By Contributing Editor Christian Fong
Expect this week’s debate on the $700 million bond plan to focus on the local needs. Last week I talked about how Iowans should demand a level of transparency and accountability, in my "Parable of Sergei's Turkey."
This morning the Armchair Economist studied a just-released report on state finances from Goldman Sachs. (No public link available as the online article is in "clients only" sites.) I’ll spare you the tedious charts and graphs, and hit the highlights. Because when Goldman Sachs’ top economists issue a report, it doesn’t only explain the market, it moves the market. The successor to the old E.F. Hutton ads, when Goldman Sachs talks, everyone seems to listen.
Germane to the current debate on Iowa’s bonding are these comments:
The Good: "While there are several reasons to think that the economy will look better after mid-2009, state and local finances are not among them."
The Bad: "After the 1974, 1990 and 2001 recessions, state and local growth bottomed 8 to 11 quarters after [national] GDP. If growth in the broader economy is in the process of bottoming now, state and local activity could drag on growth for another two years."
The Ugly: "Falling tax revenue will push states to cut spending or raise taxes." It is that simple. Using any other option (like, say, a $700 million bonding plan) is "delaying the inevitable."
So, the overall economy looks like it will start improving soon, but if legislators think this year is bad, next year is likely to be much worse. A bonding plan is simply extending the pain, and delaying the inevitable. The key take-away is economic reality, not political posturing:
The State of Iowa must either grow by raising taxes and fees, or shrink by cutting spending.
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