There are public and private sources for help if you want to start or expand a business in Otsego County.  The trick is in knowing how to navigate the mine field and who to contact for what.  In order to do that successfully, it will help if you understand the acronyms or alphabet soup.

 

Let’s start with Oneonta Mayor Dick Miller’s office.  Working with the mayor are the new City Manager, Mike Long, and the person responsible for Community Development, Jeff House.  Mike has a background in urban planning and economic development.  Jeff oversees the airport, housing, facilities and downtown development.   The City is able to seek and administer grants with funds it receives from the State and other entities.

 

The City has a contract with OCED or Otsego County Economic Development.  OCED is a department within our county government staffed by Carolyn Lewis and Zondra Hart.  The contract provides funding for work on behalf of the City that is overseen by Carolyn.  Julia Goff, who performs that work, is a contract employee for “Main Street Oneonta”. “Main Street Oneonta” is a non-for-profit corporation that promotes downtown Oneonta. Julia oversees an economic development, event promotion and design program for the City’s downtown area.

 

Zondra works county-wide as an economic development specialist for small businesses, helps put potential partners together, and specializes in agricultural projects.  The tourism component for the county’s economic development program is managed by Deb Taylor.

 

There are really three entities that operate at the County level.  First is OCED which is part of county government and provides administrative support to the other two entities.  Second is the IDA or Industrial Development Agency which is quasi-government.  It has a separate Board with nine members appointed by the County Board.  It may own property that it leases or later sells to businesses.  An example is the Pony Farm Industrial Park.  Historically the IDA had the authority to issue Civic Facility Revenue Bonds on behalf of local-not-for-profit institutions like Fox and Bassett Hospitals, St. Marys School, Hartwick College and the St. James’ residential facility.  In 2008 this legislative authority was subjected to a sunset provision and thus no longer exists.  However, the Otsego County capital Resource Corporation, incorporated by the Otsego County Board of legislators, now handles these transactions.

 

Third is the OCDC or Otsego County Development Corporation.  It is a private, not-for-profit entity that has its own Board and is chaired Doug Gulotty.  It was founded in 1959 to promote culture, recreation, economic development, trade and commerce.

 

Collectively these three entities (OCED, IDA and OCDC) administer loan and grant funds available to encourage private sector economic development.  The money may come from the Federal government (HUD or Housing and Urban Development) via block grants to the States or from the State itself.  Once a project for additional funding is identified, one or more of these agencies may apply to the State for funds from a block grant.  When the loans are repaid the money is then used to create a revolving loan fund to provide loans for other future projects.  Interest rates are competitive and there can be increased flexibility with regards to when repayment is expected.  In general, these loans do not fund an entire project.  Instead they can be used to fund the portion of the project that represents the difference between the total amount needed and the amount a bank is willing to finance.  That difference may be referred to as the “gap”.  Doing this reduces the bank’s risk and thus makes it easier to obtain bank funding.  This process is often used to fund agricultural and high-tech projects like the startup and expansion of Ioxus (occupies the former soccer hall of fame facility).

 

The person with her finger on the pulse of economic development in Oneonta is Carolyn Lewis.  She’s good at her job and she cares about Oneonta and the County.  If you’re trying to navigate the alphabet soup, she’s a great place to start.  Her number is (607) 432 – 8871 Ext. 207.

 

SBDC or the Small Business Development Corporation helps people who want to start or expand a small business.  Michelle Caton helps owners and prospective owners with all phases of developing a viable business plan prior to seeking funding assistance.

 

CADE or the Center for Agricultural Development and Entrepreneurship is a private, not-for-profit entity that can assist with sourcing grants and other funds to assist with agriculturally based business development.

 

You might now be asking yourself how the letters in the alphabet soup can be arranged to actually help you.  Let’s use an example to answer that question.  Suppose you wanted to start or expand a business in the County.  You might start by going to the SBDC or CADE (agricultural) to help you develop a business plan.  They might bring in IDA to help develop the blueprints for your facility.  CADE might work with SBDC to help develop a business plan that you could take to a bank.  The bank might then send you to IDA and/or OCED for part of the loan you need.  If you desire to go it alone, the State has created a window each year during which you may apply directly via a CFA (Consolidated Funding Application).

 

Other groups or organizations have evolved to meet specific needs.  The Otsego County Chamber of Commerce has long been a leader in promoting economic development and enhancing the business climate.  They have a key role in promoting the area and aiding is the resolution of issues that impact, both positively and negatively, on business within the County.

 

Go/EDC is a recent entry in the economic development arena.  Al Colone and Bill Shue are the drivers behind it and their focus in on sports/tourism, promoting the growing of hops, and improving the aesthetics of the entrances to the City and overall sixth-ward improvements.

 

Another recent entrant into the mix of those interested in improving the economic climate for the area is Citizen Voices.  It is made up of local business leaders concerned with doing what it takes to provide jobs and opportunity so that our young people don’t have to leave the area.  Their mission is to:  support a pro-growth economic environment which will provide job opportunities for present and future generations; and be pro-business and create opportunities to bring us all together to find common ground in making the region a welcoming and vibrant community that is open to business and industry while balancing the beauty of the area and conserving its natural resources.\

 

At this point you might look at all this alphabet soup and think of it as an orchestra without a conductor.  Who is working to coordinate all these entities so that they communicate and work together on projects of benefit to Oneonta and the County?  Oneonta Mayor Miller asked that same question and is bringing them all together on a regular, informal basis to promote communication and cooperation.  Hats off to the mayor!

 

citizenvoices@hotmail.com

Economic Reality

Economic Reality

 

According to op-ed columnist David Brooks in an article published January 01, 2013,

“Public debt as a percentage of gross domestic product was around 38 percent in 1965. It is around 74 percent now (over $16 trillion). Debt could approach a ruinous 90 percent of G.D.P. in a decade and a cataclysmic 247 percent of G.D.P. 30 years from now, according to the Congressional Budget Office and JPMorgan.

 

By 2025, entitlement spending and debt payments are projected to suck up all federal revenue. Obligations to the elderly are already squeezing programs for the young and the needy. Those obligations will lead to gigantic living standard declines for future generations. According to the International Monetary Fund, meeting America’s long-term obligations will require an immediate and permanent 35 percent increase in all taxes and a 35 percent cut in all benefits.

 

So except for a few rabid debt-deniers, almost everybody agrees we have to do something fundamental to preserve these programs. The problem is that politicians have never found a politically possible way to begin. Every time they tried to reduce debt, they ended up borrowing more and making everything worse.”

 

According to a recent report from New York State’s Comptroller, Tom DiNapoli,

“ New York State’s heavy debt burden could jeopardize critical infrastructure projects and other capital needs.  New York State has the second highest level of debt in the country and is approaching its legal borrowing limit.  The state’s debt capacity is projected to dwindle to $509 million by the end of the next fiscal year.

 

New York’s past borrowing is limiting our future options,” DiNapoli said.  We spend billions each year to repay existing debt, so fewer resources are available for more pressing needs. This comes at a challenging time when our state needs to rebuild and repair critical infrastructure and has growing capital needs.

 

Taxpayers have little or no say in how much the state borrows, but they’re the ones who have to foot the bill. It is time to return to voter approval of borrowing. I have called for comprehensive reforms to New York State’s capital planning process to ensure critical infrastructure needs are met in a responsible way. Hurricane Sandy underscores the need for a serious discussion about our public infrastructure and how we pay for it.

 

New York’s outstanding debt averages $3,253 per state resident, almost three times the national median. [As people continue to leave the State, the amount of debt per household, even if no new debt is added, will grow.]  New York’s state-funded debt totaled $63.3 billion as of March 31, second only to California and 80 percent higher than New Jersey, the state with the third highest level. This represents an increase of $24.3 billion, or 62.2 percent, from state fiscal year (SFY) 2002-03.”

 

During the third quarter of 2012, Citizen Voices wrote a series of articles explaining the economic hardship faced by the County and City.  As 2013 begins, we are informed that those economic hardships also exist at the Federal and State levels.  We are spending more than we are raising in revenue.  That is happening in spite of the fact that most of us feel that we are already being over-taxed.  If people leave the county and the debt remains the same, the tax burden needed to support what we now have must increase.  The programs that help the needy and elderly are things we all want to support.  If Mitt Romney was right about 47% of our population receiving some form of public assistance, it will be nearly impossible for politicians to reverse that trend.  If we go broke, people with a publicly supported retirement will face the real potential for having that retirement either go way or dwindle.

 

The situation we face is this.  We are living longer and we have an increasing number of people who are receiving benefits – benefits that keep escalating in cost.  Politicians seem unable and/or unwilling to address the expense or cost side of the balance sheet.  They are also unwilling to increase revenue by raising taxes.  If you have increasing costs and no new revenue to offset those costs you and I would go bankrupt.  However, our government is about to engage in a debate over raising the debt ceiling so that it can borrow even more money – again.  The responsible thing to do would be to cut costs and raise revenue until the debt was erased.  However, based upon past experience, we can’t trust our governments to use new revenue to offset debt – they would find a way to spend it for something else.

 

So, what options do we have left?  One option is to regain our manufacturing capability.  Doing so would create jobs and folks with jobs pay new taxes.  The manufacturing facilities and the facilities needed to support them also pay taxes.  Instead of placing an increasing tax burden on existing people and property, we would add new tax revenue to the pot.  However, for this to work there has to be a way to force the governments to operate within their means.  In the short term, this might be somewhat painful.  However, if we don’t take that step the pain will be inflicted on today’s youth and future generations.

 

Our next article will help explain the programs that our city and county have to assist with promoting economic growth.

 

citizenvoices@hotmail.com

Connecting the Dots

Connecting the Dots

As 2012 came to a close, members of “Citizen Voices” put together a series of articles about our community.  Those articles were intended to provide insight into where we are in terms of our fiscal circumstance and to make a case for the need for economic and population growth.  Even after providing valid information, there is still resistance to the need for economic growth within our community.

 

According to an annual report released today by State Comptroller Thomas P. DiNapoli, many local governments have nearly exhausted their resources in an effort to avoid severe fiscal stress.  “For the past five years, the financial trends in our municipalities and school districts have become of heightened concern,” said DiNapoli. “Years of decreasing, stagnant or slow economic growth have led local governments to cut vital services and tap their rainy day funds to balance budgets, a practice that is not sustainable in the long term.”

 

DiNapoli’s report noted that the growing disparity between revenues and expenditures was increasing.  From 2006 through 2011, total local government expenditures grew by 17.4 percent (an average growth of 3.3 percent per year). Meanwhile, revenues only grew by 15 percent (an annual average of 2.8 percent per year).  More specifically, county expenditures jumped 17.2 percent, while revenues climbed 13.4 percent. Total city expenditures (excluding New York City) increased 8.4 percent during this time frame, but revenues only increased 6.4 percent. And town expenditures grew 12.9 percent, but revenues increased only 7.1 percent.

 

We’re hoping that this article will help connect the dots and thus provide a more clear picture of where we are and what must be done to prepare now for what is, and will continue, facing us.  Otsego County, with an area of about 1,100 square miles, had a population of about 50,200 in 1860.  By the mid-1900s, our population hovered around 50,000.  In1990 the population was 60,517.  It increased slightly between 2000 and 2005 and then showed a downward trend in 2006, 2007 and 2008.  In 2010 the population had rebounded to 62,259, but by 2011 it had declined to 61,917 – about where we were in 2000.

 

We have fewer people 18 and younger and more people 65 and older than the State as a whole. The percentage of people with a high school diploma, 88.3%, is greater than the state as a whole, but our drop-out rate is growing.  About 26.2% of our population has a Bachelor’s degree or higher which is slightly less than the State as a whole.

 

The median value of owner occupied housing, $131,000 is about 30% of what it is for the State as a whole and contributes to our lack of ability to use property taxation to raise the revenue to cover growing costs (education, health care, highways, retirements, etc.).  The per-capita income is $23,176, and about 16.4% of our citizens fall at or below the poverty level – a number higher than that for the State as a whole.  In the 2005-2007 census, the number of people in the county at or below the poverty level was12.8%.  Thus the percentage has grown by about 4% since the last census.

 

According to the most recent census data, the county issued 37 building permits in 2011 – this compares to 22,575 for the state as a whole.  Unemployment has risen from 4.5% in 2006 to about 8% today.  Neither of these indicators encourages optimism.

 

So there we have it.  Fewer people with lower incomes and relatively low property values are being asked to pay for an increasing tax burden.  As a result, people are leaving and that places an even greater tax burden on those that remain.  As a result, the schools and city, towns and county governments are facing budget shortfalls.  In order  to remain within tax caps and political reality they have begun to cut programs, defer repair and maintenance and close schools – the beginning of a fiscal death spiral.

 

Does the future look brighter?  According to census information, the population of central NY is expected to decline 9.2% from 2006 to 2030.The population aged 65 and older is expected in increase by 36% during that same time. The cost of caring for the elderly will dramatically increase as health care costs and services rise.  As the size of households continues to decline and young people continue to leave the area in search of jobs, the burden of caring for the elderly will increasingly fall upon the public sector and not-for-profits.  The isolation of the elderly in villages and outlying areas, increased infirmity, increased dependence on provision of nutritional meals and homecare and transportation will translate into more budget conflicts.

 

It is the citizens of the county that will be expected to pay for the care for the elderly in the form of tax increases and it is the citizens of the county that fund the not-for-profits via donations.  If people continue to leave, those remaining will not only have to cover the cost of existing services but also for the increasing health care costs for the elderly.

 

Is it becoming easier to connect the dots?  Either we grow our economy and population base or we perish.  That is economic reality.  There is, however, a solution that has not yet been explored.  Those of us who, like Warren Buffet, feel we’re not paying enough in taxes could volunteer to come forward and offer to pay more.  Such an offer would be very much appreciated by those who feel they’re paying too much in taxes.

 

Right now about 33% of our residents are employed by the public sector (education comprises 17% of that percentage and healthcare/social assistance about 83%.  Those employers are tax exempt and thus their growth, without a commensurate growth in the private sector, could result in an increase in the tax burden imposed on the private sector and our population. The retail trade (12.6%), manufacturing (7.8%), construction (7.1%), arts, entertainment and food (9.9%), public administration and other services (7.9%) and everything else (21.3%) make up our economy.

 

If the retail side is going to grow, people need jobs so they have money to spend.  If those jobs come from the public sector, tax revenue will continue to lag and thus cause budgetary shortfalls.  Those who oppose economic growth might do so because they feel comfortable with their economic situation.  In many cases their income comes from retirement plans or investments.  Those investments generally consist of a mix of individual stocks and mutual funds and the mutual funds often have a mix of stocks – including stocks in energy companies.  The holders of those stocks expect them to perform well and be profitable.  If it’s OK to own energy companies, why is it not OK to have them located here?

 

Now that we’re beginning to connect the dots, support for doing what it takes to grow our economy and population base will broaden and thus the picture created when the dots are connected will be brighter.  We can, we must, do this together.

 

citizenvoices@hotmail.com

Contributing to the tax base

Contributing to the Tax Base

Something happened Saturday night in Oneonta that merits discussion before continuing with our series about our local economy.  Several of us had the chance to attend a performance of The Sound of Music at SUNY-Oneonta’s Orpheus Theatre.  The actors did an absolutely wonderful job of entertaining us.  However, the actual entertainment is only one of the things that impressed us.  What we got in addition was a brief glimpse of what was one of our community’s greatest strengths or assets – joining together to support our own and the community.  All of the performances are sold out – a clear demonstration of support of a common goal.  Now the question is: how can we do the same with regards to our economic future?

We have talked about the public sector component of our economy. Now let’s take a brief look at the manufacturing and retail/services sectors.  Our early history is steeped in the entrepreneurial tradition. A look at our early history reveals that Oneonta was home to George Fairchild who represented us in Congress and was co-founder and first Chairman of IBM.  Oneonta was also home to David Wilber who served several terms in Congress and as President of Wilber Bank after making his fortune in lumber, hops and other agricultural pursuits.  About 1905 construction began on what would become the world’s largest railroad roundhouse – a place to store and maintain the steam locomotives of the day.  According to once source, “the economic climate of Oneonta benefitted greatly from this facility”.  Back then Oneonta was encouraging growth and, as a result, prospered and grew.  Today we are passing moratoria to restrict the use of our roads and to the keep “unwanted” business out.  What has changed and why?

The manufacturing sector is generally a very capital, labor and energy intense component of the overall economy and one that is vital to having a vibrant and prosperous “middle class”.  The capital and labor are needed to fulfill the vision of an entrepreneur seeking to make a profit.   When we think of manufacturing, we think about what we have observed with Chobani Yogurt in South Edmeston, NY.  They invested in buildings, machinery, equipment, trucks for distribution and hired about 1,500 local people (labor).  Together the people and equipment take raw material including milk from nearby farms (if they can meet the need), water and energy to create a product that has a greater monetary value than the sum of the costs it took to make it.  That value is what we know as profit and it’s that profit that drives a healthy economy.

There is generally a large up-front investment in buildings, equipment and inventory which limits the number of people who can afford to start a new manufacturing business.  Many times there will be economic incentives provided by local government (like tax relief for a period of time) to the manufacturer to attract the new company to the area and help insure their viability.  Chobani, and the people it employs, pay the taxes and fees which the public sector requires in order to provide both the company and the community at large with public services like education, health care and government.

Often times the manufacturer will sell its product to distributors at a wholesale or discounted price.  The distributors then sell it to retail outlets across the country or the world.  IBM is a good example.  Their headquarters is in Armonk, NY and they have several manufacturing facilities that eventually provide product to a retail dealer who sells to the public in Oneonta.

If the manufacturing concern is locally owned, there is a very strong likelihood that they will be using other local businesses such as farmers, banks, insurance companies, energy providers, local retailers and other services.

If a business is deemed “successful” and attracts outside investors, it may go “public” and issue shares of stock that people in our community could buy.  If that happens those buyers expect, no demand, “their” company make a profit so that they, the shareholders, get an acceptable return on their investment in the form of dividends, additional shares or an increase in the value of the shares they hold.  It is those kinds of stocks that comprise our public retirement systems and 401(k) plans.

In the meantime, businesses that sell products to this manufacturer and businesses that sell products to that business’ employees prosper – as does the public sector.  Because these manufacturers have a tie to the community they generally are generous in their support of local “causes” or needs.  Much of this area’s “old money” resulted from investing in IBM stock when it was just starting up.

Our area has several manufacturing operations.  They include large companies like Chobani, Amphinol and MeadWestvaco, and smaller firms including, but not limited to, injection molding of plastics; electronics; sauces, producing lumber and specialty woods from logs and conversion of vehicles to serve as high-tech mobile health care providers.  It is important that we recognize their contribution to our economy and encourage them to remain.  In conjunction with that effort, we need to attract new manufacturing businesses.  Growing new manufacturing businesses will help stop our current “brain drain” by providing career paths that enable our children to find quality work and will attract new talent to our area.

The retail/services sector provides the goods and services that we use in our everyday lives.  This sector is impacted by location (remote or close to population centers) and population density.  Over the years retail has changed from being dominated largely by local entrepreneurs to one which is now dominated by the “Big Boxes”.  In the past there were many “MA & PA” businesses which were the backbone of our community, e.g. Stevens Hardware or Hotaling’s Grocery store on lower River Street.  They not only provided the goods and services the community required, but they also supported the community by using local non-public sector services such as banks, insurance companies, car dealers, etc.  They served on the local school boards, in local government, service groups and not only gave their time but also donated their resources.   This has changed with the dominance of the “Big Boxes”.  The “Big Boxes” use very few local services and generally do not take an active role in the communities they serve.  However, their large product selection and perceived low price attracts customers from outlying towns and villages to come here to shop, eat and buy gas.  The area benefits from the sales tax generated and property and the property taxes and wages they pay .  Unfortunately, the money spent in those “Big Boxes”, except for salaries and taxes paid, doesn’t stay here and re-circulate thereby reducing the well-known “ripple effect”.  These “Big Boxes” do not use local services such are banks or insurance and their commitment to an area may be limited.  Thus a mix of locally owned and operated businesses and businesses that are part of a chain based somewhere else seems to be the logical alternative.

With the advent of the internet, the retail business has been dramatically changed.  We were accustomed to retailers like LL Bean who used a catalog to reach customers who lived a long way from Freeport, ME.  Today that scenario has been repeated on a grand scale as retailers like Cabelas grow their local presence by opening new retail stores and, at the same time, use both catalogs and the internet to reach customers living too far from a store to shop there.  Being “home” to one of these internet businesses or distribution centers could be a good thing.  Cabelas, for example, tends to create centers of economic activity around their stores.  Is that a model worth pursuing?

Based upon what has been learned from other communities, having a diverse base for our economy seems prudent.  Businesses tied to tourism and agriculture need to be a part of that economy.  However, as we have learned from other communities, they cannot be the only components.  Manufacturing that is compatible with our area and retail business must also play a role in order to grow the tax base needed to support the public sector and to provide much-needed jobs.

Our area is fortunate to have good services.  Local insurance companies, banks, restaurants, churches, and car dealerships do an admirable job in meeting our basic needs while serving as significant employers and contributing to the tax base.  However, we are not doing as well on the retail side.  Main Street Oneonta is experiencing the same difficulty as “Main Street” almost anywhere.  That may be as much a symptom of how our society has changed as any of the other possible explanations, but it is a problem and needs to be addressed.  Efforts like “Main Street Oneonta” are exploring ways to revitalize our downtown.

citizenvoices@hotmail.com

Why we need to grow our tax base

To Be Sustainable We Must Grow Our Tax Base

By now you may be wondering why Citizens Voices keeps saying we need to “grow our economy or tax base”.  As a group of long-time residents who have watched our community grow and now decline, we feel there are many reasons why we need both economic and population growth.  Over the past few decades this area has been very fortunate to have a growing public sector economy.  That economy includes health care, education and local, state and federal government agencies.  Our community has become very dependent upon the public sector economy and the good paying jobs and benefits It provides.  In the past the public sector has helped isolate the area from economic swings, but this growth only in the public sector has resulted in an unbalanced economy as it doesn’t increase either the real-estate tax base, income tax or sales tax revenue.

A balanced economy needs to have three components or pieces in order to be in balance:  the public sector; the manufacturing sector; and the retail sector.  All three need to work together for the economy to prosper and if one becomes too large or too small problems arise.  Each component provides particular benefits that help fuel the other two components and when all three are working in harmony they have a synergetic effect whereby the whole is greater than the sum of its parts.  In other words two plus two equals more than four.  Consider a community that has a good school system, good health care, some local manufacturing to provide jobs and a strong retail presence that provides good shopping opportunities.  That community is more likely to attract new people and business than one that doesn’t have those pieces to its overall economic puzzle.

WHERE WE ARE TODAY:  As mentioned earlier, our economy has become overly dependent on the “Public Sector”.  The tax base in the City of Oneonta is over 50% tax exempt.  This means the other 50% pays the entire tax burden.  This situation results in overly high taxes for those businesses and individual property owners who are paying those high taxes.  The high tax burden, coupled with the high cost of energy, contributes to the high cost of manufacturing a product and discourages further development, hampers the attraction of new business and makes it economically unattractive to move here.  The end result is that companies leave, people’s incomes decline, properties tend go into disrepair, more properties become delinquent on their taxes and the area goes into a death spiral.  If you look at the projected county budget you will find the Board is faced not with how to spend new revenue, but rather with how to meet the budget by either cutting programs or deferring repair and maintenance costs.   – a sure sign we are facing the economic death spiral.  This is what we’re experiencing.  Businesses have left or cut back; school enrollment has declined resulting in school closings and budget shortfalls; people are being laid off; jobs are being left un-filled; city, town and county budgets are suffering; and taxes continue to increase in spite of reduced services.

The only way to reverse this downward spiral is to grow the tax base.  That means we need to attract new business (both manufacturing and retail), support the businesses we have and take the steps necessary to attract people to our community.  Doing so will lead to the creation of more private sector jobs and a broader overall tax base.  Requiring the public sector to adapt a zero-based budget base system where every expense must be justified each year will help make that goal a reality.

We are facing difficult economic times.  Dealing with them successfully will require our elected leaders to act without emotion to make many difficult decisions – many of which will be very unpopular to some but are in the best interest of the greater community.  As always, they involve cutting costs and/or growing revenue.  Those are the only two options and within those two options there are choices.  Making the right decision will start us on the road to recovery while choosing the wrong decision will hasten our demise.

All that Glitters is not Gold

All That Glitters Is Not Gold

As we discussed in our last article, an economy needs to have 3 sectors in order to be in balance:  the public sector, the retail sector and the manufacturing sector.  All three need to work together for the economy to prosper.  If one segment is expected to carry the entire economy, problems are likely to arise.  Each sector provides a particular benefit while requiring specific needs in order to be successful. Over the years this area has been very fortunate to have a growing public sector economy.  The region has become very dependent upon the health care industry, the education community and various government agencies which have provided good paying jobs along with very good benefits.  In the past the public sector has help to isolate the area from economic swings but this growth has resulted in an unbalanced economy.

The public sector provides “services” for a community.   These services include education, health care, public safety, infrastructure like roads and other government services.  These services are paid for through taxes such as State and Federal income tax;  corporate tax; school tax; town, city and county property tax; state and county sales tax; highway tax; truck mileage tax and various other taxes.  There are also many fees, including the purchase of lottery and powerball tickets, which we pay in order to support the public sector.  These taxes and fees are paid by you and me as citizens and by the retail and manufacturing businesses as the “Public Sector” is generally exempt from paying any taxes or fees.  This works well if an economy is in balance, but if the public sector’s tax exemptions aren’t offset by a growing population and growth in the retail and manufacturing sectors, the tax base doesn’t keep pace with the cost of public services.  When this happens the residents and other businesses suffer as their cost to support the public sector increase disproportionately and they become less competitive.  The area also suffers because it will not attract new business or encourage population growth which is needed to meet the ever increasing cost of the services provided by the public sector.

A closer look at our education system reveals these very symptoms.  According to a recent article in our local newspaper, about 9% of New York’s schools face the very real possibility of becoming insolvent – broke.  This situation forces us to ask how this could happen.  Our local schools are partially funded by property taxes and we have a shrinking property tax base.  State aid also helps fund the cost of operating our schools.  Those State dollars come from taxes and fees (lottery tickets) imposed upon you and me and our State’s businesses.  The State’s budget, like ours, is facing a huge deficit due in part to the economic downturn.  That means State aid dollars are shrinking.  On top of that the State puts strings on the dollars it gives our community.  Those strings are called “mandates” and school administrators generally refer to them as “unfunded mandates”.  They are called unfunded for three reasons.  First, there may not be an increase in State aid to cover the cost of implementing them.  Second, there may not be an annual increase in State aid to cover the ongoing cost of implementing them.  Third, the State aid may be cut but the unfunded mandate remains.  State aid is funded by taxes or fees on us and our businesses.

The problem with mandates has grown significantly in the last four years because the public schools have seen stagnant or reduced funding as costs have skyrocketed.  For example, we are mandated (required), by New York State, to pay into the Employees’ Retirement System (ERS) and the Teachers’ Retirement System (TRS).  As the returns on the investments that are used to fund these programs have fallen off, our costs have risen tremendously over the last four years without a corresponding increase in State aid.  As a result, schools are forced to cut positions and programs to balance budgets.  The most costly mandates are in the area of special education services which are primarily the result of Federal regulations (originally IDEA or Individual with Disabilities Education Act) which have been liberalized further by New York State.  The regulations are very prescriptive and expenditures per student, although laudable, can be very high.  Special education is the perfect example of a decades long, mandated program that has never been fully funded by either the Federal or State governments and, consequently, the burden falls on the local taxpayer.

If we examine our health care industry, we find that our hospitals are facing the same financial woes.  They rely heavily upon reimbursement from private health insurers and federal reimbursement programs like Medicare and Medicaid.  Just like with State mandates in education, the insurers impose mandates on the healthcare industry.  Remember that old adage – “he who pays the fiddler gets to call the tune”?  As Congress debates how to avoid the fiscal cliff two things are clear:  Obama Care is here and will be costly to implement; and Medicare and Medicaid will be subject to reform.  What that means to our healthcare providers isn’t certain, but it is unlikely to be a boon to them or us.

Close examination of our local budgets reveals that the discussions aren’t about how to grow them by adding new revenue.  We are eager to pass moratoria on potential new business that could help add new revenue while facing a reduction in our police force and quality of education.  If the trend continues our fire-fighters will be next.  Those cuts simply appear to reflect what must be done to live within our shrinking budget.  The abstraction will become more real if one of us is mugged or faces the hardship of a fire.

As mentioned earlier, our area economy has become overly dependent on the “Public Sector”.  The tax base in the City of Oneonta is over 50% tax exempt.  This means the other 50% pay the entire tax burden needed to fund our schools, public safety and infrastructure needs.  As a result we face overly high taxes for those being taxed.  Higher taxes mean higher costs of doing business which discourages further development, hampers the attraction of new business, both small and large, and increases the cost to live here.  The end result is that companies leave, people’s net or disposable incomes decline, properties tend go into disrepair, more properties become delinquent on taxes and the area goes into decline.  This is what we’re experiencing.  Business have left or shrunk, school enrollment has declined resulting in school closings, people are being laid off, city, town and county budgets are suffering, and taxes continue to increase in spite of reduced services.  The only way to reverse this is to grow the tax base by bringing in new people and businesses.  Doing so will create more private sector jobs.  Requiring the public sector to use private sector budget-balancing measures like zero-based budgeting where every expense must be justified yearly will help.

These are challenging economic times and require our elected leaders to make decisions based upon fact and not emotion.  There will be times when those decisions won’t make everyone happy, but they will be for the long-term good of the community they represent.   The decision about whether or not to transfer ownership of the Manor is one of those decisions.  In the face of a $5 million deficit and a declining budget can we afford the status quo?  Doing so means that other things will suffer – in this case it means deferring repair and maintenance.  Next year it will mean deferring or cutting something else and our county will have taken steps to begin a death spiral – one that will be very difficult to reverse in light of our shrinking tax base.   The “right” decision(s) will start us on the road to recovery while the wrong decision will force us to make even more difficult decisions in the following years.

Citizen Voices