Hawkeye Review

Political Self Interests vs. Economic Self Interests

"It's a good thing we don't get all the government we pay for."
Will Rogers

The Iowa Legislature convenes one week from today and across the state there is no doubt every special interest group is gathering to march on Des Moines and "protect their interests."

Problem is:  There is no money.

With apologies to anyone who may be in the midst of substance abuse treatment, our state is about to experience a budgetary withdrawal that resembles detox from either drug or alcohol addiction.  We're addicted to a different kind of stimulus. 

One of the strongest arguments to use against Governor Culver in his bid for re-election is the manner in which he used the one time stimulus funds to "back-fill" existing state spending commitments without reducing the size or cost of state government. 

Now the stimulus dollars are spent and Chet Culver's about to run though a political "gauntlet" like he's never experienced with the 2010 session anticipated to last only 80 days.

This is an opportunity for the Republican party and legislators to demonstrate fiscal responsibility. We face to lose on a larger scale (future elections) if we fail to take the high road in our manner of preparation, presentation and overall conduct. The largest voting block in our state is the unaffiliated voter and trust me; they'll be watching and taking notes.

Bottom line:  This is about GREED. You're about to witness an epic struggle between those who serve to protect political self interests and those who represent us to defend our economic self interests.  Milton Friedman clearly outlines this principle in the clip below.  

The next election cycle will be defined by this principle...

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A unifying moment...

We are a country that votes much like a pendulum swings...

 It's a fascinating study for political junkies and over many years and election cycles, the process continues to amaze and befuddle the experts who live for the rare moment of successfully predicting "future behaviors" of the electorate.  Last November saw enormous movement in the political pendulum and it continues to swing...back towards conservatism.

My unscientific proof was a brief conversation on Thanksgiving in a room that was very mixed in its political affiliation.  There was rare agreement until the issue of spending restraint came to the forefront and suddenly there was near silence, who would dare to step forward and "defend" the massive spending by states and our federal government?  Even the lifelong liberal Democrats were in agreement that spending is out of control and much like a plane in a tail-spin, we need to immediately pull back this behavior and save our country from the fiscal abyss.

This is not the time for purity tests...It's time for sanity exams!

Should we focus our messaging on fiscal restraint, identify a "10 point plan" to reduce spending...and then actually keep our promises... the Republican party stands to engage a new generation of voters who will stay home with the party as long as we continue to live up to our commitments.

I'm somewhat surprised at the recent Des Moines register poll, which echoes my own sentiments about the pendulum swinging back towards conservative values.  My first impression? This story is a product of the sales and marketing department, since the Register has been bleeding away readership at alarming rates over the past few years.  We didn't need 800 Iowans to tell us what we intuitively already knew, Iowa is in large measure a conservative state. When we stay consistent in our message and our behavior, we will be rewarded with voters "coming home" to support conservative candidates.

Give our leadership credit too. Vaudt, McKinley and Paulsen have been sounding the warning bells for over two years now.  Press releases from the IDP are sounding more and more defensive these days and the worst is yet to come. 

Next month, when the Revenue Estimating Conference (REC) announces it's latest adjustment to state revenues, this already bleak scenario may turn into a 5 alarm budget crisis before the legislature gavels in to attempt "triage" on our state's budget wounds. 

Then, Culver delivers his opening address to the legislature in January.  Should he dare to point fingers and make excuses, be assured Iowans (and even his own party) will take decisive action.

Aside from rallying our country after 9/11, this is quite possibly the most unifying issue of our generation.  Let's show wisdom in our message, restraint in our dialog and get this right.

 

Culver's on first: The Governor continues to insult our intelligence...

Iowa GOP Chair Matt Strawn said it best on Twitter this morning: "When is a ten percent cut not a ten percent cut?"  Evoking the comedy of Abbot and Costello, it appears we have our own modern day version of this humorous parody playing out in Des Moines.

Once the simple math emerged from Culver's spin machine, we find a different number on the chalkboard and just like everything else related to Culver and finances, the numbers just don't add up.

They trot out spokesman Phil Roeder to "splain the math."

“John Frew, our chief of staff, directed that the pay cut not be retroactive,” Roeder said. “The 10 percent cut in pay for the governor – as well as chief of staff and department directors – will not be retroactive, but apply to the balance of the fiscal year.”

So let's review:  Instead of a $13,000 pay cut, we now have a $7,000 pay cut representing 5.4% of his annual salary.

Help me folks: Since when does the Governor announce a 10% cut in his annual salary only to be superseded by his own chief of staff John Frew, who announces (directs) a different application of the Governor's own orders? (Coincidently, this 10% reduction applies to Frew's own pocketbook)

There are days that I wonder if the only math Chet Culver understands is how many beers he can purchase with his credit line 

I have some suggestions:

* Take charge Governor, write out the $13,000 check TODAY and put this little crisis to rest.

** Bold leadership requires you to call a special session NOW and start resolving the budget crisis before we waste any more of Iowan's hard-earned taxpayer dollars.  Your lumps are coming, take them now because if you wait until January, it's going to hurt even more but more importantly, COST US MORE!

*** Demonstrate dynamic, visionary leadership by writing the state treasurer a check for the full $130,000 and then turn around and pay yourself from your own campaign war chest. It seems like all you've done since entering office is run a campaign as it's now quite evident you haven't been running our state

**** Tell your entire staff effective today, the word "Assume" and "Assumption" are no longer allowed in their vocabulary and especially in your press releases.  Every assumption you've ever made regarding our state's finances has turned you into a laughing stock.  The problem is, this is no laughing matter.

Assume: Otherwise known as ass / u / me - Governor, you're making us all look like asses now.

Culver's Failure to Lead: Part 2 - A legacy of waste and inefficiency...

In part one of this two part post, I commented how Governor Culver had failed to provide leadership by ordering a 10% across-the-board cut last week.

"A ten percent across the board cut is also evidence of a weak governor, who has neither the courage or clout to address specific cuts of varying degree in a manner that reduces expenditures without depleting programs with priority status.  Nor did Culver identify program areas in state government which could be either dramatically reduced or eliminated."

In this concluding post, I propose to my fellow Iowans that the most significant "missed opportunity" in Iowa's fiscal crisis was to identify, reduce and eliminate the massive waste and inefficiencies that exist in many of our states departmental budgets.

The unwillingness of Democrat leaders to address this key area of emphasis is symptomatic of "special interest politics" and flawed practices that are unfortunately rampant in state government.

Republican leaders Kraig Paulsen and Paul McKinley have both proposed targeted, specific cost savings totaling over $300 million dollars during the last legislative session, which were universally shut down on party line votes. 

A classic example from last spring was the "daylight" Republicans brought forth when it was revealed nearly 50 brand new state vehicles sat idle, collecting dust in a Des Moines parking lot.  Once this issue was made public, the vehicles were suddenly moved to a new location. Your tax dollars were then appropriated and spent during the last session to purchase additional, new state vehicles.

Next time you bump into your own state representative, ask him/her if she can explain to you the function of a "Schedule 6."

A schedule 6 is the "line by line" budget report form that provides specific spending details for each department in state government.  I've spent time with one legislator who walked me through one major department budget and the results were shocking.  "Ghost employees," unexplained variances and confusion reign with your tax dollars. The total sum is staggering.

Private industry survives and thrives because owners and entrepreneurs constantly evaluate their cost structures and reduce waste.  In my own business, I've had the raw materials used in my products increase over 50% in the past 5 years and yet to this day, I've maintained the same retail price to my customers because I've found more efficient purchasing & acquisition strategies to offset these increases. 

At the state level, it's quite simply different, the cost increases are automatically passed on to the tax payers.  This explains a portion of the massive increases in state budgets since Governor Culver has taken office.

Once we re-employ a Republican Governor in November 2010, I expect Iowa's taxpayers will be shocked when the spending practices of the Culver administration are brought to the surface as our GOP Governor implements the modern efficiencies taxpayers deserve from our own government.

That will serve as the political epitaph for Chet Culver, the former chief of state and the man most responsible for a legacy of waste and inefficiency.

Culver's Failure to Lead Part 1: "Kicking the can down the road"

Video courtesy of KCRG news

There's a saying from investment circles that comes to mind this morning as I reflect on the events of the past few days..."You can't drive your car looking into the rear view mirror without crashing."

This is, metaphorically speaking, exactly what Governor Culver has done with our states fiscal policies.

What if Governor Culver had conducted this very same press conference last spring, imagine just how different our state's financial condition would be today?

In the video posted above, you'll note in Culver's opening statement an immediate "dodge" when he refers to "failed policies from the previous administration and Wall street." 

A ten percent across the board cut is also evidence of a weak governor, who has neither the courage or clout to address specific cuts of varying degree in a manner that reduces expenditures without depleting programs with priority status.  Nor did Culver identify program areas in state government which could be either dramatically reduced or eliminated. 

"Lean, effective budget for 2011"

It's apparent to me that this drastic "reaction" by our Governor is not attributed to Culver "the CEO" but instead, Culver "the candidate" who implemented this budget measure to shore up his political defenses against the expected GOP onslaught during an election year.

A spreadsheet showing the reductions is available for your study here.  Unless you're a bean counter or a policy wonk, you won't find much pleasure in scrubbing out the details from these cuts.  I would however, like to point out two features to use as an example.

1) Public education- The largest program area affected by the across the board cuts is public education. Accounting for over half of the total cuts, schools will face nearly $332 million in reductions.  This was actually shrewd campaign politics by Culver & Co.  Does it fall to the level of deceptive accounting practices?  No, but nevertheless it's a tactical move that stands to shore up Culver's political posture before the long term effects reveal the shortsightedness of this move.  Problem is, by then... Culver would have been re-elected and this move effectively "kicks the can down the road" to another day.  (Does this have a familiar ring to you?) 

Culver has asked school boards across the state to use reserves to back fill the cuts. Once those reserves are depleted, YOU and I stand first in line to absorb the inevitable property tax increases that are certain to follow.  Again, this is why I find Culver's maneuvers to be short-sighted.

2) Food Safety- Did you know that the largest segment in manufacturing here in Iowa is food production?  This is a critical piece of the state's economic engine and yet Culver's across the board cuts impact the Department of Inspections and Appeals (Food safety) in a manner that exposes us to uncertain risks that arise due to staffing shortages that are already rampant in this department. State inspectors have been diverted from primary duties that are ordinarily tasked to county health departments.  Because many counties failed to maintain health inspectors due to cutbacks, the Department of Inspections and Appeals has had no alternate course of action, after all, public safety is a key function of our government.  A world-wide crisis involving Iowa's food manufacturing segment would deal a crushing blow to our economy. 

This is why across the board cuts are purely symptomatic of Culver's failed leadership.  I will deal with the "rest of the story" in part two tomorrow.

Christian Fong's statement on Iowa Budget: "Outrageous pattern of overspending"

Today, Iowa could no longer avoid the inevitable; our government growth has been out-of-control.  The Governor’s attempt to blame the recession, Wall Street or Washington D.C. is political theater, and not accepting responsibility.  None of those outside parties were responsible for our overspending, on pet projects like the $208 million Iowa Film Office scandal. 

Under Governor Culver, Iowa’s state government grew by 20%.  Today’s painful 10% cut would not be necessary if the State had not embarked on an outrageous pattern of overspending in the first place.  Yet today Governor Culver said he would not do anything differently.  Iowans should take that as a signal of what the future would hold if he was re-elected.

Iowa needs intelligent leadership that can learn from mistakes.  Responsible leadership that admits when a past decision did not work.  And hard-working leadership that prevents a problem from growing into a crisis.  Iowa needs a new Governor.

The Culver Conundrum...

Conundrum: 

"A complex or perplexing problem that generally has no clear solution."

Don't believe the spin folks; we all saw this coming!

Flashback: Fall of 2008...I'm attending a house party for then candidate Renee Schulte at the home of Christian and Jenelle Fong here in Cedar Rapids. The guest speaker for this event is State Auditor David Vaudt who articulated his concerns to a packed room about the impending problems with the state budget. In fact, you can read the official report posted on his department web site on May 28th, 2008.

Here's a prescient excerpt for you to read:

Poor Financial Practices Continue

Auditor Vaudt stressed, “The key to responsible budgeting is to bring expenditures in line with revenues.” He noted total spending in the adopted Fiscal Year 2009 budget exceeds total available revenues by over $370 million. Despite almost 10% revenue growth over a two-year period, expenditure growth outpaced revenue growth by 52%.

“If we can’t make ends meet with nearly 5% average annual revenue growth, how will we make it if revenues flatten out or decline, as they do in a recession?”  (Emphasis added)

 David Vaudt is now a front row witness to the validation of his prophetic analysis.

Now let's contrast Vaudt's statement with Culver's own words from his media availability held just yesterday afternoon:

"This isn’t about partisanship.  No one could have predicted that we would see this type of decline, Culver says.  What we really need to do at this time is come together and put the partisan politics aside and do what’s in the best interests of our constituents and they expect that we’ll resolve this budget challenge.”

"This great recession was caused by bad policies in Washington and bad practices on Wall Street."

Again how ironic...the two people in the room at the Schulte fundraiser that night are in my opinion, the dynamic duo that can fix this budget mess.  State Auditor David Vaudt and now candidate for Governor Christian Fong!

On February 2nd of this year, Christian posted an excellent analysis here on HawkeyeReview predicting that the Iowa recession would "lag behind the general economy." You can read that article here and the entire index of Christian's contributions to "HR" are available for your study here.

I won't break your arm, but I highly recommend you evaluate the writings of an Ivy league-trained economist who just also happens to be applying for the job to serve as our next Governor!

How about some additional predictions?  The 24-Hour Dorman had two posts from February and June of this year...here are the excerpts with links to the full articles for your review:

"It’s a critical stretch of Culver’s governorship. The budget could be his biggest vulnerability. And someone needs to tell him that it’s way too late for “everything’s just dandy!” We expect a reality-based response when it comes to our government and our money."

Dear Dr. Compassion, Last year was so great, but this year stinks. Legislative leaders kicked my great can deposit idea, poked fun at my weight-loss challenge and badmouthed my budget. Now people say I shouldn’t have spent $90,000 on a big fun voter party, with cake and stuff, when I was secretary of state. What do they know? I’m the governor. How do I make them shut up and do it my way?
Sincerely, Ticked at Terrace Hill.

Dear Ticked, Sounds like someone needs a long winter’s nap.

***************

It appears Dorman knew about the HAVA problem well before it hit our radar screens!

I suggest the most damning prognostication was from Culver's own lips...

"My Administration has stayed ahead of the changing economic conditions by taking effective steps to ensure a balanced budget and maintain strong fiscal management."

Governor Chet Culver: Friday, March 20th 2009

(I can't wait for our nominee to read this back to Culver at a future debate!)

Now to be fair to Chet Culver, he did have some help from Pat Murphy and Mike Gronstal.  Together the dynamic "trio" forged ahead with a 21% increase in state spending over the last 24 months which accounts for almost $1 billion in new expenditures. Now, couple this with an additional billion plus in borrowing and bonding and we find ourselves with a state government that created a SPENDING PROBLEM long before we encountered a REVENUE PROBLEM.

Governor Culver - There were many professional, competent experts who told you and the Democrat party leadership this problem was looming on the horizon long before it materialized.  Instead of accepting your duty and responsibility to protect the Iowa taxpayer, you framed all this excellent advice as "partisan politics" and you continue to do so to this very day.

This was no accident...this was failure to lead and the blame leads us back to Terrace Hill!

Tomorrow is the defining day...

As you know from your own childhood, every children's story is framed using the same template and contained therein is the necessary conflict or crisis, some kind of drama or threat that unfolds and of course the ending is the requisite: "Happily ever after."

This story might be the "remake" of Cinderella.  Before you think I'm speaking in strange tongues and brought back some virus from another country, let me be specific. 

Today at the stroke of midnight the political game changes in the blink of an eye.

The new budget year begins in Iowa and the hourglass is once again turned over.  As we all know, the state will experience a $1 Billion dollar budget shortfall this next year and when the smoke clears on Wednesday, November 3, 2010 I can assure you the next Republican Governor of the state of Iowa will point back to Wednesday, July 1 2009 as the pivotal moment of that election cycle.

Understand the consternation back in the late 70's under then Governor Bob Ray as our state budget exceeded $1 Billion dollars for the first time.  There were conversations from river to river back then about what had gone wrong for our state government to swallow up over a billion dollars of our hard earned tax dollars and what specific benefits we received from this massive state spending.

Fast forward 30+ years and now the consternation is the billion dollar "hole" left in our state budget and the literal parade of rhetorical garbage that Culver is spewing out right now.  I had already decided on today's theme late yesterday and was thrilled to read 24-Hour Dorman this morning. Todd does a great job of debunking the fairy tale and dispensing with the brutal truth in his work.  This was the most lethal excerpt from Dorman's work today, which I suggest you check out:

"It’s a critical stretch of Culver’s governorship. The budget could be his biggest vulnerability. And someone needs to tell him that it’s way too late for “everything’s just dandy!” We expect a reality-based response when it comes to our government and our money."

Like I said, the game changes at midnight tonight and next time the Revenue Estimating Conference meets on December 15, 2009, I firmly believe the tragic-magic number tops the Billion dollar mark.  Iowan's have been far too patient and though we may not act with lightening speed in response to such events, I can assure the there will be an enormous groundswell and a clarion call to stop this fiscal madness.

Culver's remedies are to spend the remaining reserves which barely cover 40% of the debt and then our state is truly broke, penniless and ultimately, left to the mercy of vicious tax and fee increases like we've never seen in our lifetimes. This is the disaster component of this story. 

Who is the next GOP nominee that stands up to Culver and brings fiscal sanity back to the state?  Stop by tomorrow and I'll share the rest of the story...

The Armchair Economics of Bonding

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.

The bonding debate will certainly swerve to peripheral arguments, to sway those without this foundational understanding. But you, a savvy reader of Hawkeye Review, can cut through the obfuscation. I regularly interpret economic news into "so what?" sound bites through the Armchair Economist’s twitters here.

Update: Budget "Slamma Jamma" It's going to get ugly.

Is this what you voted for?

Since the first week of February, I predicted this would happen.  Now we find ourselves within days of adjourning the legislature and a large share of your state's budget will be inserted into "Standings Bills and "Shell Bills" which effectively, blindfolds the taxpayers and hides the massive bureaucratic waste inherent in our state government. Listed below are "Shell Bills" which you can click to read...don't be afraid, these aren't your typical house bills that run pages long with immense detail and specificity. That's the problem, they are breathtakingly short...and vague.  Spend as much taxpayer money as possible using the least words possible to describe said spending. 

Iowa...we have a problem.

HF 820     HF 822    SF 477     SF478   

Here's an excerpt from House File 820

Sec. 18.  AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009.
15 20 It is the intent of the general assembly to provide for
15 21 expenditure of the funding available through the federal
15 22 American Recovery and Reinvestment Act of 2009 by enactment,
15 23 as necessary, of appropriations of the funding and of state
15 24 funding used to match such funding, for the state fiscal years
15 25 for which the federal funding is available.

Interpretation- Iowa's share of the federal stimulus is nearly $2 billion dollars. Of this, around $750 million is available to "back-fill" budget shortfalls and cover the tracks of overspending Democrats in Iowa's government.  You just read this with your own eyes...7 lines to describe language that allows bureaucrats to spend hundreds of millions without so much of a trace of fiscal accountability.

Behind the scenes, I was told yesterday by a source at the statehouse that Democrats were in limbo over the budget plans as they were in "consultation" with the Governor trying to resolve differences on spending items. I was told these consultations were occurring over the last weekend.  Problem is, Governor Culver was attending the Masters in Augusta, Georgia.  Thanks Governor, you partied in DC while flood victims struggled to wade through a flooded bureaucracy and now you sun yourself on a golf course while our state budget floods with a tide of red ink. Here's some unsolicited advice to Iowa Democrats today....fire Culver's handlers; they're giving us more than we'll be able to use in the next election cycle.  It's so ridiculous it's no longer even humorous.  These are your tax dollars!

Keep an eye out for late night sessions, this is the only remaining piece of the dysfunctional budget puzzle to fall into place.  Hidden away in back rooms and caucus meetings are the secret plans to spend your money without transparency, accountability and yes, I said it...honesty to Iowa's citizens.